20171031-大华银行-Markets_Overview_5页_255kb

Global Economics & Markets Research Summary (31 October 2017)

Core Content

This report provides an overview of global economic and market conditions as of 31 October 2017, focusing on key economic data, central bank outlooks, FX movements, stock indices, and commodities. It also includes UOB's forecasts and analysis of market trends.

Main Highlights

Markets Overview

• G7 Monetary Policy Decisions: The Bank of Japan (BOJ) will release its first of three G7 monetary policy decisions on Tuesday (31 Oct), with the focus likely on inflation and fiscal outlook following PM Abe's election victory.
• Economic Data Release: A flood of economic data is expected for the day, including Japan's September housing starts, vehicle production, and construction orders, along with Australia's September homes sales and private credit data. European data includes Eurozone preliminary October CPI, Eurozone preliminary 3Q GDP, and French 3Q GDP. The US will release the October Chicago Purchasing Manager Survey and the October Conference Board Consumer Confidence.
• Asian Equity Markets: Asian equity markets were weaker on the day, with the Hang Seng and Shanghai Composite falling, while the KOSPI and TAIEX rose. Futures on the Nikkei 225, Hang Seng, and KOSPI also declined.

Central Bank Outlook

• US Fed Chair Announcement: The White House indicated that President Trump plans to announce his choice for the next Fed chairman on 2 November, the day before his trip to Asia.
• Potential Nomination: Bloomberg reported that Trump is likely to nominate Jerome Powell as the next Fed Chair to replace Janet Yellen.

FX Market Movements

• USD Declined: The US dollar broadly declined on 30 October due to anticipation of the FOMC decision and the Mueller investigation.
• EUR/USD and GBP/USD: The EUR/USD pair reached an intraday high of 1.1658, while GBP/USD appreciated to 1.3208.
• JPY Rebounded: The USD/JPY pair hit an intraday low of 113.03, with the yen rebounding against the dollar.
• Aussie Dollar: The AUD/USD closed higher at 0.7688, while NZD/USD was little changed.
• Asian Currencies: Asian currencies generally traded higher against the USD, with SGD, PHP, and TWD showing gains, while KRW and THB had mixed performance.
• SGD NEER Forecast: UOB estimates the SGD NEER to trade between 1.0% and 1.5% above the midpoint, suggesting a USD/SGD range of 1.3632 - 1.3565.

US Treasuries

• Bond Yields Declined: US bond yields fell across the curve as investors were spooked by the Mueller investigation. The 2-year yield dropped 1.4bps to 1.57%, the 5-year yield fell 3.3bps to 1.995%, and the 10-year yield declined 3.8bps to 2.37%.
• Treasury Issuance Plan: The US Treasury is expected to issue $275 billion in net marketable debt from October through December, with a cash balance of $205 billion at the end of the period. The plan for 2018 includes $512 billion in net-marketable debt with a $300 billion cash balance, interpreted as a signal for potential debt ceiling lifting.

Commodities

• Crude Oil Prices Rose: US and global crude oil prices hit 8-month highs as optimism grew over potential OPEC production cuts.
• Gold Price Increased: Gold prices rose to $1,277.70, driven by a weaker USD and anticipation of key economic events.

Economic News & Data

• Japan's September Data: Japan's September retail sales rose 2.2% y/y, while household spending unexpectedly contracted -0.3% y/y. Industrial production contracted -1.1% m/m, but still outperformed expectations.
• US Economic Indicators: US September PCE rose 0.4% m/m, with core PCE unchanged. Personal spending increased 1.0% m/m, the biggest rise since 2009. The Dallas Fed manufacturing activity survey surged to 27.6.
• Tax Reform: The US House tax writers are discussing a gradual phase-in of corporate tax rate cuts, with a target of 20% by 2022.
• Mueller Investigation: The FBI announced charges against Paul Manafort and Richard Gates, and a plea agreement with George Papadopoulos, who is now cooperating with prosecutors. The White House emphasized that the investigation is unrelated to Trump's campaign.

Key Information

• Japan's Policy Focus: The BOJ's focus is on inflation and fiscal outlook, with no expected change in policy rates.
• Market Sentiment: Investors are cautious ahead of key monetary policy decisions, economic data, and earnings reports.
• Interest Rates: The US Fed Funds Rate is at 1.00%, with the next meeting on 1 November. Other major currencies have their respective interest rates and upcoming central bank meetings.
• FX and Bond Forecasts: UOB provides forecasts for SGD NEER and other FX pairs, along with bond yield trends.

Summary Table of Key Economic Indicators

Market Holidays/Events

• Philippines: All Saints Day (1 Nov), Bonifacio Day (30 Nov)
• Japan: Culture Day (3 Nov)
• US/JP: Thanksgiving (23 Nov)
• Malaysia: Birthday of Prophet Muhammad (1 Dec)
• Indonesia: Maulid Nabi Muham (1 Dec)
• Thailand: King's Birthday (5 Dec), Constitution Day (11 Dec)
• South Korea: Election Day (20 Dec)
• SG/MY: Christmas Day (25 Dec)

Conclusion

The report highlights a week of heightened economic and policy activity, with the BOJ's policy decision, the US FOMC meeting, and a range of data releases expected to influence market movements. FX markets showed mixed reactions, with the yen rebounding against the dollar and Asian currencies generally performing well. US equities started the week lower, while commodities, particularly crude oil and gold, showed upward trends. Investors are closely monitoring developments in the Mueller investigation and potential tax reforms as they prepare for key economic events.