Elsewhere in South Korea, expect President Moon to announce his pick for the rest of his Cabinet where we eye his choice for Finance Minister given strong expectations for the President to deliver on his promise for fiscal stimulus. As such, we opine for strength on KRW to persist through the week, with the USDKRW pair likely to drift clos

15 May 2017

Rates & FX Market Weekly

Strong Rebound on USD Following 4 Consecutive Weeks of Losses

Highlights

Global Markets

¨      Amid a relatively light US economic calendar in the week ahead with only IP, housing and weekly claims data due, attention could turn towards Fedspeak by Mester and Bullard, as markets eyed another 25bps FFR in the June FOMC meeting. Further escalation against the Trump administration is only expected to have marginal impacts on USD and UST movements in the week ahead, with the street increasing pessimistic towards any business-friendly reforms over the near-to-medium term; stay neutral USD.

¨      With markets increasingly fixated towards the June ECB meeting post-French Presidential elections, 1Q17 preliminary GDP and April CPI print will be closely watched, with any material disappointment likely to weigh on the EUR and EGB yields in the week ahead. French President-elect Macron has also revealed most of En Marche candidates in the upcoming Legislative Election, with the remainder likely to be announced in the week ahead. Current polls suggested a comfortable lead by EM/MoDem, although the combined numbers fall short of the projected votes by FN+FI, which may set a challenging environment for Mr Macron; stay neutral EUR.

¨      Over in the UK, expect a busy economic calendar including CPI, Labour and Retail Sales data due. CPI is expected to tick further higher given base effects and the y-o-y decline in the GBP, while labour and retail sales data are mostly expected to remain relatively healthy. GBPUSD remains below the 1.30 resistance, although the pair may test the level on any material USD weakness in the week ahead; we stay neutral GBP ahead of the UK snap election.

¨      Turning to Japan, we see a heavy economic calendar in the week ahead, with consensus expected a moderately stronger 1Q GDP and IP print. We expect BoJ to remain cautious despite the strengthening economic data as underlying inflationary pressures remain weak. USDJPY however, is likely to continue on its upward trend over the coming weeks, as investors continue to unwind safe haven bets and position for further widening in the Fed-BoJ policy rate differentials.

¨      Lastly, investors should also expect a busy economic calendar in Australia with home loans, consumer confidence, and labour data due, although we continue to expect a neutral RBA rhetoric over the coming months given the still-mixed domestic outlook, coupled with the recent fallout from the iron ore markets, which may increasingly come into the bank’s attention over the near-term. AUD remains vulnerable to shifts in iron ore sentiment, and may also take cues from Chinese TSF data due in the week ahead; stay neutral AUD.

AxJ Markets

¨      While April’s aggregate financing print is likely to signal further financial deleveraging in China, China’s sanguine economic outlook alongside prudence from policy makers to keep a close eye on economic growth and adjust the pace of deleveraging could suggest for opportunities for investors to add CGBs at current levels; expect robust retail sales and IP print to further reinforce China’s sanguine economic outlook.

¨      Elsewhere in South Korea, expect President Moon to announce his pick for the rest of his Cabinet where we eye his choice for Finance Minister given strong expectations for the President to deliver on his promise for fiscal stimulus. As such, we opine for strength on KRW to persist through the week, with the USDKRW pair likely to drift closer the 7-month low of 1,110 sustained in March. Meanwhile, prospects for further BoK easing remains dim amid the rising household debt levels, where we expect KTBs to take directional cues from USTs over the coming weeks; keep a neutral duration view on KTBs.

¨      Turning to Singapore, resilience on NODX and 1Q final GDP print could help to bolster strength on SGD against its AxJ peers following the prior’s week underperformance; yields on SGS to take directional cues from USTs. In Thailand, expectations remain skewed for a strengthening 1Q GDP growth underpinned by robust export figures which could underscore a neutral BoT stance through 2017; expect ThaiGB curve to steepen modestly over the coming months.

¨      Over in Malaysia, 1Q17 GDP data print is expected to come in strong at 4.6% y-o-y, supported by strength in high-frequency indicators, and explicitly acknowledged by the BNM in its latest policy statement. April headline CPI should remain elevated, although recent softness in oil prices and the stabilising MYR may reduce the pass-through impact on 2H17 inflation; stay neutral MGS, with BNM likely to keep the status quo over the rest of the year. In Indonesia, April trade data is likely to log double-digit growth amid improving external conditions YTD and base effects. Subsequently, BI reconvenes on 18 May, where we expect a largely unchanged rhetoric given lingering macro risks and the bank’s cautiousness towards any potential outflows, especially given the Fed’s recent hawkish bias; stay neutral IDR.

  

Weekly Positioning

	Rates	FX
Overweight
Mild Overweight	Core EGB	USD
Neutral	UST, GILT, ACGB, SGS, KTB, CGB, MGS, IndoGB	EUR, GBP, AUD, JPY, MYR, THB, SGD, IDR
Mild Underweight	ThaiGB	KRW, CNY
Underweight	JGB

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