Over in Singapore, the underwhelming NODX data is likely to fuel caution ahead of the upcoming IP print, with expectations for FY17 GDP to exceed the upper bound of MAS’s 1-3% target to remain modest. As such, softer movements on SGD vis-a-vis regional peers can be expected amid incremental expectations for MAS to maintain the current monetary policy framework through 2017; keep a neutral stance on

22 May 2017

Rates & FX Market Weekly

BoK & BoT Expected to Hold Policy Rates in the Week Ahead

Highlights

Global Markets

¨      Busy US economic calendar in the week ahead with flash PMIs, home sales, GDP and durable goods data due, while markets are likely to gradually turn their attention towards the June FOMC meeting over the coming weeks. The May FOMC minutes will also be released, with market participants willing to assess the Committee’s forward guidance looking for signals towards a continued commitment to normalise US monetary policies over the medium term while keeping its data-dependent approach. However, US political developments remain a material risk, with President Trump’s first foreign trip since taking the White House likely to face challenges in light of recent turmoil, alongside potentially new revelations as the Senate and House-led investigations begin; stay neutral USD.

¨      Expect a relatively quiet week in the UK with only PSNB and 1Q17 preliminary GDP print due, with GBPUSD movements likely to take cues from USD sentiment, and any major political developments ahead of the June 8 elections; stay neutral GBP.

¨      Over in Europe, European flash PMIs are expected to sustain the current strength, with a good deal of uncertainty out of the picture post-French elections. Key German data (GDP, IFO survey) will also be eyed by European watchers, alongside speeches by ECB’s Praet, Constancio and Draghi, although unlikely to shed anything new ahead of the June ECB meeting; stay neutral EUR.

¨      Heavy economic data week for Japan, with trade, manufacturing PMI, and CPI prints due. Even as CPI is expected to remain modest, contrasting from the outperformance in 1Q GDP, we eye BoJ’s Kuroda speech for insights on the inflation outlook. Meanwhile, the USDJPY pair is likely to remain heavily influenced by US political hurdles, with further escalation on US political woes likely to drive the pair to test the 110 support.

¨      With little key economic data due in Australia, AUD is expected to take cues from global market movements, with the current consolidation in iron ore prices and the broader dollar weakness likely to offer some reprieve to the commodity-linked currency (AUDUSD -2.4% since April); stay neutral AUD.

AxJ Markets

¨      We expect BoK to hold rates at 1.25% when the Central Bank reconvenes on Thursday, as the softer than expected CPI prints alongside elevated household debt continue to constrain monetary policy manoeuvrability at this juncture. Investors await details on the new Cabinet appointments, with the role of Finance Minister likely to be closely scrutinised given wide expectations for a fiscal stimulus in 2H17. While movements on KTBs and KRW are likely to be broadly driven by the risk sentiment, the post Presidential Election optimism could spur the USDKRW pair towards the 1,100 handle but unlikely to break the support convincingly.

¨      Quiet economic calendar in China in the week ahead, where we expect muted movements on the USDCNY pair to persist, anchored by the stable PBoC’s daily fixings. We opine for opportunities for investors to add CGBs at current levels given the stabilising economic outlook, prudent Chinese deleveraging measures, alongside active steps to push through the Hong Kong Bond Connect which could also support demand for CGBs over the medium to longer term; keep a neutral duration stance on CGBs. 

¨      Over in Singapore, the underwhelming NODX data is likely to fuel caution ahead of the upcoming IP print, with expectations for FY17 GDP to exceed the upper bound of MAS’s 1-3% target to remain modest. As such, softer movements on SGD vis-a-vis regional peers can be expected amid incremental expectations for MAS to maintain the current monetary policy framework through 2017; keep a neutral stance on SGD. Meanwhile, the moderate CPI print against a backdrop of weak pass through from SGD could further support a flattening SGS curve, with 2/10y SGS spreads likely to revisit the 75bps low sustained in July 2016.

¨      Turning to Thailand, optimism towards a strengthening economic growth is likely to cement BoT’s case for a neutral monetary policy this year, with NESDB adding that FY17 GDP is likely to print in the upper bound of the 3.3-3.8% target. Despite so, we maintain our preference for a mild underweight duration tilt, given bouts of sentiment shifts within the global economy alongside the unfavourable issuance schedule skewed towards the long end of the curve.

¨      In Malaysia, foreign reserves could improve over the first half of May given renewed foreign inflows into attractive-yielding Ringgit assets, further enhanced by the positive MYR performance since mid-April alongside the robust economic growth trajectory (1Q17 real GDP growth: 5.6% YoY); we expect room for further MYR gains over the short-term. With no economic data due in Indonesia, expect trading sentiment to be dominated by global and regional news flow in the week ahead.

  

Weekly Positioning

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

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