Friday, October 28, 2016

* Stay Long USD – Trend is Your Friend. USD strength returned amid steepening in UST curve (2s10s at +97bps, widest since May 2016). 10Y UST yield is now at 4-month high of 1.86%. Elsewhere, Trump regained som


*       Stay Long USD – Trend is Your Friend. USD strength returned amid steepening in UST curve (2s10s at +97bps, widest since May 2016). 10Y UST yield is now at 4-month high of 1.86%. Elsewhere, Trump regained some momentum with Clinton-Trump spread narrowing to 5.5 from 7.4 (RealClearPolitics). Looking on, better than expected US core PCE, 3Q GDP and US payrolls could provide the catalysts for further USD upside. In the lead-up to FoMC meeting and US payrolls (next week) and US Presidential Elections (outcome uncertainty) week after next, we reiterate our bias for USD strength against most currencies including Asian currencies. We expect USD strength to be more pronounced against the lower yielders, central banks where monetary policy remains on easing bias and countries that are still facing sluggish growth + subdued inflation). We still look for a potential move higher for USD index towards sub-100-levels. Amongst Asians, we expect JPY, SGD, KRW to remain weak. We see risk of USDSGD, USDJPY, USDKRW pushing towards 1.41, 107, 1155 levels, respectively. USDMYR resistance likely to be capped at 4.25 levels as oil price stability provides buffer against declines. Our in-house model shows S$NEER at about 1.1% below the implied mid-point of 1.38 levels, with the upper bound at 1.3520 and lower bound at 1.4080.

*       Focus on RBA, BoJ, FoMC, BoE; US NFP; Core PCE. We expect all 4 central banks to maintain monetary policy status quo. On RBA, we do not find compelling reasons at this stage for RBA to ease but expect RBA to keep its door open for easing opportunity in May-2017. For BoJ, while our house view expects status quo, we do see some of rate cut further into negative territories. For BoE, we expect MPC to hold their horses given that the performance of the UK economy held up much better than expected amid rising inflationary pressures. For US, we reiterate our long standing view for Fed to raise rate by 25bps in Dec meeting. For US payrolls, market expects +173k for NFP and +0.3% m/m for hourly earnings. We expect further steepening of UST curve and USD strength on upside surprise to data.
*       Another Round of Growth and Inflation Data Due. Other data we are watching next week include US Sep PCE core; Chicago PMI; Euro-area CPI; JP retail sales on Mon. For Tue, Mfg PMIs from China, US, UK, JP, ID; NZ GDT auction results; RBA and BoJ meetings. For Wed, US ADP, ISM NY; Euro-area Mfg PMI; AU Building Approvals; NZ labor report and Inflation expectations; UK construction PMI; SG, MY, PH PMIs. For Thu, US FoMC (2am SG/KL time); ISM non-mfg; BoE Meeting/QIR report release; UK services and China Caixin PMIs. Fri brings US payrolls; AU retail sales; Euro-area PPI, services and composite PMIs; Malaysia and US trade data. Central bank speaks include Fed’s Fisher and Lockhart on Fri; ECB’s Coeure and Constancio also scheduled to speak on Fri. MY and PH markets are closed for holidays on Mon; PH market is closed again on Tue Japan market is closed on Wed.

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