%20CUIRS%20Investment%20Research%20Logo%20(1)_PNG.png)
Global Market Team
Global Market team publishes weekly news commentary to share our insights on significant news and how it will impact the markets.
Higher for longer...again
Market Wrap-up | Multi-Assets | Global
April 9th, 2024
-
The latest manufacturing PMI of US exceeded expectations at 50.3, indicating expansion after a period of contraction since November 2022. However, non- manufacturing PMI fell short. Despite strong payroll figures with 303k new jobs and a 3.8% unemployment rate, Fed officials show disagreement on potential rate cuts. Powell remains cautious, while others like Waller and Mester advocate for patience and more evidence of inflation decline before rate adjustments.
-
Eurozone's inflation fell to 2.4%, prompting ECB to consider rate cuts, decision expected April 11. Producer Price Index dropped by 1.0% in February, suggesting future inflation decline. Despite this, Eurozone's Composite PMI rose to 50.3, indicating improved business activity. EUR/USD remains under pressure below 1.0850, influenced by strong US labor market data.
-
In Q1, China's manufacturing PMI reached 50.8%, indicating expansion. The central bank observes economic recovery and suggests further rate cuts in the future. They also emphasized that stabilizing the exchange rate is a top priority, since the sustainability of Q2 recovery remains crucial amid the backdrop of a strong US dollar.
-
BoJ Governor Ueda suggests potential rate adjustments as wage hikes may boost inflation. He anticipates an earlier rate hike in September amidst wage increases, tight labor market, and CPI inflation. Also, he reiterates that exchange rate has been monitored by the authority and excessive yen weakness may prompt intervention.
-
Apart from the major economy, we also cover:
1. United Kingdom | Green shoots blossom anywhere
2. Commodity | gold and cocoa hit record highs, oil breaches $90, copper volatile
3. Korea | Shipments in March indicate a strengthening export outlook
4. Taiwan | Tame inflation expectation with off-cycle 12.5bps hike
APAC FX: Pressure cooker (Part I)
Global Macro Commentary | Multi-Assets | Global
April 6th, 2024
-
Have a briefing on #CUIRS latest global market insight. In this report, our GMT heads Franco Hsu and Sheng Zhang analyze the 14 APAC currencies from both qualitative and quantitative perspectives.
-
Note*: We will publish our analysis on APAC FX in two parts: 1) Part I, published here, focuses on the APAC fundamentals, G10 APAC & North Asia FX; 2) Part II, published in two weeks, will discuss Asian central banks’ FX policies and the prospect of ASEAN FX.
-
Key message:
1. Global demand is under recovery, but divergence appears across regions. Terminal demand are in the recovery phrase, amid at a gradual path. The resilience of the export cycle also remains highly dependent on US demand. Still, headwinds for electronics persist. the outlook for consumer and industrial electronics generally remains subdued.
2. Carry is still the king. It remains the most popular one in the Foreign exchange market given 5 reasons, including 1) Vol-adjust carry; 2) Global liquidity backdrop; 3) Fed reaction function; 4) US Growth revisions, and 5) Positioning. Furthermore, valuations are now less appealing, which suggests that returns will come more from pure carry than price moves.
3. Andipodean FX shall benefit from robust global demand, while JPY weakness shall keep with huge yield disadvantages. Global demand is key for both AUD & NZD to carry, and we prefer long AUDNZD as the Australian economy is more resilient than New Zealand’s. We also raise the 2024YE forecast for USDJPY to 140 to accommodate less expectation on the Fed’s rates cut.
4. PBoC shall keep RMB at what it is, while the bar for higher fixing is not high. Pressure on RMB has formed with unfavourable factors appearing, and market is pushing USDRMB higher as global demand recovery makes less responsibility for China to keep RMB at a stable range. We expect the pair to trade around 7.1 - 7.3 in H1, and end modestly lower at 7 in 2024YE.
5. Fundamentally bullish on KRW & TWD, but local outflows hinge the strength. Stellar performance on foreigners inflows didn’t buffer currency as usual as global investors are keen on conducting macro hedging this year. Local outflows shall continue as US yields stay elevated, while the KOSPI Value-up reform may trigger more pressure on KRW. Similar to RMB, we hold a range-bound view for both Korea & Taiwan FX.
