Generally Sideway Movements Overnight Ahead of US Ballot Counting

9 November 2016

Rates & FX Market Update

Generally Sideway Movements Overnight Ahead of US Ballot Counting

Highlights

¨   Global Markets: UST yields and DXY treaded modestly higher overnight as ballots closed for US Presidential, Senate and House elections amid a quiet economic calendar. With Trump holding a narrow lead at time of writing, DXY and 10y UST yields declined to 97.0 and 1.77% respectively, where we opine for a conclusive Trump win today to fuel near term uncertainty, and support further risk off market movements in the trading session ahead. In UK, IP surprised with a 0.3% y-o-y expansion (Aug: 0.7%), with ONS attributing the weaker growth to the warmer weather which hit power output alongside maintenance shutdowns. Separately, NIESR GDP growth estimate moderated to 0.4% (previous: 0.5%), with the modest growth anchored by robust consumer spending. However, NIESR cautioned that strength of consumer spending is likely to wane amid the substantial rise in inflation from the depreciating GBP, compounding on the weaker outlook for UK; GBP remained below the 1.25/USD resistance.

¨   AxJ Markets: In South Korea, while unemployment rate eased to 3.4% (Sep: 3.6%), unemployment within the aged 15-29 population remained elevated, compounding on economic woes. Yields on KTBs edged lower by 1-3bps against the backdrop of rising yields, where we see the likelihood for BoK to reduce rates by 12.5bps on Friday amid the weak economic and political sentiment; maintain preference for short to belly KTBs. Turning to China, October’s trade surplus widened to USD325bn (+USD47bn m-o-m) but remained shy of expectations of USD366bn, attributed to weaker exports. Additionally, China’s CPI and PPI climbed further to 2.1% and 1.2% y-o-y respectively (Sep: 1.9%; 0.1%) where the 5-year high factory prices likely aided the manufacturing sector; prospects of further PBoC rate cuts appear dim, which could limit strength on CGBs over the medium term.

¨   Underwhelming German IP print (Sep: 1.2%; Aug: 2.4%) dampened strength on EUR yesterday, bringing the EURUSD pair closer to the 1.10 handle ahead of US Election results. Increasing downside risks to the bloc’s economic recovery is likely to cement expectations for ECB to at least extend the QE program by another 6 months, exerting further pressure on the EUR over the medium term.