FW: RHB FIC Rates & FX Market Update - 20/2/18

 

 

 

20 February 2018

 

 

Rates & FX Market Update

 

 

Singapore Budget 2018 to Promote Economic Growth

 

Highlights

 

¨   Global Markets: Thin trading on FX markets yesterday in observance of US President’s day. Bond markets were consequently closed and traders return today with an USD28bn 2y auction, the first of a series totalising USD92bn over three days (5y USD35bn tomorrow, and 7y USD29bn on Thursday). The recent surge in yields provides tactical opportunities to add on duration although fears on higher inflation remain a concern for investors. However, this theme might have been overplayed and a month of data (January wage growth and CPI) is not enough to ensure a paradigm shift; below 3.00%, 10y UST have the potential to rally towards 2.70%. Over in Australia, RBA minutes due this morning revealed nothing ground-breaking, with the bank eyeing only gradual improvements to growth and price indicators over the coming months. The committee also noted that housing market conditions had eased, although household leverage remains high, which should keep the cash rate unchanged over the coming months; a neutral ACGB stance remains appropriate.

¨   AxJ Markets: Over in Singapore, the SGD was basically unchanged against the USD overnight, after the 2018 budget details were unveiled in what seems to be another expansionary fiscal plan. While fiscal sustainability remains a key theme going forward, the government is considering boosting borrowings to finance projects, although we think it is unlikely to materially impact SGS yields at this stage given the positive impact on the nation’s bond liquidity; we maintain our neutral SGS stance.

¨   The THB was 0.44% stronger versus the USD overnight, despite the lack of liquidity and trading signals as US and China markets were closed for holidays, as well as a miss in 4Q17 Thai GDP print (4.0% y-o-y; consensus: 4.3%). Comments from Deputy PM Somkid appear to have weighed on the THB this morning, explicitly mentioning that “no one wants to see THB strength”, although we remain sceptical towards the long-term impact rising from verbal intervention; stay neutral THB.