While early voting has begun for South Koreans to cast their ballot for the Presidential Elections, the final count is expected to be announced on Tuesday. Security issues continued to dominate voters’ interest, where the conservative Presidential Candidate Moon currently holds a comfortable lead in the o

8 May 2017

Rates & FX Market Weekly

Political Risks Eased in Europe Following Macron’s Landslide Victory

Highlights

Global Markets

¨      In the US, retail sales are anticipated to have climbed in April (Consensus: 0.6%; March -0.2%), which might alleviate further concerns on consumer spending after a dismal first quarter. After a strong April NFP (211k; March: 98k), headline and producer inflation reports are due and might shed some light on the Fed’s ability to firm up its forward guidance towards a lift up of its benchmark interest rate in June; the current FFR implied probability remains steady above 90%. Finally amid recent geopolitical tensions, we will eye the meeting between Secretary of State Tillerson with his Russian counterpart Lavrov. We remain cautious neutral on USD and UST.

¨      Over in the UK, we get another BoE policy meeting on 11 May, where we expect another status quo decision. Market focus will be on BoE’s rhetoric which has been tilting towards the hawkish end, although recent GBP strength alongside the upcoming uphill negotiation with the EU may embolden the BoE doves. March production and trade balance prints will also be due, in which the GBP is likely to take cues from in the week ahead; stay neutral GBP.

¨      Emmanuel Macron, the centrist candidate won the French presidential election. After Brexit and Trump, the result came as anticipated by opinion polls and was almost fully priced in by markets which prevented wild swings on the Euro. Although the new president needs a majority now (Legislatives elections to be held on June 11^th and 18^th), the result considerably alleviates risks on the Eurozone since his pro-euro stance relieves markets, the ECB and the EU. Looking forward, we turn neutral on EUR as the ECB is likely to adapt the forward guidance of its monetary policy in line with the acknowledged yet slow economic recovery.

¨      Over in Japan, another quiet week with regards to economic releases: the Current Account and labour cash earnings are expected to remain stable and should not provide any surprise.  The USDJPY would likely continue to take cues from global developments and drift higher should global tensions ease; we eye the next resistance for the pair at 114.60.

¨      Lastly, the AUD is expected to take cues from retail sales and building approvals due in the week ahead, although iron ore price movements remain a major catalyst, with the on-going rout dragging the AUD towards its January lows against the USD. We expect developments on the Chinese front to continue influencing sentiment towards AUD, after a relatively calm period YTD; stay neutral AUD.

AxJ Markets

¨      While early voting has begun for South Koreans to cast their ballot for the Presidential Elections, the final count is expected to be announced on Tuesday. Security issues continued to dominate voters’ interest, where the conservative Presidential Candidate Moon currently holds a comfortable lead in the opinion polls at 42.6%, while his closest rival Presidential Candidate Ahn trailing behind at 20.9%. Keep a mildly bearish view on KRW, with the recent uptick in external demand likely to dampen the urgency for a supplementary budget following the election.

¨      Turning to China, we see a heavy economic calendar in the week ahead with investors likely to keep a close eye on CPI and aggregate financing, with a sharper than expected decline in the latter likely to support the upward climb on CGB yields and dampen sanguine outlook for business activity. Concerns of a moderating growth outlook could also seek to exert pressure on the CNY going forward, underscoring our preference to keep a mildly bearish view on CNY over the medium term.

¨      Elsewhere, we see a quiet economic calendar in Singapore and Thailand, with movements on SGS and SGD likely to be highly influenced by the global events scheduled next week; keep a neutral view on THB over the near term, with the comparatively lower volatility on THB likely to bolster allure for ThaiGBs. Demand for the 50y ThaiGB auction is expected to be anchored by domestic investors given weak offshore appetite for duration.

¨      Over in Malaysia, BNM reconvenes on 12 May, where consensus and we expects no change in the OPR. The statement is likely to remain upbeat towards global and domestic growth dynamics, while remaining cognisant of the rising inflation and stabilising MYR. Our base case remains for no change in the OPR over 2017; stay neutral MYR. In Indonesia, an increase in April foreign reserves number appears likely given continued external inflows, with a strong 1Q current account balance print further bolstering Indonesia’s perceived weakness in its external accounts. We continue to eye relative macro stability within the Indonesian space, given strong BI commitments towards the front; 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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