Investment Bank Outlook 06-09-2021

Credit AgricoleAsia overnight: The downside surprise in the US non-farm payrolls data led to investors pricing in a delay to the Fed’s tapering of its asset purchases, which was supportive of sentiment. Japan’s equities also continue to rally after the resignation of PM Yoshihide Suga and helped drag Asian bourses higher, the majority of which were trading in the green at the time of writing. S&P 500 futures were trading slightly in the red at the time of writing. The USD was the strongest performer in G10 FX in the Asian session closely followed by the EUR and JPY. The AUD and NZD were the weakest performers.USD: The August NFP disappointed and thus left the Fed side-lined, still looking for further improvement of the US labour market conditions before embarking on policy normalisation. The fact that earnings data surprised to the upside likely added urgency to any decision to taper QE, although we doubt that the decision would come at the September policy meeting. Indeed, we may have to wait for the October NFP print and hope that it would offer conclusive evidence that sufficient progress has been made towards the Fed’s full employment goal. In the meantime, the USD may languish as investors reassess the prospect of taper in the near term. This week, FX investors will further focus on second-tier US data and Fed speakers as well as the near-term evolution of the pandemic situation to determine the timing of policy normalisation.CitiUSD ticked higher this morning to reverse some NFP miss induced losses on Friday which our Econ team see as likely enough to delay the Fed taper announcement to November. Equities mainly in the green with Japan indices leading after PM Suga’s resignation announcement. FX Flows relatively quieter with US out for labour day holiday; USDTHB outperforming EM Asia and we saw some selling interest amidst poor liquidity as Thailand’s PM survived the 3rd vote of no confidence over the handling of Covid. Looking ahead, focus turns to RBA, BoC and ECB this week. For the RBA meeting, our Strats base case is a potential delay of LSAP tapering whilst mild tapering could be likely for the ECB.

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