FW: RHB FIC Rates & FX Market Weekly - 15/1/18

 

 

 

15 January 2018

 

 

Rates & FX Market Weekly

 

 

Watch US Funding Bill Developments and China 4Q17 GDP Growth

 

 

 

Highlights

 

Global Markets

¨   The US Government might be forced to shut down as the current funding bill expires on January 19^th. Uncertainties remain on the outcome as Republicans and Democrats are far apart to agree on a new spending bill in spite of President Trump's effort to seek bipartisan deals while his heated communication is damaging the prospects to reach such a deal. On the economic front, we will listen to Fed officials (Kaplan, Mester, Evans) scheduled to speak in the week ahead given the mounting dissensions within Fed members over the rate hike outlook. IP, consumer sentiment and housing starts are the main data due during this shortened week as markets are closed on Monday for Martin Luther King Day. Political risks are other uncertainties are likely to weigh further on the USD; remain mildly bearish USD.

¨   In Europe, final December CPI readings for Germany and the Eurozone are unlikely to bring any surprise. ECB Governing Council member Nowotny keynotes in Vienna will be scrutinized in the wake of the hawkish minutes of December meeting and ahead of January 25^th next ECB policy meeting. As political risk in Germany considerably receded with a grand coalition agreement, the EURUSD subsequently closed above 1.20 opening the way for further rise to 1.25; remain mildly bullish EUR. Over in the UK, December inflation numbers are due in the week ahead (CPI, PPI and retail price) and CPI print will be closely watched after surpassing by more than a point (December: 3.1% y-o-y) the 2% target as BoE has to keep it within a point percentage band. We believe that maintaining a neutral GBP view over the medium term is appropriate.

¨   In Japan, PPI and core machine orders are due. BoJ's operations will be scrutinised following the ongoing slowdown in purchasing longer-dated bonds last week. In December, for the first time since 2012 and despite Kuroda's prudent tone, total assets on BoJ's balance sheet inched down (by JPY444bn), lining up somewhat with mounting hawkish expectations. As the USDJPY pair breaks below 111, further drop into the lower part of the multi-month range should be expected towards 108; remain neutral JPY. Lastly, in Australia, home loans data are due and any surprise on the unemployment rate could support the AUDUSD pair to break above its short term resistance at 0.7900 amid the oil price rally; remain neutral AUD.

 

AxJ Markets

¨   China releases December industrial production and retail sales but all eyes will be on the 4Q17 growth print which is expected to have slightly slowed down: 6.70% expectations vs. 6.80% over the third quarter of 2017. The number will be important for emerging Markets with any downside surprise possibly dampening temporarily the outlook for the EM Asian space. We keep a neutral CNY stance as investors also continue to digest the change in the yuan's fixing mechanism.

¨   After slowing down in November, Singapore's NODX is anticipated to further slowdown in December as the economic consensus points to 8.60% y-o-y print. Singapore market participant will also watch oil developments as Brent is testing 70 supporting the island's inflation outlook. It consequently builds up market expectations for a MAS tightening in April (while we believe October to be more likely given more tepid domestic demand) bolstering the SGD; remain neutral SGD. In Thailand, trade data will be release and exports number will be scrutinised as the THB remains on a strong footing against the backdrop of a weak USD and continuous foreign inflows into the bond markets. Remain neutral THB as the BoT is watchful on the currency developments.

¨   In the absence of economic data this in Malaysia, the USDMYR will be driven by global developments and oil prices; higher oil prices bode well for the country's fiscal position hence its sovereign credit outlook. We keep a positive outlook on the currency although the USDMYR is already nearing our targets. Lastly in Indonesia, trade data are due. While BI reconvenes and is expected to help policy rate on hold with little market impact, oil prices are likely to remain an important driver, although the central bank is leaning towards a relative currency stability, underscoring our neutral IDR stance.

  

Weekly Positioning

 

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

 

 

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