Array of Key Chinese Data to Drive Asian Sentiment

11 April 2016

Rates & FX Market Weekly

Array of Key Chinese Data to Drive Asian Sentiment

Highlights

¨   Global Markets: Heavy US economic calendar in the week ahead with retail sales, IP and CPI due, with any uptick in inflation likely to bolster hawks. Investors are likely to scrutinise the array of Fedspeak (Dudley, Lockhart etc) and the Beige Book for policy hints ahead of the April FOMC meeting, where several policymakers have hinted a live possibility of another 25bps of FFR hike. We see a low likelihood for an April liftoff; remain constructive towards USTs over the medium term. In EU, final CPI print is likely to remain soft, although further ECB easing measures over the medium term remains a strong likelihood if the soft inflation persists; stay mildly bearish EUR. BoE reconvenes on 14 April, where the bank is likely to stand pat ahead of the Brexit referendum. While CPI print is expected to climb higher, investors are likely to remain focus on Brexit-related downside risks; stay neutral GBP, with renewed long interest likely to emerge near the multi-year low of 1.3727. Turning to Japan, investors’ focus could remain on USDJPY as the pair smashed through the 110 support without any signs of concrete or impending action from BoJ and MoF, contrary to expectations. Additional fiscal stimulus or further BoJ easing could be options for Japan to explore over the coming weeks as direct intervention into the FX markets may be frowned upon by the other G7 members ahead of the May meeting; keep a neutral stance on JPY. Over in Australia, eye labour data due in the week ahead where any weakness may lean support towards dovish bets. Recent AUD appreciation due to rising commodity prices and softening USD have put the RBA on alert; stay cautious towards AUD.

¨   AxJ Markets: Following optimistic PMI data last week, investors are likely to assess the quality of China’s near term growth outlook from the upcoming GDP, exports, IP and aggregate financing data, where consensus expectations of sharp rebound could support the risk on sentiment within the Asian region; maintain neutral stance on CGBs with incremental optimism on growth outlook to be unfavourable to CGBs. Meanwhile, recent polls suggest the ruling Saenuri party could solidify a parliamentary majority comfortably against a divided opposition, aiding the ruling party to push through the proposed structural reforms before President Park ends her term in 2017, supporting modestly higher KTB yields. Elsewhere, we opine for MAS to keep the slope, width, and midpoint of the SGD NEER unchanged as MAS reconvenes on 14 April, underscored by the larger fiscal budget and stabilizing inflation outlook. Expect short dated SGS to remain sensitive to movements on SGD, with the latter likely to trade on a softer note should 1Q GDP print continue to decline; keep a neutral stance on SGD. In Malaysia, while industrial production is expected to improve from January’s print, expect MYR to remain driven by global oil prices and USD movements ahead of the oil producers’ meeting on 17 April; stay neutral MYR. Indonesian trade growth is likely to remain tepid given a slowdown in global demand, although unlikely to be a strong catalyst for Indonesian assets in the week ahead; stay neutral IDR. Over in India, CPI is expected to edge marginally lower (consensus: 5.0%) although RBI is likely to stand pat in the next meeting to assess the impact of the rate cut; stay mild overweight GSecs.

   

Weekly Positioning

	Rates	FX
Overweight
Mild Overweight	UST, C.EGB, ACGB, GSec
Neutral	GILT, HKGB, MGS, SGS, KTB, P.EGB, CGB	USD, SGD, HKD, INR, GBP, MYR, IDR, JPY
Mild Underweight	ThaiGB, IndoGB	EUR, AUD, KRW, CNY, THB
Underweight	JGB