11 May 2017
Rates & FX Market Update
ECB’s Draghi Downplayed Tapering Speculations
¨ 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.
This message is intended only for the use of the person(s) to whom it is
addressed and may contain information that is privileged or otherwise protected
from disclosure. If you are not the intended recipient you are hereby notified that
any use, review, disclosure or copying of this message and the information it
contains is prohibited. If you receive the message in error, please notify the
sender by reply e-mail and discard all its contents.