12 April 2018
Rates & FX Market Update
Heightened Geopolitical Risks
¨ Global Markets: The US Dollar failed to gained momentum despite both headline and core inflation rising as expected in March (2.4% and 2.1% y-o-y respectively). Minutes to the latest Fed meeting did not bring any surprise as FOMC members leaned towards a steeper pace of tightening, according to our reading of the dot plot which we commented on March 22nd and April 4th. Markets rather focused on the rising geopolitical concerns in the Middle East, one of our main cause of concern which we believe is totally under-priced. Indeed, US President’s warlike tweets alongside CIA Director Mike Pompeo commenting that soft US policy towards Russia is over combined with the interception of a missile by Saudi Arabia highlight the rising tensions in the whole region with potential global consequences not only on oil prices but on global stability given the diplomatic ramifications. Safe haven assets were in result supported: 10y USD yield dropped -2.0bps and JPY climbed 0.37% against the greenback.
¨ AxJ Markets: Singapore reports Retail Sales for February, expected to strongly recover after the poor January data. Better-than-anticipated reading could strengthen the consensus that the Monetary Authority of Singapore may tighten tomorrow. Our economic team however believes that policy action will be delayed until October which could send the USDSGD to rebound above our support area at 1.2970/1.3000.
¨ The Malaysian Ringgit underperformed its regional peers; the USDMYR marginally climbed higher closing above 3.87 despite higher oil prices. Industrial Production for the month of February missed expectations (3.0% vs. 3.3% anticipated) while Palm Oil Futures marginally declined. We remain neutral on the MYR since the expected USD strength theme should overshadow the robust and improving fundamentals of the country.