Weekly Macro Views (WMV) - Treasury Research & Strategy (28th September 2021) - OCBC Bank
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Weekly Macro Views (WMV)
Treasury Research & Strategy (28th September 2021)
1Weekly Macro Update
Key Global Events for this week:
27th September 28th September 29th September 30th September 1st October
- US Durable Goods - US Conf. Board - TH BoT Benchmark - JN Industrial - JN Jobless Rate
Orders Consumer Confidence Interest Rate Production MoM - US ISM Manufacturing
- EC M3 Money Supply - AU Retail Sales MoM - US MBA Mortgage - US Initial Jobless - US U. of Mich.
- US Durables Ex - UK Nationwide House Applications Claims Sentiment
Transportation PX MoM - UK Mortgage - UK GDP - SK Exports YoY
- US Dallas Fed Manf. - HK Exports YoY Approvals - HK Retail Sales - SK Markit South Korea
Activity - US Wholesale - US Pending Home Value YoY PMI Mfg
- JN Leading Index CI Inventories MoM Sales MoM - CH Manufacturing - VN Markit Vietnam PMI
- GE Retail Sales MoM - GE GfK Consumer - EC Consumer PMI Mfg
- US Cap Goods Confidence Confidence - CH Caixin China - ID Markit Indonesia
Orders Nondef Ex Air PMI Mfg PMI Mfg
Summary of Macro Views:
• MY: PM unveils 12th Malaysia Plan
• Global: Central banks Asia • CH: Will China export inflation to the
• Global: Fed expected to raise rates next year world?
Global • Global: The German election, what markets expect
• Global: Japan’s LDP leadership election
• Oil: Brent breaks out of trading range to
• SG: Headline CPI eased while core CPI accelerated
Asset $78
• SG: S’pore manufacturing surprised on the upside
Class • Gold: Downward pressure may persist
• SG: SGS infra bonds: what to expect
Asia • FX & Rates: Stay positive on USD
• SG: Covid-19 curbs and policy responses
• HK: Regulatory risk extends to property developers
• Macau: Visitor arrivals reached the lowest in Aug
Asset
• Asset Flows
Flows
Source: OCBC, Bloomberg
2Global: US debt ceiling a continuing concern
• The US bipartisan infrastructure bill is due for a House vote under a fast-track budget
process, while there are 2- and 5-year UST bond auctions today, followed by a 7-year bond
auction tomorrow.
• Other key developments: China declared cryptocurrency trading illegal in the country and
is now scrutinising power usage after nearly half of the 23 provinces missed energy intensity
targets.
• Key data release are as follows:
• 27th September: US Durable Goods Orders, EC M3 Money Supply, US Durables Ex
Transportation, US Dallas Fed Manf. Activity, JN Leading Index CI, GE Retail Sales
MoM, US Cap Goods Orders Nondef Ex Air.
• 28th September: US Conf. Board Consumer Confidence, AU Retail Sales MoM, UK
Nationwide House PX MoM, HK Exports YoY, US Wholesale Inventories MoM, GE GfK
Consumer Confidence.
• 29th September: TH BoT Benchmark Interest Rate, US MBA Mortgage Applications, UK
Mortgage Approvals, US Pending Home Sales MoM, EC Consumer Confidence.
• 30th September: JN Industrial Production MoM, US Initial Jobless Claims, UK GDP , HK
Retail Sales Value YoY, CH Manufacturing PMI, CH Caixin China PMI Mfg.
• 1st October: JN Jobless Rate, US ISM Manufacturing, US U. of Mich. Sentiment, SK
Exports YoY, SK Markit South Korea PMI Mfg, VN Markit Vietnam PMI Mfg, ID Markit
Indonesia PMI Mfg.
3Global: Central banks
Forecast – Key Rates
Bank of Thailand (BoT)
Wednesday, 29 September
House Views
Benchmark Interest Rate
Likely hold at 0.50%
Source: OCBC, Bloomberg
4Global: US initial jobless claims rose unexpectedly
• U.S. state unemployment benefit applications rose unexpectedly last week. This was led by
claims in California.
