Thursday, 12 May 2022

Lee.SueAnn@uobgroup.com

Global Economics & Markets Research

Email: GlobalEcoMktResearch@uobgroup.com
URL: www.uob.com.sg/research

Markets Overview
HIGHLIGHTS AHEAD

 UK GDP is expected to pick up pace to 8.9% y/y in the first quarter from 6.6% in the prior quarter as the government removed
COVID-19 restrictions. In the US, producer prices are expected to moderate to 10.7% y/y in Apr from a record 11.2% rise in Mar
while initial jobless claims are expected to dip below 200,000 last week following a sizable rise in the prior week.

 Bloomberg consensus forecast a moderation in Philippines’ 1Q22 GDP growth (SGT 10am) to 6.8% y/y, 1.5% q/q SA from 7.8%
y/y, 3.1% q/q SA in 4Q21.

 India’s CPI likely accelerated to 7.42% y/y in Apr from 6.95% y/y in Mar, the fourth straight month that inflation is above the top
of the Reserve Bank of India’s (RBI) 2%-6% target and increases pressure for the central bank to raise interest rates further
following the off-cycle hike on 4 May. The RBI is said to be raising its inflation forecast in the June monetary policy meeting.

CENTRAL BANK OUTLOOK

 European Central Bank (ECB) President Lagarde said the central bank may raise rates for the first time in more than a decade
“weeks” after net bond-buying ends early next quarter. Along the same tune, fellow ECB policymakers Elderson and Nagel
signaled the rates liftoff could come in Jul while Villeroy suggested a rate hike “from the summer onwards.”

 Atlanta Fed President Bostic said he is open to “moving more” on rates if inflation persists at elevated levels.

 European Central Bank Policymakers De Cos and Makhlouf are expected to speak today.

 Bank Negara Malaysia (BNM) raised the Overnight Policy Rate (OPR) by 25bps to 2.00% on Wed (11 May), marking the first
rate hike since Jan 2018. The decision came in line with our expectations but against market consensus, whereby 14 out of 19
polled by Bloomberg expected no change while 5 (including us) expected a rate hike. BNM mentioned for the first time in its
statement that “the MPC decided to begin reducing the degree of monetary accommodation” and it will be done in a “measured
and gradual manner.” Taking cue from this, we keep to our current projections for the next 25bps rate hike in 3Q22, bringing the
OPR to 2.25% by year-end. The Monetary Policy Committee (MPC) will next meet on 5-6 Jul. Report

FX

 The USD was mixed midweek and dropped against commodity currencies (CAD, NZD) and safe havens (JPY, CHF) while
gaining against its European counterparts (EUR, GBP). The US Dollar Index (DXY) recovered from a drop to 103.37 and closed
near 104. EUR/USD traded familiar levels between 1.0502 and 1.0577 before closing 0.2% lower at 1.0513 despite hawkish
rhetoric from ECB overnight. GBP/USD underperformed within G-10 and fell 0.5% to 1.2251, the lowest closing level in two years.
USD/JPY fell alongside US 10-year UST yields to close just under the 130 handle. Weighed by a pull back in risk sentiment,
AUD/USD pared a 1.7% intraday gain to close flat at 0.6938.

 The recovery in risk sentiment on Wed lifted Asian currencies with PHP (+0.19%), MYR (+0.12%), INR (+0.10%) and SGD
(+0.09%) ending firmer against USD.

 CNH fell to a low of 6.7677/USD after the release of a stronger-than-expected US inflation data and ended at 6.7643 (-0.25%).

 The Hong Kong Monetary Authority intervened to buy HKD1.586 bn (USD202 mn) to defend the peg system early this morning
after the local currency hit the weak end of its targeted trading band for the first time since 2019.

 USD/SGD rebounded and touched a high of 1.3919 during the NY session before closing at 1.3896. The SGD NEER is at 1.2%
above the mid-point this morning with 1.0% to 1.5% above the mid-point on SGD NEER implying USD/SGD range of 1.3866-
1.3935.

Markets Overview
Thursday, 12 May 2022
1|P a g e
EQUITIES
 US stocks erased early gains to finish lower on Wed after a stronger than expected US inflation means Fed will stay the cours e of
aggressive rate hikes. The S&P 500 gave up a 1% gain to close down 1.7% while the Dow Jones slipped 326 pts (-1.0%). The Nasdaq
Composite underperformed and slumped 3.2% to touch the lowest level since Nov 2020.

