FW: RHB FIC Rates & FX Market Update - 9/2/18

 

 

9 February 2018

 

 

Rates & FX Market Update

 

 

BoE Hinted Steeper Rate Hike Trajectory

 

Highlights

 

¨   Global Markets: G10 FX markets remained immune to the rout on stock markets and a still possible US government shutdown at time of publication as the vote in Senate has been delayed; the Dollar traded sideways and closed flat (DXY: -0.02% d-o-d). The safe-haven Yen strengthened (+0.57% d-o-d) while a rather hawkish BoE pushed the GBP higher (+0.26% d-o-d) when Mark Carney mentioned that rates may ned to rise earlier and faster than previously anticipated in November; the odds for a rate hike in 1H18 climbed to 70% from 50% a week before. However Asian currencies were unsurprisingly the most affected by the risk-off mood with the ADXY ending the day -0.68% lower. Lastly, the bond markets remained relatively quiet as Treasuries ended -2.0/-1.2 bps lower. At this juncture as the broad economy continues to expand, market jitters appear to be contained on equities given the ramifications with volatility derivatives and that the January wage report could be a fat tail event, i.e. stronger inflation upside surprises have yet to be confirmed.

¨   AxJ Markets: Chinese January trade data disappointed, with exports faring a respectable 11.1% y-o-y growth (consensus: 10.7%), although import growth came in far above expectations (36.9% y-o-y; consensus: 10.6%), resulting in a big miss for trade balance. With Lunar New Year occurring in January and February for 2017 and 2018 respectively, markets are unlikely to pay material attention to the above in view of seasonal distortions. However, USDCNY climbed c.0.8% overnight and potentially weighed on the entire Asian FX complex, after China resumed its QDLP scheme that could add to capital outflow pressure; we remain neutral towards the CNY at this juncture.

¨   MYR fell c.0.5% against the USD overnight, with the pair pushing past our defined short term 3.92 resistance. We recommend keeping a keen eye on the pair over the remainder of the week’s trading session, with any failure to revert below the above level likely to send USDMYR into a new higher range over the coming weeks with 4.00 being the key resistance to watch. Foreign MGS ownership ticked higher to 45.1% in January (Dec: 44.3%) as inflows persisted, although February print will be interesting to watch given the recent spike in volatility; we remain mildly constructive on the MYR over the medium term.