Markets Overview - United Overseas Bank

Monday, 22 March, 2021
Lee.SueAnn@uobgroup.com

Global Economics & Markets Research
Email: GlobalEcoMktResearch@uobgroup.com
URL: www.uob.com.sg/research

Markets Overview
HIGHLIGHTS AHEAD

   Ahead for the week, G7 Data Watch will focus on the private sector preliminary manufacturing and services PMI surveys for
    Japan, US, UK, Eurozone and its constituent economies:
    - The prelim Mar private sector manufacturing and services PMI surveys for developed economies will be released on Wed (24
    Mar). The manufacturing surveys are still expected to stay above 50 but services may fall further below the 50-mark in Europe,
    amidst the resurgent COVID-19 cases in parts of the key countries and also in Japan, which is just emerging from the latest state
    of emergency in the Tokyo region. The exception is again the US, which is seeing resilient numbers (in the high-50’s) for both
    manufacturing (Bloomberg Est 59.7 from 58.6 in Feb) and services (Bloomberg Est 60.0 from 59.8 in Feb).

   Among the US data releases this week, of note will be the Feb PCE on Friday given the focus on inflation:
    • Chicago Fed National Activity for Feb (22 Mar, Bloomberg Est 0.72 from 0.66 in Jan)
    • Richmond Fed manufacturing index for Mar (23 Mar, Bloomberg Est 15 from 14 in Feb)
    • Prelim Feb durable goods orders (24 Mar, Bloomberg Est +1.0% m/m from +3.4% in Jan)
    • US Initial jobless claims (25 Mar), which. Jobless claims may edge back to 700k (from last week’s 770k).
    • US 3rd cut for the 4Q 2020 GDP (25 Mar, Bloomberg Est unchanged at +4.1% q/q SAAR)
    • US advance trade goods balance for Feb (26 Mar, Bloomberg Est US$84.8bn deficit from US$83.7bn deficit in Jan)
    • US Feb personal income (26 Mar, Bloomberg Est -7% m/m from +10% in Jan) and spending (Est -0.6% m/m from +2.4%
      in Jan)
    • US Feb PCE (26 Mar, Bloomberg Est +1.6% y/y from +1.5% in Jan) and core PCE (Est +1.5% y/y, from flat growth unchanged
      from Jan)
    • Various US housing data including Feb Existing Home Sales (22 Mar, Bloomberg Est -2.8% m/m from +0.6% in Jan) and Feb
      New Home Sales (23 Mar, Bloomberg Est -4.1% m/m from +4.3% in Jan)

   US Federal Reserve Chairman Powell and Treasury Secretary Janet Yellen are scheduled to make their first joint appearance
    on Tuesday (23 Mar) before the US House Financial Services committee to testify on Fed and Treasury pandemic policies. Then
    on Wednesday (24 Mar), both Powell and Yellen will take part in a remote hearing before the Senate Banking Committee on the
    quarterly CARES Act report to Congress.

   On Thursday- Friday (25-26 Mar), EU Leaders Summit to include topics ranging from COVID-19, industrial policy and the eastern
    Mediterranean to relations with Russia.

   Please refer to our Weekly Outlook report for more details, which was mailed out last Friday (19 Mar).

   The Asian docket today will include China’s loan prime rate (LPR) fixing at 9.30am SGT, followed by Malaysia’s foreign reserves
    data for the week ended 15 March 2021 at 3pm SGT. Market-watchers will also likely focus on Taiwan’s export orders and
    unemployment rate for February, as well as Hong Kong’s 4Q20 balance of payment and February’s CPI.

CENTRAL BANK OUTLOOK

   The US Federal Reserve on Friday declined to extend a rule expiring at the end of the month that relaxed the supplementary
    leverage ratio (SLR) for banks during the pandemic. The rule allowing banks to hold less capital against Treasury and other
    holdings was implemented in Mar 2020 to calm the bond market during the crisis and encourage banks to lend. The Fed's
    decision could have some adverse effects, if banks sell some of their Treasury holdings in response to the expiry of the rule.
    That could send yields even higher at a time when US Treasury prices were under pressure and a rapid rise in rates is already
    unnerving investors.

