Upcoming US Jobs Data and CPI to be Closely Scrutinised Amid FOMC’s Self Imposed Blackout Period

14 September 2016

Rates & FX Market Update

Upcoming US Jobs Data and CPI to be Closely Scrutinised Amid FOMC’s Self Imposed Blackout Period

Highlights

¨   Global Markets: In spite of the quiet economic calendar in US, yields on USTs climbed 3-7bps higher across the curve amid a lackluster 30y auction, tracking the steeper curves seen for EGBs and JGBs as investors turn increasingly cautious towards global long-end bonds. With no Fedspeak scheduled during the self-imposed blackout period, upcoming jobs data and CPI remains particularly vital in influencing expectations for December FOMC decision; maintain neutral stance on USD, with FOMC unlikely to tighten policies in September. Meanwhile, GBPUSD treaded lower to 1.319 overnight (-1.10%), weighed by weaker risk sentiment in global markets and the subdued CPI print (Aug: 0.6%; Consensus: 0.7%; Jul: 0.6%). Nonetheless, expect the focus of UK policy makers to remain fixated on growth post Brexit, where we opine for further weakness in GBP to persist over the medium term; maintain mildly bearish GBP.

¨   AxJ Markets: Chinese data released yesterday continued to dull the prospects of a 25bps PBoC rate cut this year, with IP and retail sales recording strong expansions beyond consensus estimates at 6.3% and 10.6% respectively (Jul: 6.0%; 10.2%). The recent spate of strong data underscored optimism towards China fulfilling its 6.5% medium term GDP target while pushing through its structural reforms; eye USDCNY as it continue to edge closer to the 6.70 resistance. Over in Hong Kong, the lackluster IP print remained overshadowed by developments on the market front, where the tenacious rise in CNH short term rates prompted HKMA to inject liquidity into the market yesterday; expect yields on short CNH CGB tenors to retrace modestly as HKMA remains watchful of short term CNH rates.

¨   AUDUSD emerged as the worst performer overnight, declining to 0.746 (-1.35%) despite promising Chinese data. The weak performance on AUD was attributed to receding risk appetite, exacerbated by IEA’s gloomy projections for crude oil glut to persist through 2017.  Maintain neutral stance on AUD, with RBA’s easing stance unlikely to drive protracted currency weakness over the near term.