ASIA STOCKS: Tech Related Plays Continue To Rally, Thailand Up Ahead Of BoT
Regional equity markets are still disrupted by holidays with China and South Korea remaining out, while Hong Kong markets are also out today. For those markets which are open, the tone is mostly positive, particularly tech sensitive plays. The on-going rally in US tech related indices amid AI/chip related gains is a positive for the region. The SOX rose 2.89% in Monday US trade, as AMD, the chip maker, announced a deal with OpenAI.
- Japan markets are tracking higher, with the NKY 225 up a further 0.75%, while the Topix is up 0.40%. There have been lots of headlines today, as the government looks to provide of cost of living relief but is also mindful of fiscal constraints (high debt to GDP the country faces). We also had stronger than expected household spending data, while FinMin Kato jawboned recent FX weakness. USD/JPY is little changed at this stage.
- The Topix Transport sub index is up a further 1.05%, while the banks index is down 0.49% (following yesterday's 1.89%). Incoming advisors to new PM Takaichi stated an Oct hike could be too soon for the BoJ.
- The Taiex index in Taiwan is up close to 2%, the fresh record highs. Chip bellwether TSMC continues to surge in local trade.
- In South East Asia the nest performer is Thailand up over 1.4%. This puts the index back above the 1300 level, back close to mid Sep highs. We ahve the BoT meeting tomorrow, where a rate cut is expected. Via the Bangkok Post: "The first set of measures focuses on simplifying initial public offering (IPO) rules to streamline listing procedures, reduce regulatory barriers and make the Thai market more competitive compared with regional peers." (announced by a Capital market taskforce) is also potentially helping sentiment.
- Other markets in the region are higher, although Malaysia is a laggard, down around 0.75%.
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LOOK AHEAD: US Macro: PPI (Wed) and CPI (Thu) Inflation
US PPI inflation is released on Wednesday before CPI inflation on Thursday, an unusual ordering that should see core PCE implications dialled in after the CPI release rather than the usual wide range waiting for specific PPI details. PPI will be watched more closely than usual this month after a far stronger than expected jump in last month’s July report fired a warning short over tariff-based cost pressures starting to feed through. That included a 0.6% M/M increase in our preferred core series of PPI ex food, energy & trade services, which strips out items such as the then booming portfolio management & investment advice category following the strength in equity markets. It's too early to gauge an accurate sense of analyst expectations for August.
CPI inflation on Thursday will then be the last major release ahead of the Sep 17 FOMC decision. Consensus looks for core CPI at 0.3% M/M after the 0.32% M/M in July, another monthly increase comfortably above a pace consistent with 2% inflation. August should in theory start to see the largest tariff impacts along with September and possibly October. Returning to July’s report, core goods inflation was softer than expected, at a still solid (by core goods standards) 0.2% M/M for a second month running but about half that of 0.4% expected by analysts. Instead, non-housing core services surprised higher. The latter was a “dangerous” development in the words of a usually dovish Chicago Fed’s Goolsbee (’25 voter), who speaking after Friday’s payrolls report is still undecided on a September cut whilst looking for August inflation data “to get more information”.
LOOK AHEAD: US Macro: Payrolls Preliminary Benchmark Revisions (Tue)
- The BLS on Tuesday will publish preliminary estimates of benchmark revisions, based off QCEW data for Q1.
- These will give an indication of the actual benchmark revisions on the Mar 2025 level of payrolls due with the Jan 2026 payrolls report released in early February.
- Bear in mind that the final benchmark estimate tends to nearly always be more negative than the preliminary figure – see historical values to the right.
- That doesn’t mean they can’t be large again after last year’s historically negative revision that lowered the level of payrolls by ~600k. Initial estimates we’ve seen look for another large downward revision, with the smallest being worth -550k but with wide ranges higher.
FED: Barclays Adds A Cut To 2025 Fed View
Barclays analysts now expect three Fed cuts in the remainder of the year, adding October to their pre-existing call for 25bp reductions in September and December. "Given the disappointing August employment report, we expect the FOMC to see more elevated downside risks to the employment side of the mandate."
- As for a 50bp September cut, "we think that the FOMC will view [that] as sending too strong a signal that labor market conditions are deteriorating. Indeed, we think that participants such as Powell understand that the slower pace of payroll employment reflects at least, in part, slower labor supply, which does not translate into increased labor market slack."
- For 2026 they continue to expect 25bp cuts in March and June to 3.00-3.25%, but "we do not think the FOMC will be able to cut rates more than twice next year, as we think that activity will show some slight acceleration, with the economy adapting to the new tariff environment and fiscal policy providing some support, and the unemployment rate will revert down amid limited increase in labor supply."