   Ahead this week, the Swiss National Bank (SNB, Thu 25 Mar, 4:30pm SGT) is the lone G10 central bank rate decision. Unlike
    Norway’s Norges Bank which had signaled the next move as a policy rate hike, the latest Bloomberg survey showed that there
    is unanimous agreement that the SNB is expected to keep its policy rates rooted at -0.75% at least until 2Q 2023.

Markets Overview
Monday, 22 March, 2021
1|P a g e

    There is a long list of Fed senior officials speaking in public events this week, including FOMC voters Barkin (22 Mar), Williams
     (22-, 23 and 25 Mar), Daly (22 and, 24-25 Mar and 25), Evans (24-25 Mar and 25). We will also have a long list of BOE and ECB
     officials speaking in public domain and attention will be on BOE Governor Bailey (23 and 25 Mar), who will speak on Tue as a
     pre-recorded panelist on “unlocking investment for net zero”.

    Other than the slew of Fed speakers through the week, ECB’s Lagarde, BOE’s Bailey, ECB Governing Council members
     Weidmann and Villeroy, Riksbank Governor Stefan Ingves and New York Fed President John Williams are scheduled speak on
     a panel at the BIS Innovation Summit about central bank innovation on Thursday.

FX

    The US dollar advanced against major currencies on Friday, hitting a more than one-week high. The US dollar index (DXY)
     breached the 92.1 level in early trade on Friday after the US Federal Reserve allowed a pandemic-driven break on capital
     requirements to lapse, lifting US Treasury yields off their lowest levels of the day.

    The dollar index settled 0.1% higher at 91.91 on Friday, extending a 0.5% gain on Thursday. On the week, the dollar climbed
     0.3%, posting gains in the three of the last four weeks. The DXY in recent weeks has risen in line with higher Treasury yields.
     Since the low of 89.44 in early January, the DXY has gained about 2.8%, as the benchmark US 10-year note climbed about
     80bps in the same timeframe.

    The euro dipped 0.1% to $1.1908 on Friday, giving up early gains against the dollar on concerns about further coronavirus
     lockdowns in Europe. France imposed a new four-week lockdown from Friday in 16 regions badly hit by the health crisis. The
     EUR was down 0.4% for the week, its fourth weekly loss in five.

    The yen was roughly flat at 108.89/USD on Friday after the Bank of Japan widened its target band for the benchmark yield, a
     decision that was in line with market expectations. JPY rose 0.1% against the US for the week, after 4 consecutive weeks of
     losses.

    The British pound fell 0.4% on Friday to $1.3872, extending its 0.3% loss a day earlier, for weekly decline of 0.4%.

    Asian currencies were mixed at Friday’s closing, despite the fall in bourses. Gainers which appreciated against the greenback
     included the PHP (+0.12%), SGD (+0.11%), IDR (+0.01%) and MYR (+0.01%), while losses were seen in KRW (-0.65%), TWD
     (-0.48%) and THB (-0.09%). The Asian dollar index rose marginally by 0.13%. The SGD NEER is currently trading at -0.2% from
     the mid-point. We expect the SGD NEER to trade between -0.5% and +0.1% around its midpoint which implies USD/SGD range
     of 1.3406 - 1.3487.

EQUITIES
    US equity markets ended somewhat mixed last Friday, after the Federal Reserve’s decision to not extend a pandemic-era capital
     break for banks stoked a rise in bond yields and a sell-off in financial and banks stocks.

    The Dow slid 234.33 points, or 0.7%, to close at 32,627.97 on Friday. The S&P 500 dipped 0.1% to 3,913.10, closing off its
     lowest level of the day. The Nasdaq Composite however gained 0.8% to 13,215.24 as investors bought the dip in tech shares.

    All the three major US indices were lower for the week. The Dow and the S&P 500 lost 0.5% and 0.8%, respectively, last week,
     breaking their two-week positive streak. The Nasdaq also declined 0.8% for the week, posting its fourth negative week in five.

    Most Asian equities fell at Friday’s closing, which included PSE (-2.9%), SH COMP (-1.7%), Hang Seng Index (-1.4%), TWSE (-
     1.3%) and KOSPI (-0.9%). Accounting for the losses seen, the MSCI Asia Ex-Japan Index dipped 0.96%. Bucking the trend, the
     Nifty 50 gained 1.3% while the Jakarta Composite Index rose 0.13%.

