Heavy Fedspeak Calendar Ahead of US President Inauguration

9 January 2017

Rates & FX Market Weekly

Heavy Fedspeak Calendar Ahead of US President Inauguration

Highlights

Global Markets

¨   The US banks’ earnings announcement could provide insights into the credit cycle stage, while the economic highlight of the week is Retail Sales which are expected to have accelerated in potentially reviving the reflation trade. That said, uncertainties surrounding future fiscal and other policies potentially implemented under Trump’s administration as well as global economic and trade concerns underpin our neutral stance on both USTs and USD. After a string of strong PMIs, UK watchers turn their attention towards production data and trade; while a stronger-than-expected production and trade print could buoy the GBP, investors are likely to stay focused on Brexit-related news flow as the government finalises its negotiation strategy to leave EU; stay mildly bearish on the GBP, with the lingering uncertainties over the negotiation could support short interest in the Sterling. In Europe, Industrial Production numbers are expected across the zone and anticipated to show improving conditions. However, the EU’s high unemployment rate (expected to remain at 9.8%) coupled with rising inflation remains a strong obstacle to improve households’ purchasing power hence undermining growth prospects; remain mildly bearish Euro over the first part of 2017.

¨   In Japan, the current account balance is due while the JPY remains susceptible to USD gyrations. Amid the ongoing short term USD consolidation, we expect the USDJPY to find support around the 114/115 level; remain neutral JPY. Elsewhere, dollar movements continue to swing the AUD wildly given its relatively high beta among G10 FX, and would likely to stay sensitive towards US and Chinese conditions as keen attention remains fixated on the Fed’s ability to deliver 75bps of rate hikes over 2017; we prefer to stay neutral AUD at this juncture.

AxJ Markets

¨   Keen interest on CNY and CNH movements are likely to persist as surging CNH overnight rates continue to spur unwinding of bearish bets; eye Chinese aggregate financing print for signs of reversion to credit-fueled-growth. Rising inflationary pressures are unlikely to spur PBoC’s accommodative stance; maintain neutral CGBs. Over in South Korea, the accelerating household debt formation and recent spate of healthy economic data may deter BoK from committing to further monetary easing in the week ahead, as the central bank treads cautiously amid financial stability and capital outflow concerns ahead of US President inauguration. We expect BoK’s dovish tone however, to continue favouring the short to belly KTBs over the near term while KRW could remain soft amid political and economic woes.

¨   Elsewhere, we see a generally quiet economic calendar in Singapore and Thailand, with a softer Singapore retail sales print likely to have a marginal impact on SGS and SGD. We expect SGS to continue tracking movements on USTs closely amid the heavy Fedspeak schedule while the conflicting data from Thailand’s climbing CPI and softening domestic economy could post a dilemma for BoT; keep a short duration tilt on ThaiGBs over the near to medium term. In Malaysia, November IP due is unlikely to materially shift the MYR as EM investors stay cautious ahead of President-elect Trump’s inauguration. Expect the USDMYR to remain close to the 4.50 psychological level in the week ahead; stay neutral MYR over the medium term. In India, a plethora of data, including CPI and IP, is expected to be negatively impacted by the recent demonetisation effort, although RBI remains of the view that the effect may be transitory. We still expect RBI to deliver a 25bps rate cut into its next fiscal year, while real yields remain compelling; stay mild overweight Gsecs. With little economic data due in Indonesia, expect global and regional catalysts to impact price movements on Indonesian assets while the Fitch positive outlook on 21-Dec will support continued interest.

  

Weekly Positioning

	Rates	FX
Overweight
Mild Overweight	Core EGB, GolSec
Neutral	UST, GILT, ACGB, SGS, HKGB, CGB, MGS, IndoGB	USD, AUD, JPY, HKD, MYR, THB, IDR, INR
Mild Underweight	Peripheral EGB, KTB, ThaiGB	GBP, EUR, SGD, KRW, CNY
Underweight	JGB