FW: RHB FIC Rates & FX Market Weekly - 12/2/18

 

 

 

 

12 February 2018

 

 

Rates & FX Market Weekly

 

 

US Budget in the Spotlight Amid Threats of Credit Rating Downgrade

 

Highlights

 

Global Markets

¨   Another busy week ahead in the US as Donald Trump is expected to release its 2019 budget proposal and the details of the USD1.5 trillion infrastructure plan mentioned during his State of the Union address amid renewed fiscal scrutiny as revenues will shrink post tax reform; the infrastructure plan is unlikely to materialise in an election year as Democrats’ support would be required, given the budget tensions within the GOP as illustrated by the second, yet brief, government shutdown. In the wake of the January wage print which ignited the stock rout, CPI and PPI data for January will be closely scrutinised. At this juncture, we await further evidences of stronger inflation surprise to be a game changer to our scenario hence we remain mildly bearish USD as other factors are at play.

¨   In Europe, growth numbers are due for the Eurozone, Germany and Italy and expected to confirm a robust expansion. Various Italian political leaders will be speaking as the March 4^th election approaches. The outcome is very uncertain as 30/40% of voters are still undecided amid a dislocated political landscape. We do not expect the result to have a material impact on the Euro as markets ignored Catalonian and even German political jitters in recent months; we remain mildly bullish on the EUR. In the UK, inflation numbers are also due and CPI has probably eased to 2.9% y-o-y in January (3.0% in December) but unlikely to alter markets stronger expectations of a hike in 1H18 after BoE’s Carney delivered a hawkish message at the last MPC; remain neutral GBP.

¨   The Japanese economy has probably expanded for a seventh consecutive quarters which would be the longest stretch of economic expansion since the mid 90’s. However, this is unlikely to change BoJ’s stance which continues to try to prevent from further currency appreciation as market expectations for a tapering are building up; remain neutral JPY. Moving on to Australia, with Chinese markets closed from Thursday onwards due to holidays, we expect USD/UST and commodity price movements to heavily influence AUD and ACGB movements in the week ahead. Investors will also eye the labour data due, although with RBA acknowledging that employment remains on a healthy pacing, any impact on Australian assets may be relatively short-lived; a neutral AUD stance remains appropriate at current price levels.

 

AxJ Markets

¨   The week ahead in China is expected to be quiet given the Lunar New Year holidays, and likely to herald lower flows across Asia. Aggregate financing data due in the week ahead, while interesting to keep an eye on, will likely tainted by seasonal distortions. In any case, global market movements will likely influence Chinese trading sentiment in the week ahead; stay neutral CNY.

¨   Moving on, expect a relatively busy economic calendar in Singapore with retail sales, 4Q17 GDP and trade data due. A positive surprise in retail sales and trade will offer more confidence to authorities and market watchers towards the country’s economic outlook, while the 4Q17 GDP print should affirm a strengthening growth trend; remain neutral towards the SGD. Elsewhere, Bank of Thailand reconvenes on 14 February, with the bank widely expected to hold its benchmark rate at 1.50%, amid waves of concerns over the recent THB strength. While growth momentum showed improvements over 2017, inflation remains at subpar levels, which would likely keep BoT occupied over the coming meetings; stay neutral THB.

¨   In Malaysia, 4Q17 GDP print will take the spotlight for the week; even with a moderately strong print, 2017 annual growth will likely satisfy the government’s and investors’ initial expectations, and at a materially faster pace versus 2016 (4.2% y-o-y). Another stronger-than-expected print may spur hawkish bets among market participants, with BNM keeping its policy options open at this juncture; stay constructive towards the MYR over the near to medium term. Last but not least, BI reconvenes on 15 February, where we expect a status quo policy decision given recent volatility seen in global and Indonesian markets. BI will likely reinforce its stance for no further easing over the near horizon, although investors remain cognisant of a small likelihood for a surprise dovish decision. Trade data due on the same day should not materially influence trading sentiment, although recent weakness seen across Asia markets may weigh on Indonesia’s print; stay neutral 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