FW: RHB | FIC Rates & FX Market Weekly - 25/6/18

 

 

 

25 June 2018

 

 

Rates & FX Market Weekly

 

 

Brexit Discussions, EU Summit in Focus

 

Highlights

 

Global Markets

¨    In the US, a plethora of economic data is due in the week ahead. Core PCE, personal income and personal spending in particular will be scrutinised since the FED’s new dot plot now points to a total of four rate hikes in 2018. Overall, if the positive economic momentum persists in the US, it would support our view of higher US yields and a stronger USD. However, trade tensions could be the main agent of disruption as it affects, first, the risk sentiment hence containing the upward yield trend (from the 5y tenors and above), and then the global economy. We prefer to maintain a neutral UST and USD view.

¨    Over in Europe, inflation data will be released in the week ahead. While the metric is key, it is unlikely to alter current monetary policy expectations, i.e the end of the Asset Purchase Program at the end of the year, and a first rate hike in 2H19. As long as the monetary policy asynchrony, and its expectations, continues between the US and Europe, the EURUSD will likely remain range bound and/or under pressure although 1.15 has proven to be a strong support; remain neutral EUR. Brexit discussions held in Brussels by European leaders will likely resonate in the United Kingdom amid a context of political tensions within the Conservative Party; we remain neutral on the Sterling with monetary policy expectations being a positive driver while politics and Brexit related issues weigh on the currency.

¨    In Japan, beside the global risk sentiment which affects the Yen, being one of risk barometer, Japan watchers will follow the publication of the retails sales, labour data, IP and Tokyo inflation; we are also neutral on the JPY. Over in Australia, while May private sector credit print may attract some attention among economic watchers, month end fund rebalancing flows and persistent apprehensions over global trade to drive AUD movements in the week ahead. A de-escalation of tension could see the Aussie rebounding from recent lows; stay neutral AUD.

 

AxJ Markets

¨    Over in China, May industrial profits and 1Q18 current account balance are key data to watch for in the week ahead. Trade war with the US remains on the back of investors’ mind, while PBoC’s slightly dovish bias may weigh on CNY over the near term, though we expect currency stability against a basket of partners over the medium term; stay neutral CNY.

¨    Both headline and core inflation are expected to pick up pace in May for Singapore (consensus: 0.3% & 1.4% respectively), in line with MAS expectations, although overall pace of price acceleration remains manageable, in our view. Investors will also look forward to May Industrial Production, with another strong growth likely to be SGD-positive over the trading session; stay neutral SGD. Elsewhere, Thailand’s May trade and BoP data due will unlikely reverse recent THB losses, although a strong reading will underpin the Kingdom’s robust growth momentum over Year 2018. Any pick-up in inflation may drive rapid market re-pricing for a BoT rate hike, with the central bank appearing to show hints of willingness to tighten monetary policies; stay mild underweight ThaiGBs.

¨    Moving on, BI reconvenes in the week ahead, later than its usual schedule due to the long Raya holiday break. The central bank needs to firmly deal with the EM-wide fallout as the US Fed continues to tighten policies. After a cumulative 50bps of rate hike already, we do not think BI will deliver another tightening this soon, although further rate hikes over the remainder of the year cannot be ruled out; stay neutral IDR at this juncture. Last but not least, the appointment of Nor Shamsiah as the new BNM governor should not be a cause of concern among investors given her deep professional experience as a deputy governor in BNM previously. In the week ahead, dollar directionality and month-end rebalancing flows should drive Malaysian asset 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