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Global Markets Outlook – 2H 2019
July 2019
Emmanuel Ng
Terence Wu
Treasury Research & Strategy
Global Treasury
1
G10 Outlook
2
3
Global landscape
• Macro indicators have taken a turn for the worse again in 2Q19 after an
attempted consolidation in 1Q19.
• Global economic deceleration already fully internalized – US yield curve (3/10s,
5/30s) searching for a recession.
• With a renewed deflation backdrop and heightened global trade tensions,
central banks are expected to embark on further accommodation – bond rally to
persist.
• Relativity remains the name of the game in FX – US Federal Reserve vs. its
counterparts – late cycle behavior.
• USD may be volatile in the near term, pending the demeanor of the July
FOMC.
• JPY, CHF (and XAU) to effectively manifest any discretionary USD
vulnerability. EUR may surprise if the ECB is less of a dove than expected.
• GBP to continue to decay under the weight of Brexit.
• AUD threatened by the China complex and global macro deceleration.
4
Global backdrop – Convergence still in play
Source: OECD, Bloomberg, OCBC
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
Jan-0
5
Jan-0
6
Jan-0
7
Jan-0
8
Jan-0
9
Jan-1
0
Jan-1
1
Jan-1
2
Jan-1
3
Jan-1
4
Jan-1
5
Jan-1
6
Jan-1
7
Jan-1
8
Jan-1
9
12m %chg
US CLI G7 CLI EZ CLI JP CLI
• US economy is losing its exceptional status, but the slowdown is from a
relatively higher base.
• Leading indicators in the US are easing in-line with the ROW (rest-of-world).
• No light at the end of the tunnel yet for the global economy.
44.00
46.00
48.00
50.00
52.00
54.00
56.00
58.00
60.00
Aug
-11
Fe
b-1
2
Aug
-12
Fe
b-1
3
Aug
-13
Fe
b-1
4
Aug
-14
Fe
b-1
5
Aug
-15
Fe
b-1
6
Aug
-16
Fe
b-1
7
Aug
-17
Fe
b-1
8
Aug
-18
Fe
b-1
9
6mmaGlobal PMIs
US PMI JP PMI EZ PMI EM PMI
5
Global backdrop – relativity remains crucial
• Higher frequency data showing ongoing economic deterioration in the US, and
may yet deteriorate further.
• Meanwhile, Europe is showing improvement, but selected key indicators
continue to spark concern. Some (very) nascent signs of improvement also in
Asia/China, but prospects of a meaningful recovery with any sort of traction
into 2H19 are dimming.
-80
-60
-40
-20
0
20
40
60
80
100
Aug
-1
2
Fe
b-1
3
Aug
-1
3
Fe
b-1
4
Aug
-1
4
Fe
b-1
5
Aug
-1
5
Fe
b-1
6
Aug
-1
6
Fe
b-1
7
Aug
-1
7
Fe
b-1
8
Aug
-1
8
Fe
b-1
9
OCBC US Macro Surprise Diffusion Indices
6M MSI
+ve data surprises
-ve data surprises
-100
-80
-60
-40
-20
0
20
40
60
80A
ug
-12
Fe
b-1
3
Aug
-13
Fe
b-1
4
Aug
-14
Fe
b-1
5
Aug
-15
Fe
b-1
6
Aug
-16
Fe
b-1
7
Aug
-17
Fe
b-1
8
Aug
-18
Fe
b-1
9
OCBC EZ Macro Surprise Diffusion Index
6M MSI
+ve data surprises
-ve data surprises
-100
-80
-60
-40
-20
0
20
40
60
80
Aug
-12
Fe
b-1
3
Aug
-13
Fe
b-1
4
Aug
-14
Fe
b-1
5
Aug
-15
Fe
b-1
6
Aug
-16
Fe
b-1
7
Aug
-17
Fe
b-1
8
Aug
-18
Fe
b-1
9
OCBC Asia Macro Surprise Diffusion Index
6M MSI
+ve data surprises
-ve data surprises
Source: Bloomberg, OCBC
6
Macro deceleration is a (very) mature story
• Downward march of global core yields has been relentless, but bond bulls
may not be done just yet.
-0.50
-0.30
-0.10
0.10
0.30
0.50
0.70
0.90
Jan
-17
Ap
r-1
7
Jul-
17
Oct
-17
Jan
-18
Ap
r-1
8
Jul-
18
Oct
-18
Jan
-19
Ap
r-1
9
Jul-
19
%EZ
1.00
1.20
1.40
1.60
1.80
2.00
2.20
2.40
2.60
2.80
3.00
Jan
-17
Ap
r-1
7
Jul-
17
Oct
-17
Jan
-18
Ap
r-1
8
Jul-
18
Oct
-18
Jan
-19
Ap
r-1
9
Jul-
19
%
AU
-0.20
-0.15
-0.10
-0.05
0.00
0.05
0.10
0.15
0.20
Jan
-17
Ap
r-1
7
Jul-
17
Oct
-17
Jan
-18
Ap
r-1
8
Jul-
18
Oct
-18
Jan
-19
Ap
r-1
9
Jul-
19
%
JP
1.902.002.102.202.302.402.502.602.702.802.903.003.103.203.30
Jan
-17
Ap
r-1
7
Jul-
17
Oct
-17
Jan
-18
Ap
r-1
8
Jul-
18
Oct
-18
Jan
-19
Ap
r-1
9
Jul-
19
%US
Source: Bloomberg
7
Global inflation expectations softening (again)
• Global inflation firmed up in 1Q 2019, but the renewed decline in crude prices
in 1H 2019 may yet again depress global inflation expectations.