Lots of surprises
Market Wrap-up | Multi-Assets | Global
March 25th, 2024
-
We had a relatively peaceful FOMC meeting in March. The new economic projections foresee sustained above-trend growth and a record-low unemployment rate, leading to a no- landing scenario. Despite concerns over inflation upticks, Powell maintains a cautiously neutral stance, offering relief to the market with the prospect of three cuts this year. The Fed aims to transition to a less restrictive stance, potentially easing in June, but remains data- dependent amidst a tight vote margin.
-
The week in Europe is mixed with certainties and surprises. The SNB surprises markets with a 25bps rate cut to 1.5%, aiming to control inflation and prevent franc appreciation. Norges Bank maintains its 4.50% rate but hints at a potential autumn cut due to strong inflation. The BoE holds rates at 5.25%, signaling a shift from hawkish to neutral, with expectations of three cuts starting in August.
-
China's economy saw robust growth recently, with industrial output, investment, and retail sales data exceeding expectations. Despite challenges in real estate, fiscal policy efforts continued, focusing on infrastructure and efficiency. Government fund revenue growth was tempered by sluggish land income, and expenditures also declined.
-
BoJ implemented expected NIRP changes, while focusing on maintaining JGB market stability and gradually reducing purchases to address soaring public debt. Besides, dovish FOMC sentiment and concerns over JPY weakness persist, prompting market speculation on potential FX intervention by the Japanese government.
-
Apart from the major economy, we also cover:
1. Australia | Tighter labour supply keep RBA on held
2. New Zealand | Continues to contract
3. Commodity | Gold fluctuate, ferrous heat up, and agricultural rise 10% YTD
4. Korea | Shipments in March indicate a strengthening export outlook
5. Taiwan | Tame inflation expectation with off-cycle 12.5bps hike
6. India | Goldilocks mode switch on
7. Indonesia | Policy rate remain unchanged
Keep cautious tactics
Market Wrap-up | Multi-Assets | Global
March 18th, 2024
-
Undesirable sets of US inflation data are making people re-considering the stickiness of the inflation. Following the strong labor data at the beginning of March, the newly released CPI and PPI have both gone beyond people’s expectations. Despite the fact that we have witnessed consecutive weak retail sales data (0.6%M vs 0.8%e), everyone is betting that there will no rate cut in the upcoming FOMC meeting. Besides, we think there is a higher chance for Powell to add a hawkish tilt in his tone due to the worrying inflation data.
-
Stagflation in Eurozone put ECB in dilemma while the GDP of UK rebounds with a weaker labor market. The stagnation is confirmed by a 0.1% contraction in GDP in Q4 and the largest drop (-3.2%) in Industrial Output in 10 months. Market expects that the first cut from ECB will most likely be in June. Meanwhile, mixed economic data adds uncertainty to the decisions of BoE as UK has a rebound in GDP but an edge in employment rate.
-
China CPI is back to positive, but it is still too early to claim success of escaping from deflation. CPI rebounded to 0.7% y/y, largely exceeding expectations; however, we attribute the surprising rebound to strong economic activities caused by LNY and more evidences are needed to be observed in coming months. Besides, export in Jan-Fed also beats people’s expectations as it rises 7.1% y/y.
-
YCC & NIRP exit is locked and loaded. Strong Shunto result make NIRP exit more convinced as the wage hike pressure is supporting BoJ’s inflation targets at 2%. Meanwhile, BoJ is allegedly considering a new approach targeting the amount of JGBs purchased.
-
Apart from the major economy, we also cover:
1. Antipodean | Range-bound through 2024
2. Commodity | Gold holds strong, copper may surge. Ferrous futures hit historic lows
3. Hong Kong | Fireworks bring no spark light
4. Korea | BoK pivot still not in sight
5. Taiwan | CBC send a hawkish reminder with Sui Generis tightening cycle
6. Indonesia | New president’s policy to boost the economy
7. Philippines | The concern for inflation is far from over
8. Thailand | Approach to resolve economic challenges
9. Malaysia | Industrial output to bounce back
Japan: Back to "Normal"
Global Macro Commentary | Multi-Assets | Japan
March 18th, 2024
- Strong Shunto result make NIRP exit more convinced. Wage hike pressures are driving up prices, with core inflation set to climb back to just below 3%. Strong wage growth is supporting the sustainability of 2% inflation. Anemic growth is attributed to supply constraints, but corporate earnings are strong, and firms show eagerness to invest despite labor shortages.
