FW: RHB FIC Rates & FX Market Weekly - 21/5/18

 

 

 

21 May 2018

 

 

Rates & FX Market Weekly

 

 

FOMC Minutes under Spotlight as Markets Mulled 4 Hikes in 2018

 

Highlights

 

Global Markets

¨   In the US, market participants will scrutinise Fed’s meeting minutes after the word symmetric was added to the inflation target, meaning in other words that the central bank may allow inflation to stay above 2% without unexpected policy response. However in line with the continuation of the strong US economic performance (growth and inflation), investors for the first time now assume that a total of four rate hikes are more likely than three; expect US rates to continue to drift higher. On the economic front, besides the Markit PMIs data, New Home Sales, we will watch the Capital Goods Orders and Shipments for the month of April following contraction in January and March, as an indicator for investments post TCJA; remain neutral USD.

¨   In Europe, the May Markit PMIs for the Eurozone, Germany and France are expected to have marginally slowed down from the previous month while consumer confidence will also be scrutinised given the recent disappointing economic data over 1Q18; we remain neutral EURUSD as the pair is now testing 1.1760. The EURUSD is likely to remain under pressure in the short term as Italian political developments unfold and investors await clarity on the coalition economic agenda.  Over in the UK, a busy economic schedule awaits investors in the week ahead. Inflation data (CPI,PPI and RIP) are due, as well as retail sales and 1Q18 GDP growth. The Cable has been under strong bearish pressure since mid-April (-c.6%) on disappointing economic data and USD strength. As such, the releases of these data will dictate the momentum for the GBP which is holding above our 1.3450/1.3500 support; any weakness would likely send the pair lower.

¨   In Japan, following the growth contraction in the first quarter of the year, May Manufacturing PMI will catch the attention as well as Tokyo CPI. Japanese bonds and currency have recently been under pressure following the rise in US rates. The continuation of BoJ’s debt purchases is likely to provide support to bonds but we prefer to remain underweight JGB. While the USDJPY pair is technically overbought, rising US rates are likely to maintain upward pressure on the USDJPY; remain neutral JPY. With no key economic data due in Australia in the week ahead, expect USD and US rates to influence Australian asset movements, especially given the release of the May FOMC minutes.

 

AxJ Markets

¨   With no key economic data due in China in the week ahead, the focus will be on US-China trade talks, with any positive developments likely to dispel the cloud of uncertainty over global trade. Expect PBoC to continue paving a stable CNY path over the coming months, even as volatility creeps higher; stay neutral CNY.

¨   Elsewhere, expect a relatively busy week in Singapore with CPI, GDP and IP data due. 1Q18 GDP growth is expected to remain robust (consensus: 4.4% y-o-y), while CPI may edge marginally higher but remains manageable overall. SGD assets should continue to take trading cues from the dollar and US treasuries; stay neutral SGS. Moving on to Thailand, 1Q18 GDP is also expected to remain on firm footing on strong export and tourism growth. With BoT unconcerned over the recent THB depreciation, expect further weakness in the currency if USD persists in its strengthening trend. Still, we are unlikely to see substantial THB weakness given the economy’s strong external defences; a neutral THB stance remains appropriate.

¨   Onto Malaysia, April CPI due in the week ahead is unlikely to garner serious attention given low risk towards the upside, with the government’s plan to cut GST to 0%, as well as favourable global cost factors. Bi-weekly foreign reserves may be of interest, although the headline number (excluding forward book) is unlikely to shift materially from end-April levels; stay neutral MYR. With no key economic data due in Indonesia in the week ahead, expect global sentiment to influence local market movements.

  

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