Heavy Economic Calendar to be Heavily Scrutinised; ECB, RBA, BoK & BNM to Reconvene

5 September 2016

Rates & FX Market Weekly

Heavy Economic Calendar to be Heavily Scrutinised; ECB, RBA, BoK & BNM to Reconvene

Highlights

¨   Global Markets: The busy month of September, when volatility is likely to pick up starts with the G20 summit in China (4/5 September): global growth and fiscal stimulus will be in focus, although a coordinated and comprehensive plan appears to be an unlikely outcome. In the US, economic highlight of the holiday-shortened week will be ISM Non-Manufacturing PMI following softer ISM Manufacturing and NFP, dampening the outlook for a rate hike in September; remain neutral USD and mild overweight UST. In Europe, ECB reconvenes where we expect rates to remain on hold given sanguine economic outlook post Brexit while investors find relief with an extended QE; remain mildly bearish EUR. Over in the UK, eye services PMI following the surprise in the manufacturing PMI. Strength in July production and trade balance can reinforce GBP’s recent upward momentum, although uncertainties surrounding the final UK-EU solution remain to be seen; stay mildly bearish GBP. Turning to Japan, final GDP reading is expected to confirm economic stagnation over the second quarter maintaining pressure on BoJ to boost growth ahead of its policy meeting on September 21^st, when a review of its policy measures will be unveiled; remain neutral JPY. Elsewhere, we expect RBA to stand pat in governor Stevens’ final board meeting, although another rate cut is expected at YE16, especially if inflation and other real indicators remaining sluggish; AUD to remain driven by post-payrolls sentiment and G20 developments in the week ahead.

¨   AxJ Markets: Following G20 Summit, focus turns back to China’s economic data. Expect concerted movements on USD to pressure USDCNY to the 6.70 resistance, keeping Chinese foreign reserves print in close scrutiny; PBoC policy maneuverability is likely to be preserved as CPI continue to ease supporting our mildly bearish CNY view. Elsewhere, BoK is likely maintain its modestly dovish stance, anchoring yields on the short dated KTBs. Additionally, the political stalemate in South Korea threatens to delay approval on the supplementary budget further, with the modest expansion of FY17 fiscal budget unlikely to dull further BoK easing expectations over the near to medium term; position for another 12.5bps BoK rate cut in 4Q. Hong Kong’s LegCo Elections garnered the highest turnout since 1997, with signs of rising discontentment exacerbating political woes; electoral results expected to be released today. That said, expect impact to remain marginal on HKGBs, which continues to track USTs closely. In Singapore, the quiet economic calendar is unlikely to be synonymous with low volatility on SGS and SGD, which remains heavily influenced by tactical positioning post NFP as we edge closer to FOMC meeting. Additionally, the recent spate of poor economic data could reinforce the notion towards further MAS easing; maintain mildly bearish SGD. Meanwhile, a quiet week is expected in Thailand with no ThaiGB auction scheduled; heavy ThaiGB issuance in FY17 could clip appetite for long dated ThaiGBs, underscoring our mild underweight ThaiGB duration view. In Malaysia, markets look towards a busy economic calendar as well as BNM’s rate decision. While continued improvements in exports, imports and IP are likely to bode well for 3Q GDP growth, BNM is likely to remain vigilant in supporting Malaysia’s growth drivers amid low inflation; BNM to hold rates this week but retain its dovish stance. Indonesian assets are likely to remain sensitive to FOMC expectations and global macro drivers. Investors remain keen on the progress of the tax amnesty collection over September, where the most favourable rate is slated to expire, although declarations may be delayed due to clarity or logistical issues; stay constructive on IndoGBs. In India, a further robust expansion in services should affirm India’s relatively healthy growth trajectory, with lower global rates continue to drive carry flows into EM economies, including India; stay neutral Gsecs.

   

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