FW: RHB FIC Rates & FX Market Weekly - 16/10/17

 

 

 

16 October 2017

 

 

Rates & FX Market Weekly

 

 

Heavy Chinese Economic Calendar amid the Leadership Transition

 

 

Highlights

 

Global Markets

¨   After FOMC September minutes showed a split on inflation among policymakers, greater clarity will be sought from Fedspeaks in the week ahead in the absence of any inflation related release. On the political front, as the tax euphoria broke we maintain our view that there are increasing chances that no major legislations would be enacted before the 2018 midterm elections on greater divisions within the Republican party. This should keep the USD under pressure over the medium term although the Fed's tightening cycle could pose a limited upside risk on the currency, which underscores our neutral USD approach.

¨   In Europe, the political risk receded since Catalonia's President sought to discuss with Madrid after the independence referendum; he is however under pressure to clarify the region's status which could drive bouts of volatility. That said, the bullish reaction above the key support at 1.1680 observed last week for the EURUSD pair added to the positive momentum and confirmed the lack of catalysts for a retracement despite the political jitters; yet we look at a break above 1.1870/1.1890 to clear any retracement risk.  In the UK, BoE Governor Mark Carney appears before the Parliament at the time the bank is widely anticipated to increase interest rate in November; while a hike is likely to support the allure of the Pound, it could further exacerbate future economic headwinds given the Brexit related issues; remain neutral GBP.

¨   In Japan, the week will be concluded by the result of the snap election (October 22^nd). While this adds some uncertainty to the near term currency outlook, we are looking at a two-third majority threshold to dictate the post-election gyrations. Should the ruling parties maintain such a majority, the JPY could weaken temporarily on receding political risk, while a mild appreciation could follow if they fail to garner a convincing result. Later on, geopolitical risks stemming from the Korean peninsula are likely to remain a key driver for the USDJPY; remain neutral JPY and seek short term opportunities within the 107/115 range. Lastly, September labour data due in the week ahead will be of great interest to Australian watchers, although RBA has make it clear that its reluctance to tighten monetary policy is not labour-related. While employment change numbers are notoriously volatile, expect the unemployment rate to remain stable or marginally lower over the coming months; we stay neutral ACGBs, in line with our UST duration stance.

 

AxJ Markets

¨   The 19^th CPC officially kicks off on October 18, with economic watchers likely to keep a keen eye on any shifts in top Chinese leadership, which may have far-reaching, long-term impacts on China and its economic partners. Expect a heavy economic calendar in the week ahead as well, with 3Q17 GDP and September CPI/IP/Retail Sales due; expectations remain for a stable or slightly improving Chinese economic trajectory, which should offer some optimism to global growth over the near to medium term. On the market front, the week ahead is likely to see stability in Chinese markets given the importance of the leadership transition process; a neutral CNY stance remains appropriate at this juncture.

¨   Over in Singapore, September NODX and electronic exports are expected to continue growing at double-digits on a y-o-y basis amid still-strong external conditions. With USD likely to remain broadly range-bound over the next 1-2 weeks amid a lack of positive catalysts, and the SGD NEER continuing to trade within the top half of MAS's policy band, we expect any strength in the SGD to be limited; a neutral SGD stance remains appropriate. Elsewhere, expect a relatively quiet week in Thailand with the Foreign Reserves print largely a non-event to market participants. Eye the 30y ThaiGB auction details in the week ahead; despite bond issuances skewed towards longer-dated papers, yields have gradually fallen in recent months on fading risk aversion and broad flattening pressures seen in global curves; we are now neutral towards Thai duration.

¨   Moving onto Malaysia, September CPI is expected to climb to 4.2% y-o-y (Aug: 3.7%); while headline inflation remains volatile, the higher print is unlikely to stoke concerns from BNM, who continues to see manageable price pressures over 2018. Despite EM-wide vulnerabilities, we expect USDMYR movements to remain contained; we eye the pair to average 4.22 over 4Q17. Last but not least, Indonesian September trade data is likely to reveal double-digit growth in both exports and imports, while BI is unlikely to change its benchmark rate in the week ahead after 2 consecutive 25bps rate cuts. Investors will eye the 3Q17 GDP print due in early-November, with another subpar print likely to renew BI easing chatters among market participants; stay neutral IDR at this juncture.

  

Weekly Positioning

 

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

 

 

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