Bank of Singapore FX Daily: Kicking the debt ceiling can, all eyes on US jobs report (8 Oct)

 

Foreign Exchange Research 8 October 2021   Foreign Exchange Research FX Daily For the full report Click Here Summary USD: Risk sentiment improved and USD mildly under-performed, as US Senate agreed to lift debt ceiling until 3 December and European gas prices fell. China market will reopen, hopefully to provide updates on Chinese property developers debt issues. AUD crosses out-performed overnight, possibly supported by Australia’s surging trade surplus, as coal and LNG rescue exports from the iron ore plunge US jobs: The Fed should give greenlight to announce tapering in November unless today’s US payroll print (8.30pm SGT/HKT) surprises to the downside significantly. The risk of a more hawkish Fed shift hastening USD’s transition to a stronger path drives the recent downgrades of our 12-month forecasts for the EURUSD, USDJPY and gold CNY: Increased China growth headwinds warrants further caution on the CNY outlook even as we expect the CNY to remain broadly stable. We raised the 12-month USDCNY forecast to 6.50 from 6.40   What you need to know Risk sentiment improved and USD mildly under-performed, as US Senate agreed to lift debt ceiling until 3 December and European gas prices fell. China market will reopen, hopefully to provide updates on Chinese property developers debt issues. AUD crosses out-performed overnight, possibly supported by Australia’s surging trade surplus, as coal and LNG rescue exports from the iron ore plunge. US Treasury yields continued to rise, and the curve steepened further amid confirmation that Democrats and Republicans had reached a deal to raise the debt ceiling by USD480bn. The strain in the Treasury market has moved away from T-bills trading in late-October into those maturing in early- to mid-December. Separately, Fatih Birol, head of the International Energy Agency, said Russia has the capacity to raise gas exports by around 15% of peak winter supply to Europe. The Fed should give greenlight to announce tapering in November unless today’s US payroll print (8.30pm SGT/HKT) surprises to the downside significantly. The risk of a more hawkish Fed shift hastening USD’s transition to a stronger path drives the recent downgrades of our 12-month forecasts for the EURUSD, USDJPY and gold.  Consensus looks for Sep non-farm payroll to rise 500k. It would likely take a much weaker number below 200k or closer to flat to dissuade the Fed from signaling taper at its November meeting. Separately, last week’s US initial jobless claims fell more than expected to 326k (exp: 348k, prev: 364k). This was the lowest number in a month. Overall, the data is encouraging, showing continued improvement in the US labour market, despite a recent uptick in weekly jobless claims. Increased China growth headwinds warrants further caution on the CNY outlook even as we expect the CNY to remain broadly stable. We raised the 12-month USDCNY forecast to 6.50 from 6.40. Despite strength in the broad USD index, the USDCNY bilateral exchange rate was range-bound over the past month, and we see limited scope for much movement given uncertainty around US-China trade talks and the prospects for easing by the PBoC. US officials announced plans to schedule a virtual Biden-Xi call in the coming weeks. US-China relationship may turn into a major market theme later this year. Recent US-China presidential call agreed on engagement, with no direct reference to tariffs. US-China relations continue to pose two-way risks, skewed more to the downside for USDCNY, especially on any easing in relations and/or lower tariffs. The Biden administration has set out its approach to trade with China, which involves re-engaging on the Phase One trade deal and restarting a tariff exclusion process. Sim Moh Siong  Currency Strategist Disclaimer This material is prepared by Bank of Singapore Limited (Co Reg. No.: 197700866R) (the “Bank”) and is distributed in Singapore by the Bank.  This material does not provide individually tailored investment advice. This material has been prepared for and is intended for general circulation. The contents of this material does not take into account the specific investment objectives, investment experience, financial situation, or particular needs of any particular person. You should independently evaluate the contents of this material, and consider the suitability of any product discussed in this material, taking into account your own specific investment objectives, investment experience, financial situation and particular needs. If in doubt about the contents of this material or the suitability of any product discussed in this material, you should obtain independent financial advice from your own financial or other professional advisers, taking into account your specific investment objectives, investment experience, financial situation and particular needs, before making a commitment to purchase any product.  This material is not and should not be construed as an offer or a solicitation to deal in any product or to enter into any legal relations. You should contact your own licensed representative directly if you are interested in buying or selling any product discussed in this material. This material  is not intended for distribution, publication or use by any person in any jurisdiction outside Singapore, Hong Kong or such other jurisdiction as the Bank may determine in its absolute discretion, where such distribution, publication or use would be contrary to applicable law or would subject the Bank or its related corporations, connected persons, associated persons or affiliates (collectively “Affiliates”) to any licensing, registration or other requirements in such jurisdiction. The Bank and its Affiliates may have issued other reports, analyses, or other documents expressing views different from the contents of this material, and may provide other advice or make investment decisions that are contrary to the views expressed in this material, and all views expressed in all reports, analyses and documents are subject to change without notice. The Bank and its Affiliates reserve the right to act upon or use the contents of this material at any time, including before its publication. The author of this material may have discussed the information or views contained in this material with others within or outside the Bank, and the author or such other Bank employees may have already acted on the basis of such information or views (including communicating such information