FW: RHB FIC Rates & FX Market Update - 13/9/17

 

 

 

13 September 2017

 

 

Rates & FX Market Update

 

 

Strong UK Inflation Print Drove Hawkish Bets Ahead of BoE Meeting

 

Highlights

 

¨   Global Markets: 2y and 10y UST yields climbed c.2-4bps while the DXY remained stable overnight, as investors continue to add to risk positions amid receding North Korean fears for now; better small business confidence in August (105.3; consensus: 104.8) also helped uplift sentiment. Yields are likely to remain supported ahead of the September FOMC meeting, although upward movements are likely capped over the medium term; stay neutral USTs. Strong GBP appreciation against the USD and EUR overnight, after August headline inflation print exceeded expectations (2.9% y-o-y; consensus: 2.8%; Jul: 2.6%); core print was strong as well (2.7% y-o-y; consensus: 2.5%). Investors begin to question BoE's tolerance towards elevated inflation figures that climbed close to its 3% upper bound target ahead of the monetary policy meeting tomorrow. While policymakers may voice concerns over the inflation trends, we do not pencil in a rate hike in the September meeting still; stay neutral Gilts.

¨   AxJ Markets: Over in Singapore, July retail sales grew 1.8% y-o-y (2.2% excluding automotive), with growth seen across most categories; growth rate was slightly above consensus expectations at 1.7%. Overall pace of domestic consumption remains fairly weak, with Singapore's growth remain supported by external drivers, which could underscore MAS's decision to maintain status quo in the October meeting; stay neutral SGD.

¨   USDKRW fell 0.3% overnight as concerns over North Korea faded off investors' minds temporarily, although the currency remains vulnerable to renewed bouts of geopolitical tensions, as North Korea shows no signs of giving up its nuclear ambitions. Bank loans to the household sector climbed 9.1% to KRW744.2trn, which remains both a monetary and financial stability concern to the BoK, where we expect no change to BoK's policy rate over the coming months; stay mildly bearish KRW.

 

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