Goldman Sachs Give Their Q2 Overview

Goldman Sachs note that “going into Q2, we think the key themes driving NJA markets will be: i) continued Fed tightening (we note that our Fed forecasts for 2022 are broadly in line with market expectations, but our terminal rate of 3.00-3.25% is above expectations), ii) China’s response to sub-target growth (partly induced by renewed lockdowns), iii) still bullish outlook on commodities (while the release of U.S. reserves offers a temporary reprieve, it does not solve the oil market's structural deficit), and iv) divergence in Asian monetary policies (early vs. late hikers).”

• “Given the global backdrop, we expect the more commodity/tourism exposed currencies of Southeast Asia (SGD, MYR and THB) to outperform the more equity-centric currencies of Northeast Asia (KRW and TWD). We expect Singapore's MAS to deliver both a steepening of the slope and a re-centering of the SGD NEER band at its meeting in April. Higher commodity prices should be most beneficial to Malaysia and Indonesia's terms of trade in the region, while a gradual rebound in tourism and normalization of shipping costs should support THB strength. We think KRW and TWD should underperform NJA, given the "expeditious" pace of Fed normalisation, slowing Chinese growth and persistent equity outflows. We maintain our trade recommendations of long SGD/TWD, long THB/TWD and long MYR/PHP.”
• “The CNY has been one of the best performing currencies in NJA this year reflecting its strong broad balance of payments position. However, we expect the degree of its out performance to fade driven by a combination of slowing Chinese export growth, capital outflows and CNY CFETS already near its all-time high. The authorities also appear to prefer a stable or slightly weaker CNY. Although China saw the largest bond outflows on record in February, we think that recent geopolitical developments should result in an increase in demand for CNY fixed income assets over the long-run, as the number of central banks that gravitate towards CNY assets (Middle East/India) outweigh those that move away from CNY assets (i.e., Norway). In India, we revise our USD/INR forecasts slightly higher to INR78, INR78, and INR79 on a 3-, 6- and 12-month horizon to reflect our revised BOP forecasts on higher oil, equity outflows YTD and delayed bond index inclusion timeline.”