USD strength has been tempered by slightly softer than US PCE inflation. Aug PCE inflation came in at 3.4% (vs exp: 3.7%), while the July read was also revised down 1pp. This has led to a paring of expectations for a Fed rate hike in October from 70% at the start of the week to 35% now. Data takes on more importance. Besides Friday’s payrolls, markets will watch Sep ISM manufacturing tonight to see if it corroborates with the S&P PMI in indicating a surge in manufacturing sentiment. Meanwhile, Fed’s Kashkari was on the wires saying that he sees another hike this year and next, with the labor market looking pretty good and inflation still too high.
USD/JPY rebounded above mid-157 levels after the BOJ’s summary of opinions for the Sep policy meeting show mixed opinions on growth and the pace of rate hikes. One opinion noted that even though Q2 growth was positive, domestic demand growth in Q2 was negative, and thus the economy is not necessarily growing in a strong and sound manner. There also appears to be no uniform agreement on the pace of rate hikes, given different opinions on the outlook for inflation. Despite the uncertain monetary policy outlook, Japan should benefit from strong external demand led by AI. Tankan Manufacturing reads for Q3 released today point to improving sentiment across both large and small manufacturers, with the large manufacturing index rising to 24 (Q2: 22), its highest level since Q1 2018.
Korea’s Sep exports beat expectations again, rising by 83.5% y/y (exp: 62.5%, Aug: 68.7%). The AI-led semiconductor boom exhibits no slowing in momentum, with semiconductor exports surging 263% y/y, up from an already massive 209% gain in Aug. The trade surplus also jumped to USD50bn in Sep from USD35bn in Aug, marking another record high monthly trade surplus. While we think the solid export performance should support the KRW, we don’t necessarily see the KRW repeating its Q3 gains as the KRW DEER valuation has turned neutral, and portfolio outflows are likely to pick up as hedging activity fades.
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“The highest use of capital is not to make more money, but to make money do more for the betterment of life.”
Henry Ford
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Henry Ford introduced the Ford Model T on October 1, 1908, transforming global transportation by making personal vehicles accessible to the general public.
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