Macro:

Federal Reserve Bank of St Louis president Alberto Musalem said on Monday that he supports more interest rate cuts, as the economy moves forward on a healthy path, while noting that it is appropriate for the central bank to be cautious and not overdo easing monetary policy.

"Further gradual reductions in the policy rate will likely be appropriate over time," the official said at a meeting of the Money Marketeers of New York University, noting that "patience" has served the Fed well. "I will not prejudge the size or timing of future adjustments to policy."

Musalem, who took office earlier this year and who does not hold a vote on the rate-setting Federal Open Market Committee (FOMC), spoke as the interest rate outlook has once again been upended.

On last Friday, the government reported data showing unexpected and very vigorous strength in the job market, which called into question widespread concerns that the labour sector was weakening. Last month, the Fed cut its interest rate target by half a percentage point to between 4.75% and 5%, because inflation pressures have waned considerably amid ample signs that the job market was growing softer.

The Fed had also penciled in half a percentage point's worth of cuts into the close of the year. But the strength of hiring in September has now called into question how aggressive the Fed will need to be with rate cuts.

Musalem noted that he supported the Fed's latest rate decision and said his outlook for monetary policy is "slightly above the median" projected by his colleagues. Fed officials see the federal funds rate around 4.4% by year end, and at 3.4% by the end of 2025, based on forecasts released at the September policy meeting.

Musalem argued for a cautious pace of rate cuts, even as he noted that he expects inflation to move back to 2% on a 12-month basis over the next few quarters, and sees the current state of the job market as consistent with a strong economy.

"Given where the economy is today, I view the costs of easing too much too soon as greater than the costs of easing too little too late," Musalem said. "That is because sticky or higher inflation would pose a threat to the Fed's credibility, and to future employment and economic activity," he said.

The official also said the September jobs data that rattled expectations was strong, while noting "the path I penciled in" for monetary policy at the most recent Fed policy meeting is "probably still appropriate".

"I believe the risks that inflation becomes stuck above 2%, or rises from here, have diminished," he added.

Musalem also noted financial conditions generally remain supportive of economic activity. He said he expects the expansion to continue but noted that uncertainty about the outcome of the Nov 5 US elections was causing some firms to hold back until they had more clarity.

Based on feedback from his district, Musalem said "I've heard enough 'survive until 2025' comments from business people and others, to believe that resolving some uncertainty about the path for interest rates or the election could provide a meaningful boost to investment and spending".

Musalem also said he saw no conflict between the Fed cutting rates and pressing forward with ongoing efforts to shrink the size of its balance sheet, a process known as quantitative tightening, or QT.

Musalem brushed aside worries about turbulence at the end of the third quarter in short-term markets that some investors saw. He argued for a near-term end to QT, noting that the Fed retains firm control over its interest rate target. As of July, market participants in a survey expected a spring end to QT, based on New York Fed data.

Source: The edge markets

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Emerging-market currencies declined for a fifth consecutive session on Monday as traders scaled back bets on another big interest-rate cut from the Federal Reserve amid signs of a resilient US economy.

The MSCI Inc gauge for developing-nation currencies closed 0.2% lower to post its longest streak of losses since July. The Malaysian ringgit and the Indonesian rupiah were among the worst performers in a basket of currencies tracked by Bloomberg. Oil prices rose as investors remain nervous about increased tensions in the Middle East.

Traders have been rethinking the path for the Fed’s policy easing since the release of stronger-than-expected US jobs data on Friday. US Treasury 10-year yields rose to trade above 4% as traders pared wagers on another half-point cut by the US central bank.

“The repricing of the US easing cycle is likely to keep EMFX under pressure in the short term,” said Luis Estrada, a strategist at RBC Capital Markets. Bearish bets on the US dollar are being dismantled, while some investors are also buying dollars to hedge their constructive wagers on EM rates, he said.

JPMorgan Chase & Co. strategists cut their recommendation on EM local-currency debt last week, citing the “big upside surprise” in payrolls and risks stemming from the US presidential election in about a month. That comes after EM local bonds posted their biggest quarterly advance since 2020.

The benchmark for emerging-market equities rose for a second day, mostly driven by gains in shares of Asian semiconductor companies. A subindex for Latin America stocks retreated. Optimism about stimulus measures has sparked a massive rally in Chinese stocks. Exchange-traded funds that buy the nation’s equities have seen billions of dollars in inflows.

China’s top economic planner will hold a press briefing on Tuesday to discuss a package of policies aimed at boosting economic growth. Details on potential fiscal policy stimulus will be key in determining whether the momentum of the current rally can continue or whether the relief might be only temporary, according to Nenad Dinic, an equity strategist at Bank Julius Baer in Zurich.

“In the short term, EM ex-China stocks may continue to underperform China due to rotational shifts in capital flows,” Dinic said.

In credit markets, El Salvador’s notes jumped after the government launched a tender offer for several debt instruments. Bonds maturing in 2050 rose as much as 2.8 cents on the dollar, indicative pricing collected by Bloomberg show.

Source: Theedgemarkets

Korea racked up a current account surplus for the fourth consecutive month in August, driven by robust exports, central bank data showed Tuesday.

The country's current account surplus reached $6.6 billion in August, marking a surplus for the fourth consecutive month, according to data compiled by the Bank of Korea.

The August surplus was smaller than the previous month's $8.97 billion.

The country's goods account racked up a $6.59 billion surplus in August following an $8.33 billion surplus the previous month.

The nation's outbound shipments rose 7.1 percent on-year in August to $57.45 billion, while imports increased 4.9 percent over the cited period to $50.86 billion, according to the central bank's data.

The primary income account, which tracks the wages of foreign workers, dividend payments from overseas and interest income, reported a $1.69 billion surplus in August, following a $3.15 billion surplus the previous month, the data showed.

The services account deficit narrowed to $1.23 billion in August from a deficit of $2.38 billion the previous month, it showed.

In the first eight months of the year, the country's current account surplus reached $53.6 billion, far higher than the $10.67 billion during the same period of last year.

The central bank said the surplus will continue throughout this year.

Source: Koreatimes