Indonesia Raises Us$2.6b In Dual-currency Bonds

Swiss inflation slowed to 1.1% y/y in August from 1.3% the previous month, below the 1.2% expected. In April and May, the rate of price increases rose to 1.4% y/y but later started to fall again, losing 0.2% in the last three months.

The Swiss National Bank cut its key interest rate twice, in March and June. However, the combination of a further slowdown in price growth and an appreciating CHF opens the door for further monetary easing.

USD/CHF is back below 0.8500, its lows at the beginning of the year. The pair plunged into this area then, as it has now, on the back of rising expectations of a Fed rate cut. At the same time, earlier policy easing in Switzerland did not significantly weaken the franc.

The strength of the franc, which only fell below its current level in 2011, could encourage the monetary authorities to take more aggressive steps to curb the growth of the national currency, including warnings or actual currency intervention.

Too strong a franc hurts the economy by making exports less competitive, which could be a problem for Switzerland’s open economy.

Japan's budget demands hit a record for the next fiscal year, exceeding US$800 billion (RM3.5 trillion), the finance ministry said on Wednesday, as the world's number four economy struggles to slow spending and as debt-servicing costs rise.

A new leadership race could complicate Tokyo's efforts to restore fiscal discipline as voting this month for the ruling party's new leader, and by extension the next prime minister, risks triggering a snap parliament election.

The record ¥117.6 trillion budget requests come as the Bank of Japan shifts away from its decade-long stimulus programme.

That means the government can no longer rely on ultra-low borrowing costs and on the central bank to effectively bankroll debt.

The assumed interest rate would increase to 2.1% for the year starting in April from the current year's 1.9%, boosting debt-servicing costs for interest payments and debt redemption to ¥28.9 trillion from ¥27 trillion for the current year, according to the finance ministry.

Government ministries were allowed to request unspecified amounts of money for measures to expand childcare and mitigate rising prices, which would lift budget demands.

Japan, saddled with the industrial world's heaviest debt at more than twice the size of its economy, has affirmed its pledge to deliver a primary budget surplus by the next fiscal year.

Fixing tattered public finances has emerged as an oft mentioned topic in the ruling party's leadership election scheduled for Sept 27.

"An economic package likely to be compiled under the next prime minister, including whether to extend energy subsidies, will show the new leader's stance on fiscal discipline," Hideo Kumano, chief economist at Dai-ichi Life Research Institute, said.

Kono Taro, the digital transformation minister running in the race, described the current fiscal state as an "emergency situation," saying Japan has to regain fiscal discipline.

Another candidate, Takayuki Kobayashi, said he plans to launch a fresh package to ease the pain of rising prices.

"The economy should be prioritised over finance," he said last month.

Toshimitsu Motegi, another hopeful, also said on Wednesday he would want a comprehensive stimulus package to ensure the economy continued to recover.

"With a looming lower house election ahead, calls for more spending could grow," Saisuke Sakai, senior economist at Mizuho Research and Technologies, said. A failure to streamline spending would make it difficult to achieve a primary budget surplus, he added.

Source: Theedgemarkets

The US equities tumbled after the latest ISM data showed a fifth month of contraction in the US manufacturing, and at accelerated pace. The latter revived the recession worries ahead of this week’s critical US jobs data, and sent the S&P500 more than 2% down. This was the worst selloff since August 5, when a weak jobs data from the US had boosted the recession worries, the expectation of a 50bp cut from the Federal Reserve (Fed) and resulted in an almost 10% selloff of the S&P500.

The technology stocks led losses, yesterday. Nasdaq 100 dived more than 3%, as Nvidia tumbled nearly 10% as part of the broader macroeconomic worries and suspected AI fatigue, and another 2.42% in the afterhours trading on news that the DoJ sent subpoenas to the company because it suspects that Nvidia violated antitrust laws, made switching harder to other chipmakers and penalized companies that didn’t use Nvidia’s AI chips exclusively. In Asia, TSM tumbled 5%, and SK Hynix fell more than 8%.

Now we know that the antitrust allegations are part of the daily life of all Big Tech companies. They come and go without doing too much harm to these Big Tech’s growth potentials as many of them are natural monopolies and others naturally benefit from their dominant market positions.

