Monday, May 29, 2017

¨ In the US, the report on the labour market is the highlight of a busy week for economic data. The NFP number is expected to remain steady and to print aro

29 May 2017

Rates & FX Market Weekly

Eyes on US NFP Ahead of June FOMC Meeting


Global Markets
¨      In the US, the report on the labour market is the highlight of a busy week for economic data. The NFP number is expected to remain steady and to print around its yearly average. Data on personal spending and manufacturing will also be closely scrutinized as the Fed is looking for evidence to prove that the recent economic slowdown is only temporary. Fed Kaplan and Williams speeches are likely firm up expectations for a June hike; at this juncture, investors remain convinced that the Fed will raise the interest rate benchmark in June. We remain neutral on USD and UST.
¨      A relatively quiet week ahead in the UK with consumer confidence and mortgage approvals due on end-May, followed by the usual manufacturing PMI release on 1st June, with the latter likely to remain robust in spite of oncoming Brexit negotiations. Expect election campaigning to step up ahead of the June 8 election, with investors likely to focus on whether the recent Conservative-Labour narrowing gap will be sustained or not; stay neutral GBP over the near term.
¨      In Europe, the unemployment rate is expected to continue its decline (consensus: 9.4%; March 9.5%) while inflation numbers for the Eurozone and Germany are anticipated to have eased in May. We remain in the view that ECB is unlikely to taper its QE in 2017 as Mario Draghi reasserted that inflation is dependent on the monetary policy. Remain neutral EUR and watch the 1.1315/1.1340 resistance for the EURUSD where the pair could stabilize following the recent rally.
¨      Turning to Japan, Industrial Production is forecasted to have strongly risen in April (6.2% YoY; 3.5% in March) adding to the stronger growth momentum observed in Japan over the last months. Yet as inflation remains low, BoJ is likely to remain committed to its QQE; the USDJPY pair should continue to take cues from global developments and we eye 108.50 and 114.60 as first support and resistance respectively for the coming weeks.
¨      Elsewhere in Australia, expect a busy data week ahead with building approvals, private sector credit, manufacturing PMI, private capex and retail sales due. AUD watchers will likely divert greater attention towards the private capex and retail sales print, with the former expected to tick 0.5% higher q-o-q after a stretch of negative prints, while the latter has been a strong FX driver over the past few releases, with consensus expecting a 0.3% m-o-m gain despite the disappointment over the past 2 prints; stay neutral AUD.

AxJ Markets
¨      Heavy Asian economic calendar in the week ahead, with China kick-starting the week with official and Caixin PMI data. Further moderation in China’s PMI expansions is likely to fuel linger concerns within the AxJ bloc, but unlikely to materially impact PBoC’s deleveraging policies at this juncture; expect CGBs to continue consolidating over the near term. Meanwhile, the addition of a counter cyclical adjustment factor has been announced and is likely to begin in the week ahead, with investors likely to keep a close watch on fixing and spot CNY movements; keep a mildly bearish view on CNY.
¨      Turning to South Korea, investors await the 1Q final GDP, CPI, IP and export data prints for the month of May. While external trade data is likely to remain supportive of the improving economic outlook, we expect details on South Korea’s fiscal stimulus to be released over the coming months, addressing issues such as rising youth unemployment and spur the domestic economy. Movements on KTBs and KRW are likely to be broadly driven by the risk sentiment, with the post Presidential Election optimism spurring the USDKRW pair towards the 1,100 handle but unlikely to break the support convincingly.
¨      With strong economic growth over the past 2 quarters boosted by externally oriented industries, investors continue to keep a close eye on Singapore Manufacturing PMI prints due on Friday. We expect the USDSGD pair to remain heavily influenced by sentiment on the broad USD over the coming weeks, as subdued CPI prints provide little case for a tightening MAS stance in October. Additionally, we also position for a flatter SGS curve over the medium term, underscored by the tepid domestic inflation outlook.
¨      Elsewhere, strong Thai exports are likely to reinforce Thailand’s sanguine outlook but provide little case for any BoT tightening bias this year as the headline CPI print due in the week ahead is likely to signal the protracted period of soft inflationary pressures. Expect the low volatility THB to bolster the allure of ThaiGBs vis-à-vis regional peers, supporting further inflows into the Thai bond market; keep a mild underweight duration on ThaiGBs.
¨      With only money supply data due for the rest of May in Malaysia and Indonesia, expect the respective markets to take cues from global developments and market movements amid month-end rebalancing flows. Subsequently, May PMI prints are expected to reveal gradual strength in Malaysia and Indonesia amid upticks in confidence around the region, although China-induced fears still lingers on. May Indonesian CPI print is also likely to remain within BI’s expectations, with stable IDR movements YTD to anchor inflation the inflation outlook; expect MGS and IndoGB yields to continue ticking lower over the coming weeks, although inflows continue to remain vulnerable to external happenings.

Weekly Positioning


Mild Overweight
Core EGB

Mild Underweight

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