Global: Final stretch of 2024. After broadly surprising on the upside in the first two-thirds of the year, global markets and economies appear to be set for the final stretch with lingering feel-good sentiments. Anxieties about sticky inflation have faded, while fears of a hard landing have so far proven to be unfounded. Tension in the Middle East and Ukraine persist, but their impact on energy prices has since muted. Concerns on China’s economic slowdown remain, but pressure on the RMB has abated and systemic risks from the property market are on the back burner. Tonight’s nonfarm payrolls will be the highlight for the week – the state of the labour market would be parsed to figure out the pace and magnitude of Fed easing ahead.
On the economics front, there is plenty of ground for businesses to feel good. Most have seen cost pressures abate while demand has been resilient. PMIs, particularly services, remain buoyant. In Asia, many, if not all, manufacturers are reporting strong order books. Exports have been robust; regional travel and tourism sector is reporting good data, while overall consumption numbers are healthy. In the US, from PMIs to retail sales, housing to manufacturing, and jobless rates to investment, all support an economy on stable footing with Atlanta Fed GDP Nowcasting for 3Q tracking 2.5% growth.
The Fed has all but declared that policy rate cutting will begin from this month onward which is further source of comfort for global markets. The dollar’s mild sell-off over the last couple of months has given respite to EM currencies, bringing back flows to their asset markets. These are markers for a constructive backdrop for the last third of the year. The risk is that a “melt-up” scenario emerges in the coming months, getting in the way of steady rate cuts. Some considerations should be given to our central scenario, i.e. upon cutting in September, the Fed may choose to hold in November to make sure that the totality of the dataflow supports sustained rate cuts.
Figure 1: Resilient demand keeps the US economy on stable footing
Source: The Conference Board, DBS
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