Post-APEC Trade Deals Eyed Amid Rising Protectionism Globally

21 November 2016

Rates & FX Market Weekly

Post-APEC Trade Deals Eyed Amid Rising Protectionism Globally

Highlights

¨   Global Markets: FOMC minutes should not bear any surprise as a December rate hike has been supported by Chair Yellen and various Fedspeaks, likely to fuel further USD strength into the remainder of 4Q16. Both existing and new home sales are anticipated to have eased in October; a future trend to watch as rising yields could dampen the sector outlook pointing to future policies uncertainties as highlighted by Yellen last week; remain neutral USTs. Over in the UK, attention will be on the Chancellor’s Autumn Statement, where he is set to deliver an update since the Brexit referendum. Keen interest will be on the updated economic forecasts and fiscal consolidation trajectory, where he is widely expected to scrap the deficit target as conditions deteriorated. Revised 3Q16 GDP print is expected to remain unchanged, with any surprises likely to move the GBP; remain mildly bearish GBP. In Europe, ECB Draghi will present the Bank’s annual report to the EU Parliament with investors eying any hints towards an extension of QE when inflation remains muted counterbalanced by the recent drop of the Euro. Additionally, PMIs for the block are expected to have stagnated in November, possibly reinforcing the need for further stimulus; remain neutral EUR. In Japan, inflation will be closely scrutinized to gauge effects of the recent JPY decline against the backdrop of USD strength while the BoJ has managed to keep a rather flat curve amid the global steepening trend, likely to continue to drive further JPY weakness. With no key data releases in Australia, expect the AUD to take cues from USD and Chinese developments in the week ahead, amid the gradual USDCNY upward ascend; stay neutral AUD.

¨   AxJ Markets: Quiet Chinese economic calendar in the week ahead, where investors’ focus is likely to be on post APEC discussions on trade pacts, with China committed towards deeper trade partnerships amid uncertainty over US-led TPP. Domestically, risk aversion stemming from heightening local government debt risk remains supportive on CGBs while the outperformance on CNY vs AxJ peers continue to raise concerns given the extent of overvaluation; maintain mildly bearish CNY. Meanwhile, Singapore’s final 3Q GDP print is expected to edge higher to 1.0% y-o-y (consensus), but remain in contraction on a q-o-q basis, heightening growth woes. While core CPI is expect to inch higher, it remains well within MAS forecasts; signs of reflationary pressure could further weigh on prospects for MAS to ease but providing little optimism for a strengthening SGD. In South Korea, we continue to eye the political risk, as opposition parties continue to call for President Park’s resignation, which poses a threat to economic growth and drive further KRW underperformance; keep a short duration tilt on KTBs. Over in Thailand, while the healthy 3Q GDP expansion is likely to underscore resilience on THB vs peers, BoT rate cut prospects are unlikely to be diminished, as external volatility alongside expectations for weaker domestic economic outlook ahead of elections next year; maintain mild underweight duration stance on ThaiGBs. Expect a busy calendar in Malaysia with foreign reserves due, after which BNM reconvenes its bi-monthly policy meeting on 23^rd November, where we expect a status quo decision given the solid 3Q16 GDP print and volatile financial conditions. October CPI print is due last, with any downward surprise likely to bolster the case for further monetary policy easing; stay neutral MYR. With no economic data due in Indonesia and India, expect asset movements to track global markets in the week ahead amid rising volatility.

   

Weekly Positioning

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