US TREASURIES/BONDS
    US Treasury yields bounced off their lows on Friday after the US Fed's announcement on expiring the supplementary leverage
     ratio (SLR). The 10-year Treasury yield reversed higher before turning flat at 1.72% last Friday from intraday low of 1.66%,
     hovering near its 14-month high (early Jan 2020), and gaining nearly 10 basis points last week. The 10Y yield has been gaining
     for the 7th consecutive week, matching the same stretch since Jan-Feb 2018.

    The benchmark 10Y yield had started 2021 below 1%. While rising bond yields could reflect confidence about the economic
     recovery, they can also make high-growth stocks look less attractive to investors by diminishing the value of their future cash
     flows due to the higher discount rates.

Markets Overview
Monday, 22 March, 2021
2|P a g e

   The 30-year Treasury bond yield rose to 2.451% on Friday, after surging briefly above 2.5% on Thursday, rising about 6bps for
    the week.

   Government bond yields across Asia continued to stay mixed. In the 2y- space, yields were higher in South Korea (+1.8bps) and
    Malaysia (+1.1bps), while lower in Thailand (-7.5bps), India (-6.5bps) and Indonesia (-3.1bps). In the 10y- space, yields rose in
    Indonesia (+3.6bps) and Malaysia (+0.2bps), and fell in South Korea (-4.7bps) and Singapore (-2.3bps). The iBoxx Asia Total
    Return rose 0.05%.

COMMODITIES

   Oil prices rose more than 2% in volatile trading on Friday after a sell-off earlier in the week erased about 7% from prices as a
    new wave of coronavirus infections across Europe dampened expectations of any imminent recovery in fuel demand. Brent
    crude settled 1.98% higher at $64.53 per barrel on Friday after 6 straight sessions of losses that saw a 6.9% decline on Thursday.
    West Texas Intermediate (WTI) crude price rose 2.37% to settle at $61.42 per barrel. For the week, Brent crude price fell 6.8%
    and WTI came off 6.4%, the second consecutive weekly loss for both benchmarks.

   Spot gold rose 0.3% to $1,742.14 /oz, and was up 0.9% for the week.

ECONOMIC NEWS & DATA

   In our latest UOB Quarterly Global Outlook 2Q 2021 released last Friday (19 Mar), the key highlights are the upgrades of 2021
    US growth and inflation forecasts to 6.3% (previous forecast: 4.5%) and 2.4% (previous forecast: 1.7%), respectively, as well as
    the lifting of 10-year US Treasury yield forecast to 2% at end-2021, which would be the level last seen in mid-2019. As the Fed
    has made it clear that there are no rate hikes are planned over the near term, yield curve is expected to steepen further with 3M
    US Libor locked in at 0.25% for 4Q21. In the FX space, beyond the near term volatility, a positive global growth outlook means
    cyclical and risk currencies within the Majors and Asian FX space would regain their footing and strengthen anew against the
    USD. We look for EUR/USD to head towards 1.20 in both 4Q21 and 1Q22, GBP/USD to 1.41 in 4Q21 and 1.42 in 1Q22, and
    AUD/USD to 0.79 in both 4Q21 and 1Q22. As we believe that the bulk of the near term sell-off may be over, our updated gold
    forecasts are USD 1,700 / oz in 2Q21, USD 1,750 / oz in 3Q21 and USD 1,800 / oz in 4Q21 and 1Q22. In crude oil market, the
    return of backwardation in the futures curve is a clear sign of the immediacy of growing energy demand and this is accompanied
    by the sharp rise in futures open interest. We therefore raised our Brent crude oil forecasts to USD 60 / bbl in 2Q, USD 65 / bbl
    in 3Q21, and USD 70 / bbl in 4Q21 and 1Q22. For more details, please refer to the Quarterly Global Outlook 2Q 2021 (19 Mar
    2021).

   International Monetary Fund (IMF) First Deputy Managing Director Geoffrey Okamoto on Saturday pointed to emerging signs of
    a stronger global economic recovery, but warned that significant risks remained, including the emergence of mutations of the
    coronavirus. Okamoto said in a speech to the China Development Forum that in early April the IMF would update its January
    forecast for global growth of 5.5% to reflect additional fiscal stimulus spending in the United States, but gave no further details.
    Okamoto said the overall outlook remained “exceptionally” uncertain, adding that it was unclear how long the pandemic would
    last and access to vaccines remained very uneven, across both advanced and emerging economies. Okamoto noted that tighter
    financial conditions could exacerbate vulnerabilities in countries with high public and private debt, citing recent increases in bond
    yields triggered by market expectations of an earlier withdrawal of monetary stimulus.