- BoJ is considering a shift away from its YCC framework to a new approach targeting the amount of JGBs purchased. This change would remove guidelines on 10y yields and provide flexibility for the BoJ to normalize its balance sheet in the future through passive QT. The transition out of NIRP may involve raising RRR to incentivize interbank market functioning. However, future rate hikes may be limited due to tons of existing and unknown uncertainties.
- Robust US economy could trigger duration sell-off, supporting USDJPY in the short term. The market doesn't anticipate a hawkish stance from BoJ, but there is room for upside correction. Short JPY positions may unwind, but in the medium term, monetary policy divergence favors greenback. Retail investor outflows and portfolio flows add to the volatility. JPY may appreciate marginally but carry trade remains popular. Our 2024YE forecast for USDJPY is 135.
-
Market pricing of rate hikes by BoJ remains cautious, with 2y OIS trading at merely 0.22%. Disappointment from the BoJ's cautious stance in the past has made the market reluctant to aggressively price in a hike. JGB yields are expected to rise slowly until the BoJ demonstrates a clear path towards monetary policy normalization. We recommend trade ideas included JGB 20s30s flattener and paying JPY IRS 1y1y to mitigate tail risks.
-
We expect Japan’s equity market momentum to persist, fueled by stable earnings, ongoing corporate governance reformation, and favorable macro factors. We overweighted on semiconductor, precision, machinery, and IT services sectors given solid profitability driven by the favorable exchange rate, industry recovery, and strengthening in core businesses.
好雨知时节，当春乃发生：史上最大单次降幅，五年期LPR 下调25基点
Global Macro Commentary | FX & Rates | China
February 21st, 2024
- The PBoC announced a LPR cut today. Specifically, the 1-year LPR remained at 3.45%, while the 5-year LPR was lowered by 25bps to 3.95%. This is the largest interest rate cut since the LPR reform and aims to lower financing costs for individuals and businesses, stimulate the sluggish property market, and boost market confidence.
- LPR cut has boosted the stock market, with A-share index rising by 0.4%, and HK-listed stocks also experiencing some degree of increase. The adjustment of 5y LPR strengthens the policy objective of reducing the burden of household mortgage loans and has a positive impact on credit demand. Meanwhile PBoC will continue to maintain exchange rate stability, but Fed’s monetary policy remains a key factor determining the RMB exchange rate.
- National People's Congress will announce the economic growth target and focus areas in March, which will determine the next steps for China rates. The continuity and consistency of policy direction are essential to support economic growth and the recovery of investor confidence. The central bank may adopt new policies to promote the development of the real economy, addressing issues such as interest rate stratification and directing funds towards the real economy.
Don't get greedy
Market Wrap-up | Multi-Assets | Global
February 13th, 2024
-
The resilient US economy again re-adjusts market expectations. Strong Non-Farm payroll & ISM service PMI prove Powell’s stance that the last mile of disinflation will be more difficult, while the SLOOS suggests that US economy is now heading to soft landing smoothly. However, the US equities market become more volatile as the elevated price makes investors anxious about the outlook. There could be a significant correction if any result undershoots the expectation.
-
Soft Eurozone economy makes the hawk retreat. Both BoE and ECB turn more cautious in their statement about the easing cycle. We acknowledged the stickiness for pressuring inflation from 3% to 2%, but weak economy should allow the ECB to throw the first stone, while the BoE followed by conducting the first cut in summer.
-
China needs more consistent stimulus to regain confidence. Although the PBoC introduced 50bps RRR cuts along with the “national team” to boost the market sentiment, tragic performance suggests that old methods are already not enough to satisfy investors these days. The continuous contraction in CPI & PPI should persist till H2.
-
YCC & NIRP exit are around the corner. BoJ Governor Ueda present a hawkish stance in the Jan MPM press conference by introducing the thought of continuous rates hike, albeit at a very gradual pace. However, monetary policy should remain accommodative even after the NIRP exit. Moreover, there’s room for USDJPY to go lower as monetary divergence between Fed and BoJ appears, we argued.
