DAILY MARKET OUTLOOK Market Themes/Strategy/Trading Ideas Wednesday, January 16, 2019 Treasury Research & Strategy Emmanuel Ng +65 6530 4037 ngcyemmanuel@ocbc.com Terence Wu +65 6530 4367 TerenceWu@ocbc.com The USD firmed against the EUR, JPY and CHF on Tuesday but eventually ended relatively flat against the AUD and CAD (crude firmer). UST yields were firmer on the day (despite soft Dec PPI and Jan Empire Man.) and contrasted with the concomitant drop in bund and gilt yields (ECB s Draghi noted that the slowdown could be longer than expected), sent the EUR-USD lower. GBP-USD meanwhile had a volatile session amidst the defeat (432-202) of the Brexit bill in Parliament, with the pair collapsing to 1.2670 before rebounding to end flat on the day around 1.2864. Overall, the DXY strengthened on the day despite the Fed s Kaplan and George, Kashkari preaching patience. Worth noting among the Fed speakers is the shift in rhetoric from George (voter), who is one of the most hawkish members in the FOMC. Her comments essentially put all the FOMC voters in 2019 on the same page in terms of forward guidance. The prospect of greater Chinese fiscal stimulus emboldened Asian equities on Tuesday and despite positive global equities by the end of the global day, the FXSI (FX Sentiment Index) ticked higher within Risk-Off territory. Inherent DXY vulnerability may be blunted somewhat in the near term as it remains tethered to the 96.00 handle. Look to fade the AUD-USD with 0.7200 acting as a near term locus and the 100-day MA (0.7173) and 55- day MA (0.7189) near term supports. Stay top heavy on the EUR-USD with the 55-day MA (1.1385) likely under threat. Similarly, USD-CAD is expected to be laden within its 100-day MA (1.3193) and 55-day MA (1.3331). USD-JPY meanwhile may experience range trading conditions within 108.00-109.00. On the GBP front, look to the no-confidence vote today. The debate on the motion will commence at 1300 GMT, with the actual vote scheduled at 1900 GMT. The EU s response to the ongoing political turmoil meanwhile has been less than sympathetic, noting zero prospects of a renegotiation. Nevertheless, the possibility of a no Brexit scenario has heightened, and this has essentially buoyed the GBP for now. On the calendar today, watch for German CPI (0700 GMT) for another confirmation of Draghi s comments that recent economic development in Europe is weaker than expected. Watch also for comments by the ECB s Nowotny (0840 GMT) and the BOE s Carney (0915 GMT).
Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-15 May-15 Sep-15 Jan-16 May-16 Sep-16 May-17 Sep-17 May-18 Sep-18 16 January 2019 Daily Market Outlook Asian Markets USD-CNH ended higher on the day on Tuesday and may continue to retain a slightly more consolidative tone (as we ventured yesterday). Positivity from yesterday s Asian session has fizzled and expect USD-Asia to trade on a firmer ledge today. On the portfolio flow front, South Korea s stumbling net bond inflows are being offset, in part, by an increase in net equity inflows, keeping overall inflow momentum reasonably healthy. Meanwhile, net equity outflows for Taiwan has compressed consistently. Net bond inflows for Indonesia remains the mainstay, but net equity