The Bank Negara meeting today (Jan 20) could be a key event. They may wait to hike rates but core inflation is rising and the market is demanding more monetary tightening.
The focus will be on payrolls, and the market is looking for a significant fall as we are still seeing the effects from Hurricane Katrina. It is worth holding long bond positions.
The hurricane impact in the fourth quarter is going to be quite evident and people will look beyond that. Growth is still going to be solid in the first half and the market is slightly under-pricing the risk in Fed tightening.
From the currency perspective, there's definitely been a search for yield. The general weakness in the equity markets hasn't provided any support to regional currencies.
Some of the Asian currencies are following the yen. As the yen goes stronger, then there's some trade influences on those economies.
There is some talk in the market that the ECB could move today but we think this is unlikely,
There are shifting expectations on whether the Fed will pause or not after its meeting next week. Signals from the Fed that it may pause in June may see a bid for Treasuries.
If they hold rates steady and don't change the tone of their comments, which are already hawkish, there is scope for a correction in the euro, especially against the yen.
