15 September 2016
Rates & FX Market Update
GBP Climbed Ahead of BoE’s Rate Decision Today, Underpinned by Resilient Post Brexit Economic Data
¨ Global Markets: Movements on USTs took directional cues from EGBs and JGBs amid the quiet economic calendar, with yields edging lower by 1-5bps yesterday, clawing back losses sustained earlier in the week. Higher yields from the recent spate of selloff has offered opportunities for investors to extend long positions ahead of key US data today, where consensus remained bias towards weaker IP, retail sales and jobless claims data, reinforcing Fed’s cautious stance; maintain mild overweight USTs. Meanwhile, UK’s economic data prints remained, with strong wage growth adding to the case for BoE to stand pat later today; uncertainty surrounding Brexit negotiations is likely to continue fuelling BoE’s accommodative stance, keeping yields on GILTs subdued over the medium term.
¨ AxJ Markets: In line with broad expectations, BoT opted to maintain policy rates at 1.50% as the recent uptick in economic activity remained supportive of a status quo decision. USDTHB declined to 34.87 (-0.22%) on the back of softer USD movements; uncertainty within the global economy continue to pose a strong headwind to Thai’s fragile economy where we opine for another 25bps BoT rate cut in 4Q; maintain neutral stance on THB, underpinned by strong BoT credibility alongside prudent reserves management. Meanwhile, India’s WPI climbed to its 2-year high at 3.7% y-o-y (Jul: 3.6%), but remained below consensus expectations of 4.0%. With WPI and CPI movements continuing to diverge, it continues to pose challenges to the new RBI governor as he faces the challenge of managing CPI amid calls for further RBI rate cuts to support economic growth; expect the high yielding INR to remain in favour, supporting our neutral stance on INR, balanced by India’s high susceptibility to external headwinds.
¨ GBPUSD climbed higher to 1.345 (+0.43%) ahead of BoE’s rate decision due later today as investors drew comfort from the upside surprises in UK PMI, retail sales, and CPI, with expectations for BoE to stand pat today. Strength on GBP would however, remain dependent on the upcoming BoE minutes, where clear signals for easing inclination is unlikely to remain supportive of GBP’s resilience over the near term.