Global Economics & Market Strategy

Economics Weekly View: Disappointing US-centric Data is Temporal, Risk Appetite Will Improve

07 June 2024
 

Barnabas Gan Acting Group Chief Economist & Head, Market Research

• Our view on short-term risk-taking consolidation materialised well. US high-frequency data have disappointed at the start of June, starting with ISM Manufacturing (May: 48.7, consensus: 49.5), ADP employment change (May: +152K, consensus: +175K) and initial jobless claims (1 June: 229K, consensus: 220K). RHB risk sentiment index (Figure 7) continued to slide further, albeit no signs of market risk sell-off. Note some moderation in equity rallies in the S&P 500 and Nasdaq since 1 April (Figure 1), reinforcing the “Sell in May and Go Away” syndrome. We observe that (1) the softer US-centric data is isolated in May, typically evident from the start of the US summer holidays, while (2) other indicators such as US factory orders, services PMI, and China-centric data still suggest a relatively resilient 3Q24. 
   
• We keep our base case view for the US FFR to see a cut only in December 2024, with the balance of risks tilted towards no cuts for the year. Recent FOMC minutes suggest some subtle calls for FFR hikes, given the lack of confidence for inflation to move towards the Fed’s 2.0% objective. Our revised US inflation model (Figure 21) now suggests that even assuming core PCE inflation MoM to slow to 0.1% by the end of this year, the annual rate will only slow to a year-end level of 2.7% (April: 2.8%). Separately, given the sell-in-May syndrome, we are not steered from the recent slowdown in US macroeconomic numbers. Lastly, some market talks are centred on US FOMC, likely taking cues from yesterday’s ECB rate cut, a view we do not subscribe to.
   
• ECB’s June rate cut is likely made in view of the widely telegraphed guidance seen as early as March 2024. Back then, ECB President Christine Lagarde indicated that policymakers may be able to lower rates in their June meeting, citing a “definite slowdown in consumer prices” then. The rhetoric changed significantly yesterday, with the ECB performing a potential policy anomaly move of cutting rates and hiking inflation forecasts. All three key rates (refinancing rate, marginal lending facility and deposit facility) are down by 25bps. However, the ECB warns of “elevated” wage growth and upgrades its full-year annual inflation to 2.5% from 2.3%. In a nutshell, we think that the ECB’s rate cut is done due to its earlier guidance, but the recent uptick in inflation pressures will prevent subsequent cuts for the year ahead. 
   
• Implications for ASEAN for the immediate term are as follows: We stay bullish on ASEAN’s external environment in 3Q24, on assumptions for US and China growth to accelerate further in the same period. The recent downturn in trade has shown to be temporal, while leading GDP indices for Singapore and Malaysia pointing higher for 3Q24, against a flattish Indonesia’s and downside trend for Thailand’s GDP. Global inflation will likely persist in 3Q24. China’s recovery will help base metal prices, while poor harvesting conditions will support food prices. ASEAN (especially Malaysia, Indonesia, and Thailand) rates will stay in tune with the US FFR and potentially stay where they are at current levels until we see further clarity on FFR moves. 
   
• For the week ahead, we are seeing a heavier ASEAN docket. The data include Malaysia’s April industrial production (RHB forecast: +3.8% YoY, BBG consensus: +6.9% YoY) and manufacturing sales. The Bank of Thailand is to meet on 12 June, where we think policymakers will keep its rate unchanged at 2.5% and release its consumer confidence data for May. In the US, we are also closely watching its May inflation data and FOMC decision on 13 June. SG retail sales were disappointing, albeit we stayed positive on its outlook for 2H24, while Thailand’s inflation rose sharply to 1.5% YoY in May 2024 (April: 0.19% YoY). In China, further strengthening is seen from its May export growth of 7.6% YoY (April: +1.5% YoY).
   

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