Articles
19 June 2022

Asia Morning Bites

US holiday today, but a slew of Fed speakers this week could keep Asian markets choppy

Asia Morning Bites
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Macro outlook

  • Global: It wasn’t much of a bounce on Friday. The S&P500 closed 0.22% higher on the day, leaving it 22.9% down year-to-date. Tech stocks did slightly better, with the NASDAQ finishing up 1.43% on the day. These meagre gains came on very solid volumes, which hints at the difficulty the market has in rising at the moment. Equity futures remain positive at the time of writing, hinting at a better start to the week. Currency markets aren’t acting as if it’s a return to full risk on. EURUSD moved lower on Friday, falling back below 1.05. The high beta AUD fell back below 0.70, and the USDGBP drifted back to just above 1.22. The non-descript risk sentiment provided no support for the JPY, which has surged higher again, not helped by BoJ Governor Kuroda and his monetary policy team’s inaction last Friday. In truth, few people expected any change at that meeting, but there had been a lot of speculation about a band widening for the yield curve control policy and there were scant hints that anything like this was coming any time soon. The lack of any policy move from the BoJ was also framed against the backdrop of the 75bp Fed hike, 50bp SNB hike, and 25bp BoE hike, which clearly didn’t help.

    Asian FX was mostly weaker against the USD on Friday, though the JPY was the clear standout loser. Most of the Asia FX pack was down between 0.3-0.5% on the day. US Treasury markets continue to whipsaw. 2Y UST yields rose 8.5bp on Friday to 3.179%. 10Y yields rose a modest 3bp to 3.226%. Bond futures point to further increases in yields today.

    It’s a holiday in the US today, but this week’s macro calendar is nonetheless stuffed full of Fed speakers, leading up to testimony by Fed Chair, Jerome Powell on 22 June in front of the Senate Banking Committee, and then on 23 June in front of the House Financial Services Panel. The market seems to be alternately calmed by commentary that the Fed will do whatever it takes to get inflation down, and panicking about what that might mean. So this looks as if it will be another week with large swings in both directions. Which direction It ultimately takes is not clear, but "down" seems to have the edge.

  • China: China’s Loan Prime Rate (LPR) decision is released today. Although the MLF was left unchanged by the PBoC, there is still pressure on banks to boost loan growth. One way to achieve this is for banks to lower the LPR. We expect a 5bp cut in the 5Y LPR to boost infrastructure loans and mortgages, while the 1Y LPR should stay the same. If this is the case, it should put some depreciation pressure on the yuan. The consensus is for no change in the 1Y as well as the 5Y LPR, possibly encouraged by the fact that the PBoC has kept quiet on this topic for more than a week now. Still, our view is that boosting loan growth is one of the main agenda items for the government to restart economic growth.

What to look out for:

  • China loan prime rate (20 June)
  • Taiwan export orders (20 June)
  • South Korea trade balance (21 June)
  • Hong Kong CPI inflation (21 June)
  • US existing home sales (21 June)
  • New Zealand trade (22 June)
  • Thailand trade (22 June)
  • US Mortgage application (22 June)
  • South Korea PPI inflation (23 June)
  • Japan Jibun PMI (23 June)
  • Singapore CPI inflation (23 June)
  • Philippines BSP policy rate (23 June)
  • Indonesia BI policy rate (23 June)
  • Taiwan unemployment rate and industrial production (23 June)
  • US initial jobless claims (23 June)
  • Japan CPI inflation (24 June)
  • Malaysia CPI inflation (24 June)
  • Singapore industrial production (24 June)
  • US new home sales and Univ of Michigan sentiment (24 June)
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