But the news come at a time when Nvidia is vulnerable. Just a week ago, the company released blowout results. They exceeded their own sales forecast by $2bn for the fifth consecutive quarter, gave a strong – and a stronger-than-expected – forecast for the current quarter, announced a big stock buyback and addressed issues regarding the delay of the Blackwell chip saying that there is nothing to be worried about. But yet, the stock price fell as investors focused on potential problems – like what if the Big Tech cut their AI spending. But hey, the Big AI spenders like Meta and Google said that they will continue to spend big – and overspend if necessary – to make their AI investments worth. What I am trying to say here is that, except the DoJ news, recent news from Nvidia could’ve been interpreted in a positive way, but they have not. To me, this is a sign of fatigue.

And it’s in the middle of this bad mood that Broadcom is preparing to announce good results this week thanks to a rebound in networking equipment sales like Cisco and conversion from perpetual licenses to subscription model for VMware, acquired last year. Unfortunately, good results may not lead to a positive market reaction… The stock already tanked more than 6% yesterday, and no one can guarantee that good looking results would reverse the selloff…

… because the broad macroeconomic environment is not necessarily supportive of risk appetite right now.

Bad news is bad news for everyone

The slowing US growth and soft data boost the recession worries and rate cut expectations. The rate cut expectations favour a sector rotation from highly valued Big Tech toward the non-tech pockets of the market. BUT the expectation of jumbo rate cut is bad for all stocks, regardless of their technology exposure. Yesterday, Nasdaq certainly recorded the biggest loss but the Dow Jones fell 1.5% from an ATH and the Russell 2000 dropped 3%. Bad news is bad news for everyone.

In bonds, the US 2-year yield fell to 3.85% as expectations of a jumbo cut rose on yesterday’s data, the probability of a 50bp cut from the Fed in September rose above 40%, the 10-year yield retreated to 3.82% and the 30-year yield fell to 4.10%. All eyes are on the US jobs data – which has the potential to either make things worse or throw a floor under the recent risk selloff. Today, the job openings data is expected to show fewer job openings. On Thursday and Friday, the ADP and the official jobs data are expected to show a rebound in hiring and wages. And good news will be good news when the US reveals its latest jobs figures this week.

FX and Energy

Crude oil tumbled more than 5% yesterday and is testing the $70pb support to the downside. Rising recession worries, the expectation of waning global demand, prospects of fewer production restrictions from OPEC, combined with the falling tensions in Libya that could allow half a million barrels return to the market, are weighing on oil prices this morning. I believe that sufficiently strong jobs data between now and Friday could bring the dipbuyers to the market, yet if the jobs data looks ugly, we could see US crude settle below the $70pb for a while.

In the FX, the falling US yields didn’t pull the dollar index lower yesterday, as the greenback benefited from risk-off inflows. As such, the EURUSD extended losses to 1.1026 as Cable tipped a toe below 1.31. Both are better bid this morning. A soft set of economic data from the US could bring the USD bears back to the market, but if the market shifts to the panic mode, the dollar selloff could remain limited.

The US Dollar (USD) short squeeze was well underway, with AUD, NZD and THB under pressure overnight, OCBC FX strategists Frances Cheung and Christopher Wong note.

Some risks of further short squeeze exist

“ISM manufacturing slumped (47.2 vs. 47.5 expected), alongside new orders while employment subindex remains in contractionary territory. Focus shifts to JOLTS job openings and Fed’s Beige book report. July’s Beige Book showed most Districts reported employment was flat or up slightly, while a few Districts reported modest employment growth.”

“We reiterate that USD should remain sensitive to job data this week given that Fed’s focus has shifted towards supporting labour market. Good and bad data may continue to point to USD rebound while data in line with estimate may see a more muted response to USD. DXY was last at 101.61.”

“Daily momentum is mild bullish but rise in RSI moderated. We still see some risks of further short squeeze. Resistance at 101.90 (21 DMA), 102.20 (23.6% fibo retracement of 2023 high to 2024 low). Support at 100.50 levels. Week remaining brings JOLTs job openings (Wed), ADP employment, ISM services employment (Thursday), and US payrolls report on Friday.

