Saxo Spotlight: US CPI, ECB decision, China Loans, tech earnings, and iPhone launch – Sep 11 - 15 Saxo Spotlight: US CPI, ECB decision, China Loans, tech earnings, and iPhone launch – Sep 11 - 15 Saxo Spotlight: US CPI, ECB decision, China Loans, tech earnings, and iPhone launch – Sep 11 - 15

Saxo Spotlight: US CPI, ECB decision, China Loans, tech earnings, and iPhone launch – Sep 11 - 15

Macro 8 minutes to read
APAC Research

Summary:  The Dollar's strength continues to dominate markets, driven by the outperformance of the US economy, though US inflation data this week may influence its trajectory. In Europe, the ECB faces a challenging decision amidst stagflation concerns, impacting the Euro. Meanwhile, China sees a surge in loans and positive activity data forecasts. Apple's iPhone 15 launch is clouded by unconfirmed China restrictions. Lastly, Oracle and Adobe step into the earnings spotlight this week, with skepticism about their growth prospects.

Will the King Dollar be disrupted by US inflation?

The sustained strength of the US dollar has taken the markets by storm. The gains last week were driven less by yields and more by the relative outperformance of the US economy. The US ISM numbers pointed to further strength, while the jobless claims also eroded some of the concerns of the cracks in the labor market, despite these being driven by temporary effects. But the data remains indicative of the fact that even if the Fed were to pause in September, they would potentially not close the doors to further tightening. This rhetoric was also echoed by Fed members last week. The idea of pushing the Fed easing cycle further, compared to stark weakness in Europe and China’s stimulus efforts continuing to fall short, brings more room for the dollar upside despite the DXY index bumping into some really critical technical levels.

The August inflation data due out of the US this Wednesday (due at 2030 SGT) is expected to continue to reflect this broad theme. Headline inflation is expected to come in higher at 3.6% YoY in August from 3.2% previously and 0.5% MoM from 0.2% previously. However, this is likely to be driven by base effects and gasoline prices, and markets may focus on the core print instead which is expected to cool to 4.3% YoY from 4.7% in July. Shelter inflation, which remains a key area of focus, should also trend lower as house price inflation cools. Further out, any lagged impacts of tightening on the US economy, together with weakness in the US consumer coming from savings running out or weakening job market, could continue to put downward pressure on inflation.

ECB’s decision will be a close call this week

Thursday’s ECB decision could be critical for the path of EUR. Saxo’s Macro/FX Watch last week included a short comment on whether markets may be under-pricing the risk of a rate hike from the ECB. Governing Council member Klasse Knots comments last week about markets potentially underestimating the chances of a rate hike at the September meeting prompted some repricing in ECB expectations to 34% from 25% previously. But still, expectations appear to be low given core inflation is still above 5% YoY. However, a pause decision may find considerable backing given the start of stagflation concerns for the Eurozone economy, especially considering the weakness in Germany. The higher oil prices and the weakening China economy continue to make the decision even more complex for the ECB. Also worth considering is that the ECB’s room to hike may be diminishing after September especially if the US economic data starts to deteriorate and that makes the Fed’s pause turn into an end of the tightening cycle. However, even if the ECB decided to hike this week, EUR could still struggle to rally given the stagflation and oil price risks. At best, the expectation of a surprise hike could keep the EUR supported into the ECB decision, but much less so afterward if the rate hike is seen bringing much starker growth concerns.

China economic update: Surge in loans, activity data forecasts, and MLF rate

According to the Bloomberg survey, new Yuan loans in August are expected to surge to RMB 1,275 billion. This increase is attributed to greater regulatory encouragement for banks to lend and favorable seasonal factors. In August, government bond issuance exceeded RMB 1 trillion as local governments rushed to utilize their issuance quotas. This is anticipated to drive a substantial rebound in August's aggregate social financing data to RMB 2,730 billion, up from July's RMB 528.5 billion. Year-on-year growth in outstanding aggregate social financing is projected to slightly increase to around 9% in August.

