September FOMC Minutes and Fed’s Yellen Speech Likely to Reiterate the Committee’s Data-Dependent Approach

10 October 2016

Rates & FX Market Weekly

September FOMC Minutes and Fed’s Yellen Speech Likely to Reiterate the Committee’s Data-Dependent Approach

Highlights

¨   Global Markets: The second presidential debate during Monday Asian morning could influence FX markets, at a time Clinton regains momentum over Trump (Opinion poll spread 3.90 vs 3.00 a week before). Retail Sales and Consumer Confidence are expected to rebound after August’s contractions. Finally FOMC’s minutes are due on Wednesday, before Fed’s chair Yellen speaks on Friday, likely to drive market sentiment; remain neutral USD. In Europe, the Extraordinary Economic Summit is scheduled on Thursday, a week after ECB’s Draghi called for EU governments to substantially step up to help boost growth and inflation alongside monetary policies; stay neutral EUR. GBP remains vulnerable over the near term amid weak sentiment, with investors likely to scrutinise BoE policymakers’ comments in the week ahead as UK’s economic outlook remains shrouded in uncertainties. With Brexit negotiations around the corner and BoE’s propensity towards further easing to safeguard downside economic risks, we remain mildly bearish GBP. Over in Japan, Current Account and Machine Orders are anticipated to shrink on JPY’s strength; we remain neutral JPY. Elsewhere, expect AUD to remain sentiment-driven in the week ahead, with only confidence and housing credit data due. Labour and inflation data due in the latter half of the month will likely be a major influence on November’s RBA rate decision; stay neutral AUD.

¨   AxJ Markets: Singapore’s 3Q advanced GDP print will be released together with MAS MPS decision on Friday, where we opine for MAS to make no changes to the slope, width or centre of the SGD NEER band; consensus suggest a fairly strong 3Q GDP growth at 1.7% y-o-y. Despite so, speculations for MAS to ease beyond the October meeting is likely to continue exerting upward pressure on USDSGD, underscoring our mildly bearish view on SGD amid the weak growth outlook. Meanwhile, the heavy economic calendar resumes as Chinese financial markets reopens post festive holidays, with aggregate financing and export data likely to be the focus for investors, buoying growth optimism. Even as prospects of further PBoC rate cut fade, USD strength could exert pressure on USDCNY materially beyond the 6.70 key resistance level, compounding on FX stability concerns and strength of AxJ currencies. Elsewhere, BoK faces a tough decision balancing the risk from fueling the elevated household debt and weak growth outlook, where we expect a 12.5bps BoK rate cut this quarter to be a consequence of the dilemma. Expectations for a prolonged accommodative stance from BoK could remain supportive for short to belly KTBs; position for a steeper KTB curve. Malaysia’s IP data due in the week ahead is likely to show an acceleration in manufacturing activities, although the volatile global sentiment alongside the upcoming FY2017 budget is likely to contain optimism towards the MYR. We are more constructive towards MGS, with gains likely to be driven by BNM’s dovish inclination alongside the continued re-pricing of EM AxJ risk assets amid an increasingly subdued US FFR trajectory, in our view. Over in Thailand, the broad USD strength continue to drive USDTHB higher, suggesting BoT’s comfort in a competitive THB, which is unlikely to exert pressure on Thai’s foreign reserves over the near term; maintain neutral stance on THB while the risk off sentiment further underscores our mild underweight duration view on ThaiGBs. In India, September CPI due in the week ahead is likely to influence investors’ expectations towards RBI’s policy trajectory, with a soft print likely to fuel further dovish bets as the bank signaled its increasing focus on growth; stay neutral INR.

   

Weekly Positioning

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