FW: RHB FIC Rates & FX Market Weekly - 20/11/17

 

 

 

20 November 2017

 

 

Rates & FX Market Weekly

 

 

FOMC Minutes Eyed Ahead of a Likely 25bps Rate Hike in December

 

 

Highlights

 

Global Markets

¨   Minutes to the Fed November meeting will be released in the week ahead; while a December rate hike is still very likely, market participants will probably dissect the report, and Yellen's speech at New York University, for clues on persistent low inflation and hence a justification for raising the interest rate benchmark. On the political front, the US Senate is now debating its own version of the tax reform with risks ahead given the one-party approach and the thin Republican majority uphill although negotiations resume the following week as the US Congress is in recess for Thanksgiving. That said, the possible tax plan is probably already partially priced in by markets. As such, we prefer to remain neutral on USD and UST at this juncture.

¨   In Europe, political risk resurfaced after German Chancellor Merkel's attempt to form a government failed which could send Germany back to the polls early 2018. While the EURUSD dropped following the news on Monday morning, the long term outlook should not be altered against the backdrop of the broad-based Eurozone economic recovery and the outlook for ECB's policy normalization further supported by latest comments from Mario Draghi. In that sense, November PMI and ECB minutes will be scrutinized to confirm the positive flow dynamics; remain neutral EUR. On the other side of the Channel, Philip Hammond, Chancellor of the Exchequer, will make his Budget statement on Thursday including new economic forecasts and fiscal plans amid Brexit uncertainties and dissensions in the Conservative party post-election followed by weeks of scandal. The next day, economic growth for 3Q17 will be released and highly scrutinized; expect volatility on the GBPUSD within the 1.3030/1.3420 range.

¨   In Japan, trade balance, all industry activity and manufacturing PMI will be released. As the prospects of a December rate hike in the US remain steady with a c.90% probability, the decision appears largely priced alongside the possible US tax plan, it could offer some short term opportunity for the JPY to strengthen within its long term range towards the 111 handle; remain neutral JPY over the medium term. With no major economic indicator due in Australia in the week ahead, expect global and commodity prices to impact Australian asset movements in the week ahead. While iron ore prices have stabilised over the past 2 weeks, a break below USD60/ton may exert further pressure on the AUDUSD pair; stay neutral AUD over the near term.

 

AxJ Markets

¨   With no economic data due in China in the week ahead, global investors will be eyeing PBoC's liquidity operations as authorities persist in their quest to reduce the pace of credit expansion. While CGB yields continue to face upward pressure over the short-term, greater market access and possible inclusion in major bond indices could offer a boon to Chinese rates over the medium term; we retain our neutral CGB stance.

¨   Expect a relatively packed Singapore economic calendar in the week ahead, with GDP, CPI and Industrial Production data due. While headline CPI is expected to remain soft, Singapore watchers eye a strong Industrial Production print, given robust strength seen in the nation's export/manufacturing-oriented sectors. 3Q17 GDP is expected to be revised upwards to 5.0% y-o-y (previous reading: 4.6%), which should support upward movements in the SGD NEER over the coming months; stay neutral SGD at current levels. Elsewhere, Thai's 3Q17 GDP is also expected to expand at a robust pace of 3.9% y-o-y, in line with the authorities' optimistic view, given strong external conditions and robust tourist arrivals YTD. BoT remains watchful of the strong THB, and is likely to keep its benchmark rate near its all-time low over the coming months amid low inflationary pressures, as well as to fend off rapid hot money inflows; a neutral THB stance remains appropriate.

¨   Over in Malaysia, October CPI is expected to moderate slightly to 4.1% y-o-y, although a faster pickup in inflation will weigh on short-duration MGS. With BNM open to a revision in monetary conditions over the coming months, expect the Ringgit to remain relatively supported over the near-term, with medium-term strengthening trends likely amid a constructive backdrop. With no economic data due in Indonesia in the week ahead, expect global developments to influence Indonesian asset movements, although we expect the USDIDR to remain within the 13,500 handle over the immediate term.

  

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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