FW: RHB FIC Rates & FX Market Update - 01/03/2018

 

 

1 March 2018

 

 

Rates & FX Market Update

 

 

BoT’s Policy to Remain Accommodative

 

Highlights

 

¨   Global Markets: The US Dollar appreciated against its G10 peers (DXY +0.32% d-o-d) except against the Japanese Yen (JPY +0.61% d-o-d) while US Treasuries gained (2y yield -1.0bps; 10y UST yield -3.3bps) and US stocks dropped again as markets await Powell’s testimony to Congress. Such movements illustrate somewhat conflicting views between a capitalisation on Powell’s optimism for the economy and associated fears of higher rates for an economy at a tipping point. On the economic front, US pending home sales unexpectedly and strongly declined in January (-4.7% vs 0.5% in December) while Donald Trump warned Beijing again on trade competition. In Europe, the release of February CPI data did not surprise to the upside coming in line with expectations. We are now cautious on the EURUSD as the pair is testing 1.2200 (closed at 1.2194). Should a convincing break below materialise, a deeper setback to 1.2130 and 1.2035 could unfold in the short term horizon. Over in Australia, 4Q17 private capex came in at a very disappointing -0.2% q-o-q (consensus: +1.0%), with firms’ commitment to invest over FY18/19 falling to AUD84bn (previous: 86.5bn). While we do not think this will significantly impact RBA’s monetary decisions over the medium term, the above does add another layer of complication, and we continue to believe that any hikes to the cash rate will be delayed and gradual, with consensus slowly drifting towards the dovish end; stay neutral ACGBs.

¨   AxJ Markets: Over in Thailand, current account surplus came in better than expected (USD5.2bn; consensus: 4.4bn), while manufacturing output slightly lagged estimates (3.44% y-o-y; consensus: 3.60%). MPC minutes revealed that members agreed that the overall policy should remain accommodative to promote economic growth and set inflation back on track relative to target. The committee also noted that THB will likely be volatile given global developments; we continue to hold a neutral THB stance at this juncture.

¨   The Sterling Pound was the worst performing currency yesterday (-1.07% d-o-d) as the prospect of a breakdown in Brexit negotiations weighed on sentiment and UK’s assets. PM May clearly stated she would never accept the EU's draft divorce deal, a document proposing to keep Northern Ireland in Europe's customs union. We remain neutral on GBPUSD but the break below 1.3790 could open the door for a deeper setback to 1.3565.