• The need to entrench inflation expectations at previous levels may underlie
the central banks’ easing bias in 2H 2019.
Source: Bloomberg, OCBC
-80
-60
-40
-20
0
20
40
60
80
100
120
-1.00
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
9.00
Jan-0
7
Jan-0
8
Jan-0
9
Jan-1
0
Jan-1
1
Jan-1
2
Jan-1
3
Jan-1
4
Jan-1
5
Jan-1
6
Jan-1
7
Jan-1
8
Jan-1
9
%%
OECD Headline inflation Asia Headline inflation WTI (RHS)
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
Jan-1
5
Apr-
15
Jul-1
5
Oct-
15
Jan-1
6
Apr-
16
Jul-1
6
Oct-
16
Jan-1
7
Apr-
17
Jul-1
7
Oct-
17
Jan-1
8
Apr-
18
Jul-1
8
Oct-
18
Jan-1
9
Apr-
19
%
Global 10y Breakevens
US GE JP UK CA AU
8
Depth of Fed rate cut cycle in focus
-1.0
-0.8
-0.6
-0.4
-0.2
0.0
0.2
0.4
0.6
0.8
1.0
1.2
Jan-1
4
Jul-1
4
Jan-1
5
Jul-1
5
Jan-1
6
Jul-1
6
Jan-1
7
Jul-1
7
Jan-1
8
Jul-1
8
Jan-1
9
Jul-1
9
%
ED future 1y calendar spread
88
90
92
94
96
98
100
102
104
1.2
1.3
1.4
1.5
1.6
1.7
1.8
1.9
2.0
2.1
2.2
Ja
n-1
7
Fe
b-1
7
Ma
r-17
Ap
r-17
Ma
y-1
7
Ju
n-1
7
Ju
l-1
7
Au
g-1
7
Se
p-1
7
Oct-
17
Nov-1
7
Dec-1
7
Ja
n-1
8
Fe
b-1
8
Ma
r-18
Ap
r-18
Ma
y-1
8
Ju
n-1
8
Ju
l-1
8
Au
g-1
8
Se
p-1
8
Oct-
18
Nov-1
8
Dec-1
8
Ja
n-1
9
Fe
b-1
9
Ma
r-19
Ap
r-19
Ma
y-1
9
Ju
n-1
9
Ju
l-1
9
10y rate differentials vs. USD
USD weighted interest rate differential DXY INDEX
Rate Gap (%)
• The Fed has unequivocally shifted to an easing bias (July FOMC to set the
tone), but it has also pushed back against excessively dovish market
expectations. House view: Fed to cut 50 bps by end of Q3 2019, and another
25 bps in Q4 2019.
• In the medium term, a softer Fed posture makes it easier for the other central
banks to institute their own monetary accommodation. Differing speeds of
accommodation across central banks to create space for volatility.
Source: Bloomberg, OCBC
9
ECB: A bigger dove than the Fed? Or not?
• The full range of monetary easing options (including rate cuts) is still open at
the ECB, with Draghi still concerned over the lack of price pressures in the
Eurozone. The ECB may yet shape up to be the bigger dove than the Fed.
• However, note some improvement in the macro outlook in Europe (relative to
the US). ECB may potentially under-deliver relative to easing expectations in
the 2H 2019 – tempering excessive EUR weakness.
-2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.01.00
1.10
1.20
1.30
1.40
1.50
1.60
Jan
-08
Jan
-09
Jan
-10
Jan
-11
Jan
-12
Jan
-13
Jan
-14
Jan
-15
Jan
-16
Jan
-17
Jan
-18
Jan
-19
%
EUR-USD US-EZ 5y5y Forward Swap
0.985
0.990
0.995
1.000
1.005
1.010
1.015
1.020
-30
-20
-10
0
10
20
30
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
Jan-16
Jan-17
Jan-18
Jan-19
6M lead% yoy
EUR-USD Relative leading indicator (RHS)
-20
-15
-10
-5
0
5
10
15
20
25
1.00
1.10
1.20
1.30
1.40
1.50
1.60
Ju
l-0
8
Ju
l-0
9
Ju
l-1
0
Ju
l-1
1
Ju
l-1
2
Ju
l-1
3
Ju
l-1
4
Ju
l-1
5
Ju
l-1
6
Ju
l-1
7
Ju
l-1
8
EUR-USD Relative Man PMI Index (lead 3)
%yoyin rel. PMIs
Stronger USD
Weaker USD
Source: Bloomberg, OECD, OCBC
10
The other major central banks
Source: OECD, OCBC
• Two quick-fire cuts in June-July may now give the RBA some room for pause,
but the bias remains for further rate cuts by the end of the year.
• BOJ still committed to add stimulus if momentum towards its inflation target
stalls, but it may have limited levers to pull at this stage.
• Meanwhile, the BOE’s hands may be tied as long as Brexit is not resolved
while the Bank of Canada is seen stationary relative to the Fed.
