FW: RHB FIC Rates & FX Market Weekly - 13/11/17

 

 

13 November 2017

 

 

Rates & FX Market Weekly

 

 

Heavy Chinese Economic Calendar to Drive Asian Sentiment

 

 

Highlights

 

Global Markets

¨   A busy week on the economic front in the week ahead with the effects of the hurricanes likely to have faded: October Retail Sales expected to slow down in October as vehicle purchases eased and Housing starts probably rebounded; CPI and PPI prints will also be scrutinized. The negotiations on the tax bills in both chambers of the US Congress will also continue to drive USD gyrations; recent developments support our view of increasing chances of having no major legislation enacted before the end of the year. We prefer to remain neutral on USD and UST at this juncture.

¨   In Europe, economic growth is anticipated to print steadily at 2.5% YoY in the third quarter (2Q17: 2.5%) will price pressure will also be closely watched when anticipated inflation measure has drifted higher over the past months. As such, investors will wait ECB members' speeches in the week ahead for any hint of future monetary policy. Since we turned neutral, the EURUSD pair has traded in a narrow 1.15/1.17 range; we prefer to wait for a clear break above 1.17 to confirm a re-test of the previous highs near the 1.20 handle. In the UK, after a dovish BoE rate hike, political jitters also weighed on the currency and potentially weakened PM May's position whose Brexit flagship legislation will be under examination in the House of Commons. Inflation in the UK is expected to have remained elevated in October which could alter future BoE's decisions: BoE Governor Carney's speech on Thursday could offer some hints in that sense; remain neutral GBP with 1.3065 the short term inflection level.

¨   In Japan, growth in the third quarter has probably eased according to the Economic consensus. On the market front, the USDJPY retreated below our defined resistance at 115 and the pair should continue to take cues from developments on the other side of the Pacific; in the near term, we eye the 112.85 support as a short-term pivot to trigger a deeper retracement towards 111; remain neutral JPY. Lastly, Australian October labour data due in the week ahead is likely to signal continued strength, although widely acknowledged by Australia watchers and the RBA already. While the data release will likely impact the AUD, it is unlikely to drive longer-term positioning shifts, as RBA remains unlikely to shift its policy stance at this stage; we continue to eye a relatively stable AUDUSD over the immediate term.

 

AxJ Markets

¨   Over in China post Trump-Xi meeting, all eyes will be on key Chinese economic indicators due in the week ahead, including Aggregate Financing, Retail Sales and Industrial Production. Strong upticks in credit growth will likely push PBoC towards a tightening bias, while markets will be eyeing the replacement for governor Zhou closely over the coming months; stay neutral CNY.

¨   Elsewhere in Singapore, NODX is expected to resume its expansion y-o-y after a surprise contraction in September. Any weakness in export numbers may exert downward pressure on the SGD in the week ahead, although we eye a stable USDSGD near the current spot rates over the remainder of 4Q17; stay neutral SGD. Amid a relatively quiet economic calendar in Thailand with only foreign reserves print due, expect Thai assets to take cues from regional trading sentiment in the week ahead.

¨   Over in Malaysia, 3Q17 GDP is expected to grow at a robust pace of 5.5% y-o-y, with full-year growth firmly in line or exceeding the government's forecast. BNM recognized the strengthening growth trends that could last into 2018, and stands ready to review the current monetary conditions, as signaled in the latest MPS. Economic optimism should continue to feed into MYR strength over the coming quarters, although broad EM sentiment remains fragile amid lingering tail risks that could potentially weigh on the MYR; our base case remains for a mildly constructive MYR stance over the medium term. Elsewhere, BI reconvenes on November 16 for its monthly monetary policy meeting, where our base case remains for no change in the 7D Reverse Repo rate, although an easing via other macro-prudential tools remain on the table, after 3Q17 GDP came in mildly disappointing. While USDIDR may be pushed higher if BI signaled further easing on the pipelines, we think these pressures may abate over time given BI's commitment towards macroeconomic stability and lingering strong foreign sentiment; stay neutral IDR.

  

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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