FW: RHB FIC Rates & FX Market Weekly - 8/1/18

 

 

 

8 January 2018

 

 

Rates & FX Market Weekly

 

 

ECB Minutes Likely to Support Governing Council’s Hawkish Shift

 

 

Highlights

 

Global Markets

¨   After the usual market hype over payrolls, CPI due in the week ahead should offer little surprises to investors, with the measure unlikely to accelerate in the absence of faster wage growth; other notable data releases include inventory data and retail sales. On the geopolitical front, the meeting between North and South Korea could yield favourable dividends, while the Iran situation seems to have gradually fallen off the radar, although both are not expected to be huge market drivers. Post-payroll sentiment should drive market directionality in the early week ahead of CPI and other economic indicators; stay mildly bearish USD over the medium term.

¨   Over in the UK, trade and industrial production data dominate UK economic calendar in the week ahead. While data outperformance should send the GBP temporary higher intra-week, the currency remains weighed by Brexit-related uncertainties, which could impact consumers and businesses’ confidence if an amicable deal appears increasingly unlikely; stay neutral on the GBP over the coming weeks at current prices. In the EU, ECB minutes may lend support to recent hawkish comments made by governing council members, offering a tailwind to the EUR. While investors remain aware of Italy’s upcoming general elections, the spillover to the EUR remains limited at this juncture; we retain our mildly bullish EUR stance.

¨   Key Japanese data in the week ahead includes trade and cash earnings indicators, although the impact on JGBs and the Yen will likely be limited, given BoJ’s yield curve control policies and the currency’s sensitiveness to geopolitical and global trading sentiment. We do not expect any material shifts in BoJ’s monetary policy stance over 2018, with governor Kuroda likely to be re-appointed by PM Abe despite the failure of the institute to meet the 2% inflation target; stay neutral JPY. Lastly in Australia, retail sales will likely be a major AUD catalyst in a week ahead, where investors will be looking out for signs of a broad-based recovery in domestic consumption, trickling down from exports and investment-based spending; stay neutral AUD over the medium term.

 

AxJ Markets

¨   The week’s focus on China will be on inflation and trade data prints due. While CPI is expected to accelerate slightly to 1.9% y-o-y, overall consumer price gains were well within PBoC’s tolerance level. Gains in PPI are expected to slow to 4.8% y-o-y in December (Nov: 5.8%), although the measure is much more volatile than Chinese CPI. Trade data due later in the week will be closely scrutinised for any signs of renewed Chinese economic troubles; a neutral CNY stance remains appropriate at this juncture.

¨   Over in Singapore, a strong November retail sales print due in the week ahead will fan greater speculation for MAS to tighten policies in April. Domestic consumption continues to face several headwinds, including the slow trickling-in effect from stronger external-oriented sectors and possible hikes in the Goods and Services Tax (GST). While external conditions appear healthy for now, it is far from guaranteed that the positive momentum will persist into late-2018, given lingering concerns over stretched global asset valuations and Chinese growth slowdown; we remain neutral towards the SGD, opining that MAS will err on the side of caution in its April policy review. With only foreign reserves due in Thailand in the week ahead, expect Thai assets to take cues from global and regional market developments. While USDTHB continues to exhibit a sliding trend, BoT may take comfort on the fact that regional currencies are also appreciating vis-à-vis the USD, although the central bank will likely keep a watchful eye over THB movements; we recommend a neutral THB stance at this juncture.

¨   In Malaysia, November IP due is expected to indicate still-healthy expansion in the manufacturing sector, with a strong print likely to bode well for 4Q17 GDP growth. With external conditions to remain conducive for Malaysia’s export/manufacturing-oriented sectors, growth is likely to remain brisk over the coming months, although economic watchers will be eyeing for signs of any slowdown in domestic consumption; we stay neutral towards MGS over 2018. With IDR reaping little benefits from a weaker USD over the month of December, the foreign reserves print will be interesting to watch for any signs of BI’s discomfort over the directionality of the Rupiah. Still, BI’s commitment to maintain macroeconomic stability should cushion downside risks arising from narrowing rate differentials vis-à-vis DM economies; we remain neutral towards the IDR.

  

Weekly Positioning

 

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

 

 

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