FW: RHB FIC Rates & FX Market Weekly - 23/10/17

 

 

23 October 2017

 

 

Rates & FX Market Weekly

 

 

Powell, Taylor the Frontrunners for the Top Fed Job

 

 

Highlights

 

Global Markets

¨   While the Fed Chairperson succession race should continue to drive bouts of volatility, markets' attention would probably shift towards the heavy economic calendar due in the week ahead: the US economy is expected to have expanded at 2.5% in 3Q17, while durable goods orders will be watched as well as a gauge of manufacturing growth. Although the economy remains for now on a firm path, we remain neutral on the USD as the political risks increase the chances of having no major legislation enacted before year end and even the 2018 midterm election despite a budget resolution adopted by the US Senate renewing optimism for a tax reform.

¨   In Europe, all eyes on the ECB anticipated to announce the future of its stimulus plan on Thursday. The sustained economic recovery in the Eurozone could lead to a potential upside rate surprise with the QE's recalibration although the recent ECB's rhetoric point towards a mild adjustment rather than an aggressive one in our view with monthly purchases likely to be halved for 6/9 months. While a taper tantrum is still possible, we rather defend the view of a gradual appreciation of the common currency in the medium term at this juncture as the APP reduction brings the end of QE in a nearer sight, although downside risks persist should the ECB turn more dovish than expected. The key EURUSD support remains at 1.1680. In the UK, GDP growth is also expected for 3Q17 and baring any negative surprise it should not alter the strong likelihood of BoE increasing rates in November. Brexit developments could however contain any upside pressure on the GBP as PM May and Brexit Secretary Davis are making statements before the Parliament and UK lawmakers respectively on the progress of the Brexit negotiations; remain neutral GBP.

¨   In Japan, PM Abe retained his coalition's two-third majority which subsequently weakened the Yen as the risk sentiment improved ensuring political continuity. However the room for further upside on the USDJPY remains capped at 115 resistance as global developments should resume driving the pair; remain neutral JPY.  Lastly in Australia, markets will likely focus on the 3Q17 CPI print due in the week ahead, with expectations for both the headline and average core numbers at 2.0% y-o-y. Any upside surprises will likely spur hawks into renewed RBA tightening bets, although our current base case remains for no rate hikes over the remainder of 2017; stay neutral AUD.

 

AxJ Markets

¨   With only Industrial Profit due in the week ahead, Chinese watchers will likely focus on the CPC meeting alongside the composition of the new PSC. While the outcome is unlikely to have a direct impact on asset movements over the near-term, the closing of the CPC may result in higher volatility in Chinese assets as trading activities resume. Still, recent Chinese data continues to reinforce a stable economic trajectory, where we continue to eye a neutral CNY stance at this juncture. Over in Singapore, September CPI due in the week ahead is not expected to tick higher from the 0.4% y-o-y logged in August, with MAS likely to retain its policy stance till at least the next review in April; an extraordinary policy review appears unlikely at this stage. Industrial Production data due in the week ahead will be closely watched, given the recent huge miss in trade numbers (often volatile), although the downturn is likely temporary as external conditions remain robust; stay neutral SGD.

¨   With little or no key economic data due in Thailand, Malaysia and Indonesia in the week ahead, expect global and regional sentiment to drive asset movements, alongside the usual month-end portfolio rebalancing flows.

  

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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