Latest macroeconomic data mostly came out firm and US Treasuries fell as players took a break from the rally seen since the middle of last month. Meanwhile, remarks from Fed chief Janet Yellen added to the sell down, suggesting pace of ‘a few’ rate hikes per year up to end-2019. Yellen said the economy is near ‘maximum employment’ and inflation is moving ‘towards our goal’.

Market Roundup

• Latest macroeconomic data mostly came out firm and US Treasuries fell as players took a break from the rally seen since the middle of last month. Meanwhile, remarks from Fed chief Janet Yellen added to the sell down, suggesting pace of ‘a few’ rate hikes per year up to end-2019. Yellen said the economy is near ‘maximum employment’ and inflation is moving ‘towards our goal’.
• The Dec industrial production data came out showing increase of 0.8% mom against earlier consensus of +0.6% though the prior month’s number was revised down to -0.7% against -0.4% previous estimate. The Dec CPI was in line at +2.1% yoy (+2.1% consensus) and stronger versus +1.7% yoy in Nov. The inflation narrative was added on in the latest Beige book report, which indicated ‘price pressures intensified somewhat’ in final week of 2016.
• The US dollar was steadily firmer throughout Wednesday though remained well weaker from a couple of weeks ago. US macroeconomic data was firm including headline inflation and industrial production whilst comments from Janet Yellen and points in the latest Beige book suggest incoming stronger inflation. The Dec CPI was in line at +2.1% yoy (+2.1% consensus) and stronger versus +1.7% yoy in Nov.
• Also supporting the USD was the president elect who seemed to have backtracked against his previous statement not liking the border-adjustment tax plan, which was seen as USD supportive.
• Ringgit government bonds strengthened Wednesday but gains were capped by profit taking pressure. We suspect some short-covering activities emerged in the early session following the broadly weaker USD. As for macro data, Malaysia’s CPI recorded at +1.8% yoy in Dec, slightly lower than +1.9% yoy forecasted earlier. We have Bank Negara Malaysia MPC meeting Thursday but markets generally don’t expect a move in monetary policy as yet.
• Thai govvies closed on stronger footing, tracking overnight UST gains. Elsewhere, Thai IRS curve flattened, guided by higher shorter dated rates, while the long dated rates edged lower by 2-3bps. Demand was firm for the LB226A auction, reflected by a bid-cover ratio of 2.83 times against the total issuance of Bt29.9 billion, higher than Bt25.0 billion indicated earlier. Average yield was 2.2451%, within a spread of 2.2350-2.2520%.
• Indonesian govvies were traded in a tight range Wednesday. Short-dated bonds looked strong amid persistent bids appearing on 2-5-year tenors, while thin net buying flows were seen in a particular 12-year bond. Volume increased slightly to IDR14 trillion and dominated by bonds maturing in over 10 years (64%). BI will announce its decision on the 7d reverse repo rate at today's MPC meeting, while the market expects no change in rates.