or views to other customers of the Bank). The Bank, its employees (including those with whom the author may have consulted in the preparation of this material))and discretionary accounts managed by the Bank may have long or short positions (including positions that may be different from or opposing to the views in this material or may be otherwise interested in any of the product(s) (including derivatives thereof) discussed in material, may have acquired such positions at prices and market conditions that are no longer available, may from time to time deal in such product(s) and may have interests different from or adverse to your interests. Analyst Declaration The analyst(s) who prepared this material certifies that the opinions contained herein accurately and exclusively reflect his or her views about the securities of the company(ies) and that he or she has taken reasonable care to maintain independence and objectivity in respect of the opinions herein. The analyst(s) who prepared this material does not hold securities of the company(ies). The analyst(s) receives compensation based on the overall revenues of Bank of Singapore Limited, and no part of his or her compensation was, is, or will be directly or indirectly related to the inclusion of specific recommendations or views in this material. The reporting line of the analyst(s) is separate from and independent of the business solicitation or marketing departments of Bank of Singapore Limited. The analyst(s) and his/her associates confirm that they do not serve as directors or officers of the company (ies) and the company (ies)or other third parties have not provided or agreed to provide any compensation or other benefits to the analyst(s) in connection with this material. An “associate” is defined as (i) the spouse, parent or step-parent, or any minor child (natural or adopted) or minor step-child, or any sibling or step-sibling of the analyst; (ii) the trustee of a trust of which the analyst, his spouse, parent or step-parent, minor child (natural or adopted) or minor step-child, or sibling or step-sibling is a beneficiary or discretionary object; or (iii) another person accustomed or obliged to act in accordance with the directions or instructions of the analyst. Conflict of Interest Declaration The Bank is a licensed bank regulated by the Monetary Authority of Singapore in Singapore. Bank of Singapore Limited, Hong Kong Branch (incorporated in Singapore with limited liability), is an Authorized Institution as defined in the Banking Ordinance of Hong Kong (Cap 155), regulated by the Hong Kong Monetary Authority in Hong Kong and a Registered Institution as defined in the Securities and Futures Ordinance of Hong Kong (Cap.571) regulated by the Securities and Futures Commission in Hong Kong. The Bank, its employees and discretionary accounts managed by its Singapore Office may have long or short positions or may be otherwise interested in any of the investment products (including derivatives thereof) referred to in this document and may from time to time dispose of any such investment products. The Bank forms part of the OCBC Group (being for this purpose Oversea-Chinese Banking Corporation Limited (“OCBC Bank”) and its subsidiaries, related and affiliated companies). OCBC Group, their respective directors and/or employees (collectively “Related Persons”) may have interests in the investment products or the issuers mentioned herein. Such interests include effecting transactions in such investment products, and providing broking, investment banking and other financial services to such issuers. OCBC Group and its Related Persons may also be related to, and receive fees from, providers of such investment products. There may be conflicts of interest between OCBC Bank, the Bank, OCBC Investment Research Private Limited, OCBC Securities Private Limited or other members of the OCBC Group and any of the persons or entities mentioned in this report of which the Bank and its analyst(s) are not aware due to OCBC Bank’s Chinese Wall arrangement. The Bank adheres to a group policy (as revised and updated from time to time) that provides how entities in the OCBC Group manage or eliminate any actual or potential conflicts of interest which may impact the impartiality of research reports issued by any research analyst in the OCBC Group. If this material pertains to an offer, it may only be offered (i) in Hong Kong, to qualified Private Banking Customers and Professional Investors (as defined under the Securities and Futures Ordinance); (ii) in Singapore, to Accredited Investors (as defined under the Securities and Futures Act; and (iii) in the Dubai International Financial Center, to Professional Clients (as defined under the Dubai Financial Services Authority rules). No other persons may act on the contents of the material.   Where this material relates to structured deposits, this clause applies: The product is a structured deposit. Unlike traditional deposits, structured deposits have an investment element and returns may vary. You may wish to seek independent advice from a financial adviser before making a commitment to purchase this product. In the event that you choose not to seek independent advice from a financial adviser, you should carefully consider whether this product is suitable for you. Where this material relates to dual currency investments, this clause applies: The product is a dual currency investment. A dual currency investment product (“DCI”) is a derivative product or structured product with derivatives embedded in it. A DCI involves a currency option which confers on the deposit-taking institution the right to repay the principal sum at maturity in either the base or alternate currency. Part or all of the interest earned on this investment represents the premium on this option. By purchasing this DCI, you are giving the issuer of this product the right to repay you at a future date in an alternate currency that is different from the currency in which your initial investment was made, regardless of whether you wish to be repaid in this currency at that time. DCIs are subject to foreign exchange fluctuations which may affect the return of your investment. Exchange controls may also be applicable to the currencies your investment is linked to. You may incur a loss on your principal sum in comparison with the base amount initially invested. You may wish to seek advice from a financial adviser before making a commitment to purchase this product. In the event that you choose not to seek advice from a