Malaysian Foreign Reserves Climbed to USD98.3bn; BNM to Stand Pat Later Today

23 November 2016

Rates & FX Market Update

Malaysian Foreign Reserves Climbed to USD98.3bn; BNM to Stand Pat Later Today

Highlights

¨   Global Markets: The inability for OPEC to come to a firm agreement on its output reduction overshadowed the stronger than expected existing home sales, driving yields on USTs marginally higher yesterday. Without an agreement to present to non-OPEC members such as Russia later this month, the lingering uncertainty and prospect for supply to outpace demand could erode gains on Brent oil sustained over the past year, fuelling near term demand for safe haven assets. Meanwhile, we expect FOMC’s November meeting minutes to signal intentions of raising FFR, compounding on expectations for accelerating inflationary pressures post Trump victory, fuelling USD climb ahead of Thanksgiving holidays on Thursday. Turning to Japan, the lifting of Tsunami warnings supported USDJPY’s climb to 111.15, where we remain of view for BoJ’s strong signal towards keeping JGB yields subdued to remain instrumental in supporting USDJPY’s medium term climb; risk-reward on JGBs remain poor in our view.

¨   AxJ Markets: Malaysian foreign reserves climbed higher over the first half of November to USD98.3bn (+USD0.5bn m-o-m) despite the EM FX rout post US elections alongside a brief climb in Brent oil prices underscored MYR’s resilience yesterday, keeping the USDMYR pair at 4.42. While we expect BNM to stand pat today as the central bank refrains from adding further pressure on MYR, we continue to position for another 25bps BNM rate cut in 1H17, underscoring allure on MGS over the medium term; yields on MGS declined by 3-12bps yesterday. Elsewhere, Fitch has affirmed China’s sovereign rating at A+ with a stable outlook, citing strong macroeconomic performance and low unemployment rate; yields on CGBs and USDCNY remained stable yesterday, where we continue to keep a cautious stance on CNY over the near to medium term.

¨   GBPUSD declined to 1.2421 (-0.62%) following EU’s warning of a 14-15 month window for UK to negotiate Brexit terms, while downplaying the likelihood for UK to cherry pick the terms. Ahead of UK’s Autumn Budget statement later today, where we opine for an increase in fiscal spendings and/or tax cuts to counterbalance downside economic risks, that may bolster upward GBP momentum over the near term.