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Global Economics & Markets Research Summary (24 July 2018)

Core Content

This document provides a comprehensive overview of global economic and financial market conditions as of 24 July 2018, focusing on foreign exchange, equities, commodities, bond yields, and macroeconomic data. It highlights the impact of central bank policies, market sentiment, and geopolitical factors on various asset classes.

Main Market Developments

US Dollar

• The US Dollar experienced a short-lived sell-off, which was reversed as it rallied overnight.
• The USD Index (DXY) recovered about half of its losses from last Friday, rising to 94.60.
• The 10-year US Treasury yield increased by 6 bps to 2.95%, with the 3.0% handle back in play.
• The 10s2s yield spread widened by 2 bps to 32 bps, indicating a flattening yield curve.

Foreign Exchange (FX)

• Asian currencies showed mixed performance against the US Dollar.
  • THB fell 0.3% to 33.43/USD.
  • PHP dropped 0.1% to 53.486/USD.
  • SGD traded flat at 1.3635/USD.
  • KRW and TWD both gained 0.2%.
• The SGD NEER is expected to trade between 0.5% and 1.0% above the midpoint, implying a USD/SGD range of 1.3722 - 1.3654.
• The PBoC fixed the RMB reference rate stronger by 78 pips, reversing a large two-year weakening.

Equities

• The S&P 500 closed with a marginal gain of 5.15 points to 2,806.98.
• Asian equity markets were mixed, with the Nikkei 225 and KOSPI falling, while the Shanghai Composite, TAIEX, KLCI, SET, and JCI rose.
• Futures suggested Asian stocks might open higher, driven by Alphabet Inc.'s strong sales and rising yields, but US futures opened lower, potentially limiting gains.

Commodities

• Gold and silver retreated as the US Dollar recovered, with gold falling to USD 1,225 / oz and silver to USD 15.35 / oz.
• WTI crude oil experienced intra-day volatility and closed at USD 67.89 / barrel after failing to sustain a high of USD 69.20 / barrel.

Key Economic Data

Singapore

• June CPI rose to 0.6% y/y, up from 0.4% in May.
• Core CPI increased to 1.7% y/y, up from 1.5% in May.
• The Monetary Authority of Singapore (MAS) reiterated that imported inflation is likely to rise mildly and expects core inflation to average 1.5% for 2018.

Taiwan

• June industrial production grew only 0.36% y/y, significantly below the 7.61% y/y in May and the 5.0% y/y expected.
• June unemployment rate was 3.68%, slightly better than May's 3.69%.

Central Bank Outlook

• The Bank of Japan (BoJ) faced market speculation over potential changes to its Yield Curve Control (YCC), which could lead to a scaling back of quantitative easing.
• The 10-year JGB yield surged from 4 bps to 8.5 bps due to the BoJ's policy debate.
• The BoJ is expected to meet again at the end of the month (30/31 July), with speculation on policy changes likely to continue.

Market Holidays/Events

• Several countries have scheduled holidays or events in the coming weeks, including Thailand's Asrnha Bucha Day (Jul 27), King's Birthday (Jul 30), and Independence Day (Aug 15 for South Korea and India).
• Singapore's National Day is scheduled for Aug 9, and Hari Raya Haji is on Aug 22.

Interest Rates

• The USD Fed Funds Rate remains at 1.75-2.00%.
• The EUR Refinancing Rate is at 0.00%.
• The GBP Repo Rate is at 0.50%.
• The AUD Official Cash Rate is at 1.50%.
• The JPY Official Cash Rate is at 0-0.10%.
• The SGD 3-Month SIBOR is at 1.63%.

Bond Yields

• US 2-Year Bond yield rose to 2.63%.
• US 10-Year Bond yield increased to 2.95%.
• JP 10-Year JGB yield rose to 0.09%.
• EU 10-Year Bund yield increased to 0.41%.
• UK 10-Year Long Gilt yield rose to 1.27%.

Summary of Key Views

• The US Dollar's recovery was driven by rising Treasury yields and market speculation on BoJ policy changes.
• Asian markets showed mixed reactions to the BoJ's potential shift in monetary policy.
• Singapore and Taiwan reported inflation data, with Singapore's core CPI rising and Taiwan's industrial production declining sharply.
• Equity markets remained volatile, with Asian indices showing mixed performance and US futures opening lower.
• Central banks are expected to maintain their current policy stances in light of inflation expectations and trade tensions.