financial adviser, you should carefully consider whether this product is suitable for you. Hong Kong This document has not been delivered for registration to the Registrar of Companies in Hong Kong and its contents have not been reviewed by any regulatory authority in Hong Kong. Accordingly: (i) the shares/notes may not be offered or sold in Hong Kong by means of any document other than to persons who are “Professional Investors” within the meaning of the Securities and Futures Ordinance (Cap. 571) of Hong Kong and the Securities and Futures (Professional Investor) Rules made thereunder or in other circumstances which do not result in the document being a “prospectus” within the meaning of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32) of Hong Kong or which do not constitute an offer to the public within the meaning of the Companies (Winding Up and Miscellaneous Provisions) Ordinance; and (ii) no person may issue any invitation, advertisement or other document relating to the shares/notes whether in Hong Kong or elsewhere, which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to the shares/notes which are or are intended to be disposed of only to persons outside Hong Kong or only to “Professional Investors” within the meaning of the Securities and Futures Ordinance and the Securities and Futures (Professional Investor) Rules made thereunder. Where this material relates to a Complex Product, this clause applies: Warning Statement and Information about Complex Product (Applicable to accounts managed by Hong Kong Relationship Manager  Investor should exercise caution in relation to complex products; Investor should take note that the past performance of a complex product is not indicative of future performance; All complex products offered by the bank are available to professional investors {except for derivative fund without loss absorption features which have been authorized by the SFC and listed derivatives); and  All Complex Products are not principal protected Where this material relates to a Complex Product – funds and ETFs, this clause applies additionally: For Complex Products where offering documents or information provided by the issuer have not been reviewed by the SFC, investors should exercise caution in relation to the offer and take note that such offering documents have not been reviewed by the SFC; For Complex Products described as having been authorised by the SFC, investors should take note that the authorisation does not amount to an official recommendation and that the SFC’s authorisation is not a recommendation or endorsement of that Complex Product nor does it guarantee the commercial merits of that Complex Products or its performance.  Where this material relates to a Complex Product (Options and its variants, Swap and its variants, Accumulator and its variants, Reverse Accumulator and its variants, Forwards), this clause applies additionally:  Investor may incur losses which exceed the amount invested Where this material relates to a Loss Absorption Product, this clause applies: Warning Statement and Information about Loss Absorption Products (Applicable to accounts managed by Hong Kong Relationship Manager) Before you invest in any Loss Absorption Product (as defined by the Hong Kong Monetary Authority), please read and ensure that you understand the features of a Loss Absorption Product, which may generally have the following features: The product is subject to the risk of being written down or converted to ordinary shares (as the case may be); The contingent write-down or conversion may happen upon certain circumstances (e.g. at the point of non-viability or the capital ratio falls to a specified level), and the product may potentially result in a substantial loss; The product is a high risk transaction and a Complex Product, as the circumstances in which the product may be required to bear loss are difficult to predict and ex ante assessments of the quantum of loss will also be highly uncertain; The product is targeted at professional investors only and is generally not suitable for retail clients; The credit ranking of the product is usually subordinated. In the event of liquidation or insolvency of the issuer, investors would only be entitled to be paid after other senior creditors are paid and this may result in a substantial loss of the amount invested. Where this material relates to a certificate of deposit, this clause applies: It is not a protected deposit and is not protected by the Deposit Protection Scheme in Hong Kong. Where this material relates to a structured deposit, this clause applies: It is not a protected deposit and is not protected by the Deposit Protection Scheme in Hong Kong. Where this material relates to a structured product, this clause applies: This is a structured product which involves derivatives. Do not invest in it unless you fully understand and are willing to assume the risks associated with it. If you are in any doubt about the risks involved in the product, you may clarify with the intermediary or seek independent professional advice. Cross Border Disclaimer and Disclosures Refer to https://www.bankofsingapore.com/Disclaimers_and_Disclosures.html for cross-border marketing disclaimers and disclosures. © 2021 Bank of Singapore Limited. All rights reserved. Disclaimer Version: 15

 

 

 

The information in this Internet email is confidential and may be legally privileged. It is intended solely for the addressee. Access to this Internet email by anyone else is unauthorized. If you are not the intended recipient, any disclosure, copying, distribution or any action taken or omitted to be taken in reliance on it, is prohibited and may be unlawful. When addressed to our clients any opinions or advice contained in this Internet email are subject to the terms and conditions expressed in Bank of Singapore Limited’s terms of business or other terms agreed between Bank of Singapore Limited and our clients. Bank of Singapore Limited, its affiliates and its employees are not in the business of providing, and do not provide, tax, accounting or legal advice to any clients. The material contained herein is prepared for informational purposes and is not intended or written to be used, and cannot be used or relied upon for tax, accounting or legal advice. Any such client is responsible for consulting his/her own independent advisor as to the tax, accounting and legal consequences associated with his/her investments/transactions based on the client’s particular circumstances. Visit us at www.bankofsingapore.com