18 December 2017
Rates & FX Market Weekly
Last G3 Central Bank Meeting Before the Holiday Seasons
¨ As December FOMC came with no surprise, full attention will now shift to economic releases (core PCE, personal income and spending, durable goods orders and data for the housing sector will be the highlights of the economic calendar) and political developments. With a razor-thin majority in Senate after losing Alabama, Republicans are now facing internal dissensions as at least two Senators opposed the current bill amid further uncertainties. The clock is ticking as the Christmas recess looms, estimates on economic growth generated by tax cuts do not garner unanimity, while an agreement on a spending level for 2018 has not been reached with the deadline pushed further again to January 19th. We are mildly bearish USD and neutral UST.
¨ In Europe, inflation prints for the Eurozone and Germany will be under the spotlight following ECB Draghi's cautious optimism during ECB December meeting. Some volatility could arise from a regional election in Catalonia as a stress test for both Catalan nationalists and the government; we remain neutral EUR for now as long as the pair holds below 1.20. Over in the UK, uncertainties surrounding Brexit amid political revolt in the Conservative party will remain under focus. However, an expected weaker US Dollar should keep the GBPUSD pair in the 1.30/1.35 range in the near term.
¨ In Japan, BoJ reconvenes and should leave its monetary policy unchanged. No surprise is also expected to arise from BoJ Kuroda's press conference; we continue to expect the USDJPY pair to remain driven by US developments in the foreseeable future. We continue to eye the 111 support as a near term inflection level. With no key data due in Australia in the week ahead, expect trading sentiment to be dominated by global developments and any surprise in Chinese data.
¨ Expect a relatively quiet week ahead in China as only November property prices are due, with a weak print likely to stoke concerns among Chinese watchers of another downturn in the Chinese property cycle, which has been quite volatile over the preceding few years. Slowdown in the property markets have far-reaching impact on commodities and related sectors, and likely influence the degree of tightening PBoC is likely to pursue; we stay mild underweight CGBs at this juncture, though we exercise some caution towards various risks within the economy, including the property sector.
¨ Elsewhere, Singapore November NODX growth is expected to moderate from October's print, although overall trade activity remains bolstered by strong external sentiment. With the December FOMC a historical detail now, expect little movements in SGD assets in the week ahead, amid low trading activity typical of year-end periods; stay neutral SGD. Over in Thailand, Bank of Thailand is unlikely to deliver any policy surprise when they reconvene on 20 December, amid conflicting low inflation and brighter growth prospects. November trade data are also expected to come in strong, although unlikely to materially move markets; stay neutral THB.
¨ Over in Malaysia, November CPI is expected to moderate to 3.4% y-o-y (Oct: 3.7%), with higher price pressures remaining a not-so-distant threat to the central bank, which has signaled impending normalization of monetary policies. Foreign reserves are likely to stabilize or tick higher slightly as foreign capital continues to return to Malaysia; we are now mildly optimistic on the currency. With no economic data due in Indonesia, asset movements will be driven by dominant trading sentiment in the week ahead, although we do not expect much surprises give the subdued volume ahead of year-end holidays.
UST, GILT, Core EGBs, ACGB, SGS, CGB, ThaiGB, MGS, IndoGB
USD, GBP, EUR, AUD, JPY, MYR, THB, SGD, IDR, CNY
This message is intended only for the use of the person(s) to whom it is
addressed and may contain information that is privileged or otherwise protected
from disclosure. If you are not the intended recipient you are hereby notified that
any use, review, disclosure or copying of this message and the information it
contains is prohibited. If you receive the message in error, please notify the
sender by reply e-mail and discard all its contents.