¨ With the BoE meeting out of the way and Brexit talks taking a back seat into the summer break, IP and trade data due in the week ahead will likely take the spotlight. Influence on broad GBP movements is likely to b

7 August 2017

Rates & FX Market Weekly

US Politics and Investigations in Focus Post Strong NFP Print

Highlights

Global Markets

¨   As markets head full-force into the summer lull, and Congress adjourned for its summer break without any major legislative victory, there appears to be few major USD drivers on the horizon till the next Jackson Hole meeting; Fedspeak over the coming week (Bullard, Kashkari, Dudley and Kaplan) unlikely to shed any new insights. Data of interest in the week ahead includes wholesale trade/inventory and CPI, with the latter expected to print 1.8% y-o-y in July, although unlikely to reverse the current narrative of slowing price gains despite the tight labour condition; expect 10y yields to trade within the current defined range of 2.1-2.3%. Volatility may spike higher on any bombshell reports on the Trump administration amid low volume, as special counsel Mueller’s investigations move forward.

¨   With the BoE meeting out of the way and Brexit talks taking a back seat into the summer break, IP and trade data due in the week ahead will likely take the spotlight. Influence on broad GBP movements is likely to be limited after BoE refrained from shifting its usual rhetoric, with GBPUSD likely to stick around 1.30-1.34 over the coming weeks; stay neutral GBP. Elsewhere, expect a relatively quiet economic calendar in the Euro Area with only German IP, trade and final CPI data due in the week ahead. With net long speculative positions nearing all-time highs, speculators may push the EUR to test the 1.20 resistance, especially given DXY’s precarious level nearing 2016 lows; stay neutral EUR.

¨   With the USDJPY pair hovering marginally above the key 110 handle, the appetite for USD post NFP is likely to be the strongest catalyst as the pair treads precariously over the 110 handle, with investors likely to shrug off Japan’s PPI and foreign reserves data; expect muted movements on JGBs over the coming weeks. Over in Australia, expect a relatively quiet week with no tier-1 data due after RBA largely kept to its previous policy stance. AUD movements are likely to be heavily influenced by USD sentiment and key Chinese data in the week ahead; we maintain our neutral AUD stance.

AxJ Markets

¨   Key data out of China released over the coming week includes trade, CPI, and aggregate financing with the subdued CPI prints and moderating PPI data likely to remain supportive for the low term premia on the CGB curve over the near term. Meanwhile, aggregate financing is expected to print a touch lower in July post regulatory scrutiny in June, reinforcing our view for PBoC to resume its deleveraging efforts against the backdrop of steady economic outlook; expect movements on the USDCNY pair to be primarily driven by USD appetite post NFP in the week ahead.

¨   Over in South Korea, President Moon’s proposal to hike taxes for big corporations and high income earners to fund welfare services and job creation schemes could offset the weak sentiment from lackluster unemployment print, keeping KRW resilient vs regional peers. Bank lending to households is likely to register another jump in the month of July, but unlikely to spur any BoK tightening sentiment at this juncture; keep a neutral duration view on KTBs.

¨   In Singapore, we expect no surprises from the 2Q final GDP print given the stabilizing economic outlook underscored by external demand over the past quarter. Retail sales however, is likely to remain weak, highlighting the diverging pace of growth between the internal and externally oriented growth, which could support MAS’s decision to retain its dovish stance through early April; expect further outperformance on SGD vs regional peers to remain limited. Meanwhile, relatively quiet economic calendar in Thailand with the exception of the weekly foreign reserves data scheduled towards the end of the week. Resilience in THB is likely to remain supportive of offshore inflows into the THB bond market, keeping yields on ThaiGBs anchored at current levels.

¨   Keen attention will be on Malaysia’s foreign reserve numbers (mid-July: USD99.1bn) given June’s foreign outflows from govies and rising concerns over EM economies, with declines likely to stoke renewed worries over the country even as core fundamentals remain intact. Industrial Production is likely to expand 3.6% y-o-y in June (May: 4.6%) given the Ramadan holidays and high base effect, although unlikely to materially impact the MYR; stay neutral on the currency. Over in Indonesia, another m-o-m decline in foreign reserves may spark concerns of slowing or reversing external inflows, which may dampen sentiment among Indonesian watchers; we note that IndoGBs remain the top AxJ performer YTD, and may be susceptible to profit-taking if global sentiment turns for the worst. 2Q17 GDP print will also attract attention, with a >5% print likely to affirm Indonesia’s steady growth momentum amid the current challenging condition; we remain neutral towards the IDR.

Weekly Positioning

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

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