U.S. budget bill: It’s a done deal

Financial stocks outperformed and the VIX declined sharply. Q3 earnings contributed to the rally in US equities with several key financial institutions reporting, including Bank of America, beating consensus estimates despite lower revenues.

We expect only those currencies with sufficiently strong fundamentals, such as the PHP, MYR and CNY in NJA, to post further gains against the USD in the coming months.

The UST market reaction, with 10y bonds rallying about 7bp overnight, is harder to fathom. A possible explanation is that the market is now expecting the start of the Fed’s tapering of bond purchases to be pushed into 2014 given that US budget standoff looks set to resume in December. Despite most Asian bond yields following US rates lower today, we think the outlook for lower-yielding bond markets is ambiguous, as a lower probability of tapering should be balanced against likely improving global economic data. As a result, we continue to recommend a relative-value-based strategy of being long duration in Korea and Thailand, and short duration in Malaysia, based on domestic factors

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The Corner
The Corner has a team of on-the-ground reporters in capital cities ranging from New York to Beijing. Their stories are edited by the teams at the Spanish magazine Consejeros (for members of companies’ boards of directors) and at the stock market news site Consenso Del Mercado (market consensus). They have worked in economics and communication for over 25 years.

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