FW: RHB FIC Rates & FX Market Update - 14/6/18

 

 

 

14 June 2018

 

 

Rates & FX Market Update

 

 

Fed Signalled another 2 Rate Hikes Over 2H18

 

Highlights

 

¨    Global Markets: The FOMC unanimously delivered a 25bps hike as expected, and signalled another 2 rounds of tightening over 2H18, convincingly leaning towards the hawkish side. 10y yields broke above the 3% level intra-day, but finished the day at 2.966% after Chairperson Powell offered some words of caution on US inflation; DXY was in the red overnight post-conference. We reiterate our previously-held view for a total of 4 rate hikes in 2018, with the dot plot now converging towards the above; stay neutral UST.

¨    AxJ Markets: Over in Malaysia, Moody’s warned that the government’s review of large infrastructure projects and other government-linked obligations will play a “key role” in determining contingent liability risks, as authorities continue to scrutinize existing mandates in order to rein in costs. Still, revenue remains a concern for rating agencies and investors alike, with the lowering of the GST rate and the return of energy subsidies. USDMYR remains under the 4 handle, although global monetary tightening continues to be a headwind for EM assets, including Malaysia; stay neutral MYR for now.

¨    GBP was unchanged overnight against the USD, with recent weakness due to lingering political concerns over the Brexit process. May inflation came in line against consensus expectations (2.4% y-o-y), largely supported by a surge in energy prices, implying a mild slippage in non-oil categories. We think the GBP will remain under pressure over the coming months on Brexit-related uncertainties and dollar strength, with the EUR likely to hold its recent range as ECB debates the timing of normalization; stay neutral GBP.