Among the activity data scheduled for release on Friday, the Bloomberg consensus forecasts a 3.9% year-on-year increase in industrial production in August, up from 3.7% in July, reflecting stronger manufacturing PMI data. Retail sales are expected to grow by 3.0% Y/Y in August, boosted by auto sales and catering, surpassing July's 2.5%. While the front-loading of local government bond issuance in August would have supported infrastructure construction, a combination of a high base from the previous year and continued weakness in property construction may limit fixed asset investment growth for August. This likely contributed to the Bloomberg consensus projection of a year-to-date fixed asset investment slowdown to 3.3% year-on-year from 3.4%.

Just a month after a 15-basis point cut, the People's Bank of China (PBoC) is expected to keep the 1-year Medium-term Lending Facility Rate (MLF) unchanged at 2.5%.

Apple's iPhone 15 launch clouded by unconfirmed China restrictions

Apple is gearing up for the launch of its highly anticipated iPhone 15 on September 12th, but recent challenges have cast a shadow over the event. Within two days, the company lost over 6% or a staggering $180 billion in market cap after reports from foreign media suggested that China is tightening its restrictions on iPhones for government officials and may extend these restrictions to state-owned enterprise employees. However, the news is not officially confirmed, and it could most likely depend on the nature of the entities and apply only to officials, not all employees. Separately, China Mobile has already denied the news story carried by foreign media about the Chinese telco giant not selling the upcoming iPhone 15. 

Arm Holdings' high-value IPO faces skepticism amid China risks and AI hype

Arm Holdings, owned by SoftBank, will price its IPO on Wednesday and start trading on Thursday. The IPO capitalizes on AI hype, aiming for a USD47-51 per share price, potentially valuing the company at USD54 billion, revised down due to weak investor interest. Concerns persist about China-related risks and Arm's recent business growth stagnation, given its high 67x forward operating income valuation.

Oracle and Adobe step into the earnings spotlight this week

Oracle will announce its FY24 Q1 results on Monday, and Adobe will report its FY23 Q3 earnings on Thursday. Investors will find out if the AI-driven optimism for these two software giants can be sustained. Bloomberg's survey projects a 9% Y/Y increase in Oracle's revenue, reaching USD12.473 billion, and an 11.8% Y/Y growth in adjusted EPS, reaching USD1.152 for FY24 Q1. Investors will closely monitor whether Oracle continues to lose market share in the database sector.

As for Adobe, analysts' median forecast anticipates a 9.8% revenue increase and a 17% growth in adjusted EPS, reaching USD3.979. While Adobe has experienced steady revenue growth due to its shift to a cloud-based subscription model, recent trends indicate a plateau. Analysts remain skeptical about whether generative AI features in Adobe's content creation software will significantly contribute to growth.

Quarterly Treasury refunding and hefty corporate issuance

The US Treasury will auction USD44 billion in 3-year notes, USD35 billion in 10-year notes, and USD20 billion in 30-year bonds this week. Additionally, corporate bond issuance is anticipated to be substantial, ranging from USD30 to USD35 billion.


Earnings this week:

Mon: Oracle, FuelCell Energy

Tue: Edgio

Wed: Cracker Barrel 

Thu: Adobe, Copart, Lennar

Fri: No major earnings releases


Key economic events this week:

MON: NY Fed survey of consumer expectations (Aug), US 3-year T-note auction ($44 billion), Japan M2 (Aug), Japan PPI (Aug)

TUE: US NFIB small business survey (Aug), US 10-year T-note auction ($35 billion), UK payrolls (Aug), UK employment (Jul), Germany ZEW survey (Sep),

WED: US CPI (Aug), Atlanta Fed business inflation expectations (Sep), US 30-year T-bond auction ($20 billion), UK monthly GDP (Jul), Eurozone industrial production (Jul),

THU: US retail sales (Aug), US PPI (Aug), US jobless claims (weekly), ECB policy meeting, Japan core machinery orders (Jul)

FRI: US industrial production (Aug), Empire State manufacturing index (Sep), U of Michigan consumer sentiment survey (Sep, preliminary), UK BoE inflation expectations survey (Aug), Eurozone labour costs (Q2), China industrial production, retail sales & fixed assets investment (Aug)

Also this Week: China Aggregate Social Financing & Loans (Aug)


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