FW: RHB FIC Rates & FX Market Weekly - 4/12/17

 

 

4 December 2017

 

 

Rates & FX Market Weekly

 

 

Tax Reforms to Drive Markets as December FFR Hike Locked in Place

 

 

Highlights

 

Global Markets

¨   A risky week in the US as the government faces a partial shutdown on December 8th should the Congress fail to agree on a spending bill. While the Senate passed its version of the tax reform, reconciliation between both chambers is still needed. That said, the tax overhaul is expected to increase the fiscal deficit and the debt. As such, since the funding for the border wall with Mexico is an issue of contention for the spending bill, it could jeopardise the debt ceiling agreement. Other political jitters could also overshadow economic releases with labour report due later this week; remain neutral USD.

¨   In Germany, the Social Democratic Party (SPD) holds a convention on December 7th to vote on resuming the coalition talk with Chancellor Merkel. The turmoil has proven to cause short lived reactions on the markets given the limited risk to negatively affect growth over the medium term. On the economic front, watch the third quarter growth number for the Eurozone alongside various economic indicators (PMI, IP...); we still eye a clear break above the 1.20 psychological level to confirm a resumption of the EUR direct appreciation, remain neutral for now.  Over in the UK, PM Theresa May is scheduled to meet with European Commission President Jean Claude Juncker and EU's chief negotiator Michel Barnier to discuss the terms of divorce between the UK and the EU. Last week, unconfirmed reports that both parties agreed to a deal pushed the Sterling Pound higher and we expect volatility to persist as related news flows emerge; remain neutral GBP for now as Brexit remains Britain's sword of Damocles.

¨   In Japan, economic growth prints are due for the third quarter with little surprise expected. The USDJPY has held above the 111 short term inflection level as the USD moderately rebounded over the past week. We remain neutral on the pair for now. Over in Australia, the December RBA meeting is likely to be uneventful, and we expect the statement to largely re-hash the November report. Key data in the week ahead includes retail sales and 3Q17 GDP; any strength will likely deliver a pleasant surprise for Australian watchers, given that retail sales have been lagging in recent months. We remain neutral AUD at current levels, with directionality likely to be driven by global markets over the month of December.

 

AxJ Markets

¨   Heavy economic calendar to be expected in China in the week ahead with services PMI, trade data, foreign reserves and CPI due. The focus will likely be on the first 2 indicators to gauge the resiliency of Chinese growth, given the mixed PMI prints thus far; stay neutral CNY.

¨   Elsewhere, expect a relatively quiet week in Singapore with only PMI prints due, with expansion in the manufacturing/electronics sectors likely to persist given regional PMI prints thus far. Expect the SGD to take cues from USD movements amid intense tax reform speculations; stay neutral on the island state's currency. Thai assets are likely to take cues from global sentiment in the week ahead given a relatively light economic calendar, with consumer confidence likely to strengthen post-mourning, while absolute foreign reserve levels remain at extremely comfortable levels; stay neutral on the THB.

¨   Over in Malaysia, trade data is expected to continue expanding at double-digit rates given sanguine external conditions and broadly higher commodity prices over the year. Foreign reserves may tick higher given improving foreign sentiment alongside a boost in the MYR; we remain mildly constructive on the Ringgit over the coming months. Lastly, Indonesia November CPI expansion is expected to fall behind October's pace (consensus: 3.4% y-o-y), although BI has firmly communicated that maintaining macro stability remains a top priority. Any easing may only come in the form of additional macro-prudential measures to ease financial conditions, which should slow down any upward drifts in the USDIDR; stay neutral on the currency over the medium 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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