0.980
0.985
0.990
0.995
1.000
1.005
1.010
1.015
1.020
-20
-15
-10
-5
0
5
10
15
20
25
30
Jan-0
2
Jan-0
3
Jan-0
4
Jan-0
5
Jan-0
6
Jan-0
7
Jan-0
8
Jan-0
9
Jan-1
0
Jan-1
1
Jan-1
2
Jan-1
3
Jan-1
4
Jan-1
5
Jan-1
6
Jan-1
7
Jan-1
8
Jan-1
9
% yoy
USD-JPY Rel Leading indicator (6m lead)
0.98
0.99
1.00
1.01
1.02
1.03
1.04
1.05
-35
-25
-15
-5
5
15
25
35
45
Jan-0
2
Jan-0
3
Jan-0
4
Jan-0
5
Jan-0
6
Jan-0
7
Jan-0
8
Jan-0
9
Jan-1
0
Jan-1
1
Jan-1
2
Jan-1
3
Jan-1
4
Jan-1
5
Jan-1
6
Jan-1
7
Jan-1
8
Jan-1
9
Jan-2
0
3mma, % yoy
AUD-USD AU-US Rel leading indicator (12m lead)
11
Positioning favouring the USD for now
Source: Bloomberg, CFTC, OCBC
70
75
80
85
90
95
100
105-50,000
-40,000
-30,000
-20,000
-10,000
0
10,000
20,000
30,000
40,000
11/0
1/2
008
11/0
1/2
009
11/0
1/2
010
11/0
1/2
011
11/0
1/2
012
11/0
1/2
013
11/0
1/2
014
11/0
1/2
015
11/0
1/2
016
11/0
1/2
017
11/0
1/2
018
11/0
1/2
019
USD mnLeveraged Positioning
Net USD positioning (USD terms)
Net USD Positioning excl JPY (USD terms)
DXY Index
Long Dollar Bias
Short Dollar Bias
-12
-10
-8
-6
-4
-2
0
2
4
6
8
10
12
14
16
18
20-20
-15
-10
-5
0
5
10
15
20
25
30
Jan-0
8
Jan-0
9
Jan-1
0
Jan-1
1
Jan-1
2
Jan-1
3
Jan-1
4
Jan-1
5
Jan-1
6
Jan-1
7
Jan-1
8
Jan-1
9
6mma % yoy(inverse scale)
% yoy
Global Man PMI USTWI
• Leveraged accounts continue to accumulate net long USD positioning while
asset manager accounts have been paring net dollar shorts.
• “Dollar Smile” in action.
12
In sum: Late stage dynamics in play
• July FOMC may set the early tone for the USD in 2H 2019, but we need to
continually assess the relative posturing between the core central banks.
• Any near-term Fed-driven USD weakness may be best expressed through the
JPY and CHF. Structurally, the EUR may be whipsawed by potential surprises
from the ECB, while the AUD may be hampered on the slower global outlook.
1.09
1.11
1.13
1.15
1.17
1.19
1.21
1.23
1.25
1.27
4-J
ul-1
7
4-S
ep
-17
4-N
ov-1
7
4-J
an-1
8
4-M
ar-
18
4-M
ay-1
8
4-J
ul-1
8
4-S
ep
-18
4-N
ov-1
8
4-J
an-1
9
4-M
ar-
19
4-M
ay-1
9
4-J
ul-1
9
EUR-USD
Actual Fitted
104
106
108
110
112
114
116
4-J
ul-1
7
4-S
ep
-17
4-N
ov-1
7
4-J
an-1
8
4-M
ar-
18
4-M
ay-1
8
4-J
ul-1
8
4-S
ep
-18
4-N
ov-1
8
4-J
an-1
9
4-M
ar-
19
4-M
ay-1
9
4-J
ul-1
9
USD-JPY
Actual Fitted
1.23
1.28
1.33
1.38
1.43
4-J
ul-1
7
4-S
ep
-17
4-N
ov-1
7
4-J
an-1
8
4-M
ar-
18
4-M
ay-1
8
4-J
ul-1
8
4-S
ep
-18
4-N
ov-1
8
4-J
an-1
9
4-M
ar-
19
4-M
ay-1
9
4-J
ul-1
9
GBP-USD
Actual Fitted
1.20
1.22
1.24
1.26
1.28
1.30
1.32
1.34
1.36
1.38
4-J
ul-1
7
4-S
ep
-17
4-N
ov-1
7
4-J
an-1
8
4-M
ar-
18
4-M
ay-1
8
4-J
ul-1
8
4-S
ep
-18
4-N
ov-1
8
4-J
an-1
9
4-M
ar-
19
4-M
ay-1
9
4-J
ul-1
9
USD-CAD
Actual Fitted
0.67
0.69
0.71
0.73
0.75
0.77
0.79
0.81
4-J
ul-1
7
4-S
ep
-17
4-N
ov-1
7
4-J
an-1
8
4-M
ar-
18
4-M
ay-1
8
4-J
ul-1
8
4-S
ep
-18
4-N
ov-1
8
4-J
an-1
9
4-M
ar-
19
4-M
ay-1
9
4-J
ul-1
9
AUD-USD
Actual Fitted
Source: Bloomberg, OCBC
Asian Outlook
13
14
Asian landscape
• Asia is ground zero for global trade tensions and the current macroeconomic
malaise.
• Asian central banks are now more amenable to further policy accommodation
with:
• the cue from core global central banks;
• inflation posing little threat and still relatively benign.
• Risk appetite levels remain fairly conducive on the back of the market’s current
premise of concerted global monetary policy relaxation.
• Carry increasingly attractive. With global core yields still being chased lower,
diversionary flows into EM/Asia may continue to ensue.
• Sino-US trade tensions remain a potential flashpoint but expect an anchor of
stability from China.
