FW: RHB FIC Rates & FX Market Update - 16/8/17

 

 

 

16 August 2017

 

 

Rates & FX Market Update

 

 

IDR Held Firm Despite Indonesia’s Unexpected Trade Deficit in July

 

Highlights

 

¨   Global Markets: The recovery on USD yesterday was choppy, with gains sustained post stronger retail sales fizzling towards the end of the trading session and exhibiting difficulty climbing above the 94.0 handle on DXY. FFR futures indicated a better likelihood for FOMC to keep the upper bound on rates unchanged at 1.25% as focus of investors fixating on CPI outlook ahead of FOMC July meeting minutes. Yields on 10y UST are likely to remain tightly bounded between the 2.20-2.40% range as the overhang of geopolitical risk, US fiscal inaction and softening CPI outlook complicates FOMC’s monetary tightening policies, underscoring our neutral duration view on USTs over the near to medium term.

¨   AxJ Markets: Movements on IDR were marginal yesterday despite Indonesia recording its first trade deficit since 2015, attributing the unexpected trade deficit seen in July to the oil and gas segment. With Ramadan and Idul Fitri holidays falling in June this year, distortion was seen on July’s export and import prints which surged higher by 41.1% and 54.0% respectively (Jun: -11.7%; -17.4%); average export growth recorded for June and July remained healthy at 14.7% y-o-y. Small gains were seen along the IndoGB curve yesterday, with BI expected to keep the policy rate unchanged at 4.75% next week, anchored by subdued CPI prints trending near the bottom of the 4±1% target. We reiterate our neutral duration view on IndoGBs, with a view for high nominal yields on IndoGBs to remain attractive to offshore players.

¨   GBP fell sharply following the release of July’s CPI print, which printed lower than expected at 2.6% y-o-y (consensus: 2.7%; Jun: 2.6%), dampening the prospect of any imminent BoE rate hike. GBPUSD held cautiously above its 1-month low of 1.2848 ahead of UK’s wage growth data release later today, where signs of softening wage outlook could further weigh on GBP, bringing the pair lower to test the next major support at 1.2757 compounding on the weak appetite for GBP amid uncertainty from Brexit.

 

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