• Initial unemployment claims in regular state programs rose to 351,000 in the week ended
September 18.
• Out of the biggest increases last week, California saw claims rise by 24,221 while Virginia
observed an increase of 12,879.
• Federal pandemic unemployment benefits ended on September 6 in all states.
• The White House has mentioned that there will be no extension of jobless aid, but states
can utilize pandemic relief funds to provide additional assistance.
Weekly Claims '000s US initial Jobless Claims
1000
900
800
700
600
500
400
300
200
100
0
Dec-20 Jan-21 Feb-21 Mar-21 Apr-21 May-21 Jun-21 Jul-21 Aug-21 Sep-21
Source: OCBC, BloombergGlobal: Fed expected to raise rates mid next year
• The FOMC met on 22nd Sept and signaled that the economy is on track to recovery and
that tapering is likely to begin before the end of 2021.
• There was no change to the benchmark rate at 0.00% - 0.25%.
• Policy makers also expressed that tapering is expected to begin end 2021 while a rate hike
is expected after tapering is done around mid-2022.
• The latest dot-plot by the Fed shows a general increase in Fed fund rate projections from
2022 to 2024, compared to forecasts in June.
• The Fed cut its forecast for 2021 GDP growth from the 7.0% projected in June to 5.9%
while boosting its 2022 forecast to 3.8% from 3.3% previously.
Source: BloombergGlobal: The German election, what markets expect
• As German voters head to the polls, investors are ready to embrace change, and a
potential turn to the left.
• The centre-left Social Democrats (SPD) are on track for 26.0% of the vote, ahead of
Merkel’s CDU/CSU bloc with 24.5% of the vote. Discussions are in place for a potential
coalition between the SPD and the greens.
• An increase in support for the Social Democrats (SPD) and the Greens have raised market
expectations that the next coalition will be less focused on fiscal restraint that was the
hallmark of Merkel’s conservative government.
• Both the SPD and Greens are aiming to push Germany to carbon neutrality, phasing out
combustion engines and increasing CO2 pricing with a big public investment push.
Sources: INSA, BloombergGlobal: Japan’s LDP leadership election
• The race to become Japan's next prime minister has created an unpredictable leadership
election. This election is an internal power struggle within the Liberal Democratic Party
(LDP), triggered by Japanese PM Suga Yoshihide’s decision to resign one year into power
amid plummeting popularity over the coronavirus response.
• The four-way contest for party president, is set for 29th September. The candidates are
Taro Kono, Fumio Kishida, Sanae Takaichi and Seiko Noda.
• After pledges by PM Suga Yoshihide to drive microeconomic reform ran into roadblocks, his
successor will likely face similar challenges of overcoming bureaucratic interests to raise
productivity amid rising debt levels and an aging population.
• Japan’s fiscal hawks are likely to pressure the new leader to commit to another hike in the
consumption tax rate, a move that has previously sparked recession.
• In monetary policy, the new leader will play a role in the BOJ’s policy, being required to
select a successor to Kuroda Haruhiko, whose term expires in April 2023.
Source: BloombergSG: S’pore manufacturing surprised on the upside
• August manufacturing output surprised on the side at 11.2% yoy (5.7% mom sa), aided by
strong electronics performance (15.4% yoy).
• Electronics saves the day again, offsetting biomedical cluster weakness which saw output
shrink 0.6% yoy in August after a stellar 78.6% growth in July.
• Pharmaceutical output, on the other hand, actually slumped 3.4% yoy in August, reversing
direction after surging 118.0% yoy in July.
• Singapore’s manufacturing momentum is likely to ease into 4Q21. The low base effects are
fading, and the Delta resurgence had contributed to the tightening of restriction measures
under the return to P2(HA) between 22 July to 18 August.
% Growth YoY Singapore Industrial Production
30 28.3
25.9 27
25
19.4
20 16.4 17.1 16.7 16.4
15 11.2
9.4 8.9
10
5 2.5
0
-0.4
-5
-10
-15
Aug-20 Sep-20 Oct-20 Nov-20 Dec-20 Jan-21 Feb-21 Mar-21 Apr-21 May-21 Jun-21 Jul-21 Aug-21
Source: OCBC, BloombergSG: Headline CPI eased while core CPI accelerated
• August headline CPI eased slightly from 2.5% yoy in July to 2.4% yoy, but still marked the
5th straight month above the 2.0% yoy handle.
