Tuesday, April 18, 2017

Easing Safe Haven Flows Halted Declines in UST Yields


18 April 2017


Rates & FX Market Update


Easing Safe Haven Flows Halted Declines in UST Yields

Highlights

¨   Global Markets: Risk assets appeared to have found a stable footing overnight, as the DXY index rebounded after touching the 100 level intraday given receding safe haven flows, although still slightly softer versus last Friday’s closing; 10y UST yields rebounded to 2.25% after temporarily dipping below 2.20% intraday. With European markets closed for the Easter holidays, Treasury Secretary Mnuchin’s comment that USD strength is a long-term positive appeared to support the dollar’s rebound overnight, although we remain relatively cautious this week given North Korea’s escalating threats and the upcoming French election; stay neutral USD.
¨   AxJ Markets: Plethora of Chinese data due overnight were indicative of a strong start to Year 2017 ahead of the leadership transition, with 1Q17 GDP printing at 6.9% y-o-y (consensus and 4Q16: 6.8%), alongside better-than-expected Retail Sales, Industrial Production and FAI given strong TSF growth in the preceding months. 10y CGB yields climbed c.5bps overnight on stronger expectations that PBoC will remain committed to slow the pace of credit growth this year, although we recommend a neutral CGB stance given prospects of the bonds being included in global bond indices. Elsewhere, strong Singapore’s March NODX print (16.5% y-o-y; consensus: 7.3%) once again bolstered growth optimism for the export-dependent nation, with the bulk of the outperformance attributed to non-electronic exports. However, outlook for domestic sectors remain relatively lacklustre, which is likely to keep MAS on the side of caution; stay neutral SGD. Likewise, Indonesian trade data remained robust in March (exports +23.6% y-o-y; imports +18.2% y-o-y), in line with strength seen in regional peers and partially bolstered by y-o-y gains in broad commodity prices. USDIDR was relatively stable overnight under the 13,300 level, where we remain confident for BI to maintain the current stability and currency’s conduciveness; stay neutral IDR.
¨   The EURUSD pair climbed 0.33% overnight ahead of the 1st round of French presidential election this Sunday. Polls are currently indicating a close 4-way fight, where we opine for a Le Pen – Melenchon pairing in the runoff round likely be the worst outcome for risk sentiment given their anti-EU policies. The most risk-positive outcome is likely to be a Macron – Fillon runoff in the 2nd round; stay mildly bearish EUR over the near term.

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