HALISTER1: ROUNDUP: Trump’s Rise Clouds Fed Rate Path, May Push BOJ to Cut

ROUNDUP: Trump’s Rise Clouds Fed Rate Path, May Push BOJ to Cut

(Bloomberg) -- U.S. Treasuries lead global bond rally as Trump clears route to White House, raising demand for safe-haven investments and potentially freeing up room for EM central banks to loosen policy.
  • Odds of Fed hike in December slashed to ~50% from above 80% prior to vote count when Clinton win was widely expected
    • Fed may hold off rate rise given market volatility and uncertainty over Trump’s presidency, analysts say
  • Trump victory could send BOJ deeper into negative rates, Asahi Life Asset Management says
    • Central banks in emerging markets should also have more room to cut rates: Dai-ichi Life
  • Yield on 10-year Treasury down 7bps at 1.789% after falling 14bps, biggest bond rally since June Brexit vote
    • May test 1.7% when Trump officially declared president: Nomura
VIEWS
  • BMI Research (Stuart Allsop, head of financial market strategy)
    • Shock from Trump win to have more impact than Brexit
    • “No one really knows what his policies are and that’s what financial markets are worried about,” BMI Research says
    • Fed likely to hold this year; dollar sell-off could continue
    • Republican control of House and Senate would pave way for Trump policies
  • Dai-ichi Life Research Institute (Toru Nishihama, EM economist)
    • Trump victory will keep market volatility high
    • Would be hard for Fed to hike, may push action to next year
    • Gives some short-term support for EM assets and may make it easier for central banks to deliver rate cuts
    • Fund inflows to EM could grow on speculation for rate cuts
    • Medium- to long-term, Trump victory could weigh on Asian economies that depend on exports as his policies appear negative for trade
  • Asahi Life Asset Management (Yoshihiro Nakatani, senior fund manager)
    • Trump victory will probably push down JGBs yields as yen strengthens and expectations of further BOJ easing grow
    • BOJ may cut negative rates further 0.1 percentage point to -0.2%
    • BOJ could hold emergency meeting as early as this month
    • Yield on 10-year JGB unlikely to fall lower than -0.10%; now -0.08%
    • Fall in yields may encourage companies to sell bonds
  • Mizuho Securities (Toru Suehiro, senior market economist)
    • Fall in USD/JPY below 100 will fan speculation for further benchmark rate cut to -0.1%
    • Limited downside risk to 10-year yield due to BOJ yield control policy
    • Risk-off sentiment led to yen and bond buying
  • Norinchukin Research Institute (Takeshi Minami, chief economist)
    • Trump victory unlikely to lead to immediate BOJ action
    • Monetary authorities may not take action if USD/JPY drops briefly below 99; intervention likely only if it holds below for sustained period
    • BOJ may ease if FX rate puts negative momentum on inflation outlook
    • JGB yields likely to see downward pressure due to risk- off sentiment
  • Shinkin Asset Management (Jun Kato, senior fund manager)
    • BOJ may rely on verbal intervention unless USD/JPY falls more than 5 yen
    • Limited room for further easing amid uncertainty over new administration’s policies and how long yen’s strength will last
    • Possible USD/JPY will fall below 100, but should correct to ~103
    • Path for Fed rate increase more uncertain
  • Devere Group (Nigel Green, CEO)
    • Alarm bells sounding as Trump is perceived to want to stir up status quo and has protectionist policies that could impede sustainable global economic growth
  • Societe Generale (Frances Cheung, head of rates strategy, Asia ex-Japan)
    • KRW IRS curve could steepen as it is highly-correlated to U.S. rates; curve now very flat, not much further downside
    • Under a typical risk-off scenario, expect safe-havens like KRW rates and TWD rates to outperform, while downside will be mitigated by potential FX impact for SGD rates and MYR rates
    • INR rates, which are usually sensitive to risk sentiment, are benefiting from a domestic development
  • Altius Asset Management (Chris Dickman, Sydney-based principal)
    • Fed still could hike in December as Republican sweep could be inflationary
  • Mitsubishi UFJ Kokusai Asset Management (Takahide Irimura, economist)
    • Trump win unlikely to have much impact on Asia rate outlook
    • India and Indonesia both in last phase of easing cycle; India may have maximum of one cut and Indonesia two in this cycle; this won’t change regardless of who is U.S. president
    • Short-term, KRW and TWD may suffer more than other Asian countries due to their dependence on exports and large trade surpluses with U.S.
    • U.S. military support could be also affected by isolationist attitude
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

People
Chris Dickman (Australian Unity Funds Management Ltd)
Frances Cheung (Societe Generale SA)
Jun Kato (CLSA Ltd)
Nigel Green (deVere Group Ltd GmbH)
Stuart Allsopp (Business Monitor International Ltd)

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HALISTER1: Indian Rupee Can See Near Term Gains on Modi Move, SocGen Says

Indian Rupee Can See Near Term Gains on Modi Move, SocGen Says

(Bloomberg) -- USD/INR has traded in a tight range of 66.50-67.00 which should be broken on the downside as lower money supply should allow INR to appreciate in the next few sessions, Amit Agrawal, strategist at Societe Generale, writes in note
  • INR’s relative appreciation against the rest of Asia FX complex can be in the range of 1%-2% over next few days depending on the U.S. election results
  • Estimates cash in circulation from the existing 500 rupee and 1,000 rupee note is close to 14t rupees, comprising around 86% of the total; some of the cash may not go back to the market to avoid attention of the authorities and will lower the money supply
  • Banking system liquidity would increase, pushing the short end of the rates curve lower; banks may use the cash to buy bonds when loan growth is low and it should help the yield curve to move lower
  • USD/INR rises 0.3% to 66.8200
  • Yield on 10-year bond drops 12bps to 6.678%
  • NOTE: India withdraws high-denomination bills in graft crackdown
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

People
Amit Agrawal (Societe Generale SA)

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