Ahead Today
G3: Europe Services PMI, Europe Composite PMI, US Initial Jobless Claim
Asia:
Market Highlights
The Dollar weakened by 0.5% and US yields fell to 4.3% with Chair Powell sticking to his script of waiting and seeing, together with weaker than expected US ISM Services Index. The headline index for the latter came in at 51.4 from 52.6 previously, while the Prices Paid component fell to 53.4 after previously rising for a couple of months. The ISM Services Prices Paid in particular has a decent leading relationship with services inflation in the US, and if this relationship continues to hold, should portend a resumption in services disinflation together with continued rebalancing in the labour market and wages.
It is however in the goods sector where some upside risks to inflation currently exists, both because Brent oil prices have now risen closer to US$90/bbl, and also because of the cumulative effects of the Baltimore port shutdown, Red Sea disruptions coupled with global recovery in manufacturing activity. On that front, Taiwan’s biggest earthquake in 25 years disrupted production in some semiconductor companies, but the impact seems to be manageable based on the latest information.
Meanwhile, Chair Powell continued to signal that policy makers will wait for clearer signs of lower inflation before cutting interest rates, and recent bump in prices did not alter their broader trajectory.
Regional FX
Asian FX markets have traded on the backfoot against the Dollar this week, but should see some relief with the weaker USD overnight. SGD rose by 0.27% against the Dollar while USDCNH declined to 7.249. The People’s Bank of China said that the Chinese economy is still “facing challenges such as insufficient effective demand and relatively weak social expectations”, in a statement following a quarterly meeting of its monetary policy committee. There is not too much in the way of data today, but Asian markets will likely also look ahead to tomorrow’s RBI monetary policy decision and the release of the Philippines’ CPI estimates. We expect RBI to keep rates on hold and maintain a hawkish tone, given uncertainty about the trajectory for food prices moving forward even as core inflation has moderated further.