inflows are also picking higher. Elsewhere, India and Thailand remain largely neutral on the portfolio flows front. SGD NEER: The SGD NEER firmed up to around +1.72% above its perceived parity (1.3786), recovering from a low of +1.60% overnight. The NEER-implied USD-SGD thresholds again edged higher. Preference to collect into any dips intra-day within 1.3520-1.3600. CFETS RMB Index: The USD-CNY mid-point was fixed higher this morning, within expectations, at 6.7615, compared to 6.7542 previously. Nevertheless, the CFETS RMB Index printed higher to 93.94 from 93.87. Dec monetary data releases in-line to stronger than expected. CFETS NEER vs. USD-CNY mid-point Asian Currency Index 106.00 Reverse scale 6.00 120 104.00 6.10 118 10 10 98.00 96.00 94.00 9 9 6.20 6.30 6.40 6.50 6.60 6.70 6.80 6.90 116 114 112 110 108 106 88.00 7.00 104 CFETS RMB Index USD-CNY Daily Fix (RHS), Bloomberg Treasury Research & Strategy 2
16 January 2019 Daily Market Outlook Short term Asian FX/bond market views USD-Asia 10y govie (%) Rationale China S. Korea / Taiwan / India Singapore / Malaysia Indonesia Thailand Philippines Officials on 15 Jan indicate that taxes will be cut on a larger scale and the PBOC stated that it would guide funding costs lower and strengthen counter cyclical adjustments. PBOC announces RRR cut on 04 Jan. Central Economic Work Conference in Dec 2018 and subsequent official communication indicate potential for increased policy accomodation in 2019. PBOC s quarterly monetary policy report accommodative. Dec monetary aggregates show new yuan loans and aggregate financing beating expectations. Official and Caixin Dec manufacturing PMIs dip into contraction territory. Dec CPI/PPI decelerate further, Dec exports and imports surprised with a contraction. BOK hiked 25 as expected in Nov; characterized as a one-off dovish hike by markets. 3Q GDP and Oct industrial production readings came in lower than expected. Dec CPI softer than expected at 1.3% yoy but core held at 1.3% yoy, BOK expects softer crude to impinge on price pressures. Dec exports go into contraction at -1.2% yoy. Dec manufactuirng PMI firms to 49.8 from 48.6. Nov current account surplus shrank to lowest level since April. Govie and NDIRS curves firmer on the week. CBC static at 1.375% in Dec 2018. CBC governor ambivalent on the benchmark rate. Some CBC members looking towards policy normalization to afford the authority eventual downside wiggle room. Dec manufacturing PMI drops to 47.7. Price pressures soften and Dec CPI surprises with a -0.05% contraction. Political premium being built in. Dec WPI significantly softer than expected while CPI inflation was marginally cooler than expected core inched higher. 3Q GDP weaker than expected. RBI static in Dec (new governor perceived to be more dovish), but latest macro readings are breeding dovish expectations despite background fiscal concerns. Dec manufacturing PMI slips to 53.2 from 54.0; Dec mechandise trade deficit came in lower than expected. Budget to be tabled on 1 Feb, with govt spending expected to increase with the general elections in Apr/May in mind. With the SGD NEER remaining near its upper boundary, expect declines in the USD- SGD to track broad USD weakness, and not explicit SGD strength. 