FW: RHB FIC Rates & FX Market Weekly - 25/9/17

 

25 September 2017

 

 

Rates & FX Market Weekly

 

 

Heavy Fedspeak Schedule to Affirm Fed's Hawkish Trajectory

 

 

Highlights

 

Global Markets

¨   Several Fed officials are scheduled to speak in the week ahead including Chair Janet Yellen and Vice Chairman Stanley Fisher, after the FOMC announced to start to unwind its balance sheet in October and appeared on track for a December rate hike. While the FFR Future implied probability climbed to 63.8%, we are cognizant of the risks amassing in the near term horizon including (i) unforeseen balance sheet reduction effects, (ii) US political uncertainty with a necessity to reach a debt agreement again in December, and (iii) slowing inflation expectations as the transitory consequences of the hurricanes vanish. Since the Committee clearly reiterated its data dependence approach by closely monitoring inflation, eye personal income/spending and core PCE; remain neutral USD and UST, and watch 2.30/2.31% where 10y UST could rebound.

¨   In the UK, the BoE hosts a conference marking 20 years of independence from the government. Governor Mark Carney's speech will be scrutinized in the wake of mounting hawkish speculations ahead of November meeting spurred by the latest MPC meeting. We now expect the GBPUSD pair to stabilize as the next round of Brexit negotiations resumes; remain neutral GBP. Among other speakers, ECB's President Mario Draghi will also deliver a speech at BoE's summit where his rhetoric will be dissected as the Bank is expected to announce adjustments of its policy framework this fall, likely perceived as a QE tapering. Despite accumulating below the 1.20 top, the expected future of ECB policies keeps our direct mildly bullish view for the EURUSD pair intact above 1.1850.

¨   In Japan, the jobless rate data should confirm a tight labour market, while manufacturing PMI and IP will be eyed to corroborate the ongoing positive economic story. Additionally, a batch of data (CPI/Core CPI, retail sales) will provide the latest the latest insight on inflation which, despite rising, remains far from BoJ's 2% target. We remain neutral on the JPY, with the USDJPY invalidating our view for a direct retest of the lows by surpassing the 111 handle. Lastly in Australia, expect a relatively quiet month-end with only Private Sector Credit data due. Australian assets are likely to take cues from global markets and month-end fund flows, with high likelihood for the upcoming RBA meeting to be another non-event; stay neutral AUD at current levels.

 

AxJ Markets

¨   Chinese Caixin manufacturing PMI due late-week ahead of the long holiday will likely take the spotlight among China watchers, where expectations remain for a mild expansion. While market liquidity may be an issue in view of the upcoming holidays, Chinese authorities are unlikely to threaten stability ahead of the October CPC; we recommend staying neutral CNY at this juncture.

¨   Over in Singapore, August CPI print due will provide investors with the latest inflation picture before the October MAS MPS, where consensus expectations remain for a benign outlook, with the monetary authority likely to stand pat subsequently. Demand for the 2y SGS reopening will be interesting to watch, given sharp rise in 2y US yields amid tightening SGD liquidity; we retain our neutral duration view towards SGS. Bank of Thailand reconvenes on 27 September, where we expect a status quo decision amid stronger economic outlook counterbalanced by a still-weak inflationary environment. Trade data due late-week is likely to exhibit strength in line with the customs data, where we expect USDTHB volatility to stay relatively contained over the near-term; stay neutral THB.

¨   With little economic data due in Malaysia and Indonesia, expect month-end rebalancing flows and global developments to influence sentiment in the week ahead.

  

Weekly Positioning

 

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

 

 

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