Global PMI Releases Painted a Mixed Picture

4 April 2017

Rates & FX Market Update

Global PMI Releases Painted a Mixed Picture

Highlights

¨   Global Markets: Risk-off sentiment fuelled a c.3-7bps decline in 2y and 10y UST yields overnight, underpinned by a variety of catalysts including softer Markit and ISM manufacturing prints, as well as continued setbacks faced by the Trump administration, with Democrats likely to filibuster the nomination of Judge Gorsuch; Fedspeak overnight largely supportive of the current consensus FOMC view. The dollar appeared marginally firmer overnight despite renewed JPY strength, where we retain our neutral stance over the near term given the FOMC’s inclination to guide US rates higher still. Despite strong building approvals and an uptick in inflation, AUDUSD fell 0.35% overnight on the soft retail sales (-0.1% m-o-m; consensus: +0.3%) alongside poor risk sentiment. RBA rate decision due later today is likely to affirm the status quo, given a mixed labour outlook amid visible improvements in other areas of the domestic economy; stay neutral AUD.

¨   AxJ Markets: Asian PMI due overnight were mostly mixed, with North Asian countries mostly weaker (China Caixin, South Korea Nikkei PMIs) while ASEAN prints appearing more robust, with the exception of Malaysia (49.5; Mar: 49.4) remaining in contraction territory. FX movements were largely muted overnight, with the exception of KRW (+0.28% against the USD); we remain neutral to mildly bearish across our AxJ coverage. Overnight Indonesian CPI data due were slightly softer (3.61%; consensus: 3.80%), although unlikely to ease BI’s cautiousness towards lower rates over the near term, without a significant shift in global and US sentiment; stay neutral IDR, with the currency likely to remain stable over the near term.

¨   Softer Japanese manufacturing PMI data (52.4; Feb: 52.6) alongside a mixed Tankan survey may have helped in the mild JPY strength overnight; Japanese Capex expanded 0.6% y-o-y in 1Q17 (consensus: -0.3%; 4Q: 5.5%), marginally better than expected although it fell short of the pace seen in 2016. With JPY movements increasingly tied to the reflation theme amid BoJ perceived inaction, we prefer to hold a neutral stance given the backdrop of rising global uncertainties.

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