4Q GDP surprises on the downside at 1.6% saar, though 3Q GDP was revised higher to 3.5% saar. The mid-term review of the 11th Malaysia Plan saw growth forecasts downgraded and with the previous plan to achieve a balanced budget by 2020 scuppered, replaced by an projected -3.0% deficit. BNM static in November,highlighting the drag from the fiscal front. Frosty market reception to the latest budget announcement (significantly larger than expected 2018 budget deficit penciled in). Dec manufaturing PMI falls to 47.7 from 48.4. Nov export growth decelerates sharply to +1.6% yoy. Nov 2018 hike was positioned as a pre-emptive move. Expect BI to remain static, with the urgency for further hikes reduced due to a softening Fed stance and firmer IDR. BI governor notes that the benchmark rate is already near its peak and this may continue to prove supportive for bonds. Dec CPI readings came in mixed, export (contraction)/import performance weakens. Elections slated for 17 April 2019. BOT governor reiterates accomodative policy is still important, perhaps highlighting a shift back to a neutral stance after the 25 hike in Dec 2018. Stronger than expected Oct exports offset weak 3Q GDP. Dec headline and core inflation softer than expected while manufacturing PMI picked up to 50.3. --- BSP remained static in Dec as expected. BSP governor open to RRR cut. 3Q GDP prints below expectations. Dec manufacturing PMI weakens to 53.2 from 54.2. Dec CPI softer than expected at +5.1% yoy. Treasury Research & Strategy 3
16 January 2019 Daily Market Outlook USD-Asia VS. Net Capital Flows South Korea Taiwan 0 1045 4000 29.0 8000 6000 4000 2000 0-2000 -4000 1065 1085 1105 1125 1145 1165 1185 1205 1225 3000 2000 0 - -2000-3000 -4000-5000 -6000 29.5 30.0 30.5 31.0 31.5 32.0 32.5 NFB: Bond & Eq 20D RS USD-KRW NFB: 20d RS USD-TWD India Indonesia 1 9000 7000 5000 3000 - -3000-5000 -7000 63.0 65.0 67.0 69.0 71.0 73.0 75.0 7000 5000 3000 - -3000-5000 -7000 13100 13600 14100 14600 15100 NFB: Bond & Eq RS 20D USD-INR Bond & Equity: 20D RS USD-IDR Philippines Thailand 900 700 500 300 100 49.0 50.0 51.0 52.0 2500 2000 1500 500 0 30.8 31.8 32.8 33.8-100 -300-500 53.0 54.0-500 - -1500-2000 34.8 35.8 NFB: RS20 USD-PHP Net bond & equity WTD RS20 USD-THB Malaysia 150 3.85 100 3.95 50 4.05 4.15-50 4.25-100 -150-200 4.35 4.45 Source: CEIC, Bloomberg, OCBC Bank Equity 20D RS USD-MYR Treasury Research & Strategy 4
Mar-17 May-17 Sep-17 Nov-17 Mar-18 May-18 Sep-18 Nov-18 1-Jan-14 1-Jul-14 1-Jan-15 1-Jul-15 1-Jan-16 1-Jul-16 1-1- 1-1- 1-16 January 2019 Daily Market Outlook ACI VS. Net Capital Flows FX Sentiment Index 1.5 1.0 z-score 4wk MA Stronger Asia FX 1m% 2.5 2.0 1.5 RISK OFF 0.5 1.0 0.0 0.5-0.5 0.0-0.5-1.0 Weaker Asia FX 3.00-1.0-1.5 4.00-1.5 RISK ON Total Portfolio Flows (20D RS) ACI (RHS) 1M Correlation Matrix DXY USGG10 CNY SPX MSELCAPF CRY JPY CL1 VIX ITRXEX CNH EUR DXY 1 0.425 0.77-0.556-0.558-0.452 0.813-0.636 0.65 0.381 0.793-0.915 JPY 0.906 0.471 0.869-0.767-0.658-0.601 0.837-0.806 0.866 0.515 0.891-0.703 CAD 0.904 0.451 0.563-0.411-0.379-0.24 0.694-0.388 0.488 0.208 0.515-0.894 PHP 0.869 0.373 0.842-0.804-0.685-0.67 0.755-0.827 0.914 0.629 0.866-0.683 CHF 0.86 0.525 0.902-0.766-0.63-0.555 0.854-0.772 0.87 0.456 