Friday, 21 May, 2021 [email protected] Global Economics & Markets Research Email: [email protected] URL: www.uob.com.sg/research Markets Overview HIGHLIGHTS AHEAD . UK retail sales for Apr will be out in the afternoon, with consensus expecting a sharp rebound of 36.8%y/y (4.5%m/m), from 7.2% (5.4%m/m) in the previous month. Preliminary PMI reports in May for manufacturing and services sectors will be released for UK and across Europe including Germany and France. In addition, Eurozone consumer confidence report for May is expected to improve marginally to -7.5 from -8.1 in Apr. In the evening, US Apr existing home sales will be released (Bloomberg Est 0.7% m/m from -3.7% in Mar). The market will also be looking out for preliminary US PMI reports for May, with consensus forecasts expecting a flat reading for manufacturing at 60.2 (Apr: 60.5) and services at 64.5 (Apr: 64.7). The Asian docket today will include Thailand’s trade data, where market watchers are pencilling another month of export recovery at +10.2% y/y in April 2021. Elsewhere, Malaysia and Thailand are scheduled to release their foreign reserves data, while Hong Kong will publish its CPI Composite for April 2021. The Shangri-La Dialogue which is scheduled to be held on 4 and 5 June 2021 in Singapore has been cancelled due to COVID- 19 risks, according to the International Institute for Strategic Studies (IISS). The organization added that “Unfortunately, the global Covid-19 situation has recently deteriorated, in part because of the rise of infectious new COVID variants” and “there has been a rise in (Singapore) cases… and the prospect of further tightening cannot be ruled out”. CENTRAL BANK OUTLOOK . Friday (21 May): The Dallas Fed hosts a virtual technology conference and speakers include Fed presidents Raphael Bostic (Atlanta), Robert Kaplan (Dallas) and Thomas Barkin (Richmond). Euro-area finance ministers and central bank chiefs hold an informal meeting, and a larger group of EU finance ministers and central bank chiefs will meet Saturday (22 May). US Federal Reserve chief Jerome Powell turned up the heat on cryptocurrencies on Thursday, saying they pose risks to financial stability, and indicating that greater regulation may be warranted. Powell's message underlining cryptocurrency risks came from an unusual video message posted on Fed's website that also laid out a clearer timetable as the Fed explores the possibility of adopting a digital currency (CBDC) of its own. While highlighting the potential benefits of advances in financial technology, Powell said cryptocurrencies, stablecoins and other innovations "may also carry potential risks to those users and to the broader financial system." Transcript is available on the Fed website (PDF link). The Philippines central bank, Bangko Sentral ng Pilipinas (BSP), governor Benjamin Diokno commented that the country’s credit rating remains on solid footing despite the increased fiscal cost due to the COVID-19 response. Note that the Philippines saw a surge in debt-to-GDP ratio to 54.5% to date, up from a historical low of 39.6%, on the back of unplanned spending amid social distancing measures that limited business activities. Diokno added that the government is aiming to limit the rise of debt-to-GDP ratio to a cap of 60%, as revenue collection should pick up in the year ahead. FX . US dollar index (DXY) retreated right from the start of session and sank back below the 90 level, reversing the rebound on Wednesday as concerns faded over US Fed's FOMC meeting minutes released early Thursday morning. DXY dropped 0.4% to 89.808 late Thursday, the lowest level since early January 2021. The euro gained 0.4%, at $1.2228, and the USD/JPY pair fell 0.4% to 108.80. GBP gained 0.5% to 1.4190, reversing all the 0.5% loss on Wednesday to reach level last seen in April 2018. AUD/USD rose 0.5% to 0.7768 while NZD/USD advanced 0.4% to 0.7196. The Asian currency space saw little direction. Gainers which appreciated against the greenback included the THB (+0.25%), SGD (+0.24%), INR (+0.09%) and HKD (+0.03%), while losses were seen in IDR (-0.59%), KRW (-0.17%) and MYR (-0.15%). Accounting for the movements, the Asian Dollar Index rose 0.17%. The SGD NEER is currently trading at 0.515% above the mid-point. We expect the SGD NEER to trade between +0.2% and +0.8% around its midpoint, which implies a USD/SGD range of 1.3270 - 1.3350 today. Markets Overview Friday, 21 May, 2021 1 | P a g e EQUITIES . US equity markets rose broadly on Thursday, ending three straight days of losses as technology shares