FW: RHB FIC Rates & FX Market Update - 15/11/17

 

 

15 November 2017

 

 

Rates & FX Market Update

 

 

USD Momentum Lost Steam amid EUR Rebound

 

Highlights

 

¨   Global Markets: Over in the UK, Sterling underperformed the EUR after October inflation came in softer than expected, with headline at 3.0% y-o-y (consensus: 3.1%) and core at 2.7% y-o-y (consensus: 2.8%). However, it is still too early to tell if BoE's pre-emptive hike will be seen as a policy mistake by UK investors, although we maintain our medium-term cautiousness towards the currency given mounting Brexit woes, which may eventually feeds into economic momentum. Weakness in labour data due later today may also drag the GBPUSD down into the 1.30 handle once again. Japanese 3Q17 GDP reading affirmed the nation's continued economic upswing (1.4% q-o-q SAAR), although marginally below the 1.50% expected given still-weak private consumption and business spending. 7 straight quarters of growth is the longest streak in more than a decade, given low potential growth in Japan, although BoJ remains troubled by the lack of inflation. We expect an unchanged monetary policy stance over the coming quarters, which should keep JGB yields anchored around current levels; we maintain our preference towards underweighting JGBs.

¨   AxJ Markets: The trio of mid-month Chinese data due overnight came in weaker than expected, with retail sales dipping to 10.0% y-o-y (consensus: 10.5%) and industrial production softening to 6.2% y-o-y (consensus: 6.3%); FAI year-to-date in line with the 7.3% y-o-y consensus expectation. Currency and rates markets largely shrugged off the data, while we do not expect fresh economic concerns to surface over the remainder of 2017; stay neutral CNY.

¨   EURUSD extended its gains overnight (+1.11%) after strong German 3Q17 GDP data (2.3% y-o-y; consensus: 2.0%); broader European growth came in at a healthy 2.5% y-o-y. G4 central bankers vowed to offer clear forward guidance over future policy moves as they wind-down their monetary stimulus programs, in order to avoid disrupting the capital markets. We remain constructive towards EUR over the medium term, even as ECB appears reluctant to wind-down its QE programs quickly amid lingering risks.

 

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