25 May 2015
Rates & FX Market Weekly
Muted Global Data; Asia to be Driven
by Domestic Developments and Auctions; BoJ Minutes Likely to be a Non-Event
Highlights
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Global Markets: A short week in US with a
handful of US data including 1Q15 GDP, core PCE and home sales prints. While
markets may have priced in a lower GDP growth estimate in 1Q15, we expect some
downward UST yield pressure should a negative q-o-q growth print materializes.
Over in the UK, higher 1Q15 GDP estimate is expected to reflect the resilience
in the services sector which could support the GBP. Turning to the Eurozone,
markets will take cue on further Greek developments, while we reiterate
caution towards excessive global DM duration over the longer term given
the likelihood of a potential bond rout. A quiet data week in Australia,
where we expect the AUDUSD pair to remain weak and break below the
near term support of 0.7858, taking into account the weak Chinese PMI and
the possibility of further easing by the RBA; dovish developments remain
constructive for the upcoming 4y and 10y auctions. Else, BoJ’s
April meeting minutes and monthly economic report are likely to be a non-event,
as the firmer 1Q GDP print reinforces BoJ’s near term sanguine outlook, keeping
expectations for further QQE stimulus at bay. We expect sideways movements
on JGBs as investors shrug off the stagnating CPI and IP while USDJPY could
face a strong support at 120.5.
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AxJ Markets: Relatively quieter AxJ data
calendar in the week ahead; expect bond auctions to drive sentiment.
Although the Thai trade data is likely to signal an upbeat print, we expect THB
and ThaiGB to remain soft in the week ahead, dampened by uncertainties
following the Junta's decision to delay elections next year. In India, we look
towards 1Q GDP data which is expected to edge slightly lower but above 7%, intensifying
rate hike expectations in June. As such, expect demand to remain upbeat
on the primary front specifically for belly papers while the USDINR may trade
closer towards the 64.0 psychological level. Turning to Singapore, we
expect the marginal upward revision in 1Q GDP to offer little support to SGD
in the week ahead and little influence on the upcoming 10y SGS new issuance
(SGD2.6bn) which is expected to offer +20bps pickup over 10y UST.
Meanwhile, despite the quiet economic calendar in China, we expect demand
for the 5y CGBs to remain firm following the manufacturing PMI contraction
print last week. Firm support for the Jiangsu and Xinjiang municipal bonds
seen this week are also likely to follow through for the Hubei bond issuance
this week, with yield cut-offs similar to CGB levels. In Indonesia,
expect a thin calendar week where markets will continue to digest BI’s
decision. Nevertheless, expect the recent outlook upgrade from S&P to offer
some reprieve to the IDR.
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Selected Trade Reviews:
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Trade Idea: Long 10y KTB vs 10y UST (Current:
26bps; Entry: 54bps; Stop Loss: 100bps; Target: 10bps)
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Little upside for re-entrance BoK’s dovish
tilt to anchor short end rates in Korea and prospects of a steeper KTB curve.
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Trade Idea: Short EURUSD (Current: 1.1094; Entry:
1.1137; Stop Loss: 1.1679; Target: 1.0720)
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EUR’s strength is unlikely to be sustainable
over a prolonged period given the divergent economic conditions between the US
and Eurozone.
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Trade Idea: Short SGDMYR (Current: 2.6982; Entry:
2.6912; Stop loss: 2.7500; Target: 2.5000)
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Favour to neutralise position on lingering
downside risks to the pair
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Weekly Positioning
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Rates
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FX
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Overweight
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Mild Overweight
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P. EGB, ACGB, CGB, ThaiGB, IndoGB, GolSec
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USD
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Neutral
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UST, GILT,
C.EGB, SGS, KTB, MGS
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GBP, HKD, MYR, INR
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Mild Underweight
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RPGB
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EUR, AUD, JPY,
SGD, KRW, CNY,
PHP, THB, IDR
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Underweight
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JGB, HKGB
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