|
US rate expectations rising, Asian FX weakening ahead of non-farm payrolls
|
|
Macro outlook
- Global Markets: US Treasury yields continued their upward march yesterday, continuing the move started after the Fed meeting on Wednesday. The May 2023 Fed funds contract is implying a rate of 5.14% now, up from 5.10% yesterday and 5.0% a few days earlier. And the end-2023 implied rates aren’t much lower than this, as the "pivot" is priced out. . These implied rate increases are being reflected in 2Y Treasury yields, which rose a further 9.4bp to 4.714% yesterday, and the 10Y yield also rose 4.6bp to 4.147%. Higher rates and yields are taking their toll on the US stock market. The S&P500 and NASDAQ fell 1.06% and 1.73% respectively yesterday. Equity futures are signalling the prospect of further modest declines today ahead of the non-farm payrolls release (and as this is on today's calendar, actually means that anything is possible by the close). These Treasury moves have also fed through to further USD strength. EURUSD is now back down to 0.9749, the AUD is back below 63 cents, and Cable has dropped to 1.1168. The JPY is also a little weaker at 148.30. Asian FX was weaker across the board yesterday and further losses look probable today. The THB and SGD led the region’s declines yesterday.
- G-7 Macro: Yesterday the Bank of England raised Bank Rate by 75bp as widely expected. Though they also signalled that markets were overestimating the extent of further rate hikes. Our UK economist, James Smith, does not expect rates to go above 4% next year. The October US service sector ISM came in weaker than expected, dropping from 56.7 to 54.4. Within the survey, there was a disappointing increase in the prices paid component, which rose to 70.7 from 68.7. But the employment index dropped into contraction territory at 49.1 from 53.0, which may indicate that the US labour market is now beginning to turn as a result of the Fed’s rate increases. The consensus view for today’s US October labour market report is for an increase in employment of 195,000 and for the unemployment rate to nose up from 3.5% to 3.6%. Average hourly earnings are predicted to rise at a 4.7% pace, down from 5.0% in September.
- Taiwan: Central bank governor Yang's comment on Taiwan's future rate hike speed vs the Fed was that "Taiwan and US are different, US has its own (economic) background, so does Taiwan, (we) need to base on the (economic) situation, and no need to follow the same hike magnitude of the Fed". We believe the remarks do not imply that there will not be any more rate hikes for Taiwan but, instead, confirm the smaller hike steps we expect for Taiwan. Our forecast is for a 12.5bp hike for Taiwan in December to 1.75% from the current 1.625%. We expect USDTWD to largely follow the trend of EUR for the rest of 2022.
- Singapore: Retail sales for September are set for release today. We expect retail sales to slow from the previous month but still manage to post a decent expansion. The return of tourists may be providing a boost to retail sales, but elevated prices should continue to cap retail sales growth in the near term
- Philippines: October inflation numbers are out today. The market consensus points to a 7.1%YoY increase in prices but we believe we could see inflation rise well above this. Food inflation will likely drive up the headline number higher after a recent storm caused substantial crop damage. Meanwhile, transport costs will also be a major contributor to price pressures after transport fares were adjusted higher by roughly 9%. The Bangko Sentral ng Pilipinas pre-announced their 17 November policy move yesterday but elevated inflation means the central bank will stay hawkish for the rest of the year.
|
|
What to look out for: US jobs report
-
Japan Jibun PMI (4 November)
-
Philippine trade and inflation (4 November)
-
Thailand CPI inflation (4 November)
-
Singapore retail sales (4 November)
-
US non-farm payrolls (4 November)
|
|
| Read this article on THINK |
Tags
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
