FW: RHB FIC Rates & FX Market Weekly - 4/6/18

 

 

 

4 June 2018

 

 

Rates & FX Market Weekly

 

 

Global Trade Issues in Focus Ahead of Trump-Kim Summit

 

Highlights

 

Global Markets

¨   After the US administration confirmed tariffs on foreign metals from the EU, Canada and Mexico, following an umpteenth flip-flop the trade wars thematic will continue to take centre stage. US secretary of Commerce Ross will be in China for trade talks while retaliation measures from Canada and EU, traditional US allies may be announced during the G7 meeting. Trade tensions may support Treasuries and contain the current upward US yields trend and USD rebound; remain neutral UST.

¨   In Europe, the Italian political crisis may have come to an end following the formation of a coalition government giving traders a respite. The trade war developments are likely to move assets in the absence of major economic release on both side of the Atlantic; remain neutral EUR. Over in the UK, construction and services PMI will be released in the week ahead but global developments should drive the gyrations of UK assets. While the GBPUSD is now somewhat oversold, there are no confirmations from mathematical indicators nor fundamental factors for a temporary rebound; 1.3480 is the first resistance that we are watching.

¨   In Japan, the Japanese Yen modestly recovered against the US Dollar on safe haven flows as uncertainties remain over the US / North Korea summit and the renewed trade tensions. Unless the first quarter growth numbers are revised (not expected from the economic consensus), the USDJPY is likely to move in tandem with the risk sentiment; remain neutral JPY. Over in Australia, the scheduled RBA meeting is unlikely to reveal anything ground-breaking, as RBA remains glued on global and domestic developments. Retail sales and 1Q18 GDP prints are likely to take the centre stage in the week ahead, with any outperformance likely to drive relative AUD outperformance. The currency remains vulnerable to shifts in USD sentiment, with lingering uncertainties over the global trade war and the US-North Korea summit likely to keep speculative positioning light; a neutral AUD stance remains appropriate.

 

AxJ Markets

¨   Key Chinese data due in the week ahead includes Caixin services PMI and May trade data, which should offer hints of China’s growth momentum. Equally important will be the outcome of US-China trade talks, although the meeting is unlikely to yield lasting results given the US administration’s constant flip-flop. Expect PBoC to maintain a stable CNY regime amid global capital pressures; stay neutral CNY.

¨   Over in Singapore, expect the SGS and SGD to take cues from US sentiment in the week ahead, with PMI prints due likely to show a moderate pace of expansion; stay neutral SGS. We expect a similar catalyst in Thailand for the week ahead with no key data due expect for weekly foreign reserves. A softer USD momentum will likely keep the USDTHB under the 32 handle; stay neutral THB.

¨   In Malaysia, strong commodity performance should keep April trade data on the robust side of things. Investors should remain keen on any new measures from the government, especially those that would impact the country’s fiscal fundamentals. Foreign reserves as of end-May are likely to change little since mid-May; stay neutral MYR. Last but not least, while Indonesian May CPI will likely be at subdued levels, market stabilization remains on the top of BI’s mind over the immediate months. May foreign reserves may come under some pressure, which should bottom out over the next 2 months after a cumulative 50bps of tightening; stay neutral IDR.

  

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