Source: FXSTREET

In focus today

In the US, markets will pay close attention to the JOLTs labour market data for July. The Fed has highlighted the number of job vacancies as a key measure of labour market tightness, with the latest data signalling cooling labour demand but still low levels of actual layoffs.

In Sweden, the Prospera inflation survey will be published at 8:00 CET followed by the services PMI at 8:30. We expect the survey result will show expectations roughly in line with the 2% target for the CPIF index, with risk skewed to the downside, increasing the pressure on Riksbank to cut more aggressively. For the PMI, we project an almost unchanged level compared to 53.8 in July.

The Polish central bank will kick off the slew of September central bank meetings. We and markets project an unchanged rate decision at 5.75%.

Overseas, Bank of Canada will also announce their key policy rate, where we expect a rate cut of 25bp, bringing its policy rate to 4.25% – in line with markets.

Overnight, we get Japanese July wage data, which will reflect the strength of the spring pay increases. The details in the wage data will be key for the inflation outlook and important for the Bank of Japan’s decision making in H2.

Economic and market news

What happened yesterday

In the US, the ISM manufacturing PMI for August printed slightly weaker than expected at 47.2 (cons: 47.5). The details were even less optimistic, with the order-inventory balance plunging into contraction (in line with PMIs released earlier) which tends to be a negative leading signal for manufacturing production. Price and employment indices climbed higher, but it should be noted that the realized employment growth in the manufacturing sector has remained weak, and goods prices have continued to record deflation over the past few months.

In Switzerland, a batch of data was released. Headline inflation for August was lower than expected at 1.1% (cons: 1.2%) while core remained steady at 1.1% (cons: 1.1%), implying that Q3 inflation is set to print markedly lower than the SNB’s latest forecast at 1.5%. Additionally, monthly momentum crept lower in both headline and core. GDP for Q2 came in at 0.5% q/q (adjusted for sporting events), aligning with expectations.

On the commodities front, oil prices tumbled some 4%, nearing their lowest level since early 2024. Several factors contributed to the downtick, including souring global risk sentiment, a stronger USD and concerns regarding the planned OPEC+ output raises next month. Additionally, Bloomberg reported that a deal is close to resolving the dispute halting Libyan oil activities, with exports and production being curtailed early this week amid an ongoing rift between rival political factions over control of the central bank and oil revenue.

Equities: Global equities declined by 1.5% yesterday in a full-blown, classic risk-off session, marked by significant cyclical underperformance driven by sectors such as tech, growth, and momentum. In contrast, minimum volatility stocks experienced one of their best days this year in relative terms, with true defensive industries ending higher in the US. Yields were lower across the curve, predominantly driven by the long end. The VIX saw a 5-point jump as equities consistently drifted lower throughout the session, closing near day lows. We term this classic risk-off due to the correlations observed across various asset classes, including the negative bond/equity correlation, driven by concerns over growth and demand rather than inflation.

Yesterday market action revealed more about investors’ positioning and sentiment than the impact of a soft ISM number. In the US yesterday, Dow -1.5%, S&P 500 -2.1%, Nasdaq -3.3%, Russell 2000 -3.1%. Asian markets were sharply lower this morning, with cyclical leaders Japan, Taiwan, and South Korea all down more than 3%.

FI: Declining oil prices, affecting both the linkers and the nominal bonds, sent yields markedly lower from the early afternoon, with 10y German bunds ending 7bp lower at 2.27%. Markets added 5bp to ECB pricing by end 2025. Yesterday, ECB’s Simkus said that an October rate cut was quite unlikely. Markets are pricing 8bp for that meeting. The 2086 Austrian bond auction resulted in an outperformance relative to European peers in the long end. Today focus turns to the US JOLTS report as well as Villeroy is set to be on the wires (13:00 CET).

FX: Risk-off sentiment pushed the USD, JPY and CHF higher during yesterday’s session with a lower-than-expected Swiss CPI failing to prove a substantial headwind for the CHF. NOK and SEK were among the worst performers with EUR/NOK breaching the 11.80 mark. Oil prices plunged yesterday with risk sentiment, a stronger dollar and concerns over whether OPEC+ will proceed with planned output hike next month caused headwinds.