On the surface, Risk is building, yet underneath, volatility continues to compress. The VIX volatility index at 12.33 is at levels not seen since January. Financial markets are less concerned about geopolitical hype and more focused on fundamentals. Economic slowdown in Asia and Europe is not alarming, while central banks’ normalisations remains gradual. Equity valuations outside the US are at manageable levels. While protectionism remains a risk, Asia’s internal trade keep the region supported. Growth in the developing East Asia and Pacific regional is expected to reach 6.4% in 2018; China is outpacing estimates, tracking toward 6.9%.

We are bearish USD (bullish INR, THB and IDR), yet uncertain how the massive debt sale will affect emerging markets’ capital outflows. This week a US rate hike of 0.25% is universally expected. There is risk of four rate hikes in 2018, up from currently expected three. Four hikes would give the USD a minor, short-lived boost.