FW: RHB FIC Rates & FX Market Update - 22/2/18

 

 

 

22 February 2018

 

 

Rates & FX Market Update

 

 

FOMC Minutes Mulled Steeper Rate Trajectory

 

Highlights

 

¨   Global Markets: The catalyst for the USD rebound this week mentioned in our weekly publication was the minutes to the Fed’s January meeting. Indeed, minutes revealed renewed confidence on the growth outlook (“A majority of participants noted that a stronger outlook for economic growth raised the likelihood that further gradual policy firming would be appropriate”) while inflation “would move up to the Committee’s 2 percent objective over the medium term”. As a result, the odds for a fourth hike by the end of 2018 rose, while both UST yields and USD climb. We however exert cautious at this juncture as (i) the meeting took place before the recent market sell-off, (ii) the above mentioned statement corroborates FOMC saying that “further gradual adjustments” in monetary policy would be needed, and (iii) the committee remained elusive on timing. The USD is now close to resistance (DXY: 90.20/90.65; EURUSD: 1.2225/1.2200) and attention shifts to ECB’s minutes with investors likely to balance comments on growth/inflation and currency’s appreciation concerns.

¨   AxJ Markets: Over in Indonesia, IndoGB movements appear relatively mild after a substantial portion of local Indonesian government bonds are added into the Bloomberg Barclays index. The government expects fresh foreign inflows arising from the inclusion, given the USD2-2.5trn of funds tracking the index, while continuing to deepen local market participation as a countermeasure to the nation’s high foreign ownership; stay neutral IndoGBs.

¨   USDMYR was flat overnight, and opened c.0.2% higher this morning post-FOMC minutes, affirming the currency’s resilience in the face of higher global rates. Persistent foreign inflows and heightened optimism towards Malaysia’s economic outlook continues to support macroeconomic and market stability, and we expect such conditions to continue over the near to medium term; stay mildly constructive towards the Ringgit.