US - Housing could be heading into a recession.

• Following the US Fed’s 75 bps rate hike bringing the Fed fund to 3.00%-3.25% and Fed’s Chair view that they are prepared to sacrifice growth and jobs to ensure inflation comes back to target, we should hear more testimony from the other Fed officials this week.

• Based on the “hawkish” comments by the Fed, we expect another 75bps hike in November with another 50/75 bps hike in December.

• On the data side, it is light this week. Our focus will be on the housing numbers. House prices fell by 5% from its peak in May has more downside risk by 15%-20%.

• High inflation and rising borrowing costs will weigh on the housing market. Potential buyers are expected to pull back on spending.

• More pan is now envisaged in the housing market given that the mortgage rates is now firmly above 6% with increasing downwards pressure on the economic growth. We believe the housing market is heading into towards a strong correction that could lead to a recession.

Eurozone: Inflation is poised to stay high and unemployment to hover around 6.6% - 6.7%

• Inflation data will be the main focus in the eurozone. We expect higher prices partly due to Germany's decision to end cheap public transportation end August. Our focus is also to see how the other categories of the inflation basket have performed.

• Also, we will be looking at the unemployment data. We expect the labour market to remain very tight. The unemployment rate would remain around 6.6% -6.7% despite business hiring expectations sliding in recent months.

Regional PMI Readings: We Expect It to Remain Weak

• China’s PMI is envisaged to stay weak dragged by the ZCP. It would contribute to falls in orders, employment and business confidence.

• Despite expecting a weak Caixin Manufacturing PMI and NBS non-manufacturing PMI for the fourth straight month, the impact could be cushioned to some degree by the large-scale and state-owned firms. Their manufacturing PMI orders and input costs as well as business sentiments are to remain stable as opposed to the private companies.

• In Japan, we believe that the reopening of the economy is likely to support service sector activity. Thus, the composite PMI is expected to rebound mainly on a rise in the services PMI while the manufacturing PMI continues to fall.

• In Korea, local business are expected to deteriorate amid several headwinds, such as high interest rates both at home and abroad, production disruptions at major steel factories due to typhoons, and poor performance expectations in the semiconductor sector. The recent depreciation of the Korean won probably played a role in worsening the sentiment as well.

India: We Expect the Repo Rate to be Raised by 30bps

• The Reserve Bank of India will meet on 30 September to discuss interest rates. It is likely the Bank will hike its key repo rate by 30bps to 5.7%. As inflation rose from 6.7% in July to 7% in August, policymakers should continue to feel the pressure and increase repo rates in an attempt to cool the economy.

Malaysia: Producer Price Index (PPI) to ease in August.

• PPI is expected to ease in August after dropping to 7.6% y/y in July from 10.9% y/y in June 2022 (11.2% y/y in June). We believe the gradual easing of the cost of shipping goods worldwide would help ease pressure on the global supply chain that would also help Malaysia.

• While the input costs increased for the 27th month running in August based on PMI data, reflecting higher raw material and transportation prices, but positively the rate of inflation eased for the second successive month to reach the lowest since September 2021, as firms reported lower prices for a wide variety of inputs, most notably including oil.

• Also we expect the improved supply of intermediate materials to comfort the prices pressures.

• Any downwards stickiness could be attributed to the weak ringgit and high labour cost.

Source: AmInvest Research - 26 Sept 2022