FW: RHB FIC Rates & FX Market Weekly - 6/11/17

 

 

6 November 2017

 

 

Rates & FX Market Weekly

 

 

Good Morning, Asia

 

 

Highlights

 

Global Markets

¨   A quiet week is expected on the US economic front with no major release scheduled. As Powell's nomination brings a relative certitude to the Fed's outlook, markets are likely to track Trump's visit to Asia. In focus will be the meetings with South Korean President Moon amid tensions with North Korea and with Chinese President Xi where the trade surplus ran by China is likely to be called to mind by the US President. Lastly, developments on the tax plan would also continue to move markets. The House Republicans hopes to pass the bill before Thanksgiving (Nov. 23^rd) but hurdles remain casting clouds on the outcome since criticism mounts even on the GOP side as some Representatives might oppose the bill if deemed detrimental to their constituents while opinions on the economic impact remains split. We remain neutral on USD and UST.

¨   In Europe, in the absence of major economic data, attention will shift back to monetary policy since ECB'S President and several board members are expected to speak with investors eyeing any hints on policy developments following the dovish tapering. We remain neutral at this juncture on the EURUSD as developments on the other side of the Atlantic will probably move the pair in the coming days: the EURUSD shaped a pullback on the previous range in the 1.15 area yet only surpassing 1.17 would increase the conviction for a retest of the last highs. Turning to the UK, Brexit negotiations resume and will be in focus since stated as a considerable risk by BoE's Governor Carney which probably eliminated the most prominent positive catalyst to the currency in the near term. Indeed, Carney is likely to keep defending the currency's purchasing power underscoring our neutral GBP stance.

¨   Donald Trump is also meeting with PM Abe in Tokyo where the North Korean situation and the trade situation could be brought to the table of discussions. Markets will watch Service PMI and core machine orders to get a glimpse of the recent behavior of the economy; remain neutral JPY with the USDJPY pair still expected to face resistance at the 115 handle. Lastly in Australia, RBA is expected to hold its benchmark rate at 1.50%. Focus will be on RBA's rhetoric on inflation after 3Q17 CPI came in weaker, despite moderate upticks seen in labour markets; stay neutral AUD over the remainder of 2017.

 

AxJ Markets

¨   Expect a busy Chinese economic calendar in the week ahead with foreign reserves, trade and inflation data due. While we are not too concerned with the reserves print in recent months, October trade data could shed some light on global trends given China's status as a trading powerhouse. Headline inflation is also expected to remain at subdued levels (consensus: 1.7%), although the PPI print may be volatile given fickle commodity prices; stay neutral CNY as the PBoC remains committed towards a stable FX regime.

¨   In Singapore, September retail sales are expected to expand moderately (consensus: 4.0%), although overall domestic sentiment remains on the soft side. Expect the SGD to take cues from USD sentiment in the week ahead amid tax reform chatters, alongside investors' digesting Powell's appointment to the Chairperson of the Federal Reserve; USDSGD likely to remain within the 1.35-1.37 range. Elsewhere, BoT is not expected to change its benchmark rate (currently 1.50%) when it reconvenes on 8^th November, given weak upward inflationary pressures despite the economy's robust performance YTD. The bank is likely to remain wary towards undue THB appreciation still, with BoT watchful of rapid hot money flows and the institute's continued aggressive measures to deter such flows; we remain neutral on the THB.

¨   Over in Malaysia, foreign reserves and IP due are expected to print stronger amid improving foreign sentiment and robust economic conditions. Subsequently, BNM bi-monthly decision is not expected to deliver any headline surprises, although investors will closely watch the MPC statement for any hints pertaining to the growth and inflation outlook post release of the 2018 Budget. Although we do not expect a substantial change of rhetoric from September's stance, Malaysian assets could get supported if rhetoric turns to a more upbeat tone; stay neutral MGS. Last but not least, investors' attention, including the central bank, will eye squarely on Indonesia's 3Q17 GDP print; another sub-par print (c.5%) may push BI towards another rate cut over the remainder of 2017. October foreign reserves may also test the USD130bn level, although recent IDR fundamentals are looking more vulnerable; stay neutral IDR at this juncture.

  

Weekly Positioning

 

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

 

 

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