Asia Morning Bites: Inflation Day Today - India and US"

Asia Morning Bites

Inflation day today - India and US.

 

Global Macro and Markets

• Global markets:  There was green across the board yesterday in equity markets, though the gains were not massive. US stocks opened slightly up and were flattish for much of the session before a late spurt driven by household products, and other housing related stocks. For once, semiconductors took a back seat and lost a little ground on the day. Chinese stocks also made gains. The Hang Seng was up just under a per cent and the CSI 300 gained 0.65%. There wasn’t much movement in US Treasuries. 2Y yields rose by just 1.5bp while 10Y yields were 2.4bp lower at 3.97%. EURUSD is still above 1.10, though it hasn’t gone much further from this time yesterday and is currently at 1.1012 after pulling back from 1.1030 on the topside and failing to move lower convincingly through 1.0980. Cable was stronger, rising to 1.2936 on thoughts of a further 50bp hike in August after much stronger than expected wages figures (see below). And the JPY continued to make progress, moving down to just over 140.23. Asian FX made strong gains yesterday, closing the gap with their G-10 counterparts.  The KRW led the charge, gaining almost a full per cent taking it to 1293.70.  The THB and PHP also both made above average gains.
• G-7 macro:  The UK topped the billing for the main macro development on Tuesday, as much stronger than expected wages figures raised the prospects of yet another 50bp increase in rates at the August meeting. Wages in the UK are now running at more than 9% on a 3m annualized basis.  See James Smith’s note for more.   

  The US reported NFIB data, which rose slightly. Germany’s ZEW survey also made a small gain, though remains at very bombed out levels. Today, the US releases June CPI, which will show a solid fall to around 3.1% according to the consensus estimates, though there are some forecasters looking for it to push into the high 2’s.  The current inflation rate is 4.0% YoY. However, it is the core reading that will probably get just as much attention. A fall from 5.3% to 5.0% is forecast, and it would need to come in well below that for a July rate hike to look doubtful. We don’t think that will happen.

• India: At 8pm tonight (SGT/HKT) India releases its CPI inflation report for June. Inflation will likely remain well within the RBI’s 2-6% target range, though will likely rise slightly from May, as some seasonal food prices have ticked up over the last month. The current inflation rate is 4.35%, and the consensus forecast, with which we concur, is for a rise to 4.6% YoY.

• Japan:  Core machinery orders dropped unexpectedly -7.5% MoM in May (vs 5.5% in April, 1.0% market consensus), more than offsetting the previous month’s gain. The three-month sequential trend also declined, and as a result, we are a little concerned that Japan’s investment recovery may lose some steam in the coming quarters. Meanwhile, pipeline prices – producer prices (-0.2%) and import prices (-1.2% )- declined in June mainly due to soft commodity prices, which will likely feed through into an easing of consumer prices in the months ahead.

• South Korea: The jobless rate edged up to 2.6% in June (vs 2.5% in May, 2.6% market consensus). Job market conditions remains quite resilient, and this will support the BoK’s decision to hold rates unchanged tomorrow.  We saw a solid gain in manufacturing jobs (47K) while the service sector shed jobs across almost all industries. Construction jobs also dropped for the third month in a row. Although the manufacturing PMI and other manufacturing business surveys have remained in a contraction zone, we think manufacturing will improve as exports recover gradually in 2H23. However, the slowdown in construction and services will continue as domestic demand softens.

 

What to look out for: US inflation

• South Korea unemployment (12 July)

• Japan PPI inflation (12 July)

• New Zealand RBNZ policy (12 July)

• India CPI inflation (12 July)

• US MBA mortgage application, CPI inflation (12 July)

• South Korea trade and BoK policy (13 July)

• China trade (13 July)

• US PPI inflation (13 July)

• Singapore GDP (14 July)

• Japan industrial production (14 July)

• India trade (14 July)

• US import prices and University of Michigan sentiment (14 July)