USD Rally Continued Post US Presidential Elections Amid Speculations for Higher Fiscal Spending

14 November 2016

Rates & FX Market Weekly

USD Rally Continued Post US Presidential Elections Amid Speculations for Higher Fiscal Spending

Highlights

¨   Global Markets: A period of uncertainty is likely to persist while president-elect Trump handles transition planning, heightening volatility. The main catalysts for 4Q16 remain Fed expectations to hike rates and the Trump-effects on markets, likely to support the USD while we are cautious on 10Y UST below 2.17/2.20%. Focus on any inflationary pressures via Retail Sales, PPI and CPI; remain neutral USD and mild overweight USTs. In Europe, Brexit is the main theme of the Euro Finance Week and investors will keep an eye to ECB’s Draghi meeting with the Bank Of Italy Governor and Finance Minister ahead of the December 4^th referendum before shifting their attention to EU and German GDP; remain neutral EUR.  In the UK, October’s CPI due is expected to climb amid a tighter output gap alongside the sharp GBP declines since the referendum, although unlikely to materially shift expectations at this juncture given BoE’s more neutral rhetoric. Labour and retail sales are likely to be closely watched as well; remain neutral Gilts. In Japan, PM Abe is scheduled to meet with President-elect Trump when the US election result has been the best “monetary policy” with the JPY weakening significantly. On the economic front, watch the GDP release to refocus on onshore matters where according to BoJ hints of more easing will depend on price momentum; remain neutral USDJPY below the range top at 108. In Australia, RBA minutes due may shed further insights into the bank’s take of the economy, though the rhetoric is unlikely to substantially differ from the November statement. Employment numbers will also be closely watched given the recent focus on the labour market, though Australian assets are likely to take cues from global markets as uncertainties continue to permeate sentiment; stay neutral AUD.

¨   AxJ Markets: The week ahead will kick start with Chinese aggregate financing, IP, and retail sales data, where we expect little surprises from the data which could undermine PBoC’s neutral monetary policy stance; expect volatility on the USDCNY pair to remain manageable amid prudent PBoC FX interventions. Singapore’s NODX growth is expected to remain in the negative region, offering little optimism to lift the depreciating SGD; keep a cautious stance on SGD, with the USDSGD pair likely to test the 1.42 resistance. In South Korea, we expect the weak EM sentiment to continue to weigh on KRW and dampen demand for the 10y KTB reopening; increasing external downside risks to economic growth could partially cushion the protracted rise on short dated KTB yields amid lingering BoK rate cut prospects. Movements in Malaysian assets are likely to remain driven by global market developments and month-end OPEC meeting expectations; MYR volatility to remain stretched given the currency’s high beta, despite a robust 3Q16 GDP print softening the prospects of an imminent BNM rate cut; we revised our USDMYR average forecast over 4Q16 to 4.23, amid strong USD momentum ahead of the December FOMC meeting. In Thailand, the foreign reserves data could provide colour on BoT’s FX policy stance while prospects for another 25bps BoT rate cut anchors short dated ThaiGB yields. BI reconvenes on 17 November, where the bank is likely to remain in easing mode amid weak 3Q16 GDP growth and subdued CPI, but delivering a 3^rd consecutive 25bps rate cut may be constrained by recent volatility in financial conditions. We eye for BI to stand pat in its policy meeting, with the bank retaining the capability to curb excessive volatility given the re-accumulation of foreign reserves over the past months; stay neutral IDR. In India, CPI is expected to edge lower on favourable monsoon effects, with another 25bps rate cut in December remaining on the table; India remains in a good position to maintain currency stability given robust foreign reserves (Sep: USD372bn); stay neutral INR.

   

Weekly Positioning

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