Asia Rates: NFP and Asian markets


Watching for Fed taper risks
Duncan Tan03 Sep 2021
    Photo credit: Unsplash Photo


    A strong print of US August Nonfarm payrolls (NFP) could support market expectations that the Fed's September meeting would be live, in terms of getting a taper announcement. At Jackson Hole, Fed Chair Jerome Powell again sought to delink timing of taper from timing of rate lift-off, creating the possibility of a long time gap in-between. However, we are sceptical that financial markets, being forward-pricing, can successfully make such a detachment. I.e. Earlier taper will, to a large degree, still be associated with earlier rate lift-off, in the minds of markets. Therefore, if we do get a strong NFP print tonight, short-dated US rates will rise on hike expectations being brought forward. The extent of the rise is likely to be modest (1-5bps) though - Prospects of a September announcement shouldn't be much of a surprise/shock, considering some of the recent hawkish comments by Fed officials. Long-term US real rates are likely to rise too.


    A strong NFP print would weigh on Asia macro markets, and we could see some give-back of the broad gains this week. With the Fed moving confidently towards taper, Asia is lagging in term of normalizing liquidity, and that will increasingly come into focus. For China and Philippines, RRR cuts likely remain on the table. In India's case, liquidity injected via GSAP and roll-off of RBI's FX forward book could be outpacing liquidity withdrawn through increased VRRR auction sizes. While Bank Indonesia has signalled intentions to reduce liquidity in 2022, it is unclear at this point if the extent of reduction will be greater than its bond purchase sizes under "burden-sharing". In Thailand, BOT has allowed the stock of BOT bonds to significantly decline, and we are unlikely to see a rebuild in the near-term. At this point, normalization of liquidity still seems rather far out for Asia.

    Duncan Tan

    FX and Rates Strategist - Asean
    [email protected]


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