• Caveats:
• Global trade tensions overshadow global monetary easing
• The Fed under delivers on expected rate cuts
15
Asian macro picture does not inspire confidence
Source: CEIC, Bloomberg, OCBC
44.0
46.0
48.0
50.0
52.0
54.0
56.0
Aug
-11
Fe
b-1
2
Aug
-12
Fe
b-1
3
Aug
-13
Fe
b-1
4
Aug
-14
Fe
b-1
5
Aug
-15
Fe
b-1
6
Aug
-16
Fe
b-1
7
Aug
-17
Fe
b-1
8
Aug
-18
Fe
b-1
9
6mmaAsian PMIs
EM PMI CN SK TW SG
46.0
48.0
50.0
52.0
54.0
56.0
58.0
Aug
-11
Fe
b-1
2
Aug
-12
Fe
b-1
3
Aug
-13
Fe
b-1
4
Aug
-14
Fe
b-1
5
Aug
-15
Fe
b-1
6
Aug
-16
Fe
b-1
7
Aug
-17
Fe
b-1
8
Aug
-18
Fe
b-1
9
6mmaAsian PMIs
TH MY ID IN PH
-2.5
-2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
Jan-0
0
Jan-0
1
Jan-0
2
Jan-0
3
Jan-0
4
Jan-0
5
Jan-0
6
Jan-0
7
Jan-0
8
Jan-0
9
Jan-1
0
Jan-1
1
Jan-1
2
Jan-1
3
Jan-1
4
Jan-1
5
Jan-1
6
Jan-1
7
Jan-1
8
Jan-1
9
3mma
Asian Export Z-score
CN Asia (ex-CN, JP)
• Both manufacturing PMI and export
prints appear to be accelerating lower.
• Overall deteriorating Asian economic
trajectory still not showing signs of
bottoming heading into 2H 2019.
Ongoing Sino-US trade uncertainties
also do not bode well on this front.
16
Asian inflation picture soft
• Core inflation prints in Asia generally suppressed but core inflation in China
reverting to a downtrend. Meanwhile, Asian headline prints are attempting to
consolidate.
• Crude prices remain a wild card – especially if global trade war uncertainty spills
over to real economic variables.
-3.0
-1.5
0.0
1.5
3.0
4.5
6.0
7.5
9.0
Jan
-01
No
v-0
1
Se
p-0
2
Jul-
03
Ma
y-0
4
Ma
r-0
5
Jan
-06
No
v-0
6
Se
p-0
7
Jul-
08
Ma
y-0
9
Ma
r-1
0
Jan
-11
No
v-1
1
Se
p-1
2
Jul-
13
Ma
y-1
4
Ma
r-1
5
Jan
-16
No
v-1
6
Se
p-1
7
Jul-
18
Ma
y-1
9
Headline Inflation
Asia (Ex-Japan & China) China
-2.00
-1.50
-1.00
-0.50
0.00
0.50
1.00
1.50
2.00
2.50
3.00
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
5.5
6.0
Jan
-01
No
v-0
1
Se
p-0
2
Jul-
03
Ma
y-0
4
Ma
r-0
5
Jan
-06
No
v-0
6
Se
p-0
7
Jul-
08
Ma
y-0
9
Ma
r-1
0
Jan
-11
No
v-1
1
Se
p-1
2
Jul-
13
Ma
y-1
4
Ma
r-1
5
Jan
-16
No
v-1
6
Se
p-1
7
Jul-
18
Ma
y-1
9
%
Core Inflation
Asia (Ex-Japan & China) China
Source: Bloomberg, OCBC
17
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
Jan-12
Jul-1
2
Jan-13
Jul-1
3
Jan-14
Jul-1
4
Jan-15
Jul-1
5
Jan-16
Jul-1
6
Jan-17
Jul-1
7
Jan-18
Jul-1
8
Jan-19
Jul-1
9
South Korea
10y real rate SK-US 10y real rate gap
%
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
Jan-12
Jul-1
2
Jan-13
Jul-1
3
Jan-14
Jul-1
4
Jan-15
Jul-1
5
Jan-16
Jul-1
6
Jan-17
Jul-1
7
Jan-18
Jul-1
8
Jan-19
Jul-1
9
Taiwan
10y real rate TW-US 10y real rate gap
%
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
Jan-12
Jul-1
2
Jan-13
Jul-1
3
Jan-14
Jul-1
4
Jan-15
Jul-1
5
Jan-16
Jul-1
6
Jan-17
Jul-1
7
Jan-18
Jul-1
8
Jan-19
Jul-1
9
Indonesia
10y real rate ID-US 10y real rate gap
%
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
Jan-12
Jul-12
Jan-13
Jul-13
Jan-14
Jul-14
Jan-15
Jul-15
Jan-16
Jul-16
Jan-17
Jul-17
Jan-18
Jul-18
Jan-19
Jul-19
India
10y real rate IN-US 10y real rate gap
%
-1.5
-0.5
0.5
1.5
2.5
3.5
Jan-12
Jul-1
2
Jan-13
Jul-1
3
Jan-14
Jul-1
4
Jan-15
Jul-1
5
Jan-16
Jul-1
6
Jan-17
Jul-1
7
Jan-18
Jul-1
8
Jan-19
Jul-1
9
Thailand
10y real rate TH-US 10y real rate gap
%
-5.0
-4.0
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
Jan-12
Jul-1
2
Jan-13
Jul-1
3
Jan-14
Jul-1
4
Jan-15
Jul-1
5
Jan-16
Jul-1
6
Jan-17
Jul-1
7
Jan-18
Jul-1
8
Jan-19
Jul-1
9
Singapore
10y real rate SG-US 10y real rate gap
%
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
Jan-12
Jul-1
2
Jan-13
Jul-1
3
Jan-14
Jul-1
4
Jan-15
Jul-1
5
Jan-16
Jul-1
6
Jan-17
Jul-1
7
Jan-18
Jul-1
8
Jan-19
Jul-1
9
Malaysia
10y real rate MY-US 10y real rate gap
%
Source: Bloomberg, OCBC
Real rates easing too slowly?
• Real 10y yields in South Asia have eased off highs, but remains relatively
elevated if squared with the current economic environment and prognosis.
