Investors sought the USD as a haven on the Fed reinstating its hawkish inflation stance.DXY appreciated a second day by 1% to 112.24, a weekly high. Dow, S&P 500 and Nasdaq Composite fell 1.2%, 1% and 0.7% respectively. S&P may fall again after failing to rise above 3800 for three sessions. The US Treasury 10Y yield firmed 7.1 bps to 3.824% while the 2Y rose 10.8 bps to 4.256%. Fed Governor Christopher Waller advocated more rate hikes into early 2023because monetary policy was not restrictive enough to “bring down inflation meaningfully and persistently”. Waller reaffirmed that the Fed would not prematurely pursue a policy pivot and was not responsible for solving the problems of other countries. He is looking past today’s jobs report and favours a fourth 75 bps hike at the FOMC meeting on 2 November. Consensus expects US nonfarm payrolls to add 255k jobs in September, fewer than the 315k in August. Average hourly earnings growth should slow from 5.2% but stay high at 5%. The unemployment rate is expected to stay unchanged at 3.7%.
Brent crude oil prices have risen this month by 7.3% to USD94.42 per barrel after four months of declines. The decision by OPEC Plus to cut oil production by two million barrels a day has fuelled fears of inflation staying high and tipping Europe faster and deeper into recession. EUR retreated from parity and depreciated two days to 0.9791. GBP depreciated 1.5% on top of the 1.3% sell off the previous day to 1.1162, back to last Friday’s close. Markets are mindful that the Bank of England’s emergency bond buying programme will end next Friday. Fitch’s downgrade in UK’s sovereign debt rating outlook was a reminder that the Truss government was still pushing for unsustainable tax cuts.
AUD fell from above 0.6520 to 0.6400 in one session for the second time since 30 September. However, AUD may not rebound and test the 0.6363 low on 28 September. The Reserve Bank of Australia surprised with a smaller 25 bps hike to 2.60% at its meeting on Tuesday. Conversely, Fed officials have signalled a fourth 75 bps hike to 4% in early November. If stocks turn defensive, so will the commodity currencies. We can’t see how AUD can buck any sell-off in the NZD and CAD, its counterparts with more aggressive hike outlooks.
Next week, we see the Monetary Authority of Singapore tightening monetary policy by re-centring the SGD NEER policy band higher a third time this year. Despite the fall in crude oil prices in 3Q22, Singapore’s CPI and core inflation rose in September to 7.5% YoY and 5.1% respectively, their highest levels since 2008. These numbers are above the MAS’s official forecasts in July i.e., 3-4% for core inflation and 5-6% for headline inflation. Singapore imports everything it consumes and uses for production. The world is still tightening to bring inflation down and so must Singapore. After falling from its high near 1.45 on 28 September, USD/SGD found support around 1.42, in line with global USD trends. We don’t expect USD/SGD to buck another rise in the DXY. However, SGD could appreciate towards the record highs against the EUR and GBP again.
Quote of the day
“Your net worth to the world is usually determined by what remains after your bad habits are subtracted from your good ones.”
Benjamin Franklin
7 October in history
First glimpse of the dark side of the moon from Soviet spacecraft Luna 3 in 1959.
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