Evening Brief – 09.11.23
Jam-Packed Week
The week ahead is filled with important economic data, all of which will be released during the Federal Reserve’s blackout period.
The August US CPI will be released on Wednesday, where consensus is for annual headline inflation to come in at 3.6% compared with the 3.2% reading in July and core inflation to dip to an annualized rate of 4.3% versus 4.7% in July.
For the time being, a strong headline CPI print should be countered by favorable core data. However, the problem is that the longer the headline rises, the greater the likelihood of second-round repercussions down the road. Furthermore, oil prices approaching $90 per barrel just adds to the worries.
The August US PPI (consensus is for headline to print at 1.2% year-over-year versus 0.8% last month, while core PPI is expected to drop 0.2% to 2.2% from a year ago) and retail sales data (consensus is for a 0.2% monthly increase compared with 0.7% in July) on Thursday are nearly as crucial as it will give us a much better idea of consumption trends and GDP for the third quarter.
Meanwhile, risk assets were broadly higher to begin the week, helped by the biggest drop in the US dollar, as measured by the ICE Dollar Index, in two weeks following hawkish remarks from the Bank of Japan and strong Chinese data (the latest monthly credit data solidly beat expectations).
The US dollar’s sharp two-month advance is now under threat as the Japanese yen and Chinese yuan rose about 1% after Bank of Japan Governor Kazuo Ueda discussed the idea of ending the developed world’s last key negative interest rate in the Japanese newspaper Yomiuri.
“It is not impossible that we will have enough information by the end of the year to anticipate [wage hikes next spring],” Ueda said, adding that the end of the year as a possible time to assess the trend of wage increases, a key factor in setting price increases and which would give insight on the negative interest rate policy.
Government bond yields have also begun to increase again, with the 10-year Japanese government bond yield rising 5.2 basis points to 0.70%, its highest level since 2014. This has driven yields higher in the US, with the 10-year Treasury yield rising 3 basis points to 4.29% on Monday.
There are indications that the Chinese economy is stabilizing. Strong credit figures released on Monday showed that recent moves to support the real estate market may be beginning to stimulate demand for mortgages, while business loans also increased.
After the People’s Bank of China issued a forceful verbal warning to speculators on Monday, the yuan recovered from a 16-year low. Policymakers also established a stronger-than-expected daily fixing.