US Labour Market Data and Fedspeak to Fuel Speculations on FFR Schedule in the Week Ahead

US Labour Market Data and Fedspeak to Fuel Speculations on FFR Schedule in the Week Ahead

Highlights

¨   Global Markets: Fed left its rate policy unchanged in April as expected while providing a slightly hawkish statement signaling easing global concerns, balanced by a slowdown in US economy as reflected by the weakest in 2 years GDP growth recorded for 1Q at 0.5%. It is likely to exert downside pressure on USD unless good surprises come from PMI, ISM and NFP due this week while USTs remain attractive below 1.90/2.00%. Heavy data expected in Europe this week in particular Services PMI and PPI are likely to drive EUR movements for the week ahead; maintain a mildly bearish bias on EUR. Over in UK, support for the “remain” camp gathered momentum recently, although investors are unlikely to completely write-off a material likelihood for the “leave” camp to prevail still. PMIs due in the week ahead are only likely to impact GBP marginally, barring a huge surprise; remain neutral towards GBP. Expect a calmer week in Japan with 3 public holidays but upside pressures remain on the Yen following surprising BoJ decision to hold off on stimulus. Elsewhere, RBA reconvenes on 3 May, where the disappointing 1Q16 CPI print alongside persistent AUD strength could support the bank’s continued dovish tilt, although we expect no change in the cash rate; stay neutral AUD. The Australian budget will also be closely watched given the proximity to federal elections, where the Turnbull administration has to weigh between medium-term fiscal consolidation goals and bringing out the carrot to entice voters; expect a relatively balanced budget.

¨   AxJ Markets: Short dated CGBs are expected to remain supported ahead following the release of soft Chinese Caixin PMIs, which could reinforce the notion of PBoC easing stance towards 2H16; eye developments on the Chinese commodity exchanges nonetheless, which could shed new insights on authorities reform resolute and its stance towards sectors with overcapacity. Meanwhile, Singapore economic releases to be scrutinized, with mediocre PMI prints unlikely to douse further MAS easing speculations; downward pressure exerted on USDSGD amid softer USD movements could offer opportunities for domestic investors to switch out of mid to longer dated SGS into USTs. Turning to South Korea, weak export data, incrementally gradual pace of monetary tightening by FOMC, and manageable inflationary pressures could kindle the case for BoK to cut rates as early as this month, supporting KTBs climb over the near term. We maintain mildly bearish on KRW, with expectations for movements on KRW to decouple with JPY following any BoK rate cut. In Thailand, the steady but modest upward trend in CPI is likely to deter BoT in reducing rates further by 25bps, with strong demand for short to mid ThaiGBs likely to be sustained; we upgraded THB to a neutral stance, with prudent management of foreign reserves likely to shield the kingdom from external gyrations. In Malaysia, PMI is likely to remain soft amid mounting external challenge, although trade balance and foreign reserves data due have shown improvements; stay neutral MYR, with oil price movements and US/China data remaining material drivers of the currency. Over in Indonesia, CPI softened from the March print to 3.60% y-o-y, although we think BI is unlikely to cut rates ahead of August; stay constructive towards short-dated IndoGBs. With Nikkei India Composite PMI printing at 3-year highs in March, a strong April print will likely reinforce India’s healthy growth trajectory, although economists remain skeptical of India’s >7% GDP growth; stay neutral INR.    

Weekly Positioning

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