Thursday, August 17, 2017

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

 

 

 

17 August 2017

 

 

Rates & FX Market Update

 

 

Weaker US CPI Prints Fuelled FOMC’s Ambivalence; USTs Gained

 

Highlights

 

¨   Global Markets: Increasing signals for Fed to hold off another FFR hike remain evident from the July FOMC minutes as some members highlighted concerns over decline in inflationary pressures in spite of the tightening labour market. While the committee remained divided over the timeline of the next FFR hike, consensus was seen from the committee that the reduction of Fed’s balance sheet should begin “relatively soon”, where we expect the announcement to be in September. Increasing ambivalence from FOMC members amid softer inflation prints underscore moderate gains on USTs yesterday, driving yields lower by 2-5bps across the curve; lingering geopolitical risk and US fiscal inaction are likely to complicate FOMC’s monetary tightening policies, underpinning our neutral duration view on USTs over the medium term.

¨   AxJ Markets: Steady expansion was seen for Singapore’s NODX (Jul: 8.5%; Jun: 8.8%), albeit weaker than consensus expectation of 9.1%; NODX demand from majority of Singapore’s top markets expanded in July, with the exception of EU and US. While MTI expects FY17 NODX to print in the upper bound of its 4.0-6.0% estimates, the weak domestic oriented growth is likely to support MAS’s cautious rhetoric, fuelling the likelihood for MAS to remain on hold for the upcoming MAS MPS in October 2017 and April 2018. As such, we recommend for investors to keep a neutral view on SGD, with expectations for further outperformance on SGD vs regional currencies to remain limited; premium on SGS over UST to remain supported by flushed domestic liquidity.

¨   While BoT’s decision to keep rates unchanged at 1.50% yesterday was unanimous and within consensus expectation, the MPC statement highlighted the Bank’s anxiety over the strengthening THB vs regional currencies, which could affect business adjustments. Gains on THB were marginal against the softening USD yesterday, with the USDTHB pair hovering above the 33.2 support this month. We expect the gradual recovery in Thailand’s domestic economy coupled with subdued inflationary pressures below BoT’s 2.5±1.0% target to keep BoT on hold through 1H18; meaningful steps towards BoT’s Capital Account Liberalisation alongside narrowing policy rate differentials likely to partially mitigate THB’s strength over the medium term; keep a neutral view on THB.

 

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