Markets have stabilized after last month’s correction, which we think was less about Asia negatives and more about USD positives. The dollar cramped Asia’s style as debate around the Fed chair, hopes for US tax reform, positive data surprises, and stirrings of price pressure caught a positioned market off guard. For the correction to extend, we likely need these US catalysts to develop further (tonight’s US CPI will be watched). There is less cause for concern on the Asian front: risk indicators are unperturbed and the Asian growth picture is constructive with PMIs and exports printing better than expected (see our Economics section). Equity flows are returning on expectations of better 3Q earnings and EM fund flows show commitment to the asset class.    Our bias remains to fade USD rallies, adding to this view against CNH and MYR this week. We like 3M USD/CNH put spreads to play a grind lower in spot into year-end. A heavy political calendar, improving balance of payments, still-tight capital controls and corporate long USD positioning back the view. The MYR is cheap, trading with a lower beta to USD strength, offshore positioning has stabilized and the policy bias could favor a stronger FX as elections loom. We continue to hold USD shorts against TWD and THB on large surpluses and potential US pressure. We maintain USD/PHP longs, but high carry and grinding moves are muting the risk-reward. In bonds, we are moving towards a market-weight bias. Supply is lighter into Q4, but we are wary of aggressive duration views. In swaps, we keep paid positions in 5Y CNY NDIRS where domestic liquidity will remain volatile, recommend 1Y/5Y INR steepeners on poor technicals and fiscal slippage risks, keep 2Y/10Y KRW steepeners, and receive KRW 1Y/1Y with front-end pricing for BoK looking excessively hawkish.    In our FX Special, we share our thoughts on MAS’ latest policy review. MAS kept their neutral policy stance and did not give any explicit tightening signal, disappointing a market that had been angling for a more hawkish outcome. MAS’ reference to keeping neutral policy for “extended period” was more backward-looking in today’s statement, but they are unlikely to have repeated this phrase without purpose. MAS is retaining maximum policy flexibility for next year, where they see growth moderating and inflation benign. We have also reweighted the DB SGD NEER series, correcting for a small overestimation bias in our model. The new DB SGD NEER is trading 0.95% above the mid-band at the time of writing. We are marginally biased to trade SGD from the short side, or as a funder for our regional longs.    Next week, there are two key events of focus: (1) the US Treasury semiannual report on FX Policies of Major Trading Partners, and (2) the 19th Party Congress in China. Trade frictions and currency war fears are never far from the radar for Asia, particularly given the region’s large trade surplus with the US. We are not expecting any major shift in the Treasury report, but given the pickup in official intervention in several parts of South Asia, the possibility of an expanded monitoring list cannot be overlooked either. In China, the market will be closely watching the Congress for what it says about leadership over the next decade, and if there are any shifts in government policy, particularly towards deleveraging in the near-term.

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