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Sentiment sours as markets price in higher-for-longer rates
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Macro outlook
- Global Markets: US stock markets came back from the President’s Day holiday in a foul mood. The S&P 500 dropped 2%, and the NASDAQ fell 2.5%. Rising bond yields won’t have helped sentiment at all. Yields on the 2Y US Treasury rose 10.6bp, to 4.723%, while the 10Y yield rose 13.8bp to 3.953%. The implied rate on Fed funds from futures has risen to a peak of 5.365% for the August contract, suggesting that a peak upper bound of 5.5% is being increasingly priced in. These moves helped the USD and pushed EURUSD down to 1.0652. Other G-10 currencies, AUD and JPY were also weak. Sterling bucked the trend after stronger-than-expected PMI data suggested that a recession might be avoided. Asian currencies were mostly weaker on Tuesday, with the exception of the VND. The THB was the worst performing on the day falling 0.63% against the USD to 34.65.
- G-7 Macro: Tuesday saw the release of masses of PMI data across the G-7 and as mentioned, a stronger-than-expected UK services sector PMI – it rose to 53.3 from 48.7 - was one of the standouts. US service sector PMI data also recovered above the threshold 50 level, and there were improvements in Germany’s ZEW survey too. This is followed by Germany’s Ifo survey today. The US releases mortgage applications data today, though the main focus will be on Fed minutes at 3 am tomorrow morning SGT/HKT
- Australia: The Wage price index is not the binding constraint it once was now that inflation is running at 8.4%YoY. The rise to 3.3% from 3.1% in 4Q22 was a little less than had been expected. Nevertheless, this is not likely to encourage thoughts that the RBA will change its tightening path any time soon.
- Taiwan: Final GDP for 4Q22 should contract 0.9%YoY, slightly worse than the advance estimate of -0.8%YoY, reflecting the impact on the economy of weak demand for electronics, mainly semiconductors. This weakness should continue at least in 1Q23, which implies the chance of a slight recession in Taiwan. There is a hope that China's recovery can lift demand for semiconductors but this is still uncertain as car sales should be quite flat after 2020-2022 subsidies on electric vehicles, and demand for laptops might not be strong compared to the one-off demand surge seen during Covid. The last hope is on smartphones, and for Taiwan, it means the iPhone, which is still unknown given the weak sales of the latest model.
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What to look out for: FOMC minutes
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New Zealand trade balance (22 February)
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Australia wage price index (22 February)
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New Zealand RBNZ policy (22 February)
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Taiwan GDP (22 February)
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Hong Kong GDP (22 February)
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South Korea retail sales (22 February)
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US MBA mortgage application (22 February)
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FOMC minutes (23 February)
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Singapore CPI inflation (23 February)
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Hong Kong CPI inflation (23 February)
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South Korea BoK policy (23 February)
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EZ CPI inflation (23 February)
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US GDP, initial jobless claims, core PCE (23 February)
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Japan CPI inflation (24 February)
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Malaysia CPI inflation (24 February)
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Singapore industrial production (24 February)
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US personal spending, University of Michigan sentiment and new homes sales (24 February)
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Emerging Markets Asia Pacific Asia Markets
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
