FX Daily: Caught between China and the US


No signs of synchronized global recovery.
Philip Wee22 Sep 2021
    Photo credit: Unsplash Photo


    Wall Street’s attempt to recover from the Evergrande-led sell-off petered out quickly. Dow and S&P 500 ended Tuesday lower by 0.2% and 0.1% respectively. The VIX volatility index stayed firm above 24 for a second session. Optimists looking to buy on dips argued that Evergrande will not result in a Lehman moment. China has been silent throughout the sell-off during its holiday on Monday. S&P Global Ratings believed that any direct support for Evergrande will only materialize if the crisis threatens other property developers and pose systemic risks to the economy. Put simply, the crisis will need to deepen before Evergrande is considered “too big to fail”. Until then, China is likely to ensure ample liquidity during its quest to reduce and prevent risks not only in the property sector but also Big Tech, fintech and other private enterprises.

     

    US 10-year treasury yield firmed to 1.323% from 1.311% ahead of the FOMC meeting today. The Fed is expected to provide more clarity on whether it will taper asset purchases in late 2021 or early 2022. The Fed is likely to take the view that the significant improvement criteria had been met for the taper but not rate hikes. The Summary of Economic Forecasts should affirm the resilience of the US economy to the Delta-variant amidst persistently high inflation, and a jobs recovery that looks past the latest miss in nonfarm payrolls. Overall message will be that it is time to start rolling back the pandemic measures with the assurance that monetary policy will remain accommodative to ensure a recovery still surrounded by uncertainties.

     

    Like after the global reflation trade in 2017, global markets are caught between the world’s two largest economies after last year’s Covid rally. Although there is no repeat of the US-China trade war in 2018-19, relations between the two giants remained cold. Apart from dealing with China’s regulatory clampdowns on the growth front, investors worry that the Fed and other major central banks are also paving the ground to pull back their monetary support measures next year before moving to hike rates from 2023. The synchronized global recovery story that fuelled the global market rally and USD sell-off after the Covid outbreak last year is becoming increasingly out of reach, especially for the rest of this year.








    Philip Wee

    Senior FX Strategist - G3 & Asia
    philipwee@dbs.com


    Subscribe here to receive our economics & macro strategy materials.
    To unsubscribe, please click here.
    The information herein is published by DBS Bank Ltd. It is based on information obtained from sources believed to be reliable, but the Group 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. Any recommendation contained herein does not have regard to the specific investment objectives, financial situation & the particular needs of any specific addressee. The information herein is published for the information of addressees only & is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate legal or financial advice. The Group, 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 Group 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 Group & its associates, their directors, officers and/or employees may have positions or other interests in, & may effect transactions in securities mentioned herein & may also perform or seek to perform broking, investment banking & other banking or finan­cial services for these companies. The information herein is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation. Sources for all charts & tables are CEIC & Bloomberg unless otherwise specified.

    DBS Bank Ltd., 12 Marina Blvd, Marina Bay Financial Center Tower 3, Singapore 018982. Tel: 65-6878-8888. Company Registration No. 196800306E. DBS Bank Ltd., Hong Kong SAR Branch, a company incorporated in Singapore with limited liability. 18th Floor, The Center, 99 Queen’s Road Central, Central, Hong Kong SAR.

    The information set out in this website ("Information") 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. This 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 Information is published for general circulation only and does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person. Visitors accessing this website should always seek advice from an independent financial adviser regarding the suitability of the Information referred to herein (taking into account the specific investment objectives, financial situation and/or particular needs of each person in receipt of the Information) before making any investment and/or any purchase in reliance of the Information. Please refer to the actual research publications for important disclaimers and disclosures, where applicable.