Macro outlook
- Global markets: US stock markets continued their decline on Friday, taking the S&P below its June lows, and opening up a lot of space on the downside. 1.51% declines on the day from both S&P500 and NASDAQ leave them down 24.77% and 32.4% year-to-date respectively. Equity futures are providing no clear direction today, with those for the S&P500 indicating very small gains and those for the NASDAQ indicating very small losses. US Treasury yields are still rising, 2Y yields rose 8.6bp to 4.279%, while 10Y Treasury yields rose a more modest 4.3bp taking them to 3.829%. The noises from the Fed were a bit more mixed on Friday, with both Lael Brainard and Mary Daly noting that there were risks from tightening too much, though the story from others, Loretta Mester, and Thomas Barkin, remained pretty aggressive even as Barkin noted that inflation would probably come down in the next couple of months. In contrast, European bond yields, including UK Gilts fell, with Italian 10Y bond yields down 14bp. EURUSD didn’t have too bad a day considering the equity and bond backdrop. At 0.9798, it is roughly where it was this time Friday, though has been quite turbulent in the meantime. A steady EUR didn’t help the AUD much, which has fallen back to 0.6423. Sterling, on the other hand, has found some support from somewhere, and Cable is riding at about 1.1137, a far cry from last week’s 1.035 low, while the JPY looks under pressure again and may be looking at another assault on 145 today. Asian currencies have had a mixed session ahead of long holidays in China and elsewhere. The Offshore Renminbi crept back up to 7.14 on Friday after getting as low as 7.0729 intraday, and is now just below the 7.14 level. Otherwise, Asian FX was mostly bid last Friday, with the THB, INR, PHP and KRW all gaining more than 0.5%. on the day. The outlook for Asian FX today is far less obvious, and given the holidays, trading is likely to be thin.
- G-7 Macro: The key data released last Friday was Europe’s CPI inflation print, which hit 10%YoY in September, (9.5% for the harmonized index), with core inflation also rising. US PCE inflation data also came out higher than had been expected. The headline PCE inflation rate for August declined to 6.2% from 6.4% (6.0% had been expected) and core PCE inflation rose to 4.9% against expectations for a steady 4.7% reading. All of this shows that the ECB and Fed still have a lot of work to do to get inflation under control. Today, and reminding us that this is a payrolls week in the US, we start off with the Manufacturing ISM index. The prices paid and employment indices will be scrutinized for any signs that the economy is cooling. The consensus expectation is for modest declines in the headline and these other sub-indices.
- Japan: The 3Q22 Tankan survey was a little weaker than had been forecast. The headline index for large manufacturing firms came down one point to 8 (a rise to 10 had been expected), but there was better news for large non-manufacturing firms, where the index rose to 14 from 13 (no change forecast). The picture for small firms mirrored that for their larger peers, with a softer outcome for manufacturing firms than expected and a slightly better outcome for non-manufacturing firms. Capital spending intentions were one bright spot in the data.
- Indonesia: September inflation is reported today. We expect inflation to move past 6% YoY after subsidized fuel prices were adjusted higher. Core inflation is likewise expected to accelerate to 3.5% YoY, driven by rising food costs. Rising inflation will likely convince Bank Indonesia (BI) to stay hawkish with more rate hikes likely at the 20 October meeting.
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