GS MORNING: 1 US PPI Recap, 2 Asia FX Update, 3 JPY Update, 4 Oil Tracker and 5 GS Space Webcast Replay

GS MORNING: 1) US PPI Recap, 2) Asia FX Update, 3) JPY Update, 4) Oil Tracker and 5) GS Space Webcast Replay

Highlights from GS Research, Sales, and Trading: 1) US PPI Recap, 2) Asia FX Update, 3) JPY Update, 4) Oil Tracker and 5) GS Space Webcast Replay

1) US ECON (MERICLE) – PPI Recap & PCE Estimation – LINK

PPI flat (MoM) for July: (+4.7% YoY) vs. GS +0.4%, median forecast +0.2%, prior revised -0.1%

PPI ex-Food and Energy: +0.2% (MoM) for July (+4.2% YoY) vs. GS +0.4%, median forecast +0.3%, prior revised +0.4%

PPI ex-Food, Energy, and Trade Services: +0.4% (MoM) for July (+4.7% YoY) vs. GS +0.4%, median forecast +0.3%, prior +0.1%

BOTTOM LINE: Core producer prices were mixed, with the producer price index (PPI) excluding food and energy increasing 0.2% in July, somewhat below consensus expectations, but the PPI excluding food, energy, and trade services increasing 0.4%, above consensus expectations. The PPI components relevant for PCE were on net weaker than our expectations. Based on details in the PPI and CPI reports, we estimate that the core PCE price index rose 0.20% in July (vs. our expectation of 0.23% prior to today’s PPI report), corresponding to a year-over-year rate of +3.24%. More than half of the increase in core PCE prices that we expect in July, 11bp, comes from an increase in the portfolio management and investment advice component of PCE driven by recent increases in equity prices. Additionally, we estimate that both the headline PCE price index and market-based core PCE increased 0.12% in July. Initial claims increased by 9k to 209k, somewhat above expectations.

Source: Goldman Sachs Global Investment Research, Department of Labor

2) GCEM MARKET STRATS (SUN LU) – Asia FX Update: KRW, TWD, CNH

KRW: We held a view that KRW should outperform from early Jul to mid-Aug, mainly driven by the US$26bn Hynix ADR conversion. KRW has performed strongly during this period, also driven by reduction of RHS hedging as KOSPI sold off meaningfully in July. From here, we think KRW is likely to trade in a range of 1390-1430. Hynix ADR conversion is likely behind us. Recovery of KOSPI may lead to increase of RHS hedging again. However, we are not observing outflows from rebal yet - as the concentration degree of Samsung+Hynix is still below the peak seen in late Jun (61% now vs 67% at the peak). In fact, we observed US$4bn equity inflow in the past 3 days, representing dip-buying demand in KOSPI. Though one-off peak exporter conversion is likely behind us, we think authorities are still likely to guide exporters to run a high conversion ratio. On the depreciation side, retail equity outflow is running US$3-4bn/month now. but we mentioned even so, with 70-50% high exporter ratio, monthly CA+capital account surplus could be at US$10-13bn, without considering KOSPI foreigner flow's impact. This may support KRW' resiliency as we are not observing meaningful rebal related outflows yet. However, if KRW appreciates to 1390, we think NPS may start to unwind its strategic hedging. The old formula for strategic hedging indicate the level to stop hedging is 1389 currently. Last year, we observed NPS actively buying back FX hedges once the level to stop hedging was reached (1350 area last year). Thus we think 1390 area should be a major hurdle for further