Your browser does not support JavaScript! Pls enable JavaScript and try again.

FX

Turn in market sentiment with US jobs data tempering bearish fears; US-China trade talks this week

Posted on

1) Market sentiment turned as US jobs data helped allay bearish fears following weak US manufacturing data last week. Nevertheless, the market is still looking for additional easing by the Federal Reserve in October against the broader backdrop of manufacturing concerns and upcoming US-China trade talks. 2) Yet another Brexit deadline. According to various reports, the EU have reportedly set an October 11 deadline for the UK to fundamentally change its position, or Brexit may not be on the summit agenda. Reports suggests that if no new legal text is submitted by the UK before the end of this week, the focus could then shift to preparing for a no-deal scenario or an Article 50 extension.

 

USD payrolls temper bearish fears; trade balance and week ahead see US-China trade negotiations

  • Following weak ISMs last week, market sentiment was bearish regarding the non-farm payrolls data. Bearish fears were tempered by solid-if-moderate 135k September payrolls growth (just below consensus for 145k and Citi at 155k), together with 45k upward revision to prior months, and a 50-year low 3.5% unemployment rate. Citi analysts now see one likely 25bp cut at the October FOMC, and also expect balance sheet expansion of about $20bn/month with purchases focused on front-end Treasuries to be announced. Fedspeak on Friday also left the door open for potential rate cut in Oct. 
  • Trade balance data was also in focus ahead of upcoming US/China trade talks. There are very few signs in the August data that recent tariff increases are having a substantial effect on trade. Trade balance widened slightly to -$54.9bn in August from -$54bn in July, which was largely in line with Citi expectations. Balance on trade in goods from China tightened to -$28.9bn and trade balance with the EU also tightened slightly to -$15.6bn.
  • US Week Ahead – All eyes will be on US-China trade negotiations in Washington, likely to begin on 10 Oct. Given the current bearish sentiment on trade, any positive headline like the announcement of some working groups to focus on key remaining issues, even if no trade deal is achieved from now, could boost market sentiment. Should core CPI come in strong (Citi expects 0.2% MoM, 2.5% YoY), that may bring some attention back to the firming inflation story. FOMC minutes are likely to be analyzed for discussion on the assessment of policy rates amid downside risks for the US economy. Consumer sentiment is expected to trend down, as a reflection of recent escalating concerns over a domestic activity slowdown.

 

Eurozone Week Ahead

  • EUR: This week in Eurozone, Citi analysts expect a rebound in German factory orders to 1.4% MoM from -2.7% in July, and German industrial production for August to increase by 0.5% MoM.

 

Japan Week Ahead

  • JPY: Private-sector machinery orders excluding ships and power plants (private core orders) likely decreased 4.4% MoM in August after a 6.6% MoM fall in July, leading to a 3.2% decline in July-August from the second quarter average. Given capex plans have only seen modest revision in the September BoJ Tankan survey, impact from US-China trade tensions seems to have been limited so far.

 

AUD: Retail sales disappoint

  • AUD: Retail sales data disappointed coming in at 0.4%MoM vs 0.5% expected in August. This is despite further RBA stimulus recently. Details show gains in the food and department store categories, while smaller ticket purchases in cafes and restaurants continued to soften (-0.3%).
  • AUD: The RBA semi-annual Financial Stability Review was also released, where the RBA warned that “it is important that banks are not overly cautious in the implementation of current lending policies.” According to the report, Australia’s major banks have tightened lending assessments over the past 2 years, something both the government and RBA fear could limit economic rebound.

 

Asia Week Ahead:

  • CNY: Chinese markets to reopen on Tuesday, which sees the release of Caixin China PMI Composite and Services Indices for September. Cti analysts expect FX reserves to remain stable at US$3,107.2bn in September, expecting M2 growth to accelerate to 8.4% YoY in September. New RMB loan is forecast to improve to RMB 1.4tn in September.
  • HKD: The situation in Hong Kong bears monitoring. Emergency powers were evoked for the first time in more than half a century to ban face masks for protesters after months of unrests.
  • SGD: 3Q actual GDP to be released this week. Citi analysts think incoming data point to 3Q GDP rising around 1% QoQ SAAR (Bloomberg consensus: 1.2%).

 

Asia EMFX: RBI delivers 25bp rate cut, per expectations

  • INR: RBI’s policy rate decision was in focus last Friday, being the first policy review since the announcement of fiscal measures – corporate tax cuts. In line with Citi’s expectations, the RBI MPC delivered a 25bp repo rate cut (taking the cumulative rate cut to 135bps in 2019) and provided a strong forward guidance for further rate cut to support growth. The FY20 GDP growth forecast has been brought down to 6.1% (-0.8pp) while the hope of recovery has been kept alive with FY21 growth at 7%. Inflation forecasts have been kept broadly unchanged. In the week ahead, industrial production growth is expected to fall to 1.8%YoY in August (vs. 4.3% in July).

 

This is an extract from the Daily Currency Update, dated October 7, 2019. Please approach a Citigold Relationship Manager if you would like more information.

Related Articles