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Global Economics & Markets Research Summary (02 July 2018)

Core Content

This report provides an overview of global economic and market developments for the week of 2 July 2018, with a focus on trade tensions, central bank policies, FX rates, equities, US Treasuries, commodities, and key economic data releases.

Key Highlights

Trade Tensions

• The U.S. is set to impose $25% tariffs on $34 billion of Chinese goods on 6 July, with China promising retaliatory tariffs of the same amount on U.S. goods.
• China announced a 50bps cut in the RRR for most banks to support debt-to-equity swaps and small business financing. This will take effect on 5 July.
• China introduced new tariff cuts on consumer goods and automobiles, aiming to boost imports and growth. The China International Import Expo will be held in November.
• South Korea's exports contracted by 0.1% y/y in June, down from a 13.2% gain in May, with significant declines in car exports, display panels, and consumer electronics.

Economic Data Releases

• Asia's data calendar features PMI and inflation reports from multiple countries, including South Korea, Taiwan, Malaysia, Thailand, and China.
• China's June Caixin manufacturing PMI fell to 51.5, below the forecast of 51.6, signaling a potential slowdown in the second half of the year.
• China's official manufacturing PMI also showed a 23rd month of expansion, but slowed from May's reading.
• Thailand and Indonesia are expected to release their June CPI data, with Thailand's CPI likely to show moderate inflation.

Central Bank Outlook

• Only the RBA is scheduled to meet in the G-10 group this week, with an expected Cash Rate unchanged at 1.50%.
• Bank Indonesia raised its policy rate by 50bps to 5.25%, with cumulative rate hikes over six weeks reaching 100bps.
• HK markets are closed on 2 July for Special Administrative Region Establishment Day.

FX Market Movements

• The USD fell against most G-10 peers, with the DXY index down 0.9% to 94.47.
• EUR/USD rose 1% to 1.1684, supported by positive EU migration sentiments.
• GBP/USD rebounded 1% to 1.3207, despite Brexit uncertainties.
• USD/SGD recorded its largest 1-day loss since late May, closing at 1.3624.
• Asian currencies rebounded against the dollar, with KRW and INR leading the gains.
• The PBoC is expected to firm the CNY midpoint to 6.6141/USD after 8 consecutive weaker fixings.

Equities Performance

• U.S. stocks closed higher on Friday, but major benchmarks were below their intraday highs due to tariff concerns.
• Dow Jones closed +0.23% at 24,271.41, but is down 1.8% for the year.
• S&P 500 and Nasdaq were up slightly at +0.08% and +0.09% respectively, with the S&P still positive for the year.
• Asian equity indexes closed broadly higher, with SHCOMP rising 2.2% and HSI and STI up 1.6% and 0.3% respectively.

US Treasuries

• Yields on U.S. Treasuries rose broadly on Friday, with the 2-year yield up 1.8bps to 2.528% and the 10-year yield up 2.3bps to 2.860%.
• The 30-year yield rebounded from six-month lows, closing at 2.989%.

Commodities

• WTI crude opened lower on Monday, but rebounded on Friday to $74.15/bbl.
• Gold prices rose 0.3% to $1,252.60/oz, supported by a weaker dollar.
• US core PCE hit 2.0% in May, the first time in 6 years, above consensus estimates of 1.9%.

Market Holidays/Events

• Hong Kong is closed on 2 July for Special Administrative Region Establishment Day.
• U.S. is closed on 4 July for Independence Day.
• Thailand has multiple holidays in July, including 27 July (Asrnha Bucha Day) and 30 July (King's Birthday).

Key Data Releases

• June PMI data is scheduled for 2 July across Asia, with South Korea, Taiwan, Malaysia, Indonesia, and Thailand releasing their manufacturing PMIs.
• Thailand's June CPI and Indonesia's June CPI are expected on 2 July.
• Singapore's SIPMM manufacturing PMI and electronics sector index will be released on 2 July at 9 pm.
• UK GDP for Q1 is expected to be released on 16 July, with a revised growth of +0.2%.

Summary of Key Indicators

Conclusion

The week is marked by increased trade tensions between the U.S. and China, monetary policy adjustments in Asia, and mixed equity and bond market performances. FX markets showed volatility, with the USD weakening against most peers, and Asian currencies rebounding. Key economic data is expected to provide insights into global economic health and market direction in the coming weeks.