FW: CIMB Macro Outlook & Strategy - 2018: Sensibilities At The Exit Queue

 

RATIONALE SUMMARY

• 2018 will continue to witness the withdrawal of easy monetary policy through both the interest rate and QE mechanisms. The US FOMC, ECB, and BoJ are likely to remain in orderly queue as monetary policies are being recalibrated and are likely to keep a furtively watchful eye over the financial markets.
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• Hence, our central case is for policy normalisation to be protracted, gradual, and at varying speeds, amid an incomprehensive global economic recovery. Central bank guidance by the advanced economies will likely retain a constructive ambiguity which allows for directional restraint.

• ·  In the absence of exciting catalysts from monetary policy, trade and government spending will remain important factors for markets analysis in 2018. Geopolitical and political risk events will also be important as part of the alpha calculus.

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• Headline inflation trends and the re-pricing of commodities in 2018 will be important market drivers, and the cyclical upswing on this front, driven by infrastructure spending by the China and US should not be underestimated. While inflation is apparently negative for real yield generation, risk and asset-specific opportunities are likely to surface from this theme.

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• EM Asia's external strength supported by an improvement in the global growth cycle will continue to attract capital inflows to the region. Furthermore, the mild divergence of interest rates between the EM and DM amid low financial market volatility will reinforce the carry trade.

• ·  Risks in 2018 include continued tensions in North Asia, cracks in political unity across the developed world, missteps in policy adjustments from the G3 as well as sensitivity to China's regional ambitions. Harder-to-manage systemic risks include China's shadow banking system, the narrowing savings and investment gap, and mean reversion in volatility as well as asset valuations.

Best Regards,
CIMB Treasury & Markets Research-Fixed Income
Tel: +603 2261 8557 | Fax: +603 2261 8705
www.cimb.com
Find us on Bloomberg at CIMR <Go>


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