• However, core CPI continued to accelerate to 1.1% yoy in August, up from 1.0% in July.
• The inflation outlook is likely to evolve into a less benign end-2021 and into early 2022.
While the official rhetoric continues to cite that the elevated external pricing pressures are
beginning to ease as low base effects fade, and domestic wage inflation remains subdued
and commercial rents are also generally soft currently.
• We expect headline CPI to stabilise around 1.5% in 2022, similar to 2021 levels, but core
inflation is likely to jump from 0.7% yoy this year to 1.2% yoy in 2022.
% Change YoY
3 Singapore CPI YoY
2.4 2.4 2.5 2.4
2.5
2.1
2
1.5 1.3
1 0.7
0.5 0.2
0 0
0
-0.2 -0.1
-0.5
-1
-1.5
Sep-20 Oct-20 Nov-20 Dec-20 Jan-21 Feb-21 Mar-21 Apr-21 May-21 Jun-21 Jul-21 Aug-21
Source: Bloomberg, OCBC SingaporeSG: Covid-19 curbs and policy responses
• To minimize the strain on Singapore’s healthcare capacity, additional measures will take
effect from 27 September through 24 October 2021.
• Work from home will be the default, with other restrictions including a cap on group sizes
from 5 to 2 people.
• Businesses such as F&B outlets and retailers will receive $650 million in wage subsidies,
rental waivers and other support.
• This includes supplementing the Jobs Support Scheme (JSS) for sectors such as F&B,
performing arts and arts education, gyms and fitness studios. Firms in these sectors will
receive 25% of wage support from Sept 27 to Oct 24.
• Taxi drivers and private-hire car drivers will be given support of $10 /vehicle per day in Oct
and $5 /vehicle per day in Nov, with the extension of the Covid-19 Driver Relief Fund.
• The extension will cost an additional $23.5 million, benefitting about 50,000 drivers. $500
million has been allocated by the government for the taxi and private hire cars (PHC) sector
since Feb 2020.
Source: BloombergSG: SGS infra bonds: what to expect
• Maiden $2.6b of 30-year SGS (Infra) bond will be auctioned on 28 Sep for 1 Oct issue. The
SGS (Infrastructure) bonds rank on par with the normal SGS (Market Development) bonds.
• Pros: The bonds are relatively low risk due to of full backing from the AAA-rated Singapore
government. The bonds are also priced along the same yield curve as the SGS (MD), which
means that pricing should be similar. Interest cost will be from the Singapore government’s
annual budget and will also enjoy the similar tax and regulatory treatment.
• Market liquidity should be similar to that of the SGS (MD) with Primary Dealers doing
market making, so buying and selling should be transparent and accessible.
• Retail investor can invest in more “bite-size” portions of $1000 in SGS (Infra), versus the
$250k for corporate bonds.
• Cons: the long tenor may be less attractive: first issue is 30-years but given that national
infrastructure projects must be productive for at least 50 years, it is likely that future SGS
(Infra) bonds may see longer duration of 40 - 50 years.
• Tied to the long duration of the bond is the implicit credit risk – while the Singapore
sovereign credit rating is now AAA, there is no guarantee that it will remain in the future.
• The 30-year SGS (MD) is only yielding around 1.89%. This is relatively low compared to
the CPF OA interest rate; hence it may be more relevant for institutional investors with
appetite for very long duration bonds like pension funds.
Source: Bloomberg, OCBC SingaporeMY: PM unveils 12th Malaysia Plan
• The five-year (2021-2025) plan, themed "A Prosperous, Inclusive, Sustainable Malaysia",
aims to steer the nation out of the Covid-19 pandemic.
• GDP growth is targeted at 4.5 - 5.5% per annum between 2021 to 2025.
