Calm Asian response to monetary tightening in the US

Summary:

• Asian equity markets trade slightly lower on Thursday following a rate hike delivered by the Fed
• Australian jobs report mixed, investors look a bit perplexed as Aussie drives subtly lower
• Chinese May’s set of data disappoints across the board
• US President Donald Trump is expected to discuss tariffs on Chinese goods Thursday

US indices ended Wednesday’s trading a bit lower following a rate increase delivered by the Federal Reserve. The press conference brought several hawkish points, but the overall outlook for the US dollar seems to be tricky as the yield curve is likely to continue flattening. And, it’s already happened as the 2s10s spread has slipped below 40 bps in the morning reaching its lowest point since the GFC a decade or so ago. Meanwhile, Asian investors have been quite calm, and losses have not been substantial as of yet. The Japanese NIKKEI (JAP225) along with the Hang Seng (CHNComp) are losing 0.6% each being the worst performers there. When the Fed is already done now attention turns to two other topics - trade tensions as well as the ECB meeting.

The underlying employment trends kept bullish momentum in May. Source: Macrobond, XTB Research

In turn, in terms of macroeconomic readings we were offered overnight one needs to mention the Australian jobs report for May which proved to be equivocal on balance a bit disappointing. The overall employment change totalled 12k falling short of the median estimate of 19k, and what’s even more depressing full-time employment declined as much as 20.6k while a rise was driven solely by part-time employees whom a count increased 32.6k. On top of that, the unemployment rate slipped to 5.4% from 5.6% beating expectations suggesting a tiny slide to 5.5%, and this could be the most upbeat point of the report as the labour force participation rate decreased just by 0.1pp to 65.5% implying that lower unemployment was not driven just by decreased activity. The Aussie might have been weighed down by a slew of Chinese data as all of them came in below expectations. The data for May looks as follows:

• retail sales +8.5% yoy (9.6% expected)
• industrial output +6.8% yoy (7% expected)
• fixed assets investments excluding rural +6.1% (7% expected)

These prints add to concerns that the economy is finally starting to slow down as a prolonged crackdown on riskier lending, pushing up borrowing costs, is taking its toll. The Aussie is trading 0.3% lower as of 6:56 am BST.

The EURAUD could be one of the most interesting pair to watch for today owing to the upcoming ECB meeting. Notice that the pair is closing a lower bound of the channel, hence more sellers might occur before long. However, once they break through this line, it could open the way for further rises. Source: xStation5

Finally, a senior White House official informed on late Wednesday that US President Donald Trump would meets his top trade aides on Thursday to discuss whether to activate tariffs on Chinese imported goods worth up to $50 billion. If he stops short of doing so, it could dial back trade-related concerns possibly helping stock markets recover.