In a post-Brexit world, we expect uncertainty arising out of UK-EU politics to drive sentiment in the near term.

      In a post-Brexit world, we expect uncertainty arising out of UK-EU politics to drive sentiment in the near term. We are also cautious of potential EU-contagion risks and do not rule out other members of the EU (Euro-skeptics) including Italy, Spain, and France pushing for “Leave EU” referendums. This should keep USD, JPY, CHF, and gold largely supported while EUR and GBP could still remain under pressure. Amongst the AXJs, we see more downside pressure to KRW, MYR, PHP and INR given its high-beta plays to sentiment and oil prices as compared to IDR and SGD. Our in-house model shows S$NEER at 1.04% above the implied mid-point of 1.3703, with the upper bound at 1.3433 and lower bound at 1.3975. USDMYR could still be subjected to sharp swings between 4.03 – 4.17 as sentiment and liquidity gradually settles.

       Taking into consideration the Brexit event and its potential negative repercussion and uncertainty leading into US elections that could linger into 3Q and early-4Q, we have now deferred our Fed rate hike expectation into 1H 2017.

       Data/event calendar is relatively lighter in early week before it gets heavier into the week close. Key focus on Australia elections (Sat).  Opinion polls suggest that it remains too close to call with coalition marginally ahead at 51% and Labor at 49%. Australia’s triple-A credit rating could be at risk if Labor is elected as they are likely to allow for bigger budget deficits over the next 4 years before returning to balance in 2020/21. Next China kicks off PMI release on Fri; also on tap on the same day are CPI data out of Korea, Indonesia and Thailand. Taiwan’s CBC meets on Thu – we see rising risk of rate cut by 12.5bps to 1.375%, given subdued inflation and further weakness in non-Mfg activities. Philippines President-elect Duterte will be sworn in on Thu. We watch for policy continuity.

       Other key data we are watching for the week includes ECB forum in Portugal (27-29 Jun) where Draghi, Carney and PBOC’s Zhou are expected to speak on Tue and then Draghi to speak again on Wed. US 1Q GDP will be on tap on Tue. On Wed, US May PCE core; Fed’s stress test results on comprehensive capital analysis and review. On Thu, US Chicago PMI; Euro-area CPI estimate; UK 1Q GDP; SG credit card bad debt data are due for release, On Fri, China PMIs, Japan 2Q Tankan outlook, US ISM, PMI are on tap. HK and Thai onshore markets are closed for holidays on Fri.