• We expect Asian central banks to embrace more rate cuts in 2H 2019.
18
No bottom in sight for Asian govie yields
3.00
3.20
3.40
3.60
3.80
4.00
4.20
Jan
-17
Ap
r-1
7
Jul-
17
Oct
-17
Jan
-18
Ap
r-1
8
Jul-
18
Oct
-18
Jan
-19
Ap
r-1
9
Jul-
19
%
CN
1.40
1.60
1.80
2.00
2.20
2.40
2.60
2.80
3.00
Jan
-17
Ap
r-1
7
Jul-
17
Oct
-17
Jan
-18
Ap
r-1
8
Jul-
18
Oct
-18
Jan
-19
Ap
r-1
9
Jul-
19
%
SK
0.50
0.60
0.70
0.80
0.90
1.00
1.10
1.20
1.30
Jan
-17
Ap
r-1
7
Jul-
17
Oct
-17
Jan
-18
Ap
r-1
8
Jul-
18
Oct
-18
Jan
-19
Ap
r-1
9
Jul-
19
%
TW
1.90
2.10
2.30
2.50
2.70
2.90
3.10
Jan
-17
Ap
r-1
7
Jul-
17
Oct
-17
Jan
-18
Ap
r-1
8
Jul-
18
Oct
-18
Jan
-19
Ap
r-1
9
Jul-
19
%
TH
6.00
6.50
7.00
7.50
8.00
8.50
9.00
9.50
Jan
-17
Ap
r-1
7
Jul-
17
Oct
-17
Jan
-18
Ap
r-1
8
Jul-
18
Oct
-18
Jan
-19
Ap
r-1
9
Jul-
19
%
ID
3.50
3.60
3.70
3.80
3.90
4.00
4.10
4.20
4.30
4.40
Jan
-17
Ap
r-1
7
Jul-
17
Oct
-17
Jan
-18
Ap
r-1
8
Jul-
18
Oct
-18
Jan
-19
Ap
r-1
9
Jul-
19
%
MY
• Expect Asian yields to track core global yield curves lower.
Source: Bloomberg
Basic balance on the mend in South Asia
-6.00
-4.00
-2.00
0.00
2.00
4.00
6.00
8.00
-10000
-5000
0
5000
10000
15000
20000
25000
30000
35000
40000
Jan-0
6
Jan-0
7
Jan-0
8
Jan-0
9
Jan-1
0
Jan-1
1
Jan-1
2
Jan-1
3
Jan-1
4
Jan-1
5
Jan-1
6
Jan-1
7
Jan-1
8
Jan-1
9
Thailand
Basic Balance (RS 12) THB NEER (RHS, %yoy)
USD mn %
-25
-20
-15
-10
-5
0
5
10
15
20
25
-15000
-10000
-5000
0
5000
10000
15000
20000
25000
30000
35000
Jan-0
5
Jan-0
6
Jan-0
7
Jan-0
8
Jan-0
9
Jan-1
0
Jan-1
1
Jan-1
2
Jan-1
3
Jan-1
4
Jan-1
5
Jan-1
6
Jan-1
7
Jan-1
8
Jan-1
9
Indonesia
BB: RS4 IDR NEER (yoy%)
-20
-15
-10
-5
0
5
10
15
-50000
-40000
-30000
-20000
-10000
0
10000
20000
30000
40000
50000
Jan-0
5
Jan-0
6
Jan-0
7
Jan-0
8
Jan-0
9
Jan-1
0
Jan-1
1
Jan-1
2
Jan-1
3
Jan-1
4
Jan-1
5
Jan-1
6
Jan-1
7
Jan-1
8
Jan-1
9India
BB (RS 4) INR NEER (yoy%)
-12
-10
-8
-6
-4
-2
0
2
4
6
8
-60000
-40000
-20000
0
20000
40000
60000
80000
100000
120000
140000
160000
Jan-0
5
Jan-0
6
Jan-0
7
Jan-0
8
Jan-0
9
Jan-1
0
Jan-1
1
Jan-1
2
Jan-1
3
Jan-1
4
Jan-1
5
Jan-1
6
Jan-1
7
Jan-1
8
Jan-1
9
Malaysia
Basic Balance MYR NEER (yoy%)
• Basic balance is on the mend in India and Indonesia, providing mechanical
support for the INR and IDR on an NEER basis. Meanwhile, basic balance
accumulation is slowing down in Thailand.
Source: CEIC, OCBC
20
Foreign reserve accumulation
• In line with the basic balance picture, foreign reserve accumulation has been
positive in Asia – providing implicit buffer for the Asian currencies, barring an
acute onset of risk aversion.
• Ongoing THB outperformance relative to KRW on this metric.
SK
TW
IN
PH
THID
MY
CN
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0
-2.0 0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0
To
tal
rtn
6M
%
Foreign reserves: 6m % chng
SK
TW
IN
PH
TH
ID
MYCN
-6
-4
-2
0
2
4
6
-5.0 0.0 5.0 10.0 15.0
NE
ER
6M
%
Foreign reserves: 6M % chng
Source: CEIC, OCBC
21
Source: Bloomberg, OCBC
No drastic misalignment for Asian FX
• The tightening impact of the THB NEER may compel the Bank of Thailand to
adopt a more dovish slant in due course. Meanwhile, the declining KRW NEER
has done little to support Korean exports, and should not be a serious
impediment for rate cuts at the Bank of Korea. Nevertheless, given the gentle
trajectory in their previous rate hike cycles, these two central banks may have
limited room for cuts.
• Overall, expect Asian central banks to be cognizant of externally-induced
volatility, and proceed with monetary easing with care.