 The easing COVID-19 infections in Shanghai spurred a rally in Chinese stock indexes on Wed as Shanghai said half of the city’s districts
have reached “basically no community spread”. The Hang Seng index (+0.97%) reversed from four preceding sessions of decline while
the Shanghai Composite Index (+0.75%) and Shenzhen Composite Index (+1.27%) rose for the third day. In the region, Thai SET (-
0.58%), Straits Times Index (-0.25%) and Jakarta Composite Index (-0.05%) fell while KLCI (+0.09%) ended marginally higher on Wed.
Overall, the MSCI Asia ex-Japan index closed higher for the first time in eight sessions, by 0.26% on Wed.

 Stock index futures in Australia, Hong Kong and Japan are pointing to a weaker start in Asia after the US stock indexes closed lower
overnight.

US TREASURIES/BONDS
 US Treasuries (UST) recouped most losses inflicted by a stronger than expected US inflation to close mixed midweek with the curve
sharply flattened. The 2-year UST yield gained 2.5 bps to 2.637% while the 10-year UST yield dropped for a third day, by 7.0 bps to
close at 2.921%.

 The Markit iBoxx Asian Government Bond Total Return Index rose a 0.08% on Wed.

 In Asia, government bond yields fell the most in South Korea on Wed with the 2-year down 11.2 bps to 2.73% and 10-year down 15.0
bps to 3.26%. For gainers, the 2-year yield rose the most in Indonesia by 8.4 bps to 3.43% and 10-year rose the most in Vietnam by
10.0 bps to 3.30%.

 The Reserve Bank of India is reported to be planning measures to increase demand for government securities through its bond
purchases or allowing banks to buy more debt without marking losses. Yields in India were lower on Wed with 2-year and 10-year down
by 6.3 bps and 8.6 bps respectively.

 On the Asian government bond auction calendar today, Malaysia will offer MYR2.5 bn of 30-year bonds and Bank of Thailand sells
THB10 bn of 2024 bonds.

COMMODITIES

 Oil rebounded on Wed after a US government report showed fuel inventories falling to the lowest since May 2005 while Shanghai
reported a 51% drop in new COVID-19 infections, spelling a possible end to the 6-week lockdown. WTI for June delivery rose $5.95 to
settle at $105.71 /bbl while Brent for July settlement gained $5.05 to settle at $107.51 /bbl.

 Gold rebounded for the first time in three sessions and gained 0.8% to close at $1,852 /oz.

ECONOMIC NEWS & DATA

 US consumer price index (CPI) rose more than expected, coming in at 8.3% y/y in Apr (vs 8.1% est), but it was lower compared to 8.5%
in the prior month, suggesting stickiness of inflation at elevated levels. The core measure which excludes food and energy slipped to
6.2% y/y from 6.5%, but also still higher than estimate of 6.0%.

 The final print of Apr’s Germany CPI stayed at 7.8% y/y, unchanged from the preliminary estimate and the highest on record dating back
1997.

 China’s headline CPI rose at a faster than expected pace, by 2.1% y/y (Bloomberg est: 1.8% y/y, Mar: 1.5% y/y), to a 5-month high in
Apr. Higher fresh food prices due to domestic COVID-19 disruption and increases in fuel costs more than offset the negative impact on
services and consumption demand. Compared to the previous month, CPI was up 0.4% m/m after staying flat in Mar. Demand-side
inflationary pressure has eased in Apr as seen in the moderation of China’s core CPI. The PBoC could reduce its 1-year medium-term
lending facility (MLF) rate this month (13-16 May) by 5-10 bps as it increases growth support. We maintain our forecast for the benchmark
1Y loan prime rate (LPR) to fall to 3.55% by the end of 2Q/3Q 2022.

 China’s Producer Price Index (PPI) moderated to 8.0% y/y in Apr (Bloomberg est: 7.8% y/y, Mar: 8.3% y/y) due to the high comparison
base but this was still above consensus expectation. The sequential gains indicated the presence of cost pressures on producers as
PPI rose for the third consecutive month, by 0.6% m/m in Apr (Mar: 1.1% m/m). Report

 Malaysia’s Jan-Mar economic indicators suggest further improvement in real GDP, despite the Omicron wave that hit in early Feb and
lagged impact of flash floods in mid-Dec 2021. The data suggests that the nation’s real GDP growth could strengthen to our estimated
4.5% y/y in 1Q22 (from +3.6% in 4Q21, Bloomberg est: +4.0%). Actual 1Q22 GDP numbers will be released on Fri (13 May). Report

Markets Overview
Thursday, 12 May 2022
2|P a g e