11 May 2017
Rates & FX Market Update
ECB’s Draghi Downplayed Tapering
Speculations
Highlights
¨ Global
Markets: ECB’s Draghi testimony in the Dutch Parliament reinforced ECB’s
dovish rhetoric where he reiterated his support for keeping ECB’s bond
purchases despite calls from Netherlands to end the stimulus sooner rather than
later. ECB’s Draghi acknowledged that while economic outlook has been
improving, support from the monetary stimulus is needed to bolster underlying
inflationary pressures. Yields on EGBs broadly fell across the bloc, with 10y
yields declining by 1-5bps while EURUSD remained stable at 1.0867 amid
consolidative movements seen on the broader USD index; shift to a neutral
EUR stance amid easing political risk in the Eurozone.
¨ AxJ
Markets: North Korean claims to plan for a nuclear test continued to weigh
on KRW following President Moon taking the Blue House after a landslide victory
on Tuesday. Focus remains on the formation of his cabinet, particularly on the choice
of Finance Minister given expectations for fresh fiscal stimulus to bolster
the domestic economy; maintain mildly bearish stance on KRW. Meanwhile,
IndoGBs underperformed yesterday, with yields surging higher by 6-20bps across
the curve as concerns of an increasingly divided sentiment in Jakarta following
former governor Ahok’s jail sentencing. While we remain of view for BI to
maintain status quo this year, further climbs in IndoGB yields could provide
an attractive opportunity for investors to add; keep a neutral duration view on
IndoGBs.
¨ The
GBPUSD pair treaded cautiously this week, holding below the 1.30 psychological
resistance ahead of BoE’s MPC meeting held later today. BoE’s rate decision
coincides with the release of its quarterly inflation report where we expect
the Bank to acknowledge the recent improvements in economic outlook but unlikely
to sway any members to vote for a rate hike apart from BoE’s Forbes. As such,
we expect any break above the 1.30 barrier for GBPUSD over the coming weeks
to remain short lived, particularly as PM May’s Brexit negotiations with EU
continue to face hurdles; maintain neutral stance on GBP ahead of June’s
Legislative Elections.
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