DAILY TREASURY OUTLOOK

Transcription

1 CMD KR SG CN US DAILY TREASURY OUTLOOK Global Tuesday, October 31, 2017 Treasury Research Tel: Highlights Global risk appetite took a breather yesterday ahead of a busy schedule in coming days with BOJ, FOMC, BOE and US labour market report. Despite a buoyant Apple, Wall Street still paused overnight amid the indictment of US president Trump s former campaign chairman Paul Manafort and Special Counsel Mueller s revelation of a plea agreement by his foreign policy advisor Papadopoulos. Meanwhile, the US Commerce Department again refused to quality China as a market economy citing fundamental distortions in a memo following a review of aluminium foil imports from China. Talk of the US corporate tax plan proposal being phased in over five years also led the UST bond market higher, especially in the long-end after Treasury Secretary Mnuchin downplayed ultra-long issuance. Asian bourses are likely tread cautiously as investors await more market cues. Today s economic data calendar comprises China s official manufacturing and non-manufacturing PMIs, US 3Q employment cost index, S&P CoreLogic house prices, Conference Board consumer confidence and Chicago Purchasing Manager index, Eurozone s actual 3Q GDP growth, Taiwan s 3Q GDP growth, and Thailand s Sep trade and current account balance. On tap will be BOJ governor Kuroda s post-meeting press conference. BOJ is widely expected to keep its policy settings static today. US personal spending surged 1% mom in Sep (highest since Aug09) amid higher motor vehicle sales post-hurricanes, after a 0.1% gain in Aug. Meanwhile, personal income also rose 0.4% in Sep after a 0.2% increase in Aug, but the savings rate retreated from 3.6% to 3.1% (lowest since Dec07) in post-hurricanes repair spending. The core PCE rose 0.1% mom (+1.3% yoy) in Sep, in line with market expectations. President Trump will announce a new Fed chair on Thursday, which may steal some limelight from the 2 Nov FOMC meeting which is largely expected to be a non-event. China s bond market tumbled further on Monday with 10-year government bond yield breaking 3.9%, with concerns about financial de-leverage continuing to weigh down on market sentiment. PBoC may have to step in with a clearer signal to stop the current panic. S pore s financial sector ITM (Industry Transformation Map) tips 4.3% annual growth (faster than real GDP growth of 2-3%) through 2020 and aims to create 4k net new jobs in financial services and financial technology. The three key elements of the ITM are: a) Leading international wealth management hub, b) Asian hub for asset management, and c) Global foreign exchange price discovery and liquidity center in the Asian time zone. Following President Moon comment that Korea can easily meet its 3.0% growth target in 2017, Sept industrial production surprised higher at 8.4% y/y (vs mkt est: +4.8% y/y) and suggesting that Korea s 3Q17 GDP could well print higher vs its initial official projected print of 3.6%. Palm oil prices continue to rally of late, with futures surpassing its 1.5 month high at latest closing of MYR2,839/MT. The mix of positive demand and disappointing production led prices higher, although we think some technical buying could have supported prices.

