FX Daily: Fed to look past US nonfarm payrolls
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.”
7 October in history
First glimpse of the dark side of the moon from Soviet spacecraft Luna 3 in 1959.
The information herein is published by DBS Bank Ltd and/or DBS Bank (Hong Kong) Limited (each and/or collectively, the “Company”). This report is intended for “Accredited Investors” and “Institutional Investors” (defined under the Financial Advisers Act and Securities and Futures Act of Singapore, and their subsidiary legislation), as well as “Professional Investors” (defined under the Securities and Futures Ordinance of Hong Kong) only. It is based on information obtained from sources believed to be reliable, but the Company does not make any representation or warranty, express or implied, as to its accuracy, completeness, timeliness or correctness for any particular purpose. Opinions expressed are subject to change without notice. This research is prepared for general circulation. Any recommendation contained herein does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. The information herein is published for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate legal or financial advice. The Company, or any of its related companies or any individuals connected with the group accepts no liability for any direct, special, indirect, consequential, incidental damages or any other loss or damages of any kind arising from any use of the information herein (including any error, omission or misstatement herein, negligent or otherwise) or further communication thereof, even if the Company or any other person has been advised of the possibility thereof. The information herein is not to be construed as an offer or a solicitation of an offer to buy or sell any securities, futures, options or other financial instruments or to provide any investment advice or services. The Company and its associates, their directors, officers and/or employees may have positions or other interests in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking or financial services for these companies. The information herein is not directed to, or intended for distribution to or use by, any person or entity that is a citizen or resident of or located in any locality, state, country, or other jurisdiction (including but not limited to citizens or residents of the United States of America) where such distribution, publication, availability or use would be contrary to law or regulation. The information is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction (including but not limited to the United States of America) where such an offer or solicitation would be contrary to law or regulation.
This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) which is Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd may distribute reports produced by its respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Singapore recipients should contact DBS Bank Ltd at 65-6878-8888 for matters arising from, or in connection with the report.
DBS Bank Ltd., 12 Marina Boulevard, Marina Bay Financial Centre Tower 3, Singapore 018982. Tel: 65-6878-8888. Company Registration No. 196800306E.
DBS Bank Ltd., Hong Kong Branch, a company incorporated in Singapore with limited liability. 18th Floor, The Center, 99 Queen’s Road Central, Central, Hong Kong SAR.
DBS Bank (Hong Kong) Limited, a company incorporated in Hong Kong with limited liability. 13th Floor One Island East, 18 Westlands Road, Quarry Bay, Hong Kong SAR
Virtual currencies are highly speculative digital "virtual commodities", and are not currencies. It is not a financial product approved by the Taiwan Financial Supervisory Commission, and the safeguards of the existing investor protection regime does not apply. The prices of virtual currencies may fluctuate greatly, and the investment risk is high. Before engaging in such transactions, the investor should carefully assess the risks, and seek its own independent advice.