¨ USDJPY dipped more than 2% overnight amid safe haven demand arising from US politics. March IP (+3.5% y-o-y; previous print: 3.3%) and 1Q17 GDP (+2.2% q-o-q SAAR; consensus: 1.7%) data due showed a firm upward economic momentum, with the above likely to support a status-quo BoJ over the coming months, amid concerns over the size of its balan

18 May 2017

Rates & FX Market Update

Trump-related News Flow Continued to Spook Investors

Highlights

¨   Global Markets: Massive risk-off movements seen overnight (2y: -5bps; 10y: -10bps; DXY: -0.54%) as doubts of a near-term tax reform and infrastructure spending implementation arose amid concerns over President Trump’s political woes, with USD assets returning gains sustained following Trump’s election rally . The appointment of a special counsel to investigate Trump-Russia ties will help in maintaining 10y treasuries at the 2.2% handle over the near term; stay neutral USTs. Elsewhere, UK unemployment rate unexpectedly dipped to 4.6% (consensus: 4.7%), while jobless claims fell to 19.4k in April (Mar: 33.5k), affirming the stabilising labour conditions. GBPUSD mostly took cues from the broader dollar movement, and again underperformed the EURUSD pair, keeping the former firmly below the 1.30 psychological resistance; we stay neutral GBP ahead of the June 8 snap election.

¨   AxJ Markets: The KRW retraced all its gains against the USD this week, likely on risk-off flows and profit-taking following the rally post-election. Since taking over the helm at the Blue House, President Moon’s main priority has been on North Korea, although several economic measures are taking shape, including Chaebol reforms and the implementation of a new job creation committee. Investors are likely to remain keen on any fiscal stimulus package under President Moon to invigorate the country’s growth drivers; stay neutral KTBs. Elsewhere, Malaysia April CPI print came in at 4.4% y-o-y, a touch weaker than the 4.5% consensus estimate and lower compared to the 5.1% logged in March. The slower gain in prices was mainly attributed to milder increases in fuel prices, and may continue to moderate over the coming months. The data is likely to remain within BNM’s expectations, and we continue to forecast no change in the OPR over the year; stay neutral MGS.

¨   USDJPY dipped more than 2% overnight amid safe haven demand arising from US politics. March IP (+3.5% y-o-y; previous print: 3.3%) and 1Q17 GDP (+2.2% q-o-q SAAR; consensus: 1.7%) data due showed a firm upward economic momentum, with the above likely to support a status-quo BoJ over the coming months, amid concerns over the size of its balance sheet. Given the still-low inflation, we remain of the view that any firm commitment towards an unwinding of its long-standing easing policy is unlikely for now; we stay neutral towards the JPY.

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