US TSYS: Marginally Cheaper In Asia

Hong Kong markets have returned today and lost ground (HSI off by more than 2%). Japan markets are faring better on their return, but are only modestly higher in terms of the Topix. Trends are mixed elsewhere. US equity futures sit modestly in the red at this stage. Emini last just under 4550, -0.10% weaker, while Nasdaq futures were down 0.17%.

• The HSI is off by 2.17% at the break. Some catch up to the softer tone in mainland China shares yesterday post weaker data is in play, while renewed property market concerns is another headwind.
• Property developers have weighed on the HSI, amid a warning from Dalian Wanda Group on a funding short fall (it has a $400mn bond due on July 23). Elsewhere, China's Evergrande reported larges losses for the past two years, while a creditor is seeking bankruptcy for Evergrande's real estate Xian unit.
• The mainland CSI 300 is off 0.30% at the break, despite a rebound in consumer discretionary stocks as the authorities pledge to aid the consumption recovery.
• Elsewhere both the Kospi and Taiex are down despite positive leads from US tech related indices in Monday trade. Losses are under 0.50% at this stage.
• Japan shares are higher, although the Nikkei 225 is struggling to hold gains. The ASX 200 is down 0.36%.
• In SEA, the picture is mixed, although more markets are down than up.

Supply chain issues were one of the reasons why G20 inflation rose above rates not seen since the series began in 1997. But they have been easing for around a year now and signal further downward pressure on headline inflation from this source.

• The Federal Reserve Bank of New York’s measure of global supply chain pressures fell further in May to -1.56, lowest since November 2008, but then ticked up to -1.2 in June. On a 3-month average basis it is unchanged at a very low level. It is indicating that global inflation pressures should continue to ease over the months ahead.
• G20 headline CPI inflation eased in May to 5.9% from 6.5% and a peak of 9.5% in September 2022. June is likely to moderate further with US, euro area and non-Japan Asian inflation declining again. Underlying price pressures have been stickier in coming down, thus keeping central banks alert.

Source: MNI - Market News/Refinitiv

Q2 CPI data is released on Wednesday July 19 and economists expect it to moderate further. The quarterly pace is forecast to step down to 0.9% q/q from 1.2% in Q1 to leave the annual rate at 5.9% down from 6.7%. If analysts are correct then inflation would be below the RBNZ’s Q2 forecast of 1.1% q/q and 6.1% y/y. The RBNZ appears to be on hold for now, unless inflation isn’t in the target band by H2 2024, with the risk to rates likely to stem from sticky non-tradeables inflation.

• If the CPI rises 0.9% as expected, that would be the smallest quarterly increase since Q1 2021. The annual rate will be helped significantly by base effects from tradeables inflation as the Ukraine-war-impacted Q1 2022 +2.4% q/q drops out. More moderate non-tradeables, driven by lower construction costs, should also assist.
• Analysts’ estimates are in a narrow range between 0.8% and 1.2% q/q and 5.8% and 6% y/y. ASB and Westpac both expect 0.9% & 5.9%, ANZ 1.0% & 5.9%, Kiwibank 1.0% & 6.0% and BNZ 1.1% & 6.0%.
• The tradeables CPI is forecast to rise 0.9% q/q in Q2 after 0.7% and domestically-driven non-tradeables by 1% following 1.7%. The latter will be watched closely for signs that it is “sticky”.