-8.0
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
KRW TWD MYR CNY PHP SGD INR IDR THB
%
Year-to-date NEER performance
5-Jul-19
-10
-8
-6
-4
-2
0
2
4
6
8
10
12
KRW INR TWD IDR MYR PHP THB CNY SGD
%
NEER: Relative to 5y average
Jul-19 end-2018
22
RMB: Asymmetric risks
• The reality and materialization of Sino-US trade tensions have resulted in a
softening profile for the CFETS RMB Index.
• Although USD-CNY fixings may be restrained (significantly lower than expected)
in times of volatility (especially USD strength), a structurally softer CFETS RMB
Index implies restrained downside for USD-CNY but potentially increased
headroom on the upside if the DXY bounces higher.
6.00
6.10
6.20
6.30
6.40
6.50
6.60
6.70
6.80
6.90
7.0088
90
92
94
96
98
100
102
104
106
Jan
-14
Jul-
14
Jan
-15
Jul-
15
Jan
-16
Jul-
16
Jan
-17
Jul-
17
Jan
-18
Jul-
18
Jan
-19
Jul-
19
CFETS NEER vs. USD-CNY mid-point
CFETS RMB Index USD-CNY Fix (RHS)
Reversescale
-13.0-12.0-11.0-10.0-9.0-8.0-7.0-6.0-5.0-4.0-3.0-2.0-1.00.01.02.03.04.05.0
-7
-5
-3
-1
1
3
5
7
9
11
13
Nov-1
5
Ma
y-16
Nov-1
6
Ma
y-17
Nov-1
7
Ma
y-18
Nov-1
8
Ma
y-19
Nov-1
9
12m MA % yoy lead 6
12mma % yoy
CNY NEER Foreign Reserves
Source: Bloomberg, OCBC
23
Long term structural impediments for Asia
• The soft macro backdrop portends further weakening for the Asian currencies
on a structural basis, despite background support from the positive risk
environment. In the near term, expect the Asian currencies to be also held
hostage by the lack of an appreciation impetus in the RMB.
Source: Bloomberg, OCBC
-15
-10
-5
0
5
10
15
20-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
Jan-10
Jul-1
0
Jan-11
Jul-1
1
Jan-12
Jul-1
2
Jan-13
Jul-1
3
Jan-14
Jul-1
4
Jan-15
Jul-1
5
Jan-16
Jul-1
6
Jan-17
Jul-1
7
Jan-18
Jul-1
8
Jan-19
% yoy
Asian (ex-China) export growth Z-score ACI
Stronger USD
Weaker USD90
95
100
105
110
115
120
125-150
-100
-50
0
50
100
150
Au
g-0
8
Fe
b-0
9
Au
g-0
9
Fe
b-1
0
Au
g-1
0
Fe
b-1
1
Au
g-1
1
Fe
b-1
2
Au
g-1
2
Fe
b-1
3
Au
g-1
3
Fe
b-1
4
Au
g-1
4
Fe
b-1
5
Au
g-1
5
Fe
b-1
6
Au
g-1
6
Fe
b-1
7
Au
g-1
7
Fe
b-1
8
Au
g-1
8
Fe
b-1
9
12M MSI ACI (RHS)
Weaker USD
Stronger USD
+ve surprises
-ve surprises 90
95
100
105
110
115
120
Ma
r-0
5
Ma
r-0
6
Ma
r-0
7
Ma
r-0
8
Ma
r-0
9
Ma
r-1
0
Ma
r-1
1
Ma
r-1
2
Ma
r-1
3
Ma
r-1
4
Ma
r-1
5
Ma
r-1
6
Ma
r-1
7
Ma
r-1
8
Ma
r-1
9
Asian Currency Index
Actual Predicted
Weaker Asian FX
Stronger Asian FX
24
Selected near term positives from flow picture
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
-25000
-20000
-15000
-10000
-5000
0
5000
10000
15000
20000
25000
30000
Jan-0
5
Jan-0
6
Jan-0
7
Jan-0
8
Jan-0
9
Jan-1
0
Jan-1
1
Jan-1
2
Jan-1
3
Jan-1
4
Jan-1
5
Jan-1
6
Jan-1
7
Jan-1
8
Jan-1
9
% mom (12wk ma)
12wk RS, USD mn
Stocks Bonds ACI
Stronger Asian FX
Weaker Asian FX
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0
10.0-2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
Dec-1
1
Apr-
12
Aug
-12
Dec-1
2
Apr-
13
Aug
-13
Dec-1
3
Apr-
14
Aug
-14
Dec-1
4
Apr-
15
Aug
-15
Dec-1
5
Apr-
16
Aug
-16
Dec-1
6
Apr-
17
Aug
-17
Dec-1
7
Apr-
18
Aug
-18
Dec-1
8
Apr-
19
Total Net Flows (60D RS) ACI (RHS)
z-score4wk MA
3m%Stronger Asia FX
Weaker Asia FX
• Lower (and some negative) core global yields are supportive for Asian govie
bonds. Moving forward, expect selected Asian bonds and FX to continue
outperforming, with the focus on either the high-yielders and/or bond markets
presided by central banks expected to ease further.
