FW: RHB FIC Rates & FX Market Weekly - 30/4/18

 

 

 

FOMC Meeting In Focus, But No Surprise Expected

 

Highlights

 

Global Markets

¨   A heavy calendar awaits investors in the week ahead in the US as the Fed reconvenes, the US Treasury unveils its debt issuance plan while a plethora of economic data are released (Core PCE, personal income & spending, jobs report, ISM surveys…).  On the monetary policy front, we expect the Fed to leave rate unchanged but we believe the bank will continue to pave the way for an additional fourth FFR hike in 2018 in line with the March meeting. Consequently, Treasury yields are likely to push higher although we still eye a convincing break above 3% on the 10y while the return of the positive rates/USD correlation should send the greenback higher; 92.00 on the DXY being the next resistance. Then with the needs of new financing post tax-reform and additional spending, we expect the US Treasury to ramp up borrowing for this quarter. As of March, c.USD460bn of debt was already issued (USD537bn in total for 2017) and the total amount for 2018 is likely to be well above USD1tn. As the Fed unwinds its balance sheet, this combination of factor will exert even further upward pressure on rates while it could materialise as a risk for the Dollar given deteriorating deficit yet at a later stage.

¨   In Europe, all eyes will be on the growth picture with the release of GDP for 1Q18 expected to print at 2.6% compared to 2.7% in 4Q17. The first quarter economic data disappointed indicating a likely cooling-off effect from a steep multi-month expansion. However a disappointing print would weigh further on the Euro unless April PMIs indicate an invigorating economy and inflation ticks higher; we still eye 1.20 as the next support for the EURUSD. In the UK, expect global developments to drive UK assets’ gyrations as well as the release of April PMIs; remain neutral GBP.

¨   In Japan, PMIs are also due and could temporarily drive sentiment. However the JPY remains susceptible to global, and US, developments. The USDJPY pair could face again upward pressures although the 110 resistance is likely to cap the rise in the short term; remain neutral JPY. Over in Australia, investors eagerly await RBA’s updated assessment on the economy. Despite core inflation coming in stronger over 1Q18, we think RBA may hold back on its optimism, given marginally disappointing headline inflation and some softening in the labour markets recently. A monthly private inflation gauge due prior to the RBA meeting may attract some attention as well. Overall, we prefer to remain neutral AUD at this stage.

 

AxJ Markets

¨   Over in China, the usual set of Chinese PMIs will be closely scrutinized by investors for hints of global growth trajectory; another set of healthy prints will affirm the strong global growth story. Investors’ attention will also be focused on PBoC liquidity operations and CNY movements in the week ahead, with implications for the broader AxJ sentiment; stay neutral CNY.

¨   Moving on, expect a relatively quiet week in Singapore with only PMI prints due.  SGD will likely take cues from the activity indicator in the week ahead, although the outcome of the FOMC meeting remains the major catalyst stay neutral SGD.

¨   With only March trade data due in the week ahead, expect Malaysian assets to take cues from key global market developments, particularly as US Treasuries continue to test the 3.00% psychological level; stay neutral MYR. Last but not least, Indonesian watchers will be keen to focus on April inflation data, with BI recently warned that inflation may pick up given the weaker IDR, and possibly compounded by higher energy prices. While headline inflation remains near the bottom of BI’s 3-5% target range, a surprise beat may exacerbate policy tightening pressure on the central bank; stay neutral IDR at this juncture.

  

Weekly Positioning

 

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