Ahead Today
G3: NY Fed 1y inflation expectation, speech by ECB’s Holzmann
Asia: Malaysia industrial production and foreign reserves, Indonesia consumer confidence
Market Highlights
The US jobs report for May was a mixed bag, Nonfarm payrolls jumped to 272k from 175k in April, beating Bloomberg consensus of 180k. And average hourly earnings climbed to 0.4%mom (4.1%yoy), from 0.2%mom (3.9%yoy) in April. Yet, the unemployment rate rose to 4.0% from 3.9%, partly contributed by a 0.2ppt decline in the labour force participation rate to 62.5%. However, markets seem to have focused on the stronger-than-expected job gains and average hourly earnings data. The US dollar strengthened by 0.75% last Friday, while US 10y yield rose almost 15bps to 4.43%. USDJPY moved in tandem with DXY. The Fed is likely to stand pat in the upcoming FOMC meeting this week following the strong job gains, while the Fed’s median dot plot in June might show lesser rate cuts this year from the 3 cuts in the March dot plot.
Meanwhile, Japan’s final Q1 GDP was -0.5%qoq sa, while the GDP deflator rose 3.4%yoy in Q1, staying elevated relative to its history. The current account posted surplus of JPY2050.5bn in April, down from JPY3398.8bn in March.
Regional FX
A backdrop of mixed US macro data last Friday, coupled with a pickup in global and regional risk sentiment, have led to several Asian currencies putting in a decent performance towards the end of last week. Notably, the KRW (-0.5%) led gains in Asia ex-Japan currencies, despite broad US dollar strength. The IDR also gained, amid a rise in foreign reserves to USS$139bn for the first time this year. USDSGD (+0.5%) moved in tandem with DXY. Meanwhile, Malaysia will remove diesel subsidies, which will help save the government MYR4bn, or about 28% of diesel subsidies incurred in 2023. The government has pledged to follow up with another removal of RON 95 fuel subsidies. This will bode well for improving Malaysia’s fiscal position, but inflation could start to pick up in the coming months, leading to a prolonged BNM rate hold.
This week, Asia markets will take their cue from the FOMC and BOJ meetings, as well as the US CPI data, which will be released just hours before the Fed’s policy rate decision. Asia FX could face volatility amid the rise in US yields, while voters in Germany have dealt a blow to its leader Olaf Scholz and his Social Democratic Party.
