Ahead Today
G3: US Trade Balance
Asia: Philippines CPI, Taiwan CPI
Market Highlights
The Dollar was stronger including against Asian pairs yesterday before paring back some gains, as improving equity performance in the Us and risk sentiment in AI related names helped to cap Dollar upside beyond yield differentials. On the data front, US ISM Services came in a touch softer at 54.0 but overall we had a decent breakdown in the subcomponents with prices paid moderating and employment picking up. These numbers are nonetheless still not enough to shift the Fed's calculus right now in either direction.
Fed Governor Christopher Waller spoke yesterday, and he was supportive of Kevin Warsh's call for the Fed to revamp the way the central bank communicates. In particular he said that excessive forward guidance during the COVID pandemic had tied the hands of US rate setters leading to unnecessary delays in raising interest rates to stave off a surge in prices. Nonetheless he also said that Fed officials will have to communicate their reaction function so that markets understand how to respond moving forward.
We also had Samsung's earnings release with quarterly operating profiting surging 19-fold to $58 billion rising past analyst expectations. Overall rise in agentic AI systems have boosted demand especially in the memory space and the rising in profits are validating the sharp price increases in DRAM and NAND seen so far. It's also interesting that despite the sharp rise in AI tech stocks, the pick up has been driven more by rising earnings expectations with forward P/E ratios actually falling if anything, indicating that the market is pricing some slowdown in growth rates moving forward - which seems reasonable. For the strong risk sentiment to continue, ultimately future cash flows including the ability and willingness of companies and individuals to spend on AI will have to justify the massive AI infrastructure build out.