staged a comeback. The Dow Jones Industrial Average rose 188.11 points, or 0.6%, to 34,084.15. The S&P 500 gained nearly 1.1% to 4,159.12. The Nasdaq Composite climbed 1.8% to 13,535. Despite Thursday’s comeback, the Dow is still down 0.9% so far for the week, after losing 1% last week. The S&P 500 has fallen 0.4% this week, while the Nasdaq managed to eke out a small gain for the week. A mixed day for Asian equities at yesterday's closing, with more declining bourses which included Nifty 50 (-0.8%), PSE (-0.8%), TWSE (-0.6%), Hang Seng Index (-0.5%) and SET (-0.5%). On the flip side, bourses that rose included HCM (+1.2%), JCI (+0.6%) and STI (+0.2%). Accounting for the movements, the MSCI Asia (Ex-Japan) was flat. US TREASURIES/BONDS . US Treasury yields fell on Thursday as investors digested comments from the US Federal Reserve, suggesting it might taper its asset purchases if the economy continues to recover rapidly. 10-year Treasury yields fell 4bps at 1.63% late Thursday after rising as much as 5.3bps in the previous session in response to the US Fed's FOMC minutes, while 30-year Treasury bond yield fell to 2.343%. While the latest FOMC meeting minutes provided hints that some Fed officials are thinking about beginning the conversation to taper Fed’s QE program, they remain in the minority and it is not signaling a Fed policy shift. Recent commentary from various FOMC voters remain aligned with FOMC Chief Powell to keep the current accommodative policy stance intact despite the increasingly positive US economic outlook. Our base case remains for the Fed to stay on hold for most of 2021, at least, and the taper discussion will only start in late 2021/early 2022 unless the Fed indicates a clear change in its policy stance. For more details on the US FOMC meeting minutes, please refer to our report released yesterday: US April 21 FOMC Minutes: A Hint Of Policy Change? . Bond yields across Asia continued to stay mixed across the region. In the 2y- space, yields were higher in Malaysia (+0.4bps), South Korea (+0.2bps) and Thailand (+0.1bps), while lower in Indonesia (-4.0bps) and China (-1.4bps). In the 10y- space, yields rose in Malaysia (+1.9bps) and Thailand (+1.9bps), but lower in China (-2.5bps), Vietnam (-1.2bps) and India (-0.6bps). COMMODITIES . Crude oil prices fell more than 2% for a third day of losses on Thursday after diplomats said progress was made toward a deal to lift sanctions on Iran, which could boost crude supply. Extending the 3% losses on Wednesday, Brent crude fell $1.55, or 2.3%, to settle at $65.11/bbl while US West Texas Intermediate (WTI) crude oil fell $1.31, or 2%, to settle at $62.05/bbl. Iranian President Hassan Rouhani said in a televised speech that sanctions on oil, shipping, petrochemicals, insurance and the central bank had been dealt with in the talks, though European diplomats said success was not guaranteed and very difficult issues remained, while a senior Iranian official contradicted the president, CNBC reported Thursday. Gold hovered on Thursday close to a more than four-month peak reached in the previous session, fueled by a dip in the dollar and US yields as concerns faded over the Federal Reserve’s hints on possible tapering of economic support measures. Spot gold rose 0.6% to $1,880.22/oz on Thursday. ECONOMIC NEWS & DATA . US President Joe Biden will unveil the first detailed budget proposal of his term in office on 28 May, a day later than originally planned, the White House said on Wednesday. No reason was given for the delay. The budget blueprint will cover the fiscal year starting in October. It will be the first exhaustive list of the programs Biden wants to expand or cut – from foreign aid to immigration and policing. Corporations around the world should pay at least a 15% tax on their earnings, the US Treasury Department said Thursday as part of its push for a global minimum for businesses. The final rate could go even higher than that, according to a Treasury release that said the 15% minimum is a “floor and that discussions should continue to be ambitious and push that rate higher.” US-based companies currently pay a 21% rate, a level that was slashed during the Trump administration. Under a proposal from President Joe Biden, the tax rate would be lifted to 28%, part of a plan to raise levies on both companies and the highest earners. Previously, the top rate had been 35%. US Treasury Department announced on Thursday it will require any transfer of cryptocurrencies worth $10,000 or more to be reported to the Internal Revenue Service.