• Sabah and Sarawak will receive special attention for socioeconomic development
• The government will spend 400 bn ringgit on existing and new development projects
between 2021 and 2025, compared with 260 billion ringgit in the 11th Malaysia plan.
• Areas of the development roadmap include social welfare and protection for workers, with a
focus on the needs of the bottom 40% group.
• Transport and logistics infrastructure will be targeted for development as well as sustainable
growth. % change YoY
Malaysia GDP Growth
20 16.1
15
10
5
0
-5
-10
-15
-17.2
-20
Source: BloombergHK: Regulatory risk extends to property developers
• On Sep 20, Hang Seng Index slumped by over 3%, the biggest loss since late July amid
concerns about systemic risk stemming from Evergrande’s credit crisis and China’s
regulatory risk extending to Hong Kong’s property developers. This together with broad
dollar strength pushed USDHKD spot up to the highest since August of 7.7885. However,
with the broad dollar index retracing some gains and Hong Kong’s stock market
stabilizing, USDHKD spot and forward both came off.
• The stabilization of Hong Kong’s stock market could be attributable to the eased concerns
about Evergrande and HK property market outlook. Specifically, since the property
developers have already actively helped to increase supply via farmland conversion or
donation and participation in land sharing pilot scheme, we may not see a sudden and
notable increase in home supply. Given the imbalance between supply and demand, any
downward pressure on housing prices looks set to be limited in the near term. Still, we will
closely monitor the upcoming Hong Kong policy address on Oct 6 to see whether the
government will take any further action to tackle housing problem.
Source: Bloomberg, HK Rating & Valuation Department, HK Transport and Housing Bureau, OCBCWH
14Macau: Visitor arrivals reached the lowest in Aug
• Visitor arrivals increased by another 80.2% yoy in August, mainly due to low base effect.
• Compared to the prior month and the same period in 2019, the number of visitor arrivals
fell by 48.2% and 89% respectively and reached the lowest since last August. This is
mainly attributable to the tightened travel restriction measures amid rebound of local
infections and China’s Delta variant outbreak.
• On a positive note, the border controls have been relaxed and the Mid-Autumn Festival
holiday may have lent some support to Macau’s inbound tourism. Moving into October,
Golden Week Holiday may bolster a further recovery of Macau’s tourism and gaming
activities.
Source: DSEC, OCBCWH
15China: Will China export inflation to the world?
• The power shortage in Autumn is mainly the result of supply side shock in our view which
can be attributable to two factors including surging coal prices and China’s climate push to
meet China’s dual controls of energy intensity targets and caps on total energy
consumption.
• Looking ahead, the recent power cut in industrial sectors will add more downside risks to
China’s growth. In addition, the recent power shortage may also be the catalyst for China
to speed up its reform of electricity market, which may lead to higher electricity prices. The
output cap together with higher electricity prices will fuel concerns that China may export
inflation to the world. This may have more profound impact on global inflation and central
bank dynamics.
25 1,600
20 1,400
15 1,200
10
CNY per ton
1,000
5
%
0 800
-5 600
-10 400
-15
200
10/2020
02/2021
02/2020
03/2020
04/2020
05/2020
06/2020
07/2020
08/2020
09/2020
11/2020
12/2020
01/2021
03/2021
04/2021
05/2021
06/2021
07/2021
08/2021
0
Jul-20
Jul-21
May-21
May-20
Nov-20
Jan-20
Mar-20
Sep-20
Jan-21
Mar-21
Sep-21
Electricity consumption %yoy
Thermal Coal future price
Electricity Production %yoy
Source: Bloomberg, Wind, OCBC
16Commodities
Oil: Brent breaks out of trading range to $78
• Brent rose to $78 last Friday to close at a fresh two-year high.
• This was after it had sunk to as low as $73.26 during mid-week.
• US net gasoline stock-to-use continues to trend near its seasonal 5-year low while
commercial crude oil inventories are at its lowest.
• Asian crack spreads have also recovered in the past week, especially for diesel.
• We maintain our bullish calls on crude oil and expect a top for Brent at $80-$85.
