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Global Macro and Markets

• Global markets: It isn’t too surprising to see US Treasury yields heading higher again after their recent declines, following the higher-than-forecast US CPI inflation figures yesterday (see more below). 2Y yields rose 8.7bp to 5.069%, and 10Y yields moved a whopping 13.9bp to 4.697%. Rate hike expectations have risen, but are still not even halfway to pricing in another rate hike. For December 2023 and January 2024, the implied yield is pricing in about a 39% probability of a hike, but it eases off after that. Fed speakers are out in force today – Bostic, Collins, and Harker all speak. The rise in yields didn’t go down well with stocks. The S&P 500 and NASDAQ both fell by about 0.6%. Chinese stocks had a better day yesterday. The Heng Seng rose 1.93%, while the CSI 300 rose 0.95%. Rising yields have given the USD a boost, and EURUSD is back down to 1.0534 currently, down almost a big figure from yesterday. That has also dragged the AUD lower. It now sits at just 0.6317, and Cable has fallen back to 1.2180. The JPY has risen to just under 150, but doesn’t look to have the conviction to test the upside. In the rest of the Asian FX pack, there wasn’t too much action yesterday with the exception of the THB, and most currencies will likely be responding to the G-10 weakness and re-aligning with them this morning.
• G-7 macro: James Knightley explains the latest US CPI inflation data release in this note. The main points are these: The headline rate rose a larger-than-expected 0.4%MoM, leaving the headline inflation rate at 3.7% YoY. Core CPI came in on track at 0.3% MoM – still too high to be consistent with the Fed’s target inflation rate, but thanks to base effects, the core inflation rate dipped to 4.1% from 4.3%. The so-called super-core measure, services-ex-shelter-ex-energy, rose 0.6% - way too much. Still, there are reasons for optimism that this may be a temporary, and possibly even a Taylor Swift-related phenomenon. She really should be encouraged to stay at home. Weekly jobless claims saw a bit of an increase in continuing claims, though initial claims remained low at 209K. Today, we have the University of Michigan consumer confidence figures together with their associated inflation expectations.
• China: September CPI inflation should post another positive (though only barely) reading of 0.2% YoY today. That would be consistent with a further small increase in month-on-month terms of the price level. Even with a fairly miserable run-rate, annual Chinese inflation should begin to head higher over the coming months and hopefully dispel some of the misleading deflation talk that was floating around recently.
• India: CPI inflation dropped more sharply than either we or the consensus has anticipated. The headline inflation rate has now fallen to just over 5.0%, down from 6.83% in August. We still don’t see the Reserve Bank of India responding with lower rates, not while the USD remains rampant, but it could be one the first central banks regionally to cut rates next year.
• Singapore: 3Q23 GDP beat the market consensus to rise to 0.7%YoY versus consensus for a 0.45% gain. Meanwhile, the MAS kept all policy settings untouched mindful of a potential flare-up for inflation amidst uncertainty over global growth.
• South Korea: The jobless rate rose to 2.6% sa in September (vs 2.4% August, 2.6% market consensus) but we believe the job market condition is still quite tight as the unemployment rate remains below 3% and this probably continues to support the BoK’s hawkish stance. The labour participation rate also rose to 64.4% (vs 64.2% in August), staying above the pre-pandemic level. By industry, manufacturing shed jobs (10k) for the third month in a row, which indicates the weak manufacturing recovery. But surprisingly, construction added quite a lot of jobs (24k) for a second month despite ongoing weakness in the construction industry. We see some slowdown in service jobs – accommodation & food (-28k) and public administration (-14k) while wholesale & retail sales rebounded (21k) after having declined for three months. We think the Chuseok holidays have positively impacted retail sales but not done much for leisure and travel jobs. By hiring status, self-employment declined quite sharply (-59k), suggesting small "mom and pop" shops under pressure. For salary workers, regular employees rebounded (41k) but only partially offset the previous month’s big decline (-90k). We expect the jobless rate to rise gradually over the coming months, especially in service and construction jobs.

What to look out for: China inflation

• South Korea unemployment (13 October)

• China CPI inflation (13 October)

• Singapore GDP and MAS (13 October)

• US University of Michigan sentiment (13 October)

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