Fed meeting minutes, US budget deficit grows fast, Thai exports unexpectedly expand

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Fed meeting minutes, US budget deficit grows fast, trade disputes, Thai exports unexpectedly expand

Against the dollar, Thai baht on the previous trading day closed stronger at 30.78.

Fed’s FOMC July-meeting minutes were released. There existed wide divergence of views: 50-bps cut, 25-bps cut, and holding rates unmoved. Such standpoint diversity in addition to market expecting extra cuts could be considerably challenging for Fed Chair Powell at the next FOMC meeting in September. The previous 25-bps cut was preventative and considered recalibration or mid-cycle adjustment, i.e. further sequential cuts are not necessary the case. And, tariffs became a persistent headwind to the economic outlook. Meanwhile, the US economy was solid in general.

Trade disputes are ongoing with not only US-China but also US-Japan and US-EU. As the US heavily relies on rare-earth minerals imported from China, President Trump, seemingly impractically, said that he was keen to buy Denmark’s Greenland as the island is expected to possess 39 million tons of rare earth elements, while the rest of the world totals 120 million tons. However, Denmark’s PM said the island is not for sale. Trump then cancelled the upcoming meeting with her. Besides, amid Trump back to threaten the EU on car tariffs, US-Japan trade talks are currently being held in Washington for two days. The US wants Japan to reduce tariffs on beef and pork, whereas Japan desires the US to diminish tariffs on auto parts and industrial goods. A US-Japan trade deal is nonetheless unlikely to conclude before Trump-Abe meeting in late September.

US budget deficit is expanding faster than projected. The deficit would reach USD 960 billion for the 2019 fiscal year, which ends 30 September. That gap would enlarge to USD1 trillion for the 2020 fiscal year. In May, the US Congressional Budget Office expected a deficit of USD 896 billion for 2019 and USD 892 billion for 2020.

After the EU rejected UK PM Johnson’s alternative proposal on the Irish backstop, PM Johnson met with German Chancellor Merkel and both were still optimistic towards a Brexit resolution. Nonetheless, French President Macron said that a no-deal Brexit became the likeliest scenario.

Thailand’s BoT MPC August-meeting minutes explain that the surprised 25-bps rate reduction was to enhance economic expansion and boost subdued inflation in light of intensifying external uncertainties. In addition, Thailand’s July exports growth was unexpectedly above market predictions, +1.55% yoy, or +4.28% yoy with special items (i.e. energy and gold related), vs -2.3% expectations. However, year-to-date (ytd) growth, January-July, still remains in the negative territory, approximately -2%. Meanwhile imports grew +1.67% yoy, -4.8% ytd, and the trade balance showed a surplus, USD 0.11 billion, USD 4.1 billion ytd.

Moving around 30.77-30.80 his morning, USDTHB could be between 30.74-30.84 today.


US 10-year-2-year spread briefly inverts again, Germany fails to issue 30-year zero-coupon bonds

Thai benchmark government bond yield (LB28DA, 9.3 years) on the previous trading day was 1.52%, -0.82 bps. Meantime, the latest closed Thai and US 10-year bond yields were 1.52%, -2.35 bps, and 1.59%, +4 bps, respectively.

Amid the release of FOMC July-meeting minutes, US treasury yields rebounded, while 10-year-2-year treasury spread was briefly negative again, implying that the Fed’s easing was possibly inadequate as markets were expecting.

Germany failed to issue newly introduced 30-year zero-coupon bonds, auctioned at -0.110% yield. Out of EUR 2 billion being offered, only 40% were sold in markets, while as high as 60% were unprecedentedly purchased by Bundesbank.

On yield spreads between long- and short-dated bonds, US 10-year-3-month spread inversion has been existing for 69 days in 2019. 10-year: 1.59% v 3-month: 1.97%, spread: -38 bps; while, US 10-year-2-year treasury spread: +3 bps. Thai 10-year-2-year government yield spread was 7.27 bps.

Thai benchmark government bond yield (LB28DA, 9.3 years) could be between 1.51-1.53% today.


Sources: Bangkokbiznews, BBC, Bloomberg, CNBC, CNN, Financial Times, ING, Investing.com, Reuters, South China Morning Post