FW: RHB FIC Rates & FX Market Weekly - 11/6/18

 

 

 

11 June 2018

 

 

Rates & FX Market Weekly

 

 

Global Central Banks, Trump-Kim Summit, In Focus

 

Highlights

 

Global Markets

¨    The three major central banks (FED, ECB and BOJ) reconvene in the week head with somewhat different agendas. The US Federal Reserve is widely anticipated to continue its tightening by increasing for a second time this year its interest rate benchmark, which will rise to 1.75%/2.00%. The current markets’ odds stand at 84% and we believe that the decision is already priced in, theoretically containing USD upside risks. Indeed Charmain Powell and various Fedspeaks have maintained their hawkish stance against the backdrop of solid economic prints since March and despite expected higher CPI and PPI May data due ahead of the meeting. Yet, the full markets’ reaction will depend on the future decisions, i.e. will the Fed hike once or twice more in 2018. Lastly, the outcome of the Trump / Kim Jong Un meeting is totally unpredictable underscoring our neutral UST and USD stance.

¨    Furthermore, renewed expectations of ECB ending its Asset Purchase Program supported by the German and Dutch central banks’ chiefs boosted the common currency. The balance of risks for the EURUSD pair still appears titled to the upside ahead of the meeting in our opinion since the ECB lags in the tightening cycle while the Italian political risk receded. However, further upside momentum for the pair will only be technically validated if 1.1860 is surpassed. In the UK, Brexit matters as UK and EU chief negotiators meet once again a day before the Parliament votes on numerous amendments related to Brexit. Against the backdrop of cabinet divisions, PM May lacks a majority so the outcome is uncertain bringing the case of a soft Brexit more likely yet at the price of political uncertainty; remain neutral UK assets.

¨    In Japan, the central bank is in no hurry to end its massive stimulus program after the soft patch of economic data released thus far this year. We do not expect any surprise from the policy meeting with rates to be left unchanged without major communication tweaks. Yet, geopolitical developments will affect the Yen while JGBs could move on a global bond yield correlation. Amid a flurry of major central bank meetings, the Australian calendar appears relatively quiet with only May labour data due, which is expected to remain healthy amid moderately strong economic growth. While stronger-than-expected labour data can be expected to boost the AUD, we think the outcomes from global central bank meetings would be more influential for the Aussie; eye 0.769 as the next AUDUSD resistance.

 

AxJ Markets

¨    Moving on to Asia, China’s trifecta of economic data (Retail Sales, Industrial Production, and FAI) due post-Fed will be closely eyed by investors, given the country’s importance within the global economy. We eye any PBoC reaction post-Fed, where a 25bps FFR hike is widely expected; stay neutral CGBs.

¨    Elsewhere, Singapore will host the Trump-Kim summit, an event of substantial significance that may shape the world’s geopolitical balance over the years to come. On the economic calendar side, April retail sales are expected to expand at a relatively healthy pace, although rising global trade disputes continue to cast a dark cloud over the trade-reliant economy; stay neutral SGD. With only Industrial Production due in Malaysia in the week ahead, we do not expect the above print to heavily influence MYR directionality in the week ahead. USDMYR remained relatively stable over the past few trading sessions, and we expect this steady trend to hold at least till the US FOMC meeting; stay neutral MYR.

¨    With little or no key economic data due in Thailand and Indonesia in the week ahead, expect global central bank meetings to influence market sentiment, especially if USD/UST volatility climbs.

  

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