   Russia’s ambassador to the United States arrived in Moscow on Sunday for discussions on how to address sliding US-Russia
    relations after US President Joe Biden said he thought Vladimir Putin was a killer, the TASS news agency reported. The Russian
    Foreign Ministry announced last Wednesday it was recalling its ambassador, Anatoly Antonov, for urgent talks after Biden said
    in an ABC interview he thought President Putin was a killer who would “pay a price” for alleged US election meddling - an
    accusation that Moscow denies.

   China and the United States will set up a joint working group on climate change, China’s official Xinhua news agency said over
    the weekend, in a potentially positive takeaway from what was an unusually rancorous high-level meeting late last week in
    Anchorage, Alaska.

   A European Union summit scheduled for 25-26 Mar in Brussels will now be held via video conference due to the increase in
    coronavirus infections across Europe, as European Council President Charles Michel, who chairs EU summits, made the
    decision to move the summit online, citing “the surge of COVID-19 cases in member states”, his spokesman Barend Leyts said
    on Twitter. A third wave of COVID-19 is increasing daily infections due to highly contagious coronavirus variants that are forcing
    governments to restrict lives again, with Paris going into a four-week lockdown late last week.

   Northern Ireland is in a difficult situation as it deals with the consequences of Brexit, and Britain and the European Union need
    to reduce tensions and find solutions as equal partners, EU Commissioner Mairead McGuinness said on Sunday. Political
    tensions have risen in Northern Ireland, with the pro-British unionist community unhappy about new barriers to trade with the
    rest of the United Kingdom that have arisen since Brexit fully took effect 1 Jan.

Markets Overview
Monday, 22 March, 2021
3|P a g e

   Germany is poised to tighten a partial lockdown into April to halt an exponential spread of the coronavirus driven by variants.
    Europe's biggest economy had progressively begun easing restrictions, first reopening schools in late February, before allowing
    some shops to resume business in March. But hopes for indoor dining, cultural and leisure facilities to follow suit will now have
    to be delayed, as a third wave of the virus has sent infection numbers rising again. Worst-hit areas may from Monday (22 Mar)
    have to reimpose restrictions and order shops to close again. "Given the current infection dynamics accelerated by the COVID-
    19 variants, forceful action is still required," said a draft document, which is to be discussed by Merkel and regional leaders of
    Germany's 16 states on Monday.

   It would be premature for Britons to book summer holidays overseas as Britain must avoid a situation where holidaymakers
    return with vaccine-resistant variants of COVID-19, British Defence Secretary Ben Wallace said on Sunday. Half of all adults in
    Britain have received at least one dose of a COVID-19 vaccine, placing it well ahead of all other major economies, and of
    neighbouring European countries where the vaccine rollout is slow. Wallace said Britain should avoid throwing away the gains
    of its vaccination campaign by allowing dangerous variants into the country via returning tourists.

   Heavy rains along Australia’s east coast over the weekend have brought the worst flooding in half a century in some areas,
    authorities said on Sunday, forcing thousands to evacuate and damaging hundreds of houses. New South Wales Premier Gladys
    Berejiklian said the downpour across the state was worse than initially expected, especially for low-lying areas in Sydney’s
    northwest. The extreme weather has also affected Australia’s COVID-19 vaccine delivery to across NSW, disrupting the country’s
    plans to deliver the first doses to almost 6 million people over the next few weeks.

   Malaysia’s minister in the Prime Minister’s Department, Datuk Seri Mustapa Mohamed, commented that the domestic economy
    will not see any major impact from North Korea’s decision to sever diplomatic relations with Malaysia. He added that the decision
    “has little or no value at all so the decision does not affect anything.” In the same vein, North Korea’s decision will also not affect
    foreign investments into Malaysia, according to Senior Minister Datuk Seri Mohamed Azmin Ali.