Apart from the major economy, we also cover:1. Switzerland | SNB’s FX intervention
2. Australia | RBA’s monetary policy & AUD outlook
3. South Korea | Export, Inflation, BoP
4. Taiwan | Export, Inflation, CBC meeting notes, FX & Rates
US FOMC: Rising expectation, stay away from politics
Global Marco Commentary | Multi-Assets | United States
February 1st, 2024
-
Fed Chairman Powell pushback market’s expectation on kicking-off the rates cut cycle in March, as more “real” evidence is needed.
-
The word of “we’re very buckled down and focused on doing our jobs” also suggests that the 2024YE election is not likely to trigger more rates cut in 2024.
-
Front-end-rally in US rates lies heavily with growth weakness in broad base, we also foresee a two-way range dollar in 1H as the greenback will still hold carry advantages.
Weakness everywhere
Market Recap | Real Estate | Mainland China
November 13th, 2023
-
Oil price retreated to around $80/bbl amid weak global demand and intact supply.
-
As the war appears to be contained that eases energy inflation concerns, investors’ focus is back to economic momentum.
-
DM central banks re-hawked, while EM Asia becomes more cautious for growth.
Be careful of what you wish for
Market Recap | Multi-Assets | Global
November 6th, 2023
-
Dovish Fed and weaker NFP trigger bullish USD position to largely unwind, we now call for peaked USD; while external risk remains
-
Undershooting NBS PMI suggests that China’s growth momentum is fragile; PBoC will stay accommodative in near-term, and we foreseemorepolicy rates and RRR cut.
-
BoJ changed the 1% from defending band to “reference rate”. We believe the next step should be the exit of YCC and NIRP, which could occur on Jan ‘24 at the earliest.
中国房地产： “城中村改造”的前世与今生
Market Recap | Real Estate | Mainland China
October 29th, 2023
-
继棚改、旧改之后，城中村改造频繁被中央以及地方官员提及，若全 国一二线城市集体落实城中村改造计划，对于中国目前表现较弱的房 地产及周边产业均有一定的提振作用
-
相较于棚改、旧改，本次城中村改造的细化流程、募集资金手段、安 置方式等诸多层面皆有所不同，这也很大几率会影响到城中村改造对 于经济的提振效果
-
目前来看，因为中央政策细节仍未公布，且各地地方政府针对此政策 或许仍有自主决定的空间，故建议持续观望各地政府的政策细节以估 算相应的经济效益
Ahead of central bank week
Market Recap | Multi-Assets | Global
October 29th, 2023
-
US stocks slump as weak earnings reports and escalating Middle East tensions trigger market risk-offsentiment. Fed is likely to pause given the tightening financial condition.
-
Ultra-weak yen puts pressure on BOJ's monetary policy, prompting bond purchasing operation to control JGB yield. We are of the view that BoJ will lift the YCC band by 50bpsto be “pre-emptive”.
-
CSI300 fall to lowest levelsince 2019, while government continue to introduce countercyclical measuresto stabilize confidence and counter decline.
Turbulent world with another tension
Market Recap | Multi-Assets | Global
October 15th, 2023
-
Israel-Hamas War broke out on October 7-8 th , which added another uncertainty to the world that is already geopolitically tense and economically vulnerable.
-
Economic data this week generally pointed to upside risk to inflation and downside risk to growth due to resurgence in oil price even before the war and effects of rate hikes.
-
DM central banks except BoJ continue evaluating risks from the effect caused by their tightening cycles. Dollar strength and idiosyncratic inflation risks led to different policy stances among EM policymakers.
China: Exploring the valley
Market Recap | FX & Rates | Mainland China
September 29th, 2023
China’s economy seems to hit the bottom already with several stimuli supported, including a recent RRR cut, relaxation of housing purchase rules, lower mortgage rates for existing loans, and so on. In our view, however, China rates could be slightly steepened with more policies introduced, which provide a more solid base for better growth and inflation anticipation.
