Asia macro roundtable:The Fed and Asia

This is the third in a series of roundtable discussions featuring HSBC macro sectorheads in Asia. This month, we take a closer look at the Fed. With the US central bankwidely expected to start normalizing its balance sheet, risks are building that volatilitycould pick up in the near term. Fortunately, the ECB’s and BoJ’s continued balancesheet expansions, as well as subdued inflation across the world economy, shouldlimit the impact on base rates. However, there could still be an impact on risk markets,such as Asian credit spreads, not least given how tight markets have traded. Thebigger issue, however, may emerge over the course of 2018 when other majorcentral banks start to shift course as well.

    In FX, the weak dollar has benefited most Asian currencies this year. Volatility couldpick up into year-end; however, even if so, higher yielding currencies are in better shapethan during the taper tantrum. Equity markets, too, have had a good run so far in2017, but further upside may be not be quite as impressive. Interest rate risk is lessof an issue for the listed universe given relatively disciplined balance sheetmanagement by many corporations.

    We also highlight the following macro reports we have published recently:FX: Asian FX Focus: New forecasts under a ‘possible trinity’ (4 September)Don’t fret the Fed’s gradual rate hikes. That’s not where it’s at. China is a helpful anchor,too. But, notes Paul Mackel, volatility could still pick up in the coming months.

    Credit: Credit Strategy: Caution