   The Organization for Economic Cooperation and Development (OECD) upgraded Indonesia’s growth projection to 4.9% in 2021
    (up from 4.0%) and 5.4% in 2022 (up from 5.1%) in its latest outlook. The organization added that the upgrade is due to an
    expected rebound in consumer spending and exports, “with (growth) momentum building up in the coming years”, while the
    “important factor is the global trade revival, which will help Indonesian exporters”.

   China has appointed two new members to the PBOC’s committee. The new members are Cai Fang, an economist at the
    government-linked Chinese Academy of Social Sciences, and Wang Yiming, a former deputy director of the Development
    Research Centre of the State Council. Bloomberg reports that the appointment of these members come at a time when PBOC
    is shifting its focus away from stimulus, and concentrating on curbing financial risks in the economy.

   Further confirmation of Taiwan central bank’s (CBC) FX intervention moves was made by its officials over the weekend.
    According to CBC governor Yang Chin-long, he commented to reporters that the moves to pare the TWD to USD are “a kind of
    intervention”, and moving away from using the term “smoothing” in his earlier comments. Yang’s comments came in response
    to US Treasury’s decision in December 2020 to add Taiwan to its currency manipulator watch list.

   Separately, Taiwan’s central bank (CBC) upgraded its economic growth forecast to 4.53% in 2021, up from a previous outlook
    of 3.68% late last week. The decision to upgrade its growth forecast was underpinned by the expected increase in global demand
    for electronic parts and components.

   Thailand will reportedly shorten the mandatory quarantine period for foreign travellers to 10-days, down from a prior 14-days,
    starting April 2021, according to government spokeswoman, Traisuree Taisaranakul. She added that Thailand may even stop
    enforcing quarantine altogether starting 1 Oct 2021 should the circumstances allow. We note that the shorter quarantine period
    may be an effective move to attract more inbound tourism into Thailand, where tourism revenue alone accounts for a significant
    12% of Thailand’s GDP.

Markets Overview
Monday, 22 March, 2021
4|P a g e

Markets Overview
Monday, 22 March, 2021
5|P a g e

Markets Overview
Monday, 22 March, 2021
6|P a g e

Markets Overview
Monday, 22 March, 2021
7|P a g e

Markets Overview
Monday, 22 March, 2021
8|P a g e

Markets Overview
Monday, 22 March, 2021
9|P a g e

Markets Overview
Monday, 22 March, 2021
10 | P a g e

Markets Overview
Monday, 22 March, 2021
11 | P a g e

Markets Overview
Monday, 22 March, 2021
12 | P a g e

Markets Overview
Monday, 22 March, 2021
13 | P a g e

Disclaimer

This publication is strictly for informational purposes only and shall not be transmitted, disclosed, copied or relied upon by any person for whatever
purpose, and is also not intended for distribution to, or use by, any person in any country where such distribution or use would be contrary to its laws
or regulations. This publication is not an offer, recommendation, solicitation or advice to buy or sell any investment product/securities/instruments.
Nothing in this publication constitutes accounting, legal, regulatory, tax, financial or other advice. Please consult your own professional advisors about
the suitability of any investment product/securities/ instruments for your investment objectives, financial situation and particular needs.

The information contained in this publication is based on certain assumptions and analysis of publicly available information and reflects prevailing
conditions as of the date of the publication. Any opinions, projections and other forward-looking statements regarding future events or performance
of, including but not limited to, countries, markets or companies are not necessarily indicative of, and may differ from actual events or results. The
views expressed within this publication are solely those of the author’s and are independent of the actual trading positions of United Overseas Bank
Limited, its subsidiaries, affiliates, directors, officers and employees (“UOB Group”). Views expressed reflect the author’s judgment as at the date of
this publication and are subject to change.

UOB Group may have positions or other interests in, and may effect transactions in the securities/instruments mentioned in the publication. UOB
Group may have also issued other reports, publications or documents expressing views which are different from those stated in this publication.
Although every reasonable care has been taken to ensure the accuracy, completeness and objectivity of the information contained in this publication,
UOB Group makes no representation or warranty, whether express or implied, as to its accuracy, completeness and objectivity and accept no
responsibility or liability relating to any losses or damages howsoever suffered by any person arising from any reliance on the views expressed or
information in this publication.

Markets Overview
Monday, 22 March, 2021
14 | P a g e