Global Economics & Market Strategy

Economics Weekly View: Short-term Risk-Taking Consolidation, But Do Not Fret

31 May 2024
 

Barnabas Gan Acting Group Chief Economist & Head, Market Research

• Some slowdown in risk appetite was seen in the latest data, as evident from the decline in MSCI World and our proprietary RHB Risk Sentiment Index (Figures 6 & 7). We see no reason to fret - the recent moderation in risk-taking appetite as merely a function of the market discounting the US Fed Funds Rate cut to only one cut by the end of 2024. There is little evidence of a global economic slowdown, with a recent US May US Beige book citing that the US economy continued to expand at a slight to modest growth from early April to mid-May. US 1Q24 GDP, despite slowing to 1.3% QoQ annualised, underscored a continued economic expansion led by consumer spending (+2.0%) and investment (residential: +15.4%, non-residential: +3.3%, higher than initial estimates). 
   
• Even in China, latest economic data also signalled further recovery. The latest numbers reinforced our global economic views for above-consensus GDP growth expectations for the US (RHB: +2.5%, Bloomberg: +2.4%) and China (RHB: +5.0%, Bloomberg: +4.9%), with consensus gradually moving towards our forecasts. China’s industrial profits rose 4.0% YoY in April 2024, from a -3.5% YoY handle in March, albeit we noticed some slowing of Purchasing Managers’ Index Prints in May. More importantly, our China chart pack (Figures 28 – 33) suggests a series of improvements in its housing market, labour, commodity consumption, and fixed asset investments – we are seeing further bottoming evidence for China’s real estate prices, which has been (and still is, arguably) one of investors’ concerns for the Middle Kingdom. We still think the recovery is precarious, albeit encouraging, and any further recovery of property prices suggests that (1) China’s property valuations have likely fallen “enough”, and (2) demand has gradually materialised on the back of a relatively more robust real economy led by China’s externally-facing industries.  
   
• We maintain that DXY will rally for the remaining part of 2Q24, with the dollar index trending towards the 107 handle into June. Our call for UST 10Y yields to rally back above 4.5% materialised, proving the initial downtrend below 4.4% was temporal. Continued market expectations for a US high-for-longer rate trajectory will likely keep the UST 10Y yields high(er) while net-shorts in UST persist (Figure 41). With the quick return for swap pricing to one FFR cut in the previous week, do expect some consolidation and potential profit-taking from risky assets such as US equities in the week ahead, in line with our proprietary RHB risk sentiment index which enjoys a relative correlation with the US S&P 500 index. Further pricing out of FFR cuts, potentially towards no cuts or one hike should inflation persist further (see Figures 24 - 27), may mean further upside bias for DXY and UST 10Y. 
   
• For the week ahead, we will be watching for US nonfarm payrolls and unemployment rate (Friday), as well as a slew of ASEAN-centric data including Indonesia’s May CPI (RHB: +3.05% YoY, BBG: +2.98% YoY) and Singapore’s retail sales (RHB: +4.1% YoY, BBG: +2.5% YoY), as well as US ISM, SG PMI and China’s Caixin PMI to give further colour of global economic growth prognosis. 
   

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