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Macro outlook

• Global Markets: A second consecutive day of gains for US stocks has taken the S&P500 to the 23.6% retracement level of its drop from December. Gains from here could signal a more significant recovery, though equally, this could mark the top in the latest move and set up stocks for a renewed push lower. Equity futures are not sending a strong directional signal. And the US Treasury market is also providing very few pointers. 10Y US Treasury yields are fairly steady at just below 4.25%, while yields on 2Y US Treasuries have dropped back from nearly 4.65% on Friday to just over 4.50% now following weaker US data. Markets have responded positively to news of the new UK Prime Minister, Rishi Sunak. 10Y and 30Y Gilt yields are down about 30bp, while the 2Y Gilt yield is about 24bp lower. Cable has also rallied back to just above 1.13, while EURUSD has climbed back to 0.9888 and the AUD is roughly where it was at this time last Friday at 0.6328,  having taken a brief peek above 64 cents yesterday. The JPY is sharply lower at 148.85 with occasional spikes lower consistent with Bank of Japan intervention starting soon after the yen looked like it would breach 152. Asian FX was mostly soft against the USD on Monday. The Offshore Renminbi led yesterday’s declines in Asia.  
• G-7 Macro: Widespread weakness was evident in the PMI indices published yesterday across the developed markets, though perhaps the sharp decline in the US service sector PMI is a silver lining in this bad news if it means slower Fed hikes and perhaps a lower peak Fed funds rate? This could be one reason that equity markets are finding some support. Today, US house price inflation data for August should show the decline in house prices accelerating and the year-on-year house price inflation data dropping. October’s US Conference Board consumer confidence data may also point to some cracks in the household sector.
• China: After President Xi's power consolidation, it seems that the market is worried that Xi may continue with restrictive policies. We have commented that there should be no big change in policy direction with the new top government team. We also expect the yuan to be weaker.
• Taiwan: The TWD is also likely to be weaker following weak Industrial production data at -4.83%YoY in September. Semiconductor manufacturing growth is set to contract in the coming months with an expected drop in orders for laptops and weaker orders for smart devices.
• South Korea: The composite consumer sentiment index slid to 88.8 in October (vs 91.4 in September) with all sub-components falling except for spending plans. Among the expectation components, household income and the domestic economic situation declined the most. Inflation expectations over the next 12 months increased to 4.3% in October (vs 4.2% in September). It seems like inflation expectations peaked in July (4.7%), but are still anchored above 4%. We think this will justify the Bank of Korea hiking 25bp next month. The possibility of another 50bp hike has lowered on the back of stabilizing inflation expectations and signs of tightening financial market conditions.
• Singapore:  September inflation data is set for release today.  The market consensus points to headline inflation steady at 7.5%YoY while core inflation could accelerate further to 5.3%.  Elevated core inflation should keep the Monetary Authority of Singapore (MAS) on a hawkish bias.  After a string of moves, the MAS will continue to monitor price developments to determine whether additional tightening would be necessary.   

What to look out for: ECB meeting and US GDP

• Singapore CPI inflation (25 October)
• Hong Kong trade (25 October)
• US conference board confidence (25 October)
• Australia CPI inflation (26 October)
• South Korea GDP (27 October)
• China industrial profits (27 October)
• ECB meeting (27 October)
• US durable goods, initial jobless claims and 3Q GDP (27 October)
• Tokyo CPI inflation (28 October)
• Australia PPI inflation (28 October)
• Taiwan GDP (28 October)
• US personal spending, core PCE and Univ of Michigan sentiment (28 October)

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