Market Highlights
There was a good set of US numbers which pointed to continued rebalancing in the US economy. US Producer Price Inflation came in lower than expected, with the headline and core rate coming in at -0.5%mom and 0.1%mom respectively. Meanwhile, retail sales fell -0.1%mom, although underlying consumer strength as measured by the control group measure was much more resilient at +0.2%mom, and this was also accompanied with upward revisions to historical numbers.
China’s October data showed better than expected consumption and industrial activity with a pickup in retail sales up to 7.6%yoy. Nonetheless, investment activity continued to be weak with property investment declining 9.3%yoy and fixed asset investment falling 2.9%yoy. Overall, we expect the lagged impact of further stimulus measures to help support further stabilization in the Chinese economy.
The Dollar was somewhat stronger rising 0.3% as US 10-year Treasury yields rose above 4.5%, while risk assets such as the S&P500 rose marginally by 0.16%.
Regional FX
Asian currencies were mixed against the US Dollar as FX markets retraced some of the post US CPI gains. US President Biden and China’s President Xi Jinping met physically for the first time since 2017. Both countries agreed on joint efforts to combat fentanyl, restore high-level military communications, and to hold a dialogue about artificial intelligence. According to Bloomberg News, China denied that it was readying for an invasion of Taiwan in the summit, while also saying that the US should support reunification. Meanwhile, India’s trade deficit rose by a much sharper than expected US$31.5bn, up from US$19.4bn the previous month. This was driven by a sharp increase in oil imports, together with rise in gold imports ahead of the festive season. We continue to think that there is scope for INR to underperform over the next 3-6 months, with a widening trade deficit coupled with slowing capital inflows, notwithstanding aggressive FX intervention by the central bank.
