Much-awaited Trump Press Conference Offered Little Policy Details

12 January 2017

Rates & FX Market Update

Much-awaited Trump Press Conference Offered Little Policy Details

Highlights

¨   Global Markets: 10y UST yields and the dollar edged down overnight after President-elect Trump’s first press conference since his electoral victory offered little policy insights ahead of his Jan 20 inauguration. The blistering 10y UST auction yesterday stopped through the WI by 1.8bps (HY: 2.342%; BTC: 2.58x, the highest since June), with the lowest dealer takedown (20.7%) since August 2016, indicating healthy foreign demand amid stabilising dollar movements; we stay neutral towards USD over the near term. GBPUSD dipped to an intraday low of 1.2039 before sharply rebounding on the softer dollars overnight, despite BoE’s Carney highlighting that financial stability risks posed by Brexit has declined; stay mildly bearish GBP. Elsewhere, USDJPY dipped 0.38% overnight after Trump’s disappointment, with the pair declining more than 2% since its December highs, benefitting from an unwinding of the USD and the yen’s safe haven status; eye next support level near 113.60 over the coming weeks.

¨   AxJ Markets: Asian currencies appear set to benefit from the softer dollar backdrop, with the KRW gaining more than 1% against the USD this morning, while USDMYR fell to a low since mid-December. In Thailand, S&P sees little chance of a rating upgrade over the next 2 years, with the country’s robust fundamentals weighed down by ongoing political volatility. The rating agency may consider a downgrade if the political or fiscal situation worsens, where we continue to see upward yield pressure on ThaiGB yields towards the longer end of the curve underscoring our mild underweight duration view on ThaiGBs. In Malaysia, November IP surged to 6.2% y-o-y (consensus: 5.5%; Oct: 4.2%) on higher manufacturing and electricity output, setting the stage for a resilient 4Q16 growth print due in February; stay neutral MGS, where we expect BNM to adopt a neutral policy stance over the near term.

¨   AUDUSD climbed c.1% overnight as market participants unwound USD longs and repositioning flows towards the AUD on favourable iron ore price movements despite oversupply concerns. While a reversal of the current Trump reflation trade should benefit the AUDUSD, there could be knock-on impacts on iron ore prices if Trump’s infrastructure spending plans come under threat; we reiterate our preference to stay neutral AUD.