Source: CEIC, EPFR, OCBC
25
Asian flow environment: Country perspective
3.85
3.90
3.95
4.00
4.05
4.10
4.15
4.20
4.25-1800
-1500
-1200
-900
-600
-300
0
300
600
900
Jan-
18
Ap
r-1
8
Jul-1
8
Oct
-18
Jan-
19
Ap
r-1
9
Jul-1
9
Malaysia
Equity 20D RS USD-MYR
30.5
31.0
31.5
32.0
32.5
33.0
33.5
-1500
-1000
-500
0
500
1000
1500
2000
2500
Dec
-17
Mar
-18
Jun
-18
Sep
-18
Dec
-18
Mar
-19
Jun
-19
Thailand
Net bond & equity WTD RS20 USD-THB
13100
13600
14100
14600
15100
-7000
-5000
-3000
-1000
1000
3000
5000
7000
Dec
-17
Mar
-18
Jun-
18
Sep
-18
Dec
-18
Mar
-19
Jun-
19
Indonesia
Bond & Equity: 20D RS USD-IDR
62.00
64.00
66.00
68.00
70.00
72.00
74.00
76.00-6000
-4000
-2000
0
2000
4000
6000
8000
10000
Dec
-17
Mar
-18
Jun-
18
Sep
-18
Dec
-18
Mar
-19
Jun-
19
India
NFB: Bond & Eq RS 20D USD-INR
29.0
29.5
30.0
30.5
31.0
31.5
-6000
-5000
-4000
-3000
-2000
-1000
0
1000
2000
3000
4000
Dec
-17
Mar
-18
Jun-
18
Sep
-18
Dec
-18
Mar
-19
Jun-
19
Taiwan
NFB: 20d RS USD-TWD
1045
1065
1085
1105
1125
1145
1165
1185
-2000
0
2000
4000
6000
8000
10000
Dec
-17
Mar
-18
Jun
-18
Sep
-18
Dec
-18
Mar
-19
Jun
-19
South Korea
NFB: Bond & Eq 20D RS USD-KRW
• South Korea, Thailand and Indonesia looking solid on the back of bond inflows,
although the follow-through to FX is limited for KRW.
Source: CEIC, OCBC
26
Overall risk appetite recovering
• Going forward, with no blow-up in Sino-US trade talks for now and a liquidity
boost from global central banks, we may expect a broadly risk-on environment –
supportive of Asian FX.
• In Asia, short-end (realized) EM FX vols have also eased, supporting the
vol/carry proposition with respect to EM/Asian assets.
-2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
Jan-12
Jul-1
2
Jan-13
Jul-1
3
Jan-14
Jul-1
4
Jan-15
Jul-1
5
Jan-16
Jul-1
6
Jan-17
Jul-1
7
Jan-18
Jul-1
8
Jan-19
Jul-1
9
FX Sentiment Index
RISK OFF
RISK ON-2.5
-2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
5.5
Apr-0
5
Apr-0
6
Apr-0
7
Apr-0
8
Apr-0
9
Apr-1
0
Ap
r-1
1
Apr-1
2
Apr-1
3
Apr-1
4
Apr-1
5
Ap
r-1
6
Apr-1
7
Apr-1
8
Apr-1
9
Z-score
EM 1M vols
96
98
100
102
104
106
108
110
30
DE
C2
01
6
02
FE
B2
01
7
08
MA
R2
01
7
11
AP
R2
01
7
15
MA
Y2
01
7
16
JUN
20
17
20
JUL2
01
7
23
AU
G2
01
7
26
SE
P2
01
7
30
OC
T2
01
7
01
DE
C2
01
7
04
JAN
20
18
07
FE
B2
01
8
13
MA
R2
01
8
16
AP
R2
01
8
18
MA
Y2
01
8
21
JUN
20
18
25
JUL2
01
8
28
AU
G2
01
8
01
OC
T2
01
8
02
NO
V2
01
8
06
DE
C2
01
8
09
JAN
20
19
12
FE
B2
01
9
18
MA
R2
01
9
19
AP
R2
01
9
23
MA
Y2
01
9
26
JUN
20
19
30/12/16=100
EM FX Carry Basket
Source: Bloomberg, OCBC
27
SGD NEER: Biased lower on soft macro outlook
Source: Bloomberg, OCBC
116
117
118
119
120
121
122
123
124
125
126
127
128
129
14
-Oct-
13
14
-Dec-1
3
14
-Fe
b-1
4
14
-Ap
r-1
4
14
-Jun
-14
14
-Au
g-1
4
14
-Oct-
14
14
-Dec-1
4
14
-Fe
b-1
5
14
-Ap
r-1
5
14
-Jun
-15
14
-Au
g-1
5
14
-Oct-
15
14
-Dec-1
5
14
-Fe
b-1
6
14
-Ap
r-1
6
14
-Jun
-16
14
-Au
g-1
6
14
-Oct-
16
14
-Dec-1
6
14
-Fe
b-1
7
14
-Ap
r-1
7
14
-Jun
-17
14
-Au
g-1
7
14
-Oct-
17
14
-Dec-1
7
14
-Fe
b-1
8
14
-Ap
r-1
8
14
-Jun
-18
14
-Au
g-1
8
14
-Oct-
18
14
-Dec-1
8
14
-Fe
b-1
9
14
-Ap
r-1
9
14
-Jun
-19
14
-Au
g-1
9
2.0%pa+/-2.0% band
flatten slope
neutral slope
1.0%pa+/-2.0% band
flatten slope
0.5%pa+/-2.0%
band
0.0%pa+/-2.0% band
0.5%pa+/-2.0%
band
steepen slope
1.0%pa+/-2.0%
band
steepen slope
-0.1500
-0.1000
-0.0500
0.0000
0.0500
0.1000
0.1500
0.2000
Year-to-date 2019
INR
PHP
AUD
IDR
KRW
GBP
CNY
THB
TWD
JPY
MYR
EUR
USD
SGD strengthens agst currency x
SGD w eakens agst currency x
• Recent developments perhaps suggests that the growth outlook is somewhat
worse than the “slightly below potential” prognosis in the April MPS.
