Geopolitical Spotlights Dampened Hawkish FOMC Expectations

13 April 2017

Rates & FX Market Update

Geopolitical Spotlights Dampened Hawkish FOMC Expectations

Highlights

¨   Global Markets: 10y UST yields dipped to 2.24% (-6bps) overnight, breaking through a key technical support and reaching year-to-date lows, amid a conflux of catalysts including: i) President Trump’s comments that he prefers a lower interest rate and a weaker USD; ii) poor 30y UST auction (HY: 2.938% (tail: 0.9bps); BTC: 2.23x (previous: 2.34x); dealers took 29.7% of allotment (previous: 25.8%); and iii) rising geopolitical tensions involving North Korea and Russia. With a plethora of potential risk events on the pipelines, the June’s FOMC meeting is unlikely to come into the picture anytime soon; watch USDJPY below 108.50 given likelihood of further risk-off flows.

¨   AxJ Markets: Singapore’s 1Q17 GDP print came in slightly softer than estimated (2.5% y-o-y; consensus: 2.6%; 4Q16: 2.9%), while February retail sales print pointed towards weakening domestic demand (-2.5% y-o-y; -4.9% ex-Auto). While MAS acknowledged the strengthening global outlook bodes well for its trade-dependent economy, growth will likely remain modest given an uncertain domestic and labour outlook, and opted to hold its policy unchanged in its semi-annual statement. SGD fell marginally post-MAS, given the authority’s view that a neutral stance remains appropriate over an extended period; stay neutral SGD, with MAS likely to maintain the status quo in October. China’s March CPI growth remained weak for the 2^nd consecutive month (0.9% y-o-y; consensus: 1.0%; Feb: 0.8%) amid a drag from food prices and a high base effect, while PPI growth pace deteriorated slightly (7.6% y-o-y; Feb: 7.8%) given easing demand and commodity prices. This is unlikely to deter the government’s desire to deleverage the economy, but the hawkish stance is unlikely to be translated into an outright hike in the benchmark lending rate (4.35% currently); stay neutral CGBs.

¨   Latest set of UK’s labour data painted a softening domestic outlook; unemployment rate remained steady at 4.7%, 3M employment change came in weaker (39k; consensus: 70k), while wage growth printed stronger than estimates but appeared stalled. GBPUSD initially dipped on the jobs report, but subsequently rebounded strongly as USD selling picked up into the US session; stay mildly bearish GBP over the coming months.

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