Ahead Today
G3: US CPI
Asia: China monthly data and GDP
Market Highlights
There are three broad macro themes affecting global markets right now. First, continued policy uncertainty on tariffs not just on the country-specific reciprocal tariffs, but also on sectoral tariffs including on copper. On that front Trump also announced that he could announce 100% secondary tariffs on Russia, although what that means in practice is unclear, and presumably would target countries which buy Russian oil such as India and China. Second, rising longer-end yields in developed markets driven by fiscal worries, which was initially affecting Japan earlier this year but now seems to also be spilling over into other markets such as Germany and UK. With that, alternative safe havens such as Bitcoin and gold are benefiting, and in part helped by ongoing legislation on crypto markets in the US. Last but not least, continued questions around the path of Fed rate cuts and also perception of interference in Fed independence. On that front, the US CPI numbers today could shed some light on how much if any tariffs are starting to pass through to consumers and the possible reasons why measured inflation has been quite subdued at least so far.
Regional FX
Across Asia FX, Asian currencies were generally on the backfoot as the Dollar strengthened, CNY outperforming to some extent, while the likes of KRW, PHP and INR underperforming. The credit and trade data from China was stronger than consensus expectations, with exports rising 5.8%yoy from 4.8%yoy the previous month in particular. The decent export print was helped both by a small rebound in direct exports to the US, and also continued strength in China’s exports to other regions such as the rest of Asia and Europe. Whether this is driven mainly by transshipment/trade diversion, a re-routing of consumer goods supply due to weak domestic demand in China and higher overseas demand, or processing trade reflecting higher manufacturing activity remains to be seen, but will be hugely important moving forward in determining policy responses. Meanwhile, India’s inflation numbers came in lower than expected at 2.1%yoy from 2.8%yoy the previous month. This was helped by lower food inflation pressures although accompanied by a rise in core inflation above 4%yoy. Part of the rise in core inflation was driven by components such as gold and silver prices and alternative measures of underlying inflation such as trimmed mean CPI remain very subdued and hence we are not so worried about the rise in core. We continue to expect RBI to cut rates by once more this fiscal year, bringing the repo rate to 5.25% by the December policy meeting.
