Leader of the Pack

October 21, 2024

Leader of the Pack

  • U.S. economic outperformance to remain a major theme underpinning higher Treasury yields and USD strength.
  • There are no policy-relevant economic data releases today. Several Fed officials speak.
  • The PBOC cut the 1 and 5-year loan prime rates 25 bp to 3.10% and 3.60%, respectively.

Please see our Drivers for the Week Ahead for an in-depth look at what markets are facing this week.

USD is recovering from Friday’s low. Equity futures point to flat-to-lower opens in Europe and the U.S. U.S. economic outperformance to remain a major theme underpinning higher Treasury yields and USD strength. On Tuesday, the IMF publishes its October World Economic Outlook with GDP growth forecasts expected to show the U.S. economy still outpacing other major economies. The October composite PMIs due on Thursday will likely tell a similar story.

There are no policy-relevant economic data releases today. ECB Governing Council Member Simkus is scheduled to speak (8:00am London). Fed speakers include: Logan (1:55pm London), Kashkari (6:00pm London), Schmid (10:05pm London), and Daly (11:40pm London).

AUD/USD is trading heavy under 0.6700. RBA Deputy Governor Andrew Hauser tried to manage RBA easing expectations. Hauser warned RBA rates won’t fall as much or as early as those of other central banks in part because inflation in Australia is still “too high.” Hauser added that most RBA models show a neutral rate between 3% and 4%, suggesting the current policy rate of 4.35% is not significantly restrictive.

We expect the RBA to join the global easing cycle later this year because Australia underlying economic activity is weak and points to lower inflation pressures. Australia’s Q3 CPI report October 30 will either support our view or ensure the RBA continues to lag its international peer.

China’s benchmark CSI 300 Index is largely flat. The People’s Bank of China (PBOC) cut the 1 and 5-year loan prime rate 25 bp to 3.10% and 3.60%, respectively. Markets expected a 20 bp reduction. Regardless, the cut was in line with last month’s guidance from Governor Pan Gongsheng that the loan prime rates would go down by 20-25 bp. More importantly, Chinese policymakers need to deliver a meaningful fiscal stimulus program to shore-up economic activity. Details of China’s recent fiscal stimulus pledge are anticipated to be unveiled by the end of this month.

USD/JPY is consolidating around 149.50. In Japan, early general elections are scheduled to be held Sunday 27 October. We don’t see major JPY implications. Most polls show the ruling coalition led by the Liberal Democratic Party (LDP) are expected to maintain a majority in the 465-seat House of Representatives. However, one poll by the Asahi newspaper showed the LDP may not even secure a majority in coalition with its long-running partner Komeito.

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