FW: RHB FIC Rates & FX Market Update - 12/9/17

 

12 September 2017

 

 

Rates & FX Market Update

 

 

Rebound in Risk Appetite Helped USD Clawed Back Previous Losses

 

Highlights

 

¨   Global Markets: UST yields and the DXY advanced c.6-8bps and c.0.6% higher overnight as UN security council unanimously adopted new sanctions against North Korea despite an initially reluctant China and Russia, and a reprieve to markets' risk appetite after Hurricane Irma weakens, and projected to do less damage to Miami than initially expected. 10y yields managed to stay above the 2% level ahead of the September FOMC meeting, where we still expect detailed balance sheet tapering plans to emerge; stay neutral USTs.

¨   AxJ Markets: Over in China, USDCNY and USDCNH climbed c.0.5% overnight on resurgent USD strength and PBoC's relaxation of reserve requirements for FX forwards, previously set in place to prevent speculative flows. Despite the above, investors are unlikely to pile onto CNY shorts, given authorities' wariness towards substantial currency devaluations that could spur another bout of capital outflows. We eye only a mild CNY depreciation over the coming quarters, with the currency likely to remain stable ahead of the National Congress in October; stay neutral CNY. Elsewhere, Malaysia's July Industrial Production climbed 6.1% y-o-y, exceeding the 5.1% consensus expectation and point towards healthy manufacturing output. With Malaysian economic potential remaining strong even among well-performing regional peers, expect the currency to stay supported over the coming months; stay neutral MYR.

¨   USDJPY climbed almost 1% overnight into the 109 handle as risk aversion fades off, having traded as low as 107.32 last Friday. Economic data due overnight (Machine and Machine Tool Orders) seems to have little persistent effect on the pair, instead taking cues from collective risk appetite and USD directionality. With global investors' attention fixated on the Fed and ECB, we continue to expect movements in global markets to drive major JPY crosses, with the BoJ unlikely to shift its policy stance over the near term; we retain our neutral JPY stance for now.

 

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