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US inflation report provides support for "pivotists" - Asian FX to bounce today in line with G-10 peers.
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Macro outlook
- Global Markets: Faster-than-expected falls in November inflation in the US have given risk assets a nice lift, dragged bond yields back down and weakened the dollar. The S&P500 rose 0.73%, a modest rise all things considered, and maybe investors are being a little cautious ahead of the FOMC today. Chair Powell may well try to curb market enthusiasm with some more “…lots of work to do…” type commentary. The NASDAQ rose 1.01%. Chinese stocks made small losses yesterday as the practical consequences of the new re-opening policy are digested. The Hang Seng rose 0.68%. US Treasury yields fell sharply. Yields on the 2Y bond fell 15.7bp to 4.218%, while those on the 10Y bond fell 11bp to 3.501%. This undermined the USD, and EURUSD rose to 1.0627. The AUD has surged to 0.6845. Cable too has risen sharply to 1.2358 and the JPY is down at just over 135.50. Asian FX had a mixed day yesterday but should rally strongly today in line with their G-10 peers.
- G-7 Macro: Here is James Knightley’s note on the US inflation report and what it means for the FOMC tonight (and further down the track). In a nutshell, rates still need to get to 5%, but it is much harder to see them rising above 5.0%. And the case for rate cuts in 2H23 is building. This will probably not be the message the Fed will want to portray, so there will remain a tension between the actual macro data and the Fed rhetoric which should keep volatility alive. But to be 100% clear, this is NOT a “higher for longer” call, but rather a “higher, then lower” call which will be at odds with the message from the Fed. In terms of the actual numbers, the headline inflation rate in the US fell from 7.7% to 7.1% in November and core inflation fell from 6.3% to 6.0%. With big base year comparisons over the next four months, it would be quite realistic to assume that March inflation released in April next year will be much closer to 5% (maybe even below) than 7%, delivering a neutral or possibly positive real (rate minus actual inflation) policy rate. Today (3 am tomorrow SGT time) is all about the FOMC and an almost certain 50bp of hikes and then the Fed’s decreasingly credible message. We are looming towards ECB and BoE rate hikes of 50bp each tomorrow.
- South Korea: The unemployment rate rose slightly in November to 2.9% (vs 2.8% in October), matching market expectations. The labour participation rate edged down to 63.9% (vs 64% in October). By industry, manufacturing has now shed jobs for three months in a row, and the pace even picked up in November (-51K Nov, -21K Oct, -16K Sep). Among services, accommodation/restaurants continued to add jobs (24K) in November since the lift of major mobility restrictions in April. But other major service sectors, such as whole/retail sales (-19K), transportation (-18K), and financial services (-8K) lost jobs. By status of workers, the number of self-employed increased (37K), mainly for single-person self-employed without any employees.
Labour conditions remained generally good, but details show that the reopening effect is fading and that manufacturing and construction weakness is growing. We believe today’s labour report will not have a meaningful impact on BoK’s rate decision, but at least it flags that slowing growth is beginning to have a negative impact on employment.
- Japan: Today’s data were slightly mixed. Core machine orders beat the market expectation, but business surveys were weaker than expected. Core machine orders rebounded 5.4%MoM sa in October (vs -4.6% in Sept) for the first time in three months. Manufacturing orders continued to decline but non-manufacturing orders rebounded. The Tankan survey showed that large companies foresee the business outlook becoming gloomier. The manufacturing outlook index declined from 9 to 6 (in line with the market consensus) while the non-manufacturing outlook remained unchanged at 11 (vs 15 market consensus)
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What to look out for: Fed policy decision
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South Korea unemployment rate (14 December)
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Japan Tankan survey and industrial production (14 December)
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US MBA mortgage applications and import price index (14 December)
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FOMC policy meeting (15 December)
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New Zealand GDP (15 December)
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Japan trade balance (15 December)
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Australia labor report (15 December)
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China industrial production and retail sales (15 December)
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Indonesia trade balance (15 December)
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Philippines BSP policy meeting (15 December)
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Taiwan CBC policy meeting (15 December)
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ECB policy meeting (15 December)
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US retail sales and initial jobless claims (15 December)
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Singapore NODX (16 December)
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Japan Jibun PMI (16 December)
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Eurozone CPI inflation (16 December)
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Emerging Markets Asia Pacific Asia Markets Asia Economics
Disclaimer
This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
