Ahead Today
G3: US Empire Manufacturing
Asia: Philippines Remittances
Market Highlights
China’s August data disappointed expectations across the board, with much slower than expected retail sales growth of 2.1%yoy (from 2.7%yoy previously), coupled with slower industrial production and fixed investment growth of 4.5%yoy and 3.4%yoy respectively. It’s unclear how much of this is due to the lingering effects of heatwaves, but the data more broadly including weaker credit, M1 and CPI paints a picture of soft underlying demand. In a somewhat rare statement accompanying the credit data release, China’s central bank said that it will make “maintaining price stability and pushing for the mild rebound in prices an important consideration for monetary policy…”, and they are “preparing to launch some additional measures, further lower the financing costs for businesses and households, and keep liquidity reasonably ample”. We continue to expect more fiscal and credit stimulus measures from Chinese authorities to support the economy, coupled with another 20bps of 7-day reverse repo rate cuts by 1Q2025 (see Asia FX Weekly – Major week of central bank decisions).
Markets are priming up for a busy week of central bank decisions, the most important of which is the Fed on 19 Sep (Asia time). Our MUFG house view led by our US rates strategy team is for the Fed to cut by 50bps, and the recent WSJ article keeping the door open for a 50bps cut suggests the decision is finely balanced heading into the FOMC meeting (see Global FX Weekly).
Regional FX
Asian FX markets traded stronger against the US Dollar over the weekend, with THB (+0.94%), MYR (+0.66%), and KRW (+0.51%) outperforming. In Vietnam, news reports citing the Ministry of Planning and Investment suggest that Typhoon Yagi could shave 0.15pp off 2024’s economic growth, with 3rd quarter growth seeing 0.35pp shaved off, while 4th quarter may see a hit of 0.22pp. The government estimates losses from the Typhoon at 40 trillion dong (US$1.6bn), agriculture lands and farms were among the hardest hit, while power outages remain in some areas. Overall, while we think that VND should be more stable moving forward, the downside risks from Typhoon Yagi argues against a sharp rebound in the currency moving forward. Meanwhile, the Reserve Bank of India’s latest FX reserves data reached a record high of US$689bn in the week of 6 September. On a valuation adjusted basis, we estimate that India’s FX reserves rose US$3.3bn for that week, after accounting for the fact that the Dollar was generally weakening then. Overall, it seems that RBI continues with its activist hand in the market, capping USD/INR whenever it threatens to breach the 84.00 handle, while with the central bank coming in to accumulate FX reserves whenever USD/INR falls closer to 83.80-83.90, as such significantly capping FX volatility.
