FW: RHB FIC Rates & FX Market Update - 17/10/17

 

 

17 October 2017

 

 

Rates & FX Market Update

 

 

Favourable Trump-Taylor Meeting Sparked Hawkish Movements

 

Highlights

 

¨   Global Markets: US Treasuries fell after economist John Taylor, who leans on the hawkish side, was said to have made a favourable impression on President Trump in an hour-long interview for the Fed chairperson's succession last week; we expect the succession race to capture market's attention and likely to drive bouts of volatility. The reported news consequently supported the USD also bolstered by strong October Empire Manufacturing (30.2 vs. 20.4 expected and 24.4 in September). That said, we maintain a neutral USD view as there are few positive reasons to aggressively buy the greenback since a December rate hike is almost fully priced-in amid a spilt on inflation among policymakers and political uncertainties continue to cast clouds on the Dollar outlook.

¨   AxJ Markets: While Chinese September CPI printed in line with consensus estimate at 1.6% y-o-y, PPI once again trended upwards (6.9% y-o-y; consensus: 6.4%), driven by construction spending which pushed up metal prices including steel and copper. USDCNY and USDCNH was marginally higher overnight, while 10y yields climbed c.3bps overnight, and reaching the highest levels since 2015. While higher interest rates could hamper China's effort to deleverage, this should be partially balanced by the country's economic resilience, with 2017 growth expected to be around 6.7-6.8% still; we remain neutral towards CGBs, bolstered by possible inclusion of Chinese govies into major bond indices.

¨   The Euro dipped as Spanish political jitters continue to trouble traders as Catalonian President Puigdemont failed to clarify the region's status to Madrid; his proposal for a two-month negotiation window was rejected and was rather summoned to give a final reply on Thursday.  As such, the common currency could temporary remain under pressure over the coming days, and the EURUSD could find support at 1.1750 should a positive Catalonia/Spain outcome materialise. Our mildly bullish view on the longer term remains intact as a potential upside rate surprises with ECB's QE recalibration combined with a sustained economic improvement in the EU are factors supporting the Euro.

 

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