Ahead Today
G3: Europe industrial production
Asia: China New Yuan Loans
Market Highlights
Global markets are focusing on three key factors: 1) the resolution and impact of the US government shutdown, 2) the performance of the Chinese economy, and 3) the spillover impacts of weak Japanese Yen thus far. For one, the US government shutdown looks like it should resolve quite soon with latest news suggesting there are probably enough votes in the House to do so. The impact of the government shutdown could include the immediate hit on US growth but should resolve to some extent in 1Q2026, but would also include the cloud and fog to macro numbers moving forward. We should see the September non-farm payrolls in a few days post the resolution of the government shutdown, but subsequently the October numbers may not be available while sampling issues on some CPI components such as housing may persist for some time into 2026. All this is to say that the Fed will decide on policy under greater uncertainty and there may be as such also increasing splits within the FOMC including at the upcoming December meeting. Meanwhile, China will release its macro numbers for October this week, which could show some softening in momentum. Policy makers in China are nonetheless only likely to provide marginal stimulus in 4Q2025 given the performance thus far, but overall we think that more support is likely to come in 2026
Apart from the global stories, there were some important local dynamics at play, including low inflation prints in India and continued weakness in the Philippines peso with USD/PHP reaching all time lows closer to the 59.20 levels. For one, India’s October inflation print of 0.2%yoy were lower than expected, helped by softer food prices and also the impact of GST rate cuts. We have already been saying that RBI’s inflation forecasts of 2.6% for FY2026 and 4% for end of the fiscal year looks too high and would likely be revised down even before the October inflation print came out, and this looks to be the case post the inflation numbers (India – At a crossroad). Overall, we think that a 25bps December RBI cut looks likely, but we think a shift to accommodative stance probably looks unlikely for now given that the full impact of GST rate cuts and tariffs on growth is not entirely clear at this point.
For the Philippines peso, the underperformance has been driven by a mix of foreign equity selling, and weak sentiment towards local assets given recent flood control and graft scandals. We think at current levels USD/PHP looks a little bit rich even as we acknowledge uncertainty surrounding how the impact of the graft scandals could play out. Past experience during the 2013 PDAF or pork barrel funds scandals shows that government spending probably declines for about 6 months before starting improve moderately after that, but full normalization takes a longer time – perhaps 15 months or longer. Overall, we think that at current levels the risk reward tilts towards USD/PHP coming off with remittances inflows, some pickup in bond inflows from index inclusion, coupled with other positives such as low inflation and the lagged impact of rate cuts on the Philippines economy.