Global Macro Strategist
Summary: Morning APAC Global Macro & Cross-Asset Snapshot
Happy Macro Fri 4 Oct 2019
APAC Global Macro Morning Brief - US Super Friday, Here Come the Non-Farm Payrolls...
Our Macro morning Brief piece yesterday was titled, can Service PMIs Reverse Sentiment… & they seemed to have done so at least for the o/n sessions, yet from the perspective of bad news = good news.
US ISM Non-Manufacturing – the pillar of the US economy as it captures domestic consumption which is +70%0 of US GDP – had a pretty big miss coming in at 52.6a vs. 55.1e & down from a previous 56.4. Our Economist, Christopher Dembik takes a deeper look at the print here.
On top of that, the weekly jobless claims hit a 4wk high & once again, folks ignored the Markit PMI services print of 50.9 a/e/p. Factory orders were a touch better at -0.1%a vs. -0.2%e, 1.4%p – yet the key take away was that the ISM Non-Manufacturing is signalling weakness in the American consumer, which will be translated to the Fed need to do more, both in regards to speed & potentially magnitude.
The probability of a cut from the Federal Reserve on the upcoming Oct 30 meeting is now at 85%, at the start of the wk (prior to the ISMs & econ data) it was c. 40%.
If one looks at the Dec 11 meeting, that’s now a 96% probability with c. 60% of that being for at least 50bp cut from today - implying likely a cut in Oct & Dec.
With four key FOMC members due to speak in the next 24 hrs, the most important scripts will be from Powell and George – the latter, alongside Rosengreen was in camp no rate cuts in the previous meeting.
If George starts to signal a shift towards the dovish camp, we could see quite a significant further mover lower in bond yields (Higher in bond prices), as well as resurgence in upside for Gold & Silver.
What the different a mere week can make… once again reinstating there are always profitable opportunities out there.
Wishing everyone a strong & profitable close on this Super Friday, as well as phenomenal wkd up ahead.
Cross-Assets Snapshot:
We saw the yen 106.83 +0.24%, gold 1509 +0.38% & US 10yrs bond futures 131.70 +0.46% bid up – except the driver of lower bond yields o/n were more expectations of a more dovish Fed
Interestingly enough, we continue to see broader dollar weakness… DXY 98.8620 (sub 99.0) was down a touch at -0.16%, yet some risk-on assets such as AUD 0.6748 & NZD 0.6304 flew at +0.52% & +0.54%. On the EM FX side, LatAm led the charge again the USD with the like of the Brazilian real clocking a +1.20% rise.
For further update on Currencies, catch John Hardy’s latest thoughts: Risk Sentiment eyes US Data, EU reply to BoJo Brexit plan
Almost all the European equity indices closed in the red overnight – bear in mind that Germany was out yest on public hols, so it will be interesting to see what catch-up (if any) the Dax plays today – especially with peripheral news on US / EU trade tariffs to escalate shortly given the WTO ruling. Worth noting, there is likely to be a similar ruling on the US’ Boeing later in Q4.
We did see silver & brent crude flat overnight at 17.56 & 57.71 – both are up c. +20bp to +30bp this early Asia Fri morning. Counter to USDJPY… USDCHF actually rose by +0.22%
Today:
Next Week: China Back In from Golden Week… focus returns to potential US / China Trade Negotiations… potential kick-off of US / EZ Trade Tariffs linked to WTO reports
4th Quarter Outlook is out: Taking Down The Killer Dollar
Other:
AI: The good, the bad, and the bubble
While a deep recession may not be iminent thanks to central bank policy, interest rates will have to stay high for longer, and this will be accompanied by volatility risk from the unwinding of bubbles, especially within AI.
Steen Jakobsen,
Chief Investment Officer
The emergence of advanced AI systems is by far the most surprising event this year, turning everything upside down, while risks and benefits are debated. AI will also become an arms race between the US and China.
Peter Garnry,
Head of Equity Strategy
As China navigates global fragmentation, its cycle of technology application, productivity enhancement, and growth is threatened by US breakthroughs in generative AI, limited computing power, and geopolitical tensions.
Redmond Wong,
Market Strategist
Japan’s expertise in semiconductors and robotic integration could be the foundation of AI dominance. Combining two of this year's themes, Japanese equities and artificial intelligence, brings a wave of opportunities.
Charu Chanana,
Market Strategist
The AI fever has turned the technology into a darling, pushing crypto further into no-man’s-land. There are striking similarities between AI and crypto, and if these are to come full circle, AI won't be spared for bubbles.
Mads Eberhardt,
Cryptocurrency Analyst
Stocks related to artificial intelligence (AI) have appeared on investors' radars. Expectations are high, but it may be necessary to consider how to get exposure to AI in a diversified way.
Hans Oudshoorn,
Trainer Academy
The USD is on its back foot as markets celebrate an eventual Fed rate peak and steady long US yields. The stakes are even higher for the Japanese yen if longer major sovereign yield curves have to price in economic acceleration.
John J. Hardy,
Head of FX Strategy
While commodities, broadly speaking, have faced some tough months, a partial reversal during June could signal that the asset class is getting back on its feet with energy holding up and precious metals with upside potential.
Ole S. Hansen,
Head of Commodity Strategy
As inflation remains high central banks face hard decisions about whether they should keep hiking interest rates or stop. Meanwhile, the rise of AI creates bubble-like conditions that only make the decision harder.
Althea Spinozzi,
Senior Fixed Income Strategist
