Fedspeak to Shape Markets’ FFR Expectations; Stabilising Chinese PMI A Sign of Relief for Economy Watchers

26 September 2016

Rates & FX Market Weekly

Fedspeak to Shape Markets’ FFR Expectations; Stabilising Chinese PMI A Sign of Relief for Economy Watchers

Highlights

¨   Global Markets: After the latest FOMC meeting paved the way for a December hike, investors will turn to a fresh string of Fedspeak, including Yellen’s, for any hints corroborating the hawkish guidance; remain neutral USD. US politics will heat up with the first debate between Clinton and Trump on Monday at a time where the former’s lead in opinion polls has narrowed over the past 2 months. Expect a quiet week in the UK as the final 2Q16 GDP print is unlikely to deliver any surprises, while September consumer confidence may follow August’s rebound on waning near-term Brexit concerns; GBP likely to take cues from USD and EUR in the week ahead. In Japan, the BoJ introduced the “QQE with yield curve control” maintaining its key rate at -0.10% failing to weaken the JPY as it is perceived as a potential tapering. As such we remain neutral JPY around the 100 handle likely to be challenged again while inflation and industrial output will be eyed to gauge the possibility of a rate cut at the next meeting. In Europe, ECB President Draghi will discuss monetary developments and NIRP impact with Parliament, while September EU and German inflation will also be in focus. Over in Australia, private credit growth is expected to slow modestly in August, although absolute growth remains within highs on easy policies; stay neutral AUD, with movements likely to be dictated by global markets in the week ahead.

¨   AxJ Markets: Another stabilising Caixin manufacturing PMI data may dull prospects of another 25bps PBoC rate cut by YE16, with authorities likely to prefer stimulus targeting earmarked industries. Easing USD momentum could alleviate upward pressure on USDCNY momentarily, with strong external metrics likely to remain a useful tool for authorities to mitigate any sharp climb in volatility; maintain mildly bearish stance on CNY. Meanwhile, heavy economic data calendar in South Korea, with subdued IP and weak manufacturing PMI likely to spur further BoK policy accommodation, underscoring our 12.5bps rate cut expectation; neutral KTBs duration view is likely to remain supported by better risk appetite post FOMC. Over in Singapore, while an array of economic data is scheduled to be released ahead of MAS mid-October MPS, starting with CPI and IP, it is unlikely to materially alter expectations for MAS to stand pat this year as economic outlook stayed within MAS expectations’ following April’s pre-emptive easing. Despite so, the challenging external environment is likely to keep SGD trading on the soft side, while the 5y new issuance is likely to be well supported given the smaller issuance size despite the lower coupon offered. Elsewhere, Malaysia Nikkei PMI may remain in the sub-50 region on soft external demand, while the informal OPEC meeting in the week ahead is likely to exert influence on the MYR. While any concrete actions appear unlikely, any framework towards a working plan will likely suffice in lifting sentiment; stay neutral MYR. In Thailand, extensive fiscal expenditure is likely to overshadow the lackluster trade data, but spark concerns on fiscal sustainability given the heavy issuance of THB550bn planned for FY17, skewed towards the longer tenors; keep a cautious view towards extending duration on ThaiGBs. With little economic releases in Indonesia and India, expect asset movements to take cues from global markets and month-end flows.

   

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, GBP
Underweight	JGB