BoT Reconvenes in the Week Ahead With a Status Quo Decision

19 December 2016

Rates & FX Market Weekly

BoT Reconvenes in the Week Ahead With a Status Quo Decision

Highlights

¨   Global Markets: After the widely anticipated December rate hike, market participants will return to day-to-day business eyeing President-elect to continue nominations and economic data such as Personal spending which likely picked up ahead of the festive season although last retail sales disappointed; while market can take cues on macroeconomic numbers, USD strength is likely to pursue on ongoing Trumponomics hopes into the first part of 2017 before fading thereafter; remain neutral USD. In the UK, investors are likely to eye PSNB, consumer confidence and 3Q16 final GDP due, with downside surprises in the latter 2 indicators to be GBP-negative, although we expect trade-weighted GBP to be relatively anchored versus most of the G10 currencies over the remainder of 2016. However, discussions over the triggering of Article 50 and negotiations with EU will likely be in the limelight into 1Q17; stay mildly bearish GBP. In Europe, the economic calendar will be dominated by German IFO surveys and final French 3Q16 GDP reading. We maintain the mildly bearish call on the Euro as the EUR/USD broke below the key support at 1.0450 opening further drop to parity in line with our expectations of a choppy start of the year with French Presidential elections monopolizing headlines. In Japan, a light economic calendar awaits investors with BoJ expected to remain on hold on Tuesday; the JPY is likely to remain under pressure due to the Dollar strength momentum. In Australia, RBA minutes due are likely to garner relatively little attention, largely reiterating the recent rhetoric; we continue to back a neutral AUD stance over the medium term.

¨   AxJ Markets: China will conclude its CGB issuance calendar on 21 December with the 3y and 7y CGB reopenings, where the modestly higher yields are likely to underpin decent demand from domestic real-money investors. Pressure remains on PBoC to mitigate volatility on the USDCNY pair as it trades less than 1% away from the psychological 7.00 barrier, with reform efforts to spur deleveraging to exacerbate liquidity concerns ahead of the Chinese New Year; maintain mildly bearish CNY. Elsewhere in Thailand, expect a status quo decision from BoT, as the gradual but steady economic recovery affords BoT to preserve monetary policy space ahead of an uncertain year ahead; remain constructive on short to mid dated ThaiGBs as we continue to pen in one more 25bps BoT rate cut over 2017. Meanwhile, the South Korean advance trade data is unlikely to provide much surprises, with the soft economic outlook exacerbating the climb on the USDKRW pair; expect another 12.5bps BoK rate cut with USDKRW testing the 1200 handle in the week ahead. Turning to Singapore, while the bright spark from NODX may lift the upcoming IP print, expect optimism on SGD to remain limited, where we reiterate our mildly bearish view on SGD over the medium term. Over in Malaysia, November CPI is expected to remain subdued (consensus: 1.3% y-o-y), although unlikely to materially move the markets given investors’ overarching concerns over tightening US rates; foreign reserves as of mid-December should stabilise as inflows returned to EM markets over the period. In any case, we expect global market movements, the outcome of the BoJ meeting alongside year-end rebalancing flows to be major catalysts on the Malaysian, Indonesian and Indian markets in the week ahead, especially for the latter 2 markets with no major economic data due.

   

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