Fed & BoJ Policy Meeting to Take Spotlight in Global Markets

25 April 2016

Rates & FX Market Weekly

Fed & BoJ Policy Meeting to Take Spotlight in Global Markets

Highlights

¨   Global Markets: In the US, The Federal Reserve is meeting on Wednesday. Improving markets and encouraging data over the past month would have bolstered hawks though the probability of a rate hike is close to zero. Moreover, the preliminary 1Q16 GDP release expected on Thursday 28^th could in that sense influence sentiment hence USD direction. On another hand, 10Y UST are coming close to 1.90/2.00% which could lead opportunities for tactical long position.  A dovish Draghi reaffirmed ECB independence and commitment towards NIRP highlighting its policy is supporting growth condition for the return of inflation; remain mildly bearish EUR. Over in UK, 1Q16 GDP due in the week ahead is expected to soften from the 4Q15 print, with Brexit uncertainties likely to have a marginal negative impact (e.g. delayed consumption and investment) on headline growth; a positive surprise may drive GBPUSD to test the 1.45 level. We stay neutral on GBP ahead of the June referendum, while remaining cautious towards 2Q16 economic prints, weighed down by Brexit fears. In Japan, BoJ rate decision with MPM due on Thursday 28^th will be closely watched. Indeed along with possibility of further rate cut, BoJ may offer negative rate loans to banks alleviating pressure NIRP are putting on the banking sector and improving risk sentiment. As such and after already breaking through 110, JPY is likely to weaken further though heavy batch of data (CPI, IP, Unemployment) could create market noise. Australia, 1Q16 CPI is expected to remain flat from 4Q15 (1.7% y-o-y), with a softer print likely to spur RBA easing bets; stay neutral AUD as lingering optimism towards commodities and diminished easing expectations continue to attract carry-seeking investors.

¨   AxJ Markets: Singapore will issue the SGD1.3bn 7y off-benchmark SGS on 27 April where we expect demand to remain decent, underpinned by onshore investors; maintain neutral stance on SGS. Over on the macro front, the decelerating growth momentum in Singapore will place emphasis back towards the economic data, with any deterioration in unemployment rate and IP expected to be keenly watched. Turning to South Korea, the modestly stronger exports and IP in February are unlikely to spur an outperformance in 1Q GDP, keeping odds for BoK 25bps rate cut in 2Q intact; keep a mildly bearish stance on KRW over the medium term. A quiet economic calendar for China in the week ahead, with concerns on corporate defaults in China are likely to remain a key concern for investors, spurring demand towards the short dated CGBs. Elsewhere in Thailand, demand for the THB10bn 10y ThaiGB auction is expected to remain strong, given support from offshore players even as the trend for weaker exports is likely to be sustained through 1H16; keep a neutral stance on USDTHB, where we view BoT’s prudent management of foreign reserves to be a positive for the ThaiGB and THB market. On little key data in Malaysia, Indonesia and India, expect asset movements to remain driven by global market sentiment and month end portfolio flows; watch potential updates with regards to the BNM governor transition.

   

Weekly Positioning

	Rates	FX
Overweight
Mild Overweight	UST, C.EGB, ACGB, GSec
Neutral	GILT, HKGB, MGS, SGS, KTB, P.EGB, CGB, IndoGB	USD, SGD, HKD, INR, GBP, MYR, IDR, JPY, AUD
Mild Underweight	ThaiGB	EUR, KRW, CNY, THB
Underweight	JGB