FW: RHB FIC Rates & FX Market Update - 28/02/2018

 

 

28 February 2018

 

 

Rates & FX Market Update

 

 

Powell Offered Upbeat Views on US Economy

 

Highlights

 

¨   Global Markets: While bringing no major surprise, a clear takeaway from Jerome Powell’s House testimony is that the Fed Chair’s view on the economy has strengthened and that the balance of risks is tilted to the upside. It left markets with interpretations, and questions, as the monetary policy path is unchanged for now with inflation expected to stabilise around the 2% target hence gradual rate hikes remaining appropriate. On the latter, the upbeat economic comments pushed markets to increasingly anticipate a fourth rate hike in 2018, with a review of the Dot Plot likely at the next March meeting; USD and UST yields climbed despite mixed US economic data (strong decline in durable goods orders vs improving consumer confidence). On the former, there are uncertainties towards Feds willingness to tolerate/target a modest overshoot of inflation in order not to jam the growth engine, and over the full impact of the fiscal stimulus. Moreover, risks are somewhat increasing with rising USD funding costs, the deteriorating fiscal position and growing supply/demand imbalances for UST; we prefer to keep a  neutral UST view at this juncture as long as the 10y UST remains below 3.00%.

¨   AxJ Markets: Over in China, official manufacturing PMI came in at 50.3 (consensus: 51.1), while its services counterpart printed 54.4 (consensus: 55.0), weighed by Lunar New Year seasonality alongside pollution curbs impacting output growth. Markets are likely to take the prints with a pinch of salt given seasonality issues, although weakness in future prints will pressure global risk sentiment, given China’s position as the world’s 2^nd-largest economy and its knock-on impact on global trade; stay neutral CNY at this juncture.

¨   The MYR was relatively stable overnight, although the USDMYR pair open higher this morning given the dollar’s strength. BNM remains sanguine over the economy, eyeing a 5-5.5% growth over 2018 alongside ample liquidity and financial backstops within the system. The bank remains watchful over spikes in market volatility, which can threaten the country’s above-trend expansion; stay mildly constructive on the Ringgit.