2 Major Market US: Equities slipped from the previous session s highs after news broke that House Republicans are considering a phased tax cut plan. Meanwhile, the tech sector continued to run higher, ahead of Apple and Facebook s earnings releases later this week. However, gains from the tech sector were offset by declines in telecom and healthcare stocks. Overall, the S&P 500 lost 0.32%, while the Dow and Nasdaq Composite were down 0.37% and 0.03% respectively. VIX stood at 10.50, higher than 9.8 in the previous session. Meanwhile, US Treasuries rose on news of the phased tax cut, causing the curve to bull flatten. Gains in the front end of the curve were relatively muted, with 2y benchmark yields lower by 1.5 bps to 1.57%. The 10y benchmark yield slipped 4 bps to 2.37%, giving back the key 2.40% level. Singapore: 2018 SGS bond issuance calendar is not as challenging as the headline number of issues suggest. The 2018 SGS bond issuance calendar comprises of 9 scheduled issues (up from 7 this year) and 2 optional mini-auctions (similar to this year s 20-year re-opening in May and the 5-year re-opening in Oct 2017). There will be 2 new issues (namely a 5-year in Feb and a 10-year in May) and 7 re-openings in Given that there are two upcoming maturities comprising of $6.7b 5-year bonds in Apr and $6.8b 15-year bonds in Sep 2018, it is not so surprising that there will be more frequent SGS bond issues scheduled for Actually, the 9 scheduled SGS bond issues are similar to the 2016 bond issuance calendar. The longer-dated tenors are also quite well spread out, comprising the 30-year re-opening in Mar, the 10-year new issue in May, the 20-year re-opening in Jul, and the 15-year re-opening in Oct, so there should not be too much market indigestion in fact, there has been strong demand for longer duration assets for the year-to-date in 2017 and this may go some way to meeting that demand. That said, the rising global interest rate environment may pose some potential headwinds to the domestic bond market. The STI declined 0.31% to close at yesterday, and may tread a more cautious range of today amid mixed to weak signals from Wall Street and Kospi. With the UST bonds rallying by up to 4bps led by the long-end, the SGS bond market may follow suit today. Hong Kong: Short-end HIBOR continued to edge up with 1-month HIBOR rising for the 11th consecutive trading day to 0.737% and approaching its nine-year high on Oct 30. Tight liquidity could last for some time due to month-end effect and upcoming IPOs which lock up liquidity. The resultant narrowing of yield differential may keep HKD supported in the near term. We expect the USDHKD will try to test the weak end of its expected trading range between and After IPOs, we expect HIBOR to come off on amply liquidity. However, any correction is unlikely to bring HIBOR down to its recent trough given year-end effect and rising expectations on Fed s rate hike in Dec. Should HIBOR tick up gradually, there could be two implications. First, banks may be prompted to lift HKD deposit rates. Second, secondary housing market is likely to remain suppressed as it relies heavily on bank loans with reference to HIBOR (95.4% of new mortgage loans approved during August 2017 were loans with reference to HIBOR), albeit banks may not rush to adjust the Prime Rate due to still flush liquidity. Indonesia: Foreign direct investment (FDI) in 3Q 2017 came in strong, rising 12.0% yoy to IDR111.7t. Attention will be placed on attracting Chinese FDI under the One-Belt, One-Road programme, especially for infrastructure projects in North Sumatra, North Kalimantan and North Sulawesi. Treasury Research & Strategy 2

3 Commodities: Brent is now a notch below its $61/bbl handle, while WTI is approaching OCBC s year-end estimate of $55/bbl. Still, the rally in crude oil has been a little too fast and too strong for our comfort, especially as no fundamental change is seen in the oil markets; prices rallied merely on Saudi prince Salman s comment that he of course wants to prolong the deal, which in in fact surprising in our view given that an OPEC production cut extension should have been priced in weeks ago. Bond Market Updates Market Commentary: The SGD swap curve bull-flattened yesterday, with swap rates trading 2-6bps lower across all tenors. This mirrored the bull-flattening of the US Treasury curve on Friday due to the news that President Donald Trump is leaning towards Jerome Powell to be the next chairman of the Fed. In the broader dollar space, the spread on JACI IG Corp rose 2bps to 178bps, while the yield on JACI HY Corp fell 2bps to 6.84%. 10Y UST yields fell 4bps to 2.37%, after reports stated that the US corporate-tax plan under discussion may be phased over five years, and Treasury Secretary Mnuchin commented that the Treasury doesn t see a lot of demand on ultralong issuance. New Issues: FH-REIT Treasury Pte Ltd has priced a SGD120mn 7-year bond at 3.08% (guaranteed by Perpetual (Asia) Ltd in its capacity as trustee of Frasers Hospitality Real Estate Investment Trust), tightening from initial guidance in the 3.3% area. The expected issue ratings are NR/Baa2/NR. Franshion Brilliant Ltd has priced a USD300mn Perp NC6 (guaranteed by China Jinmao Holdings Group Ltd) at 4.875%, tightening from initial guidance of 5% area. The expected issue ratings are BB/NR/NR. PT Chandra Asri Petrochemical Tbk has priced a USD300mn 7NC4 bond (guaranteed by PT Styrindo Mono Indonesia and PT Petrokimia Butadiene Indonesia) at 5.10%, tightening from intial guidance of 5.5% area. The expected issue ratings are B+/Ba3/BB-. AVIC International Leasing Co Ltd has scheduled investor meetings for potential USD bond issuance from 31 Oct. Rating Changes: FH-REIT Treasury Pte Ltd has priced a SGD120mn 7-year bond at 3.08% (guaranteed by Perpetual (Asia) Ltd in its capacity as trustee of Frasers Hospitality Real Estate Investment Trust), tightening from initial guidance in the 3.3% area. The expected issue ratings are NR/Baa2/NR. Franshion Brilliant Ltd has priced a USD300mn Perp NC6 (guaranteed by China Jinmao Holdings Group Ltd) at 4.875%, tightening from initial guidance of 5% area. The expected issue ratings are BB/NR/NR. PT Chandra Asri Petrochemical Tbk has priced a USD300mn 7NC4 bond (guaranteed by PT Styrindo Mono Indonesia and PT Petrokimia Butadiene Indonesia) at 5.10%, tightening from intial guidance of 5.5% area. The expected issue ratings are B+/Ba3/BB-. AVIC International Leasing Co Ltd has scheduled investor meetings for potential USD bond issuance from 31 Oct. Treasury Research & Strategy 3

