Markets Overview
HIGHLIGHTS AHEAD
After the Fed Reserve again kept its policy rates unchanged in theSeptember FOMC (16-17 Sep) decision, the market focus yesterday(24 Sep) was on the Fed Chair Janet Yellen who delivered a lecture atAmherst and the key takeaway was that Yellen said she still expectsto increase interest rates in 2015 and that concerns about weakerglobal growth likely will not affect that plan. Yellen also appearedto be unwell near the end of the speech but was well enough again toresume her planned schedule thereafter. According to Fed spokesperson,Yellen was feeling “dehydrated” near the end of her speech.
Political events will continue to supersede the US economic datadocket for the rest of this week with the focus remaining on China’sPresident Xi Jinping visit to the US where has arrived at thecapital of US and will be having a working dinner with US PresidentObama and key staff members. Later today evening (25 Sep), Obamaand First Lady Michelle Obama will host Xi and his wife Peng Liyuan, atan official state dinner at the White House. President Xi will then travelto NY and make opening remarks and serve as chairman of the firstsession of Global Leaders’ Meeting on Gender Equlity & Women’s Empowerment.
The other highlight of his trip will be President Xi’s debutspeech to the UN when he attends the 70th UN General Assembly on28 September. The key US data focus will be on the 3rd cut for the2Q 2014 GDP data and the September Markit US PMI preliminaryservices PMI. For the rest of the developed economies, we have JapanAugust PPI services, French September consumer confidence, theeuro-zone August money supply M3. Markets will also continue tofollow US Congress proceedings closely as we edge closer to the30 September deadline when the US government funding expireswhich in turn will lead to another partial government shutdown.
According to reports, the US Senate is planning to vote on a “continuingresolution” (CR) that would provide funding for federal operationsthrough 11 Dec 2015 but the vote will likely take place on 28-29 Sep,thereby forcing the House to vote quickly on the bill and send it toPresident Obama’s table before the US government funding expiresnext US Wednesday night.
This morning (25 Sep), Japan’s August headline CPI inflation wasunchanged at 0.2%y/y (beating expectations for a lower reading of0.1%) but core inflation (ex fresh food) declined by -0.1% (from 0%in July), the first price decline since April 2013 while the core-coreAugust CPI inflation (ex food and energy) was higher at 0.8% (from0.6% in July and above the Bloomberg consensus forecast of 0.7%).
Meanwhile, the September Tokyo headline CPI fell into deflation with a-0.1% (from +0.1% in August and in line with market expectations) butthe core-core Sep CPI inflation rose a faster 0.6%y/y (from 0.4% in Augand Bloomberg consensus forecast of 0.5%).
US stocks ended weaker on Thursday (22 Sep) as investors continued tobe worried about global growth after industrials leader Caterpillar announceda major cost-cutting programme (more than 10,000 job cutsand 20 facilities closure through 2018) in response to the downturn inthe energy and mining industries. The US dollar gained after Fed ChairYellen reaffirmed Fed’s timeline to hike sometime in 2015 even as the euro and the yen still ended the day stronger on safe haven demand on a risk-averse tradingday. US Treasury prices also mostly gained across the curve as the market risk aversion sentimentdrove investor to seek safety in US government debt. US and global crude oil prices reboundedslightly on Thursday after the sharp correction on Wednesday although there was no compellingstories suggesting a oil price rebound and this may be termed as a technical correction after sufferingsignificant losses in the previous session.
The key data in Asia today is Singapore’s August industrial production at 1.00 pm. Consensusis expecting IP to contract 5.3% y/y in August, extending the previous month’s decline of 6.1%y/y. Weak data will increase the risk of a technical recession in 3Q15 and considering the soft coreinflation, we are of the view that the MAS may execute a one-off downward shift in the SGD NEERmidpoint by 1%. On the other hand, we do not think that current conditions justify any changesto the SGD NEER slope (estimated by us to be 1% pa), as well as the bandwidth.
The Philippines markets are closed today.