Key Chinese Data Due Likely to Impact AxJ Sentiment in the Week Ahead

8 August 2016

Rates & FX Market Weekly

Key Chinese Data Due Likely to Impact AxJ Sentiment in the Week Ahead

Highlights

¨   Global Markets: The week ahead in the US appears relatively quiet with no scheduled Fedspeak and few data including retail sales and consumer sentiment. In the absence of any surprise developments, trading sentiment is likely to take cues from the strong NFP print, before an array of Chinese data hit the wires; stay neutral USD. In the UK, June IP and trade balance are not likely to be major drivers, given the dated nature of the data. Expect UK yields to remain under downward pressure as BoE vowed further measures to mitigate any potential drag; stay mild overweight Gilts. With BoE firing the first easing shot in Europe post-referendum, attention will now shift towards the ECB. Expect the EUR and EGB yields to face downward pressure, with the 2Q16 GDP print due in the week ahead to shed light on the bloc’s growth trajectory, where a disappointing print may fuel increased dovish bets; stay mildly bearish EUR. With BoJ MPM and details on PM Abe’s fiscal stimulus out of the way, domestic catalysts are likely to take a backseat, placing emphasis on global risk sentiment; expect rising JGB yields to remain cushioned by QQE purchases while JPY continue to test the 100 psychological barrier. Over in Australia, consumer and business confidence data due could provide insights into future spending plans, with the AUD likely to take cues from global and Chinese developments; stay neutral AUD.

¨   AxJ Markets: In China, heavy scrutiny is likely to be on aggregate financing, with an elevated print likely to compel Chinese authorities for tighter regulations, raising concerns on liquidity risk. Hints of stabilising growth may be inferred from exports, IP and retail sales data, diminishing the likelihood of a PBoC rate cut this quarter; yields on CGBs to remain anchored while USDCNY is likely to remain below 6.70 should July foreign reserves data signal token PBoC intervention. Meanwhile, recent improvement in South Korean GDP could spur a status quo BoK rate decision, as the elevated household debt continue to dampen BoK’s willingness to ease over the near term; maintain neutral duration stance, with yields on KTB likely to remain range bound as moderating growth from structural reforms and weak exports may compel another 12.5bps BoK rate cut. Over in Singapore, the 2Q final GDP print will provide colour on the underperforming segments of the economy, which could cement easing expectations for the upcoming MAS MPS in October. We remain biased towards a mildly bearish SGD which could continue to fuel the 30-40bps SGS-UST spreads up to the 10y tenors. Elsewhere, political issues in Hong Kong surrounding the LegCo election nomination could continue to hog headlines, but unlikely to materially impact HKGBs or HKD; weak exports and retail sales to continue constraining GDP growth. In Malaysia, investors are likely to keep a keen eye on the 2Q16 GDP print, given BNM’s inclination to support growth amid subdued inflation, where a soft print may spur further dovish bets; stay neutral MYR. Post referendum, political uncertainty remains contained with the clear roadmap to democracy underscoring optimism in Thailand; THB15bn 10y new issuance in the week ahead likely to be well received. With little key data due in the week ahead, expect movements on Indonesian assets to track global markets, although sentiment remains bolstered by positive reform developments and the robust 2Q16 GDP print; stay constructive towards IndoGBs on further rate cut prospects, although high foreign ownership and twin deficits may pose risks. RBI is unlikely to deliver any rate cuts given the elevated CPI, where inflation data due after the rate decision is expected to touch the 6% upper bound; stay neutral INR.

   

Weekly Positioning

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