FW: RHB FIC Rates & FX Market Weekly - 30/10/17

 

 

 

Rates & FX Market Weekly

 

 

Trump Due to Announce Fed Chair Candidate This Week

 

 

Highlights

 

Global Markets

¨   The Fed's succession race should come to an end as Donald Trump declared that he will decide on the next Chairperson before his upcoming trip to Asia on November 3^rd. Jerome Powell, the frontrunner, and John Taylor are the two contenders now and could possibly be nominated as a duo for Chair/Vice Chair, likely to contain extreme reactions on markets. Meanwhile, the November FOMC meeting should not bring any surprise with benchmark rates to be kept unchanged. Assessing the Fed's dual mandate, NFP/unemployment data are expected to confirm a tight labour market while core PCE will be closely scrutinized and anticipated to further highlight the dislocation between headline and core inflation. Lastly, developments on a tax reform could continue to boost optimism for the USD in the near-term where we see 95.30 as the next DXY resistance although lingering uncertainties underscore our neutral USD and UST approach.

¨   In Europe, after a dovish perceived ECB meeting last week, markets attention would turn towards economic releases in the week ahead which include third quarter growth and October inflation prints likely to be under the spotlight as Mario Draghi pointed again that "monetary policies are still needed for a sustained return of inflation; we turn neutral EUR in the near-term as bullish catalysts are softening for now and until the economic recovery warrants renewed talks about bringing the QE to a nearer end. In the UK, BoE is expected to raise its interest rate benchmark by 25bps while publishing updated economic forecasts which should catch markets' attention in the context the Brexit negotiations; remain neutral GBP as a possible hard Brexit scenario would counterbalance the impact of rate hikes on the currency.

¨   In Japan, although inflation has been ticking up throughout the year, it remains far from the 2% target set by BoJ (September: 0.7% YoY). While reported news point towards a small downward inflation forecast revision by the central bank at is upcoming meeting, monetary policy (QQE) should remain unchanged and lasting for longer; remain mild underweight JGBs. Over in Australia, investors are likely to keep a keen eye on September retail sales print (consensus: 0.4% m-o-m), after the August number fell short of expectations. Asset movements will likely take cues from global developments in the week ahead, with expectations for a November RBA rhetoric shift remaining low given the recent miss in inflation print; stay neutral ACGBs.

 

AxJ Markets

¨   Over in China, global investors remain watchful of Chinese PMI numbers due in the week ahead, with any weakness in the world's 2^nd largest economy likely to spur concerns among risk positioning. While we expect PBoC to remain vigilant towards CNY volatility, a hawkish Fed appointment could spur the USDCNY pair towards the 6.70 level; a neutral CNY stance remains appropriate at this stage.

¨   Resurgent dollar strength has sent the USDSGD pair towards the 1.37 handle, while MAS has revealed little signs of any impending policy shifts given a challenging 2018 outlook. Expect the SGD and Sing rates to remain sensitive towards US developments given a heavy macro calendar in the week ahead. October PMI is also due, where recent data continues to suggest an expansionary trend; stay neutral SGD. Over in Thailand, September trade data should continue to suggest robust demand for Thai exports, while October inflation is likely to remain sub-1%. A year-long mourning of the passing of the Thai King will conclude by this week, with some Thai watchers eyeing stronger domestic consumption in the months ahead; we eye BoT to maintain the current status quo over the coming months.

¨   Elsewhere, early-week trading sessions should be dominated by markets' reaction towards the 2018 Malaysian budget, where we expect gross MGS/GII supply to amount MYR107bn next year. Into the month of November, October Nikkei PMI due is unlikely to materially impact Malaysian assets, while trade data is expected to remain at double-digit growth rates; stay neutral MYR at current levels. Lastly, October Indonesian inflation will be closely watched, with a steady or lower print likely to turn the attention towards the 3Q17 GDP print due 6^th November. Apparent weaknesses in both prints are likely to steer expectations towards another BI rate cut in the November meeting; remain neutral IDR at this juncture.

  

Weekly Positioning

 

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

 

 

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