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Global Economics & Markets Research Summary (06 July 2018)

Core Content Overview

This document provides an in-depth analysis of global economic and financial market conditions as of 6 July 2018, focusing on key events, currency movements, equity performance, and economic data releases. It highlights the ongoing trade tensions between the U.S. and China, central bank outlooks, and the impact of these factors on various markets.

Key Highlights

• U.S.-China Trade Tensions:
  The U.S. is set to impose the first wave of 25% tariffs on $34 billion of Chinese goods, effective today. China has announced retaliatory tariffs of the same amount on U.S. goods.

  • The U.S. non-farm payrolls data for June is expected to be released, with consensus estimates at 195,000 jobs added and an unemployment rate of 3.8%.
  • Asian countries including Malaysia, Thailand, Hong Kong, Indonesia, and the Philippines will release their foreign reserves data for June.

• Central Bank Outlook:

  • The FOMC minutes from the June meeting indicate that all policymakers support a 25bp rate hike, though one expressed concerns about delaying hikes to influence inflation expectations.
  • The minutes also emphasize the intensification of trade policy risks.
  • European Central Bank's Daniele Nouy and EU's Valdis Dombrovskis are set to speak at an Austrian central bank conference.

Foreign Exchange (FX) Summary

• USD:

  • The USD index closed at 94.395, down from 94.531.
  • EUR/USD rose to a high of 1.1720 before closing at 1.1691.
  • GBP/USD experienced a round-trip movement, closing slightly lower at 1.3222 due to concerns over the UK's customs plan post-Brexit.
  • USD/JPY rebounded to close at 110.64, up 0.1%.
  • SGD:
    • The SGD NEER was stable at 0.34% above the midpoint, with a predicted range of 1.3630–1.3698.
    • USD/SGD closed at 1.3649, down 0.07%.

• Asian Currencies:

  • Asian currencies mostly declined against the dollar.
  • KRW fell 0.3% to 1,118.44/USD.
  • CNH gave up gains to close at 6.6568/USD.
  • CNY central parity was set at 6.6180/USD, down from the previous day's sharp increase.
  • Guo Shuqing, chairman of the China Banking and Insurance Regulatory Commission, emphasized the stability of China's financial system and the RMB's strength due to solid economic fundamentals.

Equities Performance

• U.S. Stocks:

  • U.S. stocks rallied after the Independence Day holiday, led by a strong rebound in technology shares.
  • The Nasdaq Composite closed up 1.1% at 7,586.43.
  • The S&P 500 rose 0.9% to 2,736.61, with info-tech and consumer staples leading the gains.
  • The Dow Jones advanced 181.92 points to 24,356.74.

• Asia Stocks:

  • Asian stocks weakened due to cautious trading ahead of the U.S. and China tariff implementation.
  • SHCOMP and Nikkei 225 closed down 0.9% and 0.8% respectively.
  • HSI fell 0.2%, while STI managed to rise 0.4%.
  • Singapore's property cooling measures weighed on local sentiment.

U.S. Treasuries

• U.S. Treasuries ended mixed on Thursday.
• Short-end yields rose, while mid- to long-end yields remained flat or lower.
• The 2-year yield increased by 2.6bp to 2.550%.
• The 10-year yield remained steady at 2.829%.
• The 2s10s yield curve flattened by 2.8bp to 27.8bp, the lowest since 2007.

Commodities

• WTI Crude Oil:
  • Dropped 1.6% to $72.94/barrel due to unexpected rise in U.S. crude inventories and Saudi Aramco's pricing adjustments.
• Spot Gold:
  • Rebounded for a third day, closing at $1,257.91/oz.

Economic News & Data

• U.S. ADP Employment:

  • June ADP employment came in at +177,000, below the estimate of +190,000.
  • May's reading was revised up to +189,000.

• Singapore:

  • MAS, MND, and MOF issued a joint statement to raise the ABSD and tighten LTV limits on residential property purchases, effective 6 July 2018.
  • The statement warned against the risks of a destabilizing correction in property prices.

• Malaysia:

  • Export growth eased to 3.4% y/y in May, below expectations of 6.4%.
  • The government is investigating the use of a Chinese state-owned bank loan in transactions that benefited 1MDB.
  • The trade surplus narrowed to MYR 8.12bn in May, but cumulative surplus rose 65% y/y to MYR 54.5bn.
  • UOB lowered its full-year export growth forecast to 6.5% from 9.0%.

• Philippines:

  • CPI rose to 5.2% y/y in June, above the consensus estimate of 4.8%, increasing the likelihood of a rate hike.

Key Market Events

• Economic Indicators:

  • A variety of economic indicators were released across the U.S. and Asia, including PMIs, trade balances, and employment data.
  • The data showed mixed results, with some countries experiencing growth and others facing challenges.

• Market Holidays/Events:

  • Several countries have scheduled holidays or events in the coming weeks, which may impact market activity.
  • Notable dates include Independence Day in the U.S. (on 4 July), and Hari Raya Haji in Singapore, Malaysia, Indonesia, and India (on 22 August).

Disclaimer

• This document is for informational purposes only and should not be used for making investment decisions.
• It does not constitute investment advice, and the views expressed are those of the author and not necessarily reflective of the UOB Group's trading positions.
• UOB Group makes no warranties or guarantees regarding the accuracy or completeness of the information provided.