FW: RHB FIC Rates & FX Market Update - 3/10/17

 

 

3 October 2017

 

 

Rates & FX Market Update

 

 

Strong US, European PMIs Reinforced Bullish Economic Outlook

 

Highlights

 

¨   Global Markets: US Markit Manufacturing PMI (53.1; consensus: 53.0) and ISM Manufacturing (60.8; consensus: 58.1) indicated robust expansion, as new orders continued to exhibit strength; DXY climbed 0.52% overnight. UST yields, however, closed only marginally higher overnight, with sentiment likely temporary weighed by the tragedy in Las Vegas. We stick to our view for a weaker USD over the medium term given several potential downside risks, although we prefer to maintain a neutral view at this juncture. European manufacturing PMIs remained strong across the board, with the overall Eurozone indicator printing 58.1, only marginally down from the 58.2 logged in August. While economic growth remains strong, inflation remains below the 2% target level, which should push the ECB into continued asset purchases at a reduced pace; stay mildly bullish EUR.

¨   AxJ Markets: Over in Thailand, September headline CPI jumped to 0.86% y-o-y (consensus: 0.50%), although the rate remains far below BoT's target. Core inflation remains soft at 0.53% y-o-y, marginally higher than the 0.46% logged in August. While a rate cut over the coming months cannot be completely ruled out, our base case remains for no change in BoT's benchmark rate, with the central bank reluctant to ease further given recent THBUSD weakness; stay neutral THB over the medium term. Indonesian September CPI printed 3.72% y-o-y, marginally higher than the 3.70% consensus expectation, but lower than 3.82% logged in August, driven by education/sports and clothing. Inflation remains comfortably in the lower half of BI's 3-5% target range, and markets could expect another rate cut if 3Q17 growth disappoints on the downside once again; stay neutral IDR at this juncture.

¨   GBPUSD dipped c.0.8% overnight, driven by a stronger USD alongside weakening EUR sentiment across the continent, as well as a mildly disappointing manufacturing PMI print (55.9; consensus: 56.2) and renewed political concerns over PM May's leadership over the conservatives. While Chancellor Hammond offered no ground-breaking comments, investors will watch PM May's and Foreign Secretary Johnson's comments for any signs of internal tensions; stay neutral GBP over the near term.

 

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