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Global Economics & Markets Research Summary (02 August 2018)

Core Content

This document provides an overview of global economic and financial market conditions as of 02 August 2018, focusing on foreign exchange (FX), equities, US Treasuries, commodities, and economic data releases. It also includes market holidays and interest rate forecasts.

Main Market Highlights

FX Market

• The US Dollar (USD) remained firm and strong, with the DXY Index consolidating around 94.50. The FOMC provided no surprises, reinforcing expectations of a 25 bps rate hike in September.
• EUR/USD was capped below 1.17 due to a slight increase in Eurozone manufacturing PMI to 55.1.
• GBP/USD remained near 1.31, awaiting the Bank of England (BoE) rate decision.
• USD/JPY stayed around 111.50 after the Bank of Japan (BoJ) restored market confidence in its QE policy.
• Asian currencies showed mixed performance against the USD:
  • KRW fell 0.2% to 1120.86/USD.
  • SGD and TWD remained flat at 1.3613/USD and 30.616/USD respectively.
  • PHP rose 0.2% to 53.021/USD.
  • THB increased 0.4% to 33.13/USD.
• UOB's estimation for SGD NEER is expected to trade between 1.0% to 1.5% above the midpoint, implying a USD/SGD range of 1.3645 - 1.3578.
• The PBoC is predicted to set the RMB midpoint weaker by 45 pips at 6.8339/USD, down from 6.8293/USD.

Equities

• US and European equities closed lower due to concerns over the potential increase in tariffs on Chinese imports.
• Apple led the overnight tech rebound with a 5% rise in share price, pushing its market cap above USD 970 billion.
• Asian equities showed mixed performance:
  • Nikkei 225, TAIEX, and KOSPI rose.
  • Hang Seng and Shanghai Composite fell.
• Futures indicated small declines for Asian stocks, with Nikkei 225, S&P/ASX 200, and Hang Seng all showing losses.

US Treasuries

• US 2-Year Treasury Yield increased to 2.67%, while the 10-Year Treasury Yield rose to above 3%.
• The 3M US Libor remained just under 2.35%.
• Strong ADP private sector payrolls (219,000 jobs) set a positive tone for the upcoming Non-Farm Payroll report.
• The US Treasury plans to increase its issuance by over 2/3 in the quarter, contributing to higher yields.

Commodities

• Commodities remained largely soft due to negative drivers:
  • Gold and silver fell as the FOMC reinforced expectations of a September rate hike.
  • LME Copper dropped to USD 6,170/MT due to fears of further US-China tariffs.
  • Crude oil fell after an unexpected 3.8 mio bbl increase in US crude oil stock.

Key Economic Data & Reports

• US ADP Payrolls added 219,000 jobs in July, higher than the expected 185,000, and revised June data up to 181,000.
• UK Manufacturing PMI fell to 54.0 in July from 54.3 in June, despite the BoE's expected rate hike.
• Australia's Manufacturing PMI dropped to 52.4 in July, the lowest in nearly 2 years.
• China's official PMI fell to 51.2 in July, while the Caixin PMI slightly improved to 50.8.
• Thailand's Consumer Confidence is expected to be reported on 1 August, with July data at 67.9 previously.
• Thailand's CPI rose to 1.46% in July from 1.38%, while core CPI fell to 0.79% from 0.83%.
• Indonesia's CPI increased slightly to 3.18% y/y, driven by higher food prices and housing costs.
• Singapore's PMI and Thailand's Consumer Confidence are the key data points for the day.

Interest Rates

• USD Fed Funds Rate is at 1.75-2.00%, with the next meeting on 27 September.
• GBP Repo Rate is at 0.50%, with a rate hike expected.
• AUD Official Cash Rate is at 1.50%, with the next meeting on 07 August.
• JPY Official Cash Rate remains at 0-0.10%, with the next meeting on 31 July.
• SGD 3-Mth SIBOR is at 1.63%.
• MYR O/N Policy Rate is at 3.25%, with the next meeting on 05 September.
• IDR 7-Day Repo Rate is at 5.25%, with the next meeting on 16 August.
• THB 1-Day Repo Rate is at 1.50%, with the next meeting on 08 August.
• PHP O/N Reverse Repo is at 3.50%, with the next meeting on 09 August.
• INR Repo Rate is at 6.00%.
• TWD Discount Rate is at 1.375%, with the next meeting on 27 September.
• KRW Base Rate is at 1.50%, with the next meeting on 31 August.
• HKD Base Rate is at 1.00%.
• CNY 1-Yr Working Capital is at 4.35%, with a forecast of 4.60%.

Market Holidays & Events

• Australia has a Bank Holiday on 06 August.
• Singapore celebrates National Day on 09 August.
• Thailand has a Queen’s Birthday on 12 August.
• South Korea observes Liberation Day on 15 August.
• India has Independence Day on 15 August.
• Indonesia celebrates Independence Day on 17 August.
• Philippines observes Ninoy Aquino Day on 21 August.
• Hari Raya Haji is celebrated by Singapore, Malaysia, Indonesia, and India on 22 August.
• Philippines has National Heroes Day on 27 August.
• UK observes Summer Bank Holiday on 27 August.
• Malaysia has National Day on 31 August.
• US observes Labor Day on 03 September.
• MY/ID have Awal Muharram on 11 September.

Key Viewpoints

• The US Dollar remains strong due to the FOMC's expected rate hike and the lack of significant negative impact from the US-China trade conflict.
• Apple's strong 2Q results triggered an overnight rebound in tech stocks, pushing its market cap toward USD 1 trillion.
• Global trade tensions and tariff concerns continue to weigh on equity and commodity markets.
• BoE is expected to hike rates by 25 bps on 02 August, despite weaker growth and inflation data.
• India's RBI raised the policy repo rate to 6.5%, the highest in 2 years, to combat inflation and stabilize the INR.
• Thailand's inflation rose to 1.46% in July, while core inflation eased.
• Asian PMI data showed a trend of weakening, with only Malaysia and Indonesia reporting slight improvements.

Conclusion

The global markets are navigating a complex landscape, with the US Dollar remaining resilient, equities showing mixed performance, and commodities under pressure from trade tensions and rate expectations. The BoE and RBI are expected to take action, and economic data continues to highlight concerns over inflation and growth in emerging markets.