• The NEER may be increasingly perceived to be elevated relative to underlying
fundamentals.
28
FX forecasts (correct as of 01 July)
Source: OCBC
Spot Jul-19 Sep-19 Dec-19 Mar-20
USD-JPY 108.27 108.91 107.15 106.84 106.52
EUR-USD 1.1325 1.1325 1.1224 1.1352 1.1479
GBP-USD 1.264 1.2640 1.2461 1.2644 1.2827
AUD-USD 0.6997 0.7028 0.6909 0.7009 0.7110
NZD-USD 0.6702 0.6735 0.6597 0.6702 0.6807
USD-CAD 1.3105 1.3017 1.2914 1.2862 1.2811
USD-CHF 0.9836 0.9803 0.9739 0.9712 0.9685
USD-SGD 1.3548 1.3492 1.3548 1.3484 1.3421
USD-CNY 6.8456 6.8258 6.8849 6.8075 6.7300
USD-THB 30.59 30.37 30.21 30.10 29.98
USD-IDR 14113 13,986 13,903 13,832 13,760
USD-MYR 4.1385 4.1202 4.1214 4.0944 4.0674
USD-KRW 1158.70 1146.44 1139.99 1134.07 1128.15
USD-TWD 30.995 30.832 30.745 30.581 30.417
USD-HKD 7.8085 7.8000 7.7950 7.7850 7.7750
USD-PHP 51.05 50.78 50.65 50.48 50.31
USD-INR 69.06 68.52 68.06 67.62 67.17
EUR-JPY 122.61 123.34 120.27 121.28 122.27
EUR-GBP 0.8960 0.8960 0.9008 0.8978 0.8949
EUR-CHF 1.1140 1.1101 1.0931 1.1024 1.1117
EUR-SGD 1.5343 1.5280 1.5207 1.5307 1.5405
GBP-SGD 1.7125 1.7054 1.6882 1.7050 1.7215
AUD-SGD 0.9480 0.9482 0.9360 0.9452 0.9542
NZD-SGD 0.9081 0.9087 0.8938 0.9037 0.9135
CHF-SGD 1.3773 1.3764 1.3911 1.3885 1.3858
JPY-SGD 1.2514 1.2388 1.2644 1.2622 1.2599
SGD-MYR 3.0532 3.0538 3.0420 3.0364 3.0307
SGD-CNY 5.0522 5.0592 5.0819 5.0484 5.0146
29
USD rates forecasts (correct as of 02 July)
Source: OCBC
3Q19 4Q19 1Q20 2Q20 3Q20 4Q20
Fed Funds Target Rate 1.75%-2.0% 1.50%-1.75% 1.50%-1.75% 1.50%-1.75% 1.50%-1.75% 1.50%-1.75%
1-month LIBOR 2.15% 1.90% 1.84% 1.78% 1.71% 1.65%
2-month LIBOR 2.20% 1.95% 1.89% 1.83% 1.76% 1.70%
3-month LIBOR 2.25% 2.00% 1.94% 1.88% 1.81% 1.75%
6-month LIBOR 2.26% 2.10% 2.04% 1.98% 1.91% 1.85%
12-month LIBOR 2.27% 2.20% 2.15% 2.10% 2.05% 2.00%
1-year swap rate 2.00% 1.95% 1.98% 2.00% 2.03% 2.05%
2-year swap rate 1.80% 1.75% 1.84% 1.93% 2.01% 2.10%
3-year swap rate 1.73% 1.69% 1.81% 1.92% 2.04% 2.15%
5-year swap rate 1.75% 1.70% 1.83% 1.95% 2.08% 2.20%
10-year swap rate 1.95% 1.90% 2.01% 2.13% 2.24% 2.35%
15-year swap rate 2.10% 2.00% 2.10% 2.21% 2.31% 2.41%
20-year swap rate 2.19% 2.16% 2.24% 2.32% 2.40% 2.48%
30-year swap rate 2.20% 2.18% 2.29% 2.39% 2.50% 2.60%
30
SGD rates forecasts (correct as of 02 July)
Source: OCBC
3Q19 4Q19 1Q20 2Q20 3Q20 4Q20
1-month SIBOR 1.85% 1.83% 1.85% 1.87% 1.88% 1.90%
1-month SOR 1.80% 1.75% 1.81% 1.88% 1.94% 2.00%
3-month SIBOR 2.00% 1.98% 2.00% 2.02% 2.03% 2.05%
3-month SOR 1.83% 1.80% 1.88% 1.97% 2.05% 2.13%
6-month SIBOR 2.06% 2.05% 2.08% 2.10% 2.13% 2.15%
6-month SOR 1.70% 1.65% 1.78% 1.92% 2.05% 2.18%
12-month SIBOR 2.18% 2.15% 2.17% 2.19% 2.20% 2.22%
1-year swap rate 1.70% 1.65% 1.71% 1.78% 1.84% 1.90%
2-year swap rate 1.63% 1.60% 1.65% 1.70% 1.75% 1.80%
3-year swap rate 1.65% 1.63% 1.68% 1.73% 1.77% 1.82%
5-year swap rate 1.72% 1.70% 1.74% 1.78% 1.81% 1.85%
10-year swap rate 1.95% 1.90% 1.94% 1.98% 2.02% 2.06%
15-year swap rate 1.98% 1.94% 2.01% 2.09% 2.17% 2.25%
20-year swap rate 2.28% 2.26% 2.27% 2.29% 2.30% 2.31%
30-year swap rate 2.29% 2.28% 2.29% 2.31% 2.32% 2.33%
Thank You
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