2015.08.03 Daily

In terms of the short-term market view, global bond market could try to be bullish in 3Q, under the range movement basically. I had concerned about intensifying inflationary pressure toward end of this year and this could push the market yield higher rapidly in line with Fed’s fund rate hike. The expectation of improving economic growth would be delayed, I thought, while it would robust at last. However, it will be likely more delayed rather than given expectation due to Chinese economic slowdown and lower wage growth in US than expectations. I trusted Chinese economy should turn to improve in 2H this year because recent import data, which is calculated by own using main Chinese trade partners including US, EZ, Japan, Korea and Taiwan, had shown the signal of being at the trough and recent upward pressure of BDI and upturn of Chinese residential market mean the possible economic fundamental improvement, I believe. Optimists about Chinese economy argued May’s exports data from Taiwan recorded high since end of last year and this could signal Chinese trade volume or global volume started to be turned to upside. This was in line with my argument. However, June data declined again back to its low level in Taiwan and Chinese HSBC manufacturing PMI indicated downward pressure in economy further. Under the downside risk in Asian economy including China, and subdued inflationary pressure under low commodities price and moderate wage growth in US, US Fed doesn’t seem to be hawkish from now on. So, the opportunity for capital gain in US bond market would be in long-end tenor. It would be somewhat efficient strategy in the environment that Fed increase rate in September, because long-end rate could maintain current level despite policy rate hike, under the woes about long-term growth and inflation.

I focused on ECI rather than hourly average wage, because the main rationale that wage growth pressure is lower against payroll data was proposed that the weight of low wage job have been increased relatively. Someone who is dovish argue this as the structural problem in labor market and secular downward pressure in wage, but another one who is dovish argue that the wage should increase rapidly at most and the ECI, which is consist of fixed weight of industries and jobs, showed rapid robust in 1Q, +2.6% on yearly base, and this meant the likely the possibility of increase of wage soon. That was ECI, but this ECI was very, very disappointed in 2Q, it was only 2% growth. Someone criticizes ECI as one of vulnerable data to interpret because the sample numbers is very small, and this low level was influenced by specific, sales job’s wage and the change of definition about retirement costs. But, including these perspectives, ECI was very low, apparently.

On the other hand, the commodities price would continue to face headwind due to a lack of demand led by Chinese economic slowdown and supply pressure from OPEC and US oil firms. Oil price had increased in 1H this year in line with the decline of US oil supply mainly, but investors were very disappointed to EIA’s report because they revised up the amount of supply from January to June this year. The faith on supply data in US diminished because of this upward revise. The oil price would continue to be pushed toward downside for longer time. This factor would make the inflationary environment more moderate, especially in 3Q and early 4Q this year.