Heavy US Economic Data Calendar to Provide Affirmative Cues Ahead of FOMC Meeting in June

30 May 2016

Rates & FX Market Weekly

Heavy US Economic Data Calendar to Provide Affirmative Cues Ahead of FOMC Meeting in June

Highlights

¨   Global Markets: The eventful month of June begins with the OPEC meeting on June 2, with expectations for any supply freeze likely to be low after the disappointment in April. Despite the Memorial Day holiday in the US, investors can look to a busy week ahead with ISM and NFP due, alongside the release of the Fed’s Beige Book and several Fedspeak; strong data prints will likely reinforce the likelihood of a June liftoff. We maintain our mild overweight UST stance on likely lower terminal US rates. ECB reconvenes on June 2, although further actions are unlikely as the bank begins the CSPP. Investors are likely to focus on updated economic forecasts, particularly the CPI, with ECB likely to maintain a dovish tilt; stay mildly bearish EUR. Over in UK, PMI data due may remain distorted by the upcoming EU referendum, although polls and bookmakers’ odds continue to point towards a “Bremain” outcome; stay neutral GBP. Over in Japan, with BoJ’s FX intervention unlikely to be endorsed by G7, investors continue to eye PM Abe’s affirmation for a delay in sales tax hike alongside another stretch of weak data releases, which could compel BoJ towards further easing; stay mildly bearish JPY. Australia 1Q16 GDP print is likely to weaken from the strong 4Q15 print (consensus: 2.7% y-o-y), with any disappointment to weigh on the AUD and ACGB yields ahead of RBA’s June meeting; stay mild overweight ACGBs.

¨   AxJ Markets: The slew of weak Chinese PMI data may weigh on sentiment, as weakness in China’s traditional growth drivers could threaten the government’s medium term growth target and reverse credit restrictions set in place. Nonetheless, stability in the CNY and CNH markets are likely to be observed, with narrowing CNY-CNH spreads likely to be prominent following rumours for PBoC to tighten its grip on the FX market; maintain mildly bearish CNY. Meanwhile, we see low likelihood for Singapore’s manufacturing PMIs to pose upside surprises amid the backdrop of weak external demand, keeping the USDSGD above its major support at 1.37. SGS are expected to remain sensitive to volatile FX swings given the array of US data releases; remain mildly bearish SGD. Elsewhere, strong external surplus for South Korea is likely to contribute to KRW strength over the near term, where we reiterate our view for the recession type surpluses to be unsustainable over the medium term, preferring to keep a mildly bearish stance on KRW. Subdued South Korean CPI prints could also underscore the case for further BoK easing over the coming months, underpinning our preference for short dated KTBs. Turning to Hong Kong, decline in Retail Sales and PMI are expected to persist in April, but continue to be a non-mover on HKD and HKGBs; HKGBs to track movements on USTs. Over in Thailand, CPI is expected to inch higher but remain firmly below BoT’s target, keeping the window open for another 25bps rate cut over the coming months; keep exposure on ThaiGBs skewed towards the short end. Over in Malaysia, while April trade data is expected to rebound, the ringgit could come under pressure from renewed dollar momentum; stay neutral MYR. The upcoming 5.5y MGS new benchmark issuance (MYR4bn) is likely to garner decent demand, especially near the 3.60% level. In Indonesia, a soft CPI print may provide BI with further easing ammunition, although we expect BI to hold policy rates till August at the minimum; stay constructive towards short-dated IndoGBs. In India, official 1Q16 GDP growth is expected to accelerate to 7.5% y-o-y (4Q15: 7.3%), although investors are likely to keep a keen eye towards RBI’s Rajan reappointment as his term expires in September; stay neutral INR, with an ouster of governor Rajan likely to weigh on the currency.    

    

Weekly Positioning

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