FW: RHB FIC Rates & FX Market Update - 6/2/18

 

 

6 February 2018

 

 

Rates & FX Market Update

 

 

Strong Retracement in UST Yields amid Safe Haven Flows

 

Highlights

 

¨   Global Markets: Safe haven demand picked up on Monday as the US stock markets extended losses, dropping the most since 2011. The USD (DXY +0.54%) and Yen (+1.02%) appreciated while Treasuries rallied as the 10y UST yield reacted below our defined 2.80/2.85% resistance area and dropped -13.6bps d-o-d. We remain however mildly bearish USD as near term risks linger including the next stopgap government funding bill as the current one expires on Thursday. On the other side of the Atlantic, as expected Mario Draghi sounded rather dovish requiring for further monetary policy patience and commenting that recent FX volatility poses new headwinds. As a result, the EURUSD reacted again and double-topped at 1.2500/2530; should 1.2350 be broken, a short term consolidation could develop to 1.2225/1.2200, which at this juncture do not jeopardize our longer term sanguine EUR view, an opportunity to buy the dip.

¨   AxJ Markets: Over in Asia, Indonesia 4Q17 GDP print outperformed expectations (5.19% y-o-y; consensus: 5.1%), after few quarters of mildly disappointing growth. Both public and private investments drove growth over the quarter, with the government remaining optimistic for pace of economic expansion to pick up over 2018 on regional elections and the Asian games. Current conditions are also relatively accommodative, which should continue to support Indonesia’s growth trajectory; we remain neutral towards spot IDR at current levels.

¨   The SGDMYR tested our support at 2.9500 but failed to close below. We remain in the view that a short term bounce / tactical retracement is still possible towards our updated 3.0000 resistance amid market expectations of a MAS tightening in April. However, our economists continue to see the likelihood for MAS to retain its current monetary stance until October, which could pressure the SGD lower over the middle of 2018. On the other hand, market expectation towards another BNM rate hike remains low at this juncture, with any positive surprises likely to drive strength in the MYR.