4 Key Financial Indicators Foreign Exchange Equity and Commodity Day Close % Change Day Close % Change Index Value Net change DXY % USD-SGD % DJIA 23, USD-JPY % EUR-SGD % S&P 2, EUR-USD % JPY-SGD % Nasdaq 6, AUD-USD % GBP-SGD % Nikkei , GBP-USD % AUD-SGD % STI 3, USD-MYR % NZD-SGD % KLCI 1, USD-CNY % CHF-SGD % JCI 5, USD-IDR % SGD-MYR % Baltic Dry 1, USD-VND % SGD-CNY % VIX Interbank Offer Rates (%) Government Bond Yields (%) Tenor EURIBOR Change Tenor USD LIBOR Change Tenor SGS (chg) UST (chg) 1M O/N Y 1.49 (--) 1.57 (-0.01) 2M M Y 1.79 (--) 2.00 (-0.03) 3M M Y 2.28 (--) 2.37 (-0.04) 6M M Y 2.56 (--) -- 9M M Y 2.54 (--) -- 12M M Y 2.60 (--) 2.88 (-0.04) Fed Rate Hike Probability Financial Spread (bps) Meeting Prob Hike Value Change 11/01/ % 0.8% 0.0% 0.0% 0.0% LIBOR-OIS /13/ % 82.2% 0.6% 0.0% 0.0% EURIBOR-OIS /31/ % 80.3% 3.0% 0.0% 0.0% TED /21/ % 51.8% 37.6% 1.3% 0.0% 05/02/ % 49.7% 38.3% 3.1% 0.1% 06/13/ % 37.5% 41.7% 13.6% 1.0% Commodities Futures Energy Futures % chg Base Metals Futures % chg WTI (per barrel) % Copper (per mt) 6, % Brent (per barrel) % Nickel (per mt) 11, Heating Oil (per gallon) % Aluminium (per mt) 2, Gasoline (per gallon) % Natural Gas (per MMBtu) % Asian Commodities Futures % chg Crude Palm Oil (MYR/MT) 2, % Precious Metals Futures % chg Rubber (JPY/KG) % Gold (per oz) 1, % Silver (per oz) % Source: Bloomberg, Reuters (Note that rates are for reference only) Treasury Research & Strategy 4

