US Fed FOMC And China Macro Data Will Be The Big Market Movers
Market interest rates may rise in the US
Published on 13 March 2017
Last week’s biggest surprise was the relatively positive statements on the outlook for 2017 and 2018 GDP growth in policy statements from the European Central Bank (ECB) meeting on 9 March.
In our view, the ECB is following the US Fed – wherein until recently, the US central bank had been quite cautious on overall macro conditions. The ECB kept policy interest rates unchanged and the asset purchase programme was also broadly unchanged at EUR80 billion until the end of April – and then EUR60 billion from May onwards.
For investors in Asia who have EUR currency exposure, the implication is that this is good news – since our view is that EUR/USD may trade in the 1.08 to 1.12 range in Q2 2017.
February US non-farm payrolls printed 235,000 versus the consensus expectation of 200,000 and the January print of 238,000. The main innovation of China’s NPC was the emphasis on financial stability (e.g. credit risks and stability of the exchange rate).
As a result, we expect market interest rates to rise in the US and thus believe that investors should look into hedging US interest rate risk. In China, the key implication is that the balance of risks is that the rally in the onshore equity market may be coming to an end in Q2 2017.
Slight easing in Singapore property market
In Singapore, the government unexpectedly loosened property sector measures (effective 11 March) on 10 March.
According to The Business Times, the seller’s stamp duty (SSD) will be lowered by four percentage points for each tier and its holding period will also be shortened. “The Total Debt Servicing Ratio will also no longer apply to mortgage equity withdrawal loans with loan-to-value ratios of 50% and below,” as reported by the Singapore business newspaper.
On top of that, The Business Times announces that a new stamp duty (Additional Conveyance Duties) “was introduced to plug a loophole in residential property transactions undertaken via transfer of shares in property-holding entities”. We believe any improvement in market sentiment related to the property market is likely to be temporary.
Watch the US Federal Reserve monetary policy meeting (FOMC) on 15 March. We maintain our view that the FOMC will hike the policy interest rate (Federal Funds Rate – FFR) by 25 basis points, which is in line with market expectations. We continue to believe that the FOMC will hike the FFR in 25-basis-point increments four times in 2017 versus the current FOMC’s guidance of three hikes.
The market is now closing in on our FFR view of four hikes in 2017 in the last week. This is partially due to the stronger-than-expected February US jobs report, which was released on 10 March. Investors with US interest rate exposure via loans or other financial instruments should consider hedging these risks sooner rather than later.
China: While macro data this week likely resilient, fade rallies in onshore equity markets
In China – watch the February retail sales, fixed asset investment and industrial production data. We believe – given the continuation of robust loan growth and expansionary fiscal policy – the aforementioned data will continue to show stable growth momentum in H1 2017.
Watch out though, we expect an unexpected slowdown in H2 2017 as credit risks rise once again sometime in H1 2017. As a result, we believe that reducing exposure to onshore equity markets in H1 2017 is worth considering.
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