Thursday, March 16, 2017

USD on relatively weaker footing post-FOMC. The DXY is now around 100.45 against 100.74 overnight and 101.25 last week. Again, we cite the tone from Fed policymakers who were not as hawkish as previously anticipated. US data were mixed. Retail sales grew

Market Roundup
  • Citing steady growth and inflation, employment and business and consumer confidence, the FOMC as expected lifted Fed funds rate target by 25bps to range 0.75-1.00%. In her press conference, Fed chief Yellen said the move signals her view ‘the economy is doing well’. The dot-plot indication for future rate levels point to another two more rate hikes this year. As we expected US Treasuries have rallied and USD fell as players noted policymakers did not turn drastically more hawkish compared to their remarks pre-FOMC. And Yellen sought to ensure investors the Fed has not fully embarked on faster pace of tightening, signaling the Fed can tolerate inflation temporarily overshooting the 2.0% target as it balances growth and monetary policy. Fed funds futures trading is signaling only 13.3% probability of a hike at the next FOMC meeting on May 3, 2017.
  • USD on relatively weaker footing post-FOMC. The DXY is now around 100.45 against 100.74 overnight and 101.25 last week. Again, we cite the tone from Fed policymakers who were not as hawkish as previously anticipated. US data were mixed. Retail sales grew 0.1% mom in Feb against 0.1% consensus, CPI was up 0.1% mom in Feb as but above zero growth consensus. The Empire manufacturing index fell to a reading of 16.4 in Mar against 15.0 consensus and 18.7 in Feb.
  • The Ringgit would see gains today in reaction to the sharp dollar decline. The Fed remains and there would need to be significant progress on the Obamacare repeal and tax cuts for the expectation to move up. The certainty over the Feds stance for the time being should be a catalyst for currencies other than the dollar.
  • Short tenor Malaysian government bonds were under pressure ahead of expected FOMC rate hike, with MYR remaining near 4.4500. There was net buying interest along the bellies of the curve, amid attractive levels after the recent sell-off, but sentiment did not trickle down to the front of the curve. MYR swap rates were mostly unchanged.
  • THB government curve shifted in a bear-steepening move as yields on the longer than 9 years tenor rose 2-7bps. Upward pressure on yields was concentrated on 20-year tenor from increasing supply of LB366A – its auction saw long tail and average bidding level was higher at 3.472% or 7bps above previous day's closing. Main buyers remained insurance companies and pension funds, well absorbed with 1.38 bid-to-cover ratio. Meanwhile, short- and medium tenor were relatively stable ahead of FOMC.
  • IndoGB were traded up on the back of inflows and solid Feb trade balance data ($1.3 billion surplus). Market players looked eager to bid ahead of FOMC and BI meetings. BI is expected to keep the 7 day reverse repo rate unchanged at 4.75%. Market volume leaped to IDR18.3 trillion and dominated by bonds maturing in between 5 and 10 years and bonds maturing in over 10 years.

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