0.907-0.668 SGD 0.855 0.631 0.851-0.638-0.52-0.495 0.927-0.727 0.796 0.368 0.859-0.625 KRW 0.813 0.798 0.685-0.384-0.236-0.202 1-0.515 0.611 0.061 0.688-0.556 INR 0.793 0.286 0.991-0.77-0.799-0.675 0.688-0.818 0.794 0.597 1-0.565 NZD 0.786 0.512 0.886-0.662-0.56-0.435 0.845-0.695 0.776 0.264 0.882-0.58 CNH 0.77 0.323 1-0.747-0.794-0.68 0.685-0.8 0.779 0.58 0.991-0.628 IDR 0.665 0.069 0.761-0.812-0.739-0.884 0.524-0.928 0.851 0.774 0.78-0.434 MYR 0.476 0.364 0.51-0.262-0.29-0.05 0.481-0.215 0.293 0.045 0.487-0.483 CNY 0.425 1 0.323-0.052 0.167 0.181 0.798-0.099 0.335-0.281 0.286-0.227 TWD 0.136 0.013 0.119-0.011-0.113 0.113 0.054 0.046-0.069-0.092 0.088-0.308 THB 0.095 0.317-0.359 0.421 0.548 0.626 0.143 0.518-0.312-0.479-0.338-0.195 AUD -0.225 0.447-0.483 0.571 0.765 0.754 0.074 0.6-0.439-0.826-0.564 0.2 USGG10-0.448 0.316-0.639 0.78 0.861 0.891-0.155 0.801-0.676-0.898-0.709 0.341 GBP -0.815-0.254-0.873 0.594 0.736 0.521-0.65 0.662-0.633-0.532-0.897 0.633 EUR -0.915-0.227-0.628 0.43 0.537 0.349-0.556 0.434-0.439-0.345-0.565 1 Source: Bloomberg Technical support and resistance levels S2 S1 Current R1 R2 EUR-USD 1.1382 1.1400 1.1402 1.1500 1.1529 GBP-USD 1.2750 1.2800 1.2841 1.2887 1.2900 AUD-USD 0.7129 0.7166 0.7200 0.7247 0.7274 NZD-USD 0.6796 0.6800 0.6810 0.6841 0.6900 USD-CAD 1.3180 1.3200 1.3267 1.3300 1.3353 USD-JPY 107.08 108.00 108.49 109.00 111.18 USD-SGD 1.3499 1.3500 1.3553 1.3600 1.3612 EUR-SGD 1.5441 1.5443 1.5453 1.5500 1.5584 JPY-SGD 1.2293 1.2400 1.2492 1.2500 1.2620 GBP-SGD 1.7214 1.7400 1.7403 1.7458 1.7474 AUD-SGD 0.9551 0.9700 0.9759 0.9800 0.9805 Gold 1250.45 1250.77 1289.40 130 1300.40 Silver 15.35 15.60 15.61 15.70 15.96 Crude 49.64 50.92 5 53.85 54.55 G10 FX Heat Map Asia FX Heat Map AUD NZD EUR GBP JPY CAD USD SGD MYR USD JPY CNY SGD MYR KRW TWD THB PHP INR IDR AUD 2 9 2 1 1 2 9 1 NZD 2 2 2 1 1 1 1 1 EUR 9 2 1 1 1 2 9 1 GBP 2 2 1 1 1 2 2 9 JPY 1 1 1 1 9 1 2 2 CAD 1 1 1 1 9 1 2 2 USD 2 1 2 2 1 1 1 1 SGD 9 1 9 2 2 2 1 1 MYR 1 1 1 9 2 2 1 1 USD 1 1 1 1 1 9 1 1 2 1 JPY 1 1 2 2 1 1 2 2 2 2 CNY 1 1 1 9 2 2 1 2 2 1 SGD 1 2 1 1 2 2 1 2 2 1 MYR 1 2 9 1 2 2 1 2 2 1 KRW 1 1 2 2 2 1 2 2 1 1 TWD 9 1 2 2 2 1 1 1 2 1 THB 1 2 1 1 1 2 1 2 2 2 PHP 1 2 2 2 2 2 1 2 2 1 INR 2 2 2 2 2 1 2 2 2 1 IDR 1 2 1 1 1 1 1 2 1 1 Source: OCBC AUD Bank NZD EUR GBP JPY CAD USD SGD MYR AUD 2 2 9 2 1 1 2 1 9 1 NZD 2 2 2 1 1 1 1 1 EUR 2 9 2 1 1 1 2 29 1 GBP 2 2 1 1 1 2 2 1 9 JPY 1 1 1 1 1 9 1 2 2 Treasury Research & Strategy 5 CAD 1 1 1 1 1 9 1 2 2 USD 2 1 2 2 1 1 1 1
16 January 2019 Daily Market Outlook Government bond yield changes US 4.00 Eurozone 1.50 Japan 0.50-0.50-8.00-1.50-1 6M 12M 2Y 3Y 5Y 7Y 10Y 6.00 UK Australia 1.50 Canada 5.00 4.00 3.00 1.50 0.50 0.50-0.50-1.50-0.50-2.50 3M 12M 2Y 3Y 5Y 7Y 10Y 5.00 China Korea Taiwan -0.20-1 -0.40-15.00-0.60-2 -0.80-25.00-3 6M 12M 3Y 5Y 10Y 3M 6M 12M 2Y 3Y 5Y 10Y -1.20 2Y 5Y 10Y 5.00 India 2 Indonesia Singapore 1-1 -15.00-1 -2-2 -25.00-3 -35.00-4 3M 6M 12M 2Y 3Y 5Y 10Y -3-4 -5 1Y 2Y 3Y 5Y 7Y 10Y -7.00 3M 6M 12M 2Y 5Y 10Y Thailand Malaysia Philippines -1-15.00-2 -25.00-3 -35.00-4 -7.00-7.00-45.00-8.00 3M 6M 12M 2Y 3Y 5Y 10Y -8.00 3M 7M 12M 2Y 3Y 5Y 7Y 10Y -5 2Y 3Y 5Y 7Y 10Y Treasury Research & Strategy 6
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