FW: RHB FIC Rates & FX Market Update - 27/2/18

 

 

27 February 2018

 

 

Rates & FX Market Update

 

 

Strong Demand Seen for 30y SGS Reopening

 

Highlights

 

¨   Global Markets: Given the recent bouts of market volatility triggered by upside inflation surprises in the US consequently fuelling fears of higher interest rates, market participants now await Jerome Powell first key appearance as he testifies before the Congress assessing the economy and monetary policy. We will closely monitor any comments on inflation developments and objective. We remain neutral UST for now. On a tactical horizon for the 10y UST, we watch 2.83% (21-day moving average) as a downside confirmation to play a retracement to 2.70%. The 10y Atlantic spread (UST vs. Bund) also offers tactical opportunities for UST outperformance against Bund as the spread could tighten towards 200bps. In Europe, Mario Draghi’s comments did not bring any surprise reaffirming the Euro Area’s robust growth while stating that currency volatility needs to be closely monitored. The ECB is expected to tweak its forward guidance in 1H18 and expectations of monetary policy normalisation are one factor underscoring our mildly bullish EUR view.

¨   AxJ Markets: Over in Singapore, Industrial Production climbed 17.9% y-o-y in January, outstripping consensus expectations of 7.5%, and a reversal from December’s negative surprise. Also, the March 46 SGS reopening overnight drew a BTC of 2.21x, the highest for the tenor since 2012, with previous duration concerns in the markets appearing overblown; 2y and 10y SGS yields dipped c.2bps overnight. We retain our neutral SGS stance, with US-SG spreads likely to come into focus ahead of MAS April’s review.

¨   USDMYR remained near the 3.90 level amid a quiet Malaysian session overnight, with investors awaiting the January CPI numbers. We initiated a long AUDMYR trade, eyeing a potential AUD rebound as various AUD crosses are on support (AUDUSD, AUDNZD, AUDSGD) while expecting the MYR to remain fairly stable, given a high likelihood for BNM to stand pat over the coming months to assess the appropriate monetary accommodation. We expect the trade to play out over the coming weeks, with the trade’s negative carry likely to be negligible.