The USDSGD pair fell 0.40% overnight post-FOMC, holding firmly below the 1.38 level this morning. USDSGD has treaded downwards steadily over the past weeks, despite tightening 10y SGS-UST differentials (c.-4bps; early-May: c.-20bps); 2y yield differentials have changed little over the abovementioned time period. Improving e

15 June 2017

Rates & FX Market Update

Fed Highlighted Its Tapering Plan, But Would Not Commit to a Timeline

Highlights

¨   Global Markets: Prior to the FOMC’s decision, US May CPI tumbled to 1.9% y-o-y (consensus: 2.0%; Apr: 2.2%), while the core print exhibited weakness as well (1.7% y-o-y; consensus and Apr: 1.9%); retail sales prints due were also weaker than expected. The Fed went on to lift its FFR by 25bps as expected, while keeping the door open for another rate hike this year alongside the possible start of its balance sheet reduction. The pace of tapering could start with USD10bn per month (including MBSs), and could increase at a pace of USD10bn per quarter till a maximum of USD50bn/month, although the Fed was careful to avoid a firm commitment towards the timing of any tapering. While weak economic data drove UST yields and the USD lower in the early trading session, a subsequent rebound was seen following FOMC’s dovish rhetoric, keeping USD relatively unchanged overnight; 10y UST yields declined 9bps down amid FOMC’s concerns over recent US inflation development. A neutral UST stance remains appropriate.

¨   AxJ Markets: Over in China, May retail sales (10.7% y-o-y; consensus and Apr: 10.7%) and IP (6.5% y-o-y; Apr: 6.5%; consensus: 6.4%) were mostly stable, while FAI came in slightly disappointing (8.6% y-o-y; Apr: 8.9%; consensus: 8.8%). May new CNY loans continued to show no slowdown in credit creation (CNY1.11trn; consensus: 1trn), although authorities remained vigilant against shadow banking credit given the contraction in TSF (CNY1.06trn; Apr: 1.39trn). We continue to eye further measures to stem the pace of credit growth over the remainder of 2017, which should continue to exert upward pressure on Chinese yields over the near term; we remain confident of CGB’s outlook over the medium term, where we maintain a neutral duration stance.

¨   The USDSGD pair fell 0.40% overnight post-FOMC, holding firmly below the 1.38 level this morning. USDSGD has treaded downwards steadily over the past weeks, despite tightening 10y SGS-UST differentials (c.-4bps; early-May: c.-20bps); 2y yield differentials have changed little over the abovementioned time period. Improving external sector and better regional sentiment could continue to support the SGD NEER movements in top half of the policy band; keep a neutral view on SGD over the medium term.

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.   Thank You.