5 Economic Calendar Date Time Event Survey Actual Prior Revised 10/30/ :50 JN Retail Trade YoY Sep 2.30% 2.20% 1.70% 1.80% 10/30/ :00 GE Retail Sales YoY Sep 3.00% 4.10% 2.80% 3.00% 10/30/ :30 UK Mortgage Approvals Sep 66.0k 66.2k 66.6k 67.2k 10/30/ :00 EC Economic Confidence Oct /30/ :00 EC Consumer Confidence Oct F /30/ :30 US Personal Income Sep 0.40% 0.40% 0.20% -- 10/30/ :30 US Personal Spending Sep 0.90% 1.00% 0.10% -- 10/30/ :00 GE CPI YoY Oct P 1.70% 1.60% 1.80% -- 10/30/ :00 GE CPI EU Harmonized YoY Oct P 1.70% 1.50% 1.80% -- 10/30/ :30 US Dallas Fed Manf. Activity Oct /31/ :00 SK Business Survey Manufacturing Nov /31/ :45 NZ Building Permits MoM Sep % 10.20% 5.90% 10/31/ :00 SK Industrial Production SA MoM Sep 2.20% 0.10% 0.40% 0.10% 10/31/ :00 SK Industrial Production YoY Sep 4.80% 8.40% 2.70% 2.30% 10/31/ :30 JN Jobless Rate Sep 2.80% 2.80% 2.80% -- 10/31/ :30 JN Job-To-Applicant Ratio Sep /31/ :50 JN Industrial Production YoY Sep P 2.00% % -- 10/31/ :00 NZ ANZ Business Confidence Oct /31/ :00 AU HIA New Home Sales MoM Sep % -- 10/31/ :30 AU Private Sector Credit MoM Sep 0.50% % -- 10/31/ :30 AU Private Sector Credit YoY Sep 5.60% % -- 10/31/ :00 CH Manufacturing PMI Oct /31/ :00 CH Non-manufacturing PMI Oct /31/ :00 JN Housing Starts YoY Sep -3.20% % -- 10/31/ :30 FR GDP YoY 3Q A 2.10% % -- 10/31/ :30 TH Exports YoY Sep % -- 10/31/ :30 TH BoP Current Account Balance Sep $4213m -- $4657m -- 10/31/ :45 FR CPI EU Harmonized YoY Oct P 1.20% % -- 10/31/ :45 FR CPI YoY Oct P 1.00% % -- 10/31/ :00 TA GDP YoY 3Q P 2.20% % -- 10/31/ :00 EC Unemployment Rate Sep 9.00% % -- 10/31/ :00 IT CPI NIC incl. tobacco MoM Oct P 0.10% % -- 10/31/ :00 EC GDP SA QoQ 3Q A 0.50% % -- 10/31/ :00 EC GDP SA YoY 3Q A 2.40% % -- 10/31/ :00 IT CPI EU Harmonized YoY Oct P 1.30% % -- 10/31/ :00 EC CPI Estimate YoY Oct 1.50% % -- 10/31/ :00 EC CPI Core YoY Oct A 1.10% % -- 10/31/ :00 IT PPI MoM Sep % -- 10/31/ :30 CA GDP MoM Aug 0.10% % -- 10/31/ :30 CA Industrial Product Price MoM Sep 0.20% % -- 10/31/ :30 CA Raw Materials Price Index MoM Sep 0.30% % -- 10/31/ :30 US Employment Cost Index 3Q 0.70% % -- 10/31/ :45 US Chicago Purchasing Manager Oct /31/ :00 US Consumer Confidence Oct /31/2017 JN BOJ Policy Balance Rate Oct % % -- Source: Bloomberg Treasury Research & Strategy 5

6 Macro Research Selena Ling Emmanuel Ng Tommy Xie Dongming Barnabas Gan Terence Wu OCBC Treasury Research Credit Research Andrew Wong Wong Liang Mian (Nick) Ezien Hoo Wong Hong Wei This publication is solely for information purposes only and may not be published, circulated, reproduced or distributed in whole or in part to any other person without our prior written consent. This publication should not be construed as an offer or solicitation for the subscription, purchase or sale of the securities/instruments mentioned herein. Any forecast on the economy, stock market, bond market and economic trends of the markets provided is not necessarily indicative of the future or likely performance of the securities/instruments. Whilst the information contained herein has been compiled from sources believed to be reliable and we have taken all reasonable care to ensure that the information contained in this publication is not untrue or misleading at the time of publication, we cannot guarantee and we make no representation as to its accuracy or completeness, and you should not act on it without first independently verifying its contents. The securities/instruments mentioned in this publication may not be suitable for investment by all investors. Any opinion or estimate contained in this report is subject to change without notice. We have not given any consideration to and we have not made any investigation of the investment objectives, financial situation or particular needs of the recipient or any class of persons, and accordingly, no warranty whatsoever is given and no liability whatsoever is accepted for any loss arising whether directly or indirectly as a result of the recipient or any class of persons acting on such information or opinion or estimate. This publication may cover a wide range of topics and is not intended to be a comprehensive study or to provide any recommendation or advice on personal investing or financial planning. Accordingly, they should not be relied on or treated as a substitute for specific advice concerning individual situations. Please seek advice from a financial adviser regarding the suitability of any investment product taking into account your specific investment objectives, financial situation or particular needs before you make a commitment to purchase the investment product. OCBC and/or its related and affiliated corporations may at any time make markets in the securities/instruments mentioned in this publication and together with their respective directors and officers, may have or take positions in the securities/instruments mentioned in this publication and may be engaged in purchasing or selling the same for themselves or their clients, and may also perform or seek to perform broking and other investment or securitiesrelated services for the corporations whose securities are mentioned in this publication as well as other parties generally. Co.Reg.no.: W Treasury Research & Strategy 6