Source: Bloomberg
18Gold: Downward pressure may persist
• 10Y Treasury yields jumped to 1.45% in the wake of the bearish FOMC meeting.
• Our model now suggests gold’s fair value range at $1684-$1788, based on current inputs.
• At current levels of $1760, gold appears to be trading at the upper end of this range.
• We expect gold to possibly hit a ceiling at $1780 and to embark on its long-term
downward trend towards $1500 as the Fed begins its tapering process.
Source: Bloomberg, OCBC
19Foreign Exchange & Interest Rates
FX & Rates: Stay positive on USD
• Hawkish central banks last week still working through the govie market, with global core
yield curves led higher. Our FX Sentiment Index (FXSI) start the week inching towards the
Risk-Off zone.
• USD closed firmer against most G-10 counterparts. Data from CFTC showed that USD
longs were reloaded within the non-commercial and leveraged accounts in the week ending
21 Sep, suggesting that short term players were backing the USD into the FOMC.
• Heavy schedule of central bank speakers this week will keep the FX space attentive to
relative central bank dynamics. The ECB forum will see a spread of key central bank
governors appearing. Watch also Powell’s appearances in the Congress committees, and
the appearances from the 2022 voting regional Fed presidents.
• Stay positive on the USD, mainly expressed through shorts against the EUR and AUD. Also
positive on the GBP against the EUR.
Source: Bloomberg, OCBC
21Asset Flows
22Global Equity & Bond Flows
• Outflows out of the global equity market for the week ended 22nd September amounted to
$24.2bn, an decrease from the inflow of $51.1bn last week. Global bond market saw
inflows amounting to $10.0bn, a decrease from last week’s inflows of $16.0bn.
Equity top gainers & losers Bonds top gainers & losers
10000
5000 2620.4 8846.3
924.5 220.9
0 8000
-172.2 -623.7
-5000
6000
USD mn
USD mn
-10000
4000
-15000
2000
-20000 767.3
194.1
-25000 0
-63.2 -209.0 -273.8
-30000 -27742.7 -2000
CN JP TA FR UK US US CA FR IN TH UK
Source: OCBC Bank, EPFR
23DM & EM Flows
• DM equities saw $48.8bn worth of inflows while the EM-space registered $2.2bn worth of
inflows.
• Elsewhere, the DM bond space posted inflows of $10.5bn, while EM bonds registered
outflows of $562.0mn.
Developed market & Emerging Market Flows
2,500 450
400
2,000 350
300
1,500 250
USD bn
1,000 200
150
500 100
50
0 0
-50
-500 -100
Sep-13
Sep-14
Sep-15
Sep-16
Sep-18
Sep-19
Sep-20
Sep-21
Sep-17
Jun-14
Jun-15
Jun-16
Jun-18
Jun-19
Jun-20
Jun-21
Jun-17
Mar-14
Mar-15
Mar-16
Mar-18
Mar-19
Mar-20
Mar-21
Mar-17
Dec-13
Dec-14
Dec-16
Dec-17
Dec-18
Dec-19
Dec-15
Dec-20
DM Bonds DM Equities
EM Bonds (RHS) EM Equities (RHS)
Source: OCBC Bank, EPFR
24Thank You
25Treasury Research & Strategy
Macro Research
Selena Ling Tommy Xie Dongming Wellian Wiranto Howie Lee
Head of Research & Strategy Head of Greater China Research Malaysia & Indonesia Thailand & Commodities
LingSSSelena@ocbc.com XieD@ocbc.com WellianWiranto@ocbc.com HowieLee@ocbc.com
Carie Li Herbert Wong
Hong Kong & Macau Hong Kong & Macau
carierli@ocbcwh.com herberthtwong@ocbcwh.com
FX/Rates Research
Frances Cheung Terence Wu
Rates Strategist FX Strategist
FrancesCheung@ocbcwh.com TerenceWu@ocbc.com
Credit Research
Andrew Wong Ezien Hoo Wong Hong Wei
Credit Research Analyst Credit Research Analyst Credit Research Analyst
WongVKAM@ocbc.com EzienHoo@ocbc.com WongHongWei@ocbc.com
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