Malaysia
Attention will be focused on the Malaysian onshore markets this morning after PM Mahathir's coalition triggered the circuit breakers and imposed a cooling off period for cash markets by declaring the two-day public holiday. Without cash markets and critical Malaysian pension fund support, it’s difficult to take to much away from the post-election USD dominated arbitrage flows on the iShares MSCI Malaysia (NYSE:EWM). Or for that matter, the hostile moves on the fragmented and thinly supported USD/MYR one-month NDF. The reaction on MYR proxy trades, including the USD/SGD, were far too splintered and inconsistent exhibiting hallmarks of extremely confused markets.
While conventional logic suggests there could be equity outflows today, the degree to which local Pension Fund buying supplants these moves will be the key. Not to mention the possibility of BNM intervention on the unlikely scenario the market goes completely sideways.
But the tale of the tape will likely focus on PM Mahathir pledge to scrap the GST within 100 days. As well, the market’s reaction to PM Mahathir's cabinet with the inclusion of former BNM governor Zeti. But the dramatic drop in the inner cabinet number is what telling from nearly 35 during Najib era to only ten so far. And by all appearance, the new appointments are apparently based on merit, not patronage
USD/MYR: Lets the chips fall where they may, and we could see traders on a cash market knee-jerk look to position long term views based on Malaysia’s solid domestic economic performance, high external factors and of course higher oil prices. The wild card in the deck remains the GST and how the debt agencies react to PM Mahathir pledge to scrap the unpopular tax within 100 days
USD/SGD: Of course, the market looks to trade the tight correlation with the CNH, but in the meantime, we could see some proxy interest regarding the MYR elections fall out take place.
China
MSCI is expected to announce the results of its semi-annual index review at 5 am HKT on Tuesday morning. China A-shares will be added to the Emerging Markets index for the first time, and the list of names to be added to the index will be confirmed. Given that most of the likely constituents have underperformed this year, the market reaction to the anticipated announcement will be crucial for short-term sentiment.
USDCNH: Short-term CNH sentiment could take its cue from the key markers retail sales and industrial production data due out later this morning. But the ongoing malaise around trade and tariffs have turned traders jaded which is being exacerbated by PBoc steering the currency ship as steady as can be.
India
Indian markets could be hit again this week as local stock exchanges could feel the repercussions from a potential MSCI de-classification of the Indian equity market from the Emerging Markets index after the Indian Finance Ministry and the Indian Exchanges where previously scolded about pulling licensing deals with foreign bourses.
USDINR: The beleaguered Rupee, hampered mostly by surging oil prices and to a lesser degree the stronger USD, could be on the offs again this week from a potential MSCI de-classification of the Indian equity market from the Emerging Markets index
Indonesia
The Bank of Indonesia on Thursday after the Central Bank Governor hinted yet again that interest rates would be raised to defend the currency and stabilise the market.
USD/IDR: With the central bank putting stability ahead of growth, it suggests that any short-term IDR appreciation could be meet with cynical dollar buyers.
Philippines
The USD losses at week's end were a welcome relief to Asian equity markets, especially to twin deficit countries like The Philippines, that has been one of the weakest links in the EM Asia chain.
However, on the currency markets, the midweek reprieve should not be interpreted as a trend reversal but rather a squeeze from overbought USD positioning.
While local PSEi investors welcomed the BSP dovish rate hike, but profoundly pessimistic currency traders quickly re-engaged the long USD/PHP trade who are all too knowing that one-off interest rate hike band-aids seldom produce any positive long-term currency effects
USD/PHP: Some stops losses were triggered through the 52.25 after currency traders viewed the BSP one and done interest rate hike as distinctly dovish. While sentiment remains weak heading into the pivotal US retail sales print, the PHP should trade with a high level of sensitivity to the USD, but traders could look for dip buying opportunities over the near term given the dovish rate hike.