Friday, February 24, 2017

US Treasury Secretary Hoped to Pass Tax Reforms by August

24 February 2017


Rates & FX Market Update


US Treasury Secretary Hoped to Pass Tax Reforms by August

Highlights

¨   Global Markets: US Treasury Secretary Mnuchin dialled back some of President’s Trump lofty economic and tax reforms, targeting to pass new tax measures by August, against Trump’s initial promises to unveil them over the coming weeks. Furthermore, the lack of any protectionist stance helped lift EM and Asian FX while dampening USD strength; DXY fell 0.37% overnight. UST yields tightened c.3-4bps overnight, despite a relatively lacklustre 7y auction; we retain our neutral UST call. Additionally, Secretary Mnuchin also cited his intention to look into the issuances of 50y and 100y UST to capitalise on the low yield environment; yields on the very long end of the UST curve underperformed the curve. German 4Q16 final GDP print was unchanged from the previous estimate (1.2% y-o-y, NSA), while consumer confidence came in a touch weaker than expectations (10.0; consensus: 10.1). Core EGB yields were a touch lower overnight, despite ECB’s Weidmann justifying a possible rate hike in 2019. SPGBs were the underperformers, as the country mandated banks for a new 15y bond via syndicate offering; maintain preference on core EGBs versus peripheral ones.
¨   AxJ Markets: Singapore consumer prices ticked higher again in January, with core CPI advancing to 1.5% y-o-y (consensus: 1.4%; Dec: 1.2%) while headline CPI jumped to 0.6%, in line with consensus estimate; increases are driven by oil-related items such as electricity and transportation. SGS gained overnight ahead of the 10y reopening later today, where stable UST yields and ample SGD liquidity should support demand for the papers; stay neutral SGS.
¨   USDTHB ticked 0.11% lower overnight to 34.979, while the pair has been trading within a tight range of 34.9-35.2 over the past 2 weeks. BoT hinted that the bank may raise its 2017 economic growth forecast on improving exports and the global economy, further underscoring our cautiously optimistic view on the THB, despite the ongoing global uncertainties.

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