2Q2017 will be another important quarter although we do not envisage any change in the monetary policy. The debt ceiling issue could result in constrained US spending, particularly if the government fails to reform Obamacare. It negates the potential spending cut which could have be

2Q2017 will be another important quarter although we do not envisage any change in the monetary policy. The debt ceiling issue could result in constrained US spending, particularly if the government fails to reform Obamacare. It negates the potential spending cut which could have been used to boost infrastructure spending and institute tax reform. One area which is likely to get through is the amendments to Dodd-Frank for the banking sector, such as more lenient stress testing. With the relaxation in capital requirements, banks are expected to return excess capital to shareholders.

While French election may spark volatility in 2Q2017, we view that risks are already priced in. German election in September comes into focus in 2Q2017 after the French elections. An extension of the OPEC production cut beyond June 2017 could lead to a global oil market balance which is supportive of oil producing countries including Malaysia. The US dollar could see a correction if Trump fails to materialise his proposed tax reform and infrastructure plans, especially if an agreement on the government’s debt ceiling falls through. There could be a chance to buy long-term USD bonds i.e. 10Y and above, while the UST trades above mid-2% levels. Markets will begin to price in 2018 tightening cycles in the Euro and UK; investors should look to shorten duration there. Given our view of slower rate hikes, emerging market bonds including those in AxJ could see some inflows.

For equities, we downgrade the US to NEUTRAL. We are OVERWEIGHT on Asia ex Japan. Our top picks in 2Q17 are HK and South Korea due to their attractive valuation and earnings revision momentum. Southeast Asia could benefit from a potential further weakening of the US dollar and Malaysia seems the most attractive in the region as it is the cheapest in USD terms and in comparison to its historical average. Potential black swan noises in 2Q2017 would provide trading opportunities. Besides, lower real interest rates and volatility in the financial markets should see gold back on the radar. We reiterate our full year average 2017 forecast for the key currencies. In our base case, we factored in the macroeconomic policies and data and issues related to geopolitical and elections. We expect the currency to fluctuate in 2Q2017 around -/+1% from 1Q2017 average in our base case. But room for the currencies to fluctuate beyond our +/-1% i.e. to around -/+ 3% - 5% in 2Q2017 remains.

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The information and opinions in this report were prepared by AmInvestment Bank Bhd. The investments discussed or recommended in this report may not be suitable for all investors. This report has been prepared for information purposes only and is not an offer to sell or a solicitation to buy any securities. The directors and employees of AmInvestment Bank Bhd. Bhd may from time to time have a position in or with the securities mentioned herein. Members of the AmBank Group Bhd and their affiliates may provide services to any company and affiliates of such companies whose securities are mentioned herein. The information herein was obtained or derived from sources that we believe are reliable, but while all reasonable care has been taken to ensure that stated facts are accurate and opinions fair and reasonable, we do not represent that it is accurate or complete and it should not be relied upon as such. No liability can be accepted for any loss that may arise from the use of this report. All opinions and estimates included in this report constitute our judgment as of this date and are subject to change without notice.