FW: RHB FIC Rates & FX Market Weekly - 27/11/17

 

 

 

27 November 2017

 

 

Rates & FX Market Weekly

 

 

US Tax Reform To Return Under The Spotlight

 

 

 

Highlights

 

Global Markets

¨   A busy economic calendar in the week ahead with in particular core PCE for October (consensus: 1.4% YoY), revised 3Q17 economic growth expected to be a slightly stronger than previous reading while personal income and spending might have slowed down in October. On the monetary policy front, J. Yellen testifies before the Congress Economic Committee while the confirmation process of J. Powell starts. Lastly, the clock is ticking for US lawmakers to make progress on the tax overhaul as we head into December; the Senate is anticipated to vote on its own version of the tax plan. However uncertainties remain even if the proposal passes uphill as a reconciliation with the House's version is needed before the final legislation is sent to the US President. While the USD could be supported on stronger–than-expected economic data, the likely December rate hike and the tax reform are already priced in and the resurfacing risk of the debt ceiling could weigh on sentiment, underscoring our neutral on USD and UST approach.

¨   In Europe, inflation for the Eurozone, Germany and France are due this week as well as the French third quarter economic growth number and German retail sales. Political negotiations in Germany are likely to remain a market driver and positive developments to end the gridlock could give a boost to the EURUSD towards 1.20 although we remain neutral EUR at this juncture. In the UK, the GBPUSD has continued to rise mainly against the backdrop of a softer USD despite the release of slashed economic forecasts by OBR. While housing prices and manufacturing PMI could influence UK markets expect global developments to mainly drive the currency; remain neutral GBP below the 1.3420 resistance.

¨   A plethora of data is due in Japan: while industrial production is expected to be strong and the jobless rate stable, readings on inflation could revive some weakness on the JPY as persistent soft price pressures will support protracted monetary policy discrepancies with BoJ keeping an accommodative stance for longer. The USDJPY reached the 111 handle as expected and we prefer to be neutral on JPY. Only a break below 111 would trigger further drop. Over in Australia, housing sector data and commodity index price will be released although we expect the AUD to take cues from global developments. Despite the current USD weakness, AUD could remain on a weak footing as the interest rate gap is tightening; stay neutral AUD over the near term.

 

AxJ Markets

¨   In China, the recent drop on Chinese shares renewed fears associated with deleveraging reforms since the bearishness in the bond market could spill over onto the stock market. PBoC's liquidity operations will remain key in the near term. The bank could share some liquidity to restore calm on the markets although macro-prudential policies and targeted regulations are also in place to reduce leverage. We yet remain neutral on CGB as significant maturing bonds in December could provide some relief on the bond market.

¨   With no major economic data due in Singapore, expect the USDSGD to take cues from global developments. The pair could evolve in a narrow range in the week ahead between 1.34 and 1.35; stay neutral SGD at current levels. In Thailand, inflation for November is expected to have ticked up to 1% YoY (October: 0.9%) as private consumption resumes with the ending of the mourning period for the late King Bhumibol and demand rises from tourists as the peak season starts. BoT is likely to stay on hold over the coming months to curb bond inflows. The bank still remains attentive to the currency developments although the THB strength has not impacted trade as exports remain strong; a neutral THB stance remains appropriate.

¨   In Malaysia and Indonesia, Manufacturing PMI for November will be scrutinised after two weakening prints in September and October. We are neutral on the MYR in the short term as the USDMYR pair could temporarily consolidate after having reached the 4.10 handle (4.20 is the first resistance). We remain constructive over the medium term with gradual appreciation expected over the coming quarters. Lastly, we expect the USDIDR to trade around 13,500 for the remainder of 2017.

  

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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