U.S. JOB DATA REVEALED A COOLING LABOR MARKET – A CONUNDRUM BETWEEN ECONOMIC DOWNTURNS AND STICKY SERVICE INFLATION
News Commentary | Week of 3 - 7 th Apr
On 5th April, weekly jobless claims in the U.S. fell by 18,000 to 228,000. However, continuing claims increased by 6,000 to 1.823 million. On 7th April, the U.S. March non-farm payrolls were reported at 236,000, slightly below the expected 239,000. The unemployment rate fell to 3.5%, 0.1% lower than expected. The weak labor market data has led market participants to question whether the Fed's current restrictive policy brings the economy closer to a recession. However, from the Biden administration’s perspective, the slight decline in employment signals the success of their anti-inflation efforts and the possibility of a soft landing.
FED HIKES RATES 25 BP, AND THE MARKET IS ESTIMATING THAT ONE MORE RATE HIKE IS ON THE HORIZON
News Commentary | Week of 20 - 24th Mar
On March 22, The Federal Reserve raised interest rates by 0.25%, putting the benchmark overnight interest rate in the range of 4.75%-5.00%. This decision is believed to have factored in the recent turmoil conditions in the financial market, with the Fed also indicating that it was likely to pause further increases in borrowing costs in its latest policy statement. Benchmark 10-year note yields fell to 3.5223% after the decision, and the 2-year note yield fell to 4.033%.
TIGHT JOB MARKET RAISES THE COST OF CURBING INFLATION
News Commentary | Week of 28th Nov - 2nd Dec
As high-profile layoffs surge among U.S. tech giants and banks, the labor market – while cooling, is not yet in line with the Fed’s 2% inflation target when job openings and wage growth remain robust. October job openings declined from 10.7 million to 10.3 million, still above the level from August 2021. Wage increased 7.7% YoY in November 2022, down merely 10 bps from October 2022.
SMOOTHER MONETARY TIGHTENING POLICIES ARE EXPECTED AMID THE DARKENING OUTLOOK
News Commentary | Week of 11 - 17th Nov
After central banks' last meetings and a cooling in U.S. inflation in October, markets are priced in a 50 bps rise in December’s FOMC, and milder rate hikes are expected to continue into 2023. Jennifer McKeown, the chief global economist at Capital Economics, stated that with the signals of weakening economies, easing domestic price pressures, and equilibrium interest rate levels, the central banks are expected to slow down the pace of tightening.
U.S. INFLATION IN OCTOBER IS MILDER THAN EXPECTED, SHOWING COOLING SIGNS OF AN OVERHEATING ECONOMY
News Commentary | Week of 4 - 10th Nov
The U.S. CPI rose by 7.7% YoY in October, the first print below 8% since February 2022. The core CPI also decelerated to 6.3% YoY from 6.6% YoY in September. The decelerating inflation figures eased pressure from the Fed’s price stability mandate. Global stocks rallied as the market hoped for a milder rate hike cycle and a closer approach to its pivot.
CHINA ONSHORE AND OFFSHORE STOCKS RECORDED JAW-DROPPING LOSSES AFTER COMMUNIST PARTY CONGRESS
News Commentary | Week of 31 Oct – 4 Nov
The 20th National Congress of the Chinese Communist Party ended on 22nd October. Investors are worried at President Xi Jinping’s power grab and his recommitment to Zero COVID strategy, yet the magnitude of the sell-off was still surprising. Hang Seng China Enterprises Index slumped almost 9%, the most for any post-Congress five-day period since 1994. The index dropped below 5000 on 31st October, the lowest level last seen in the GFC.
UK INFLATION MOVES BACK UP TO 40-YEAR HIGH OF 10.1%
News Commentary | Week of 17 - 21st Oct
The highest food price increases in decades drove September U.K.'s CPI back to 10.1% YoY, exceeding economists' expectations and reaching a 40-year high inflation rate. Despite transport inflation falling significantly from July’s high, core inflation rose from 6.3% to 6.5% MoM, signaling long-term inflationary pressures remains. The BoE will have to weigh the price pressures against the government's U-turns on unfunded tax cuts and energy prices cap.
US IMPOSE RESTRICTION ON CHINA’S ACCESS OF US SEMICONDUCTOR TECHNOLOGY
News Commentary | Week of 14 - 20th Oct
US introduced sweeping rules to restrict China’s access to US semiconductor technology. US companies must apply for a license if they want to supply equipment support high-end chip production to Chinese companies. Foreign companies will also need a license to source equipment for producing advanced chips that sell to China. Temporary licenses would be granted for companies to manufacture in China.