The USD gained overnight after Eurozone’s Nov CPI underwhelmed expectations, triggering worries that the ECB may cut rates earlier than the Fed. Market pricing shifted from favouring an ECB rate cut by April just a week ago to near even odds of a cut by March. Eurozone’s headline inflation of 2.4% y/y is now quite close to the ECB’s 2% target, while manufacturing and services PMIs continue to indicate a contraction in activity. Further EUR strength will be difficult to justify amid this backdrop of likely ECB easing in 1H 2024.
USD/JPY is consolidating around 147-149, with JPY being a relative outperformer as global rates pricing shift lower. Japan’s labour market data released today shows continued gradual improvement, with the jobless rate easing to 2.5% in Oct (Sep: 2.6%) and the job-to-applicant ratio rising to 1.30 (Sep:1.29). Japanese company profits for Q3 showed a better than expected 20.1% rise y/y, marking the fastest y/y rise since 2017 after excluding 2021’s pandemic-linked recovery. Higher profits could translate into higher wage growth going into 2024, which in turn should give confidence to the BOJ to gradually normalize policy.
China’s softer than expected manufacturing PMI for
Nov did not dent the RMB, with USD/CNH being little changed around 7.14. The onshore CNY fixing continues to be set at stronger levels, albeit at a slower pace than last week. At the 2023 HKMA-BIS High Level Conference on Tuesday, PBOC Governor Pan stated that China expects to see “healthy and sustainable growth” in 2024. He added that the Bank encourages commercial banks to provide support for the completion of pre-sold housing, as well as lost-cost financing to local governments for them to purchase home from developers. On financial stability, Governor Pan sees spillovers from the real estate sector to the financial system as quite limited and said that most local government debt from eastern and central provinces are sound. We remain constructive on the RMB given recent measures supporting confidence in the property sector, and a more positive outlook on growth in 2024.
KRW is supported by Korea’s strong Nov trade data released today. Exports grew at a healthy 7.8% y/y in Nov (Oct:5.1%) while imports declined sharply by 11.6% y/y (Oct:-9.7%), resulting in a jump of the trade surplus to USD3.8bn. This marks Korea’s largest monthly trade surplus in over two years. Furthermore, Korea’s manufacturing PMI finally returned to a neutral level of 50 in Nov, marking an exit from over 16 months of contraction in activity. With the BOK also revising upwards its 2024 inflation forecast to 2.6% (prev: 2.4%), expectations of BOK rate cuts may be pushed further out, against global trends. USD/KRW trading range could hold at around 1280-1310 for now.
We have taken profit on our USD/JPY (exit:147.57) and USD/CNH (exit: 7.1489) shorts yesterday.
Quote of the day
“Don’t trust everything you see, even salt looks like sugar.”
Unknown
1 December in history
In 1913, Ford Motor Company instituted the world’s first moving assembly line for the Model T Ford.
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