Ahead Today
G3: US Non-farm Payrolls
Asia: China loan prime rate, Taiwan export orders, Indonesia current account balance
Market Highlights
Global markets saw some return in risk sentiment with an improvement in AI stocks after Nvidia’s results, the Dollar was stronger and weighed down especially by the Japanese Yen, while Fed Minutes suggest a very split FOMC on a December cut. For one, Nvidia’s results were stronger than expected, delivering a strong revenue forecast of US$65bn in the January quarter, compared with expectations of US$62bn, and as such continuing to reflect very strong investment demand in the AI space. Second, the Fed’s minutes released overnight showed that “many participants” view it will be appropriate to keep rates unchanged in the December meeting, and also in contrast “several participants” highlighted another cut could be well be appropriate. While “many participants” does not constitute a majority of the FOMC, it does highlight the very split nature of the Fed on the rate path as we head into December. Nonetheless we note that not all votes in the FOMC are made equal and that the Governors thus far seem to be somewhat more dovish than the Presidents of the regional banks (not all of whom vote). On our end, we still lean towards a rate cut in December but suffice to say it could be a very split meeting given the lack of clarity on the US data front. Today’s non-farm payrolls print could be important in this regard.
The weakness in the Japanese Yen was also a key driver of markets overnight, with USD/JPY moving up slightly above the 157 handle before seeing some marginal relief. BOJ Governor Ueda, Finance Minister Katayama, and Economic and Fiscal Minister Kiuchi held a meeting yesterday where they reaffirmed the BOJ joint accord at overcoming deflation and achieving sustainable growth, while said that the three of them will do their utmost to manage policy towards stable inflation and sustainable economic growth. What perhaps lent to JPY weakness was the lack of pushback from the meeting against exchange rate weakness, with Finance Minister Kataya stating that “specific discussions around the exchange rate did not take place”, leading to some concerns around the government’s stance on curbing JPY depreciation. In addition, markets might have been somewhat confused by the announcement of a “technical tweak” to the existing BOJ Accord to change the name of the relevant government body to the Japan Growth Strategy Headquarters, although on our end we think this is a technical adjustment with little practical impact on policy by itself.
All these also come on the back of two other key uncertainties – the size and composition of fiscal stimulus by Japan’s government, and also the current tensions between China and Japan. In particular latest media reports including by Asahi Shimbun and Nikkei reported that the government’s ongoing economic stimulus plans could exceed JPY20 trillion once tax cuts are included, with Reuters reporting that the government plans to approve the economic stimulus package in a Cabinet meeting on 21 Nov and finalise the supplementary budget draft. Markets are somewhat unclear around the composition of the stimulus including how large the scale and scope of a possible investment promotion tax incentive could be, even as a consumption tax cuts on food still seems highly unlikely for now. We still look for USD/JPY to move lower over the medium-term into 2026, but the lack of pushback by authorities around JPY weakness coupled with uncertainties around fiscal stimulus weigh on JPY in the near-term.