Today’s Outlook:
– ECONOMIC INDICATORS: Building Permits (Sept) and Housing Starts (Sept) both fell more than expected and also compared to Aug. But thanks to data on Thursday showing US Retail Sales increased 0.4% in September, more than anticipated, while Initial Jobless Claims fell unexpectedly; the figures still maintain hopes of a “soft landing” for the US economy.
– US ELECTION: From small caps to Bitcoin to Dollar, some investors are looking for assets that could thrive under a second Donald Trump administration. Electability polls suggest the former president has taken a lead over Vice President Kamala Harris, although Harris has a narrow lead in this week’s Reuters/Ipsos poll. Trump’s trade is expected to focus on the power of tariffs, deregulation, and larger deficits. The Mexican peso, for example, is down 4% from its September high as investors worry about tariffs. Shares of Trump Media & Technology Group are up more than 140% since September 23. Some analysts see the Trump effect in the recent rise in bond yields and the US Dollar. The difficulty is separating politics from economics.
FIXED INCOME & CURRENCIES:
– US TREASURY YIELD fell as markets consolidated following big gains over the last month; market participants are used to the Fed’s less dovish stance in the face of stronger-than-expected economic data. The yield on the benchmark 10-year US Treasury note fell 2.1 basis points to 4.075%, from 4.096% on Thursday afternoon. The yield on the 2-year US Treasury note, which typically moves in line with interest rate expectations, fell 3.7 basis points to 3.95%, from 3.987% on Thursday afternoon.
– The US DOLLAR slipped after 5 consecutive sessions of gains as risk appetite improved following China’s stimulus announcement. However, the greenback looks set to record its third consecutive weekly gain. The DOLLAR INDEX (DXY), which measures the greenback’s strength against a basket of currencies including the Yen and Euro, fell 0.28% to 103.49, with the Euro up 0.3% at USD 1.0864. Against the Japanese Yen, the Dollar weakened 0.45% to 149.53.
ASIA & EUROPEAN MARKETS: Data on Friday showed CHINA’S economy grew at its slowest pace since early 2023 in the third quarter. CHINA 3Q GDP grew 4.6% yoy, above the 4.5% forecast in a Reuters poll but below the 4.7% pace in the second quarter. Industrial output and retail sales increased and beat expectations, but the property sector remained mired in decline. This morning will see another interest rate decision from the PEOPLE’S BANK OF CHINA (PBOC), where consensus expects them to lower the 5Y (Oct) Loan Prime Rate to 3.65%, from 3.85% previously, as well as the short-term benchmark rate to 3.15%, from 3.35%.
– CHINA STIMULUS: China’s central bank launched two funding schemes on Friday that will initially inject as much as 800 billion Yuan (USD 112.38 billion) into the stock market through newly created monetary policy instruments. The PBOC outlined the operational details of the swap and re-lending schemes first announced in late September, which aim to support the stable development of the capital market. INDONESIA: President-elect PRABOWO SUBIANTO and Vice President GIBRAN RAKABUMING RAKA officially entered the State Palace after the inauguration ceremony on Sunday (20/10/24) at Nusantara Building, parliament complex, Jakarta, at 10.00 WIB. Later that evening, the eighth president of Indonesia also announced the composition of his cabinet, named the Merah Putih Cabinet. He announced at least 48 ministers and five ministerial-level officials in his cabinet, as well as 56 deputy ministers to serve the 2024-2029 period. A number of ministers from the Joko Widodo administration are returning to Prabowo’s cabinet, including Sri Mulyani, Bahlil Lahadalia, Tito Karnavian, and Budi Arie Setiadi. In his maiden speech before lawmakers, Prabowo discussed a variety of issues, ranging from corruption, poverty, food self-sufficiency, energy selfsufficiency, downstream commodities, to Palestine.
Domestic Issue
Encouraging Local Governments to Issue Bonds/Sukuk, Government Collaborates with IFC
The Coordinating Ministry for Economic Affairs and the International Finance Corporation (IFC) have established cooperation to encourage local governments to issue regional bonds/sukuk. This was marked by the signing of an Advisory Engagement Letter by Deputy for Macroeconomic and Financial Coordination of the Coordinating Ministry for Economic Affairs Ferry Irawan and IFC, a member of the World Bank Group, represented by Manager Upstream & Advisory, INR Asia Pacific Department IFC Victoria Delmon. After the issuance of Law Number 1 of 2022 concerning Financial Relations between the Central Government and Regional Governments (HKPD) and Government Regulation Number 1 of 2024 concerning Harmonization of National Fiscal Policy (HKFN), the Deputy for Macroeconomic and Financial Coordination of the Coordinating Ministry for Economic Affairs together with the Director General of Fiscal Balance of the Ministry of Finance, the Director General of Regional Financial Development of the Ministry of Home Affairs, and the Deputy for Economics of the Ministry of PPN / Bappenas, have actively encouraged Regional Governments to develop creative financing to meet the high needs of regional infrastructure development amidst budget constraints from the Central and Regional Governments themselves. One of the creative financing instruments that can be chosen by the Regional Government as stipulated in the HKPD Law and HKFN PP is regional bonds and / or regional sukuk. (Kontan)
Recommendation
US10YT seems stuck at the yield resistance level of 4.10%, with the tendency of RSI negative divergence. Could be an indication of a temporary yield pullback to the Support level of 4.07% or Neckline 4.02%, or up to MA20 / yield 3.95%. ADVISE: assume the yield uptrend is still intact if the yield is still above MA10; with the upside TARGET still the same at 4.30%. However, it’s best to set your Trailing Stop, to anticipate where the bond price will go next.
ID10YT seems to still need to find a more solid Support to stop the rate of decline in yield, most likely will approach MA50 & MA20 in the range: 6.615% – 6.590% . Conversely, if the yield rises above MA10 / 6.70%, then the bullish swing continues towards 6.80%. ADVISE: HOLD; WAIT & SEE where the yield moves to determine price’s direction.
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