All Eyes on Prime Minister May’s Speech Later Today

17 January 2017

Rates & FX Market Update

All Eyes on Prime Minister May’s Speech Later Today

Highlights

¨   Global Markets: With US bond markets closed in observance of Martin Luther King Jr. Day, movements on the FX majors were relatively subdued with the exception of GBP as investors await UK’s Prime Minister May’s plan for Brexit. While GBPUSD edged higher by 0.44% yesterday to 1.2049, the currency remains vulnerable over the near term as incremental signals of a hard Brexit could exert pressure on GBP amid the transitional period. We have downgraded our GBP to a bearish stance, projecting for the currency to decline towards 1.10 by YE17; eye in particular details on access to the single market and immigration.

¨   AxJ Markets: Singapore’s December NODX print outperformed consensus expectations, expanding by 9.4% y-o-y (consensus: 5.8%; Nov: 11.5%), underpinned by strong performances from both the electronic and non-electronic sectors. The strong export growth was driven by demand from China (Dec: +33.5% y-o-y), fuelling medium term concerns on the sustainability of the recovery as China pushes through its plan to rebalance the economic focus towards services sector and scale up the manufacturing sector to higher valued added products. USDSGD inched marginally higher by 0.10% to 1.4303, where we reiterate our mildly bearish stance on SGD as vulnerabilities on the export dependent nation persists. Meanwhile, India’s WPI climbed to 3.4% y-o-y (Nov: 3.2%), but had marginal impact on GolSecs and INR overnight. Prospects for further RBI rate cuts remain elevated amid manageable inflationary pressures, where we opine for a 25bps rate cut to be delivered as early as February, which could buoy further gains on GolSecs; keep a mild overweight duration stance on GolSecs over the medium term.

¨   Indonesia’s trade surplus widened to USD992m (Nov: USD834m), underscored by another double digit export growth amid strengthening commodity prices. Easing restrictions on mineral ore exports is likely to remain supportive of Indonesia’s external balances over the near term, supporting resilience on IDR. Keep a neutral view on IDR over the short horizon as investors await further clarity on US fiscal outlook.