Monthly: Waiting for a trade revival


Markets have moved well ahead of the China-US trade deal and an actual revival in global trade. In fact, trade dependent economies continue to face major headwinds with little sign of upside.
Taimur Baig, Duncan Tan26 Apr 2019
  • Rates: drivers of US treasuries offering negative yield on an FX-hedged basis?
  • FX: Barring shocks to US GDP growth, the DXY should push towards 100 on a weaker euro towards 1.10
  • Following a sharp rebound, equities are likely to enter May with elevated uncertainties
Photo credit: AFP Photo


Economics: Markets have moved well ahead of the China-US trade deal and an actual revival in global trade. In fact, trade dependent economies continue to face major headwinds with little sign of upside. We examine the macro factors that could support or undermine the markets’ fervor.

Rates: On an FX-hedged basis, our calculations find that 10-year US Treasuries have been expensive relative to Bunds for a long time. Indeed, the cost of hedging has soared so much that for a Euro or Yen-based investor, USTs are presently yielding negatively. We examine the drivers of this phenomenon and market implications.

FX: As growth scares have dissipated and markets rallied, the USD has resumed its strengthening march. Barring shocks to US GDP growth in 1Q19, the DXY should push towards 100 on a weaker euro towards 1.10. Meanwhile, as per our model, the implied USD/SGD policy band has risen to 1.36-1.41 from 1.35-1.40. We see USD/SGD rising to 1.38-1.40 by 3Q19.

Equities: Following four months of an extraordinary rebound, equities are likely to enter May with elevated uncertainties over the growth outlook and geopolitical risks. The market adage of “Sell in May and go way” may well stack up.

To read the full report, click here to Download the PDF.

 

Taimur Baig, Ph.D.

Chief Economist - G3 & Asia
taimurbaig@dbs.com

Duncan Tan

FX and Rates Strategist - Asean
duncantan@dbs.com
 

The information herein is published by DBS Bank Ltd and PT Bank DBS Indonesia (collectively, the “DBS Group”). It is based on information obtained from sources believed to be reliable, but the Group does not make any representation or warranty, express or implied, as to its accuracy, completeness, timeliness or correctness for any particular purpose. Opinions expressed are subject to change without notice. Any recommendation contained herein does not have regard to the specific investment objectives, financial situation & the particular needs of any specific addressee. The information herein is published for the information of addressees only & is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate legal or financial advice. The Group, or any of its related companies or any individuals connected with the group accepts no liability for any direct, special, indirect, consequential, incidental damages or any other loss or damages of any kind arising from any use of the information herein (including any error, omission or misstatement herein, negligent or otherwise) or further communication thereof, even if the Group or any other person has been advised of the possibility thereof. The information herein is not to be construed as an offer or a solicitation of an offer to buy or sell any securities, futures, options or other financial instruments or to provide any investment advice or services. The Group & its associates, their directors, officers and/or employees may have positions or other interests in, & may effect transactions in securities mentioned herein & may also perform or seek to perform broking, investment banking & other banking or finan­cial services for these companies. The information herein is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation. Sources for all charts & tables are CEIC & Bloomberg unless otherwise specified.

DBS Bank Ltd., 12 Marina Blvd, Marina Bay Financial Center Tower 3, Singapore 018982. Tel: 65-6878-8888. Company Registration No. 196800306E.

PT Bank DBS Indonesia, DBS Bank Tower, 33rd floor, Ciputra World 1, Jalan Prof. Dr. Satrio Kav 3-5, Jakarta, 12940, Indonesia. Tel: 62-21-2988-4000. Company Registration No. 09.03.1.64.96422.