Asia Morning Bites: Market Sentiment on a Thin Data Day

Asia Morning Bites

Today's PBoC fix could set the scene for market sentiment in Asia on a thin day for Macro data.

Global markets: US stocks struggled again yesterday. The S&P500 opened down, in line with earlier indications from futures The index did make small gains over the session, but still finished 0.32% lower than the previous close. The NASDAQ fell 0.89%. Equity futures look less clear about direction today. Chinese stocks dropped despite signs of a bottom appearing in local export markets. The Hang Seng fell 1.34%, while the CSI 300 fell 1.4%. US Treasury yields pulled back yesterday after recent gains. The 2Y yield fell 6.9bp and the 10Y UST yield dropped by 3.6bp to 4.244%. Despite this, EURUSD fell even further, moving down below 1.07 to 1.0696 currently. The AUD was relatively flat at 0.6375. Cable slid a little further to 1.2470, but the JPY made some small gains, moving down to 147.29. The PHP also strengthened yesterday, but otherwise, it was a weak day for Asian FX. The PBoC again set a low fixing, and again, the market took the CNY higher again, and it is 7.3297 currently. We would expect a repeat of this process again today, though this is a war of attrition that the PBoC seem to be slowly losing, so it is possible that they may toss something new into the mix shortly to wrong-foot CNY bears. The KRW was the weakest currency of the Asia pack yesterday, weakening 0.35% to 1335.35.

G-7 macro: It wasn’t a very exciting day for Macro yesterday, though Eurozone GDP for 2Q23 was revised lower to 0.1% QoQ from 0.3% previously.US jobless claims also dropped, which might encourage more thoughts of a soft landing and higher-for-longer rates. Today, all we get is some final German CPI data for August, some French production numbers for July, and some Canadian employment figures. US wholesale inventories and trade sales data won’t get much of a look.

Japan: Japan revised down 2Q23 GDP to 1.2% QoQ sa from its preliminary result of 1.5%. The downward revisions came from private consumption (-0.6%) and business spending (-1.0%) while the net exports contribution (1.8pp) has not changed. We think annualized 4.8% growth is still quite a solid outcome but weakening domestic demand growth should be a concern. The net export contribution will continue to be the main driver of growth in the current quarter despite the headwinds of China and the developed markets' slowdowns. The current account surplus widened to 2.7 trillion JPY in July (vs 1.5 in June, 2.2 market consensus), extending its surplus for six months.

Meanwhile, labour cash earnings rose 1.3% YoY in July (vs 2.3% in June, 2.4% market consensus) mainly due to soft bonus payment growth (0.6%). The contracted earnings – base payment- rose 1.5% in July and its last three months’ average growth (1.5%) has been steadily higher than that of the first quarter’s 0.8% growth. We expect earnings to increase meaningfully in August with summer vacation bonus payments, but real cash earnings will likely continue to fall due to high inflation. We expect a modest recovery in 3Q23 but domestic demand could worsen a bit further given weaker-than-expected earnings data and it will be worth watching how strong consumption was during the first summer vacation season without COVID-19 restrictions.

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Taiwan: Trade data for August will likely follow the pattern indicated by Mainland China data yesterday, where we saw some moderation in the year-on-year declines and some signs of a slight uptick in the absolute levels of exports. This expectation will be reinforced by signs that the global semiconductor cycle is bottoming out.

Philippines: Philippine trade data will be reported today. We expect exports to post a small gain (3%YoY), likely delivered by a modest rise for the electronics subsector. Imports on the other hand could remain in contraction (-12%YoY) but at a less negative rate given the resurgence in imported energy. Overall we could see the trade deficit remain substantial at roughly $3.9bn, which could keep the peso under pressure in the near term.

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