|
Asia market tone to start in a positive frame following the bounce in global markets on Tuesday. Lower Korean inflation sows seeds of possible future Bank of Korea rate hike moderation and the US non-mfg ISM employment index is the main one to watch today after the weak JOLTS survey
|
|
Macro outlook
- Global Markets: Stocks had another positive day yesterday. Both S&P500 and NASDAQ gained by more than 3%. Prices opened the session up, and then held onto those gains in what looked like a much more convincing show of strength than anything at the end of the last quarter. Equity futures are suggesting that this may have gone a bit too far though, and both S&P500 and NASDAQ futures are pointing at a lower open today. Nonetheless, early trading in Asia is likely to be buoyed by these overnight moves. Part of the catalyst for the resurgence in risk sentiment may be the additional decline in bond yields. 2Y US Treasury yields dropped by 2.1bp while the yield on the 10Y UST was almost unchanged at 3.633%. There were further falls in bond yields across Europe yesterday. 10Y Bund yields were down 4.6bp to 1.862%. Currencies behaved as you might expect in this environment, and EURUSD has risen almost back to parity now, and Cable is back to 1.1460. The AUD looks less appealing and is roughly unchanged after the Reserve Bank of Australia disappointed markets with only a 25bp rate hike yesterday. The JPY continues to pull back from 145 and is at 144.10 currently. Asian FX was positive across the board yesterday, with the THB leading the charge (after PM Chan-Ocha resumed his duties following a constitutional court ruling), followed closely by the offshore Renminbi (China is out all week). Further gains look probable today.
- G-7 Macro: Service sector PMI data today is the dominant theme, and included the non-manufacturing ISM index which will also have its employment index closely examined ahead of Friday’s US payrolls release. A sharp fall in JOLTS job openings yesterday could be viewed as a signal that the labour market is indeed cooling, which would suggest the Fed is winning its battle against inflation. Stocks and bonds should like that if so. So bad macro news may be good news for financial assets.
- South Korea: Headline inflation inched down to 5.6% YoY in September (vs 5.7% in August and the market consensus) putting the 6.3% recent peak in July behind it. But the monthly gain rebounded by 0.3% MoM nsa (vs -0.1% in August) due to higher prices for food and other services and was only partially offset by lower oil prices. Thus, the core CPI, excluding agricultural products and oils, accelerated to 4.5% YoY (vs 4.4% in August). We expect headline inflation to rise again in October. Gasoline prices will likely decline further, but city gas and power rates were raised at the beginning of October and fresh food prices will also probably rise ahead of winter. We believe this inflation outlook will lead to another 50bp hike by the Bank of Korea at its October meeting. However, weekly housing market surveys show that housing and Jeonse rental prices have been falling quite sharply. Thus, rental components of CPI (which accounts for about 10% of the CPI basket) will likely begin to drop in the coming months. This should cause inflation to cool off, and in turn, slow down the Bank of Korea’s hiking pace.
- Philippines: September inflation is due for release today. Price pressures continue to build and headline inflation is expected to accelerate to 7% YoY. Inflation is expected to rise further in the coming months after the third round of transport fare hikes was implemented. Meanwhile, crop damage from a recent strong storm will likely ensure food prices stay high. Elevated price pressures should keep the central bank hawkish and we expect Bangko Sentral ng Pilipinas to hike by another 100bp before the end of the year.
- Singapore: Retail sales for August will be reported today. Market participants expect another month of double-digit gains, supported in part by favourable base effects. Furthermore, retail sales may have been boosted by tourist arrivals with arrivals steadily increasing. Gains however will be capped by surging inflation with headline inflation moving past 7%.
|
|
What to look out for: Regional inflation and US ISM non-manufacturing data
-
South Korea CPI inflation (5 October)
-
Japan Jibun PMI services (5 October)
-
Singapore PMI manufacturing (5 October)
-
New Zealand RBNZ meeting (5 October)
-
Philippines CPI inflation (5 October)
-
Thailand CPI inflation (5 October)
-
Singapore retail sales (5 October)
-
US ADP employment, trade balance and ISM services (5 October)
-
Fed’s Bostic speaking event (5 October)
-
Australia trade balance (6 October)
-
Philippines unemployment rate (6 October)
-
Taiwan CPI inflation (6 October)
-
US initial jobless claims (6 October)
-
Fed’s Evans, Cook, Mester speaking events (6 October)
-
South Korea BoP current account (7 October)
-
Regional GIR data (7 October)
-
US non-farm payrolls (7 October)
|
|
| 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
