14 March 2017
Rates & FX Market Update
10y UST Climbed Above the 2.60%
Handle Ahead of FOMC Decision
Highlights
¨ Global
Markets: Yields on 10y UST ended the overnight session above the 2.60%
handle for the first time since September 2014 as we edge closer to FOMC’s rate
decision due on 15th March. The steady improvements in economic data
over the past quarter could prompt the FOMC to retain its hawkish stance post
March FFR hike, underscoring our preference to keep a neutral duration view
on USTs over the near to medium term. While little insights could be
gathered from ECB’s Draghi speech yesterday on monetary policy, EURUSD trended
lower to 1.0654 yesterday (-0.30%) as the geopolitical landscape mounts ahead
of the Netherlands election. Downward pressure on the EURUSD pair is likely
to persist over the near term, underpinned by widening US-EU interest rate
differentials alongside risk stemming from elections within the bloc; position
for a mildly bearish EUR.
¨ AxJ
Markets: Malaysia’s IP eased in January, expanding by 3.5% (Dec: 4.7%)
against consensus expectations of 5.3%. Despite the surprise in IP, MYR
remained stable at 4.4465/USD yesterday, where the undervalued NEER alongside
expectations for a steady economic recovery buoyed by the domestic economy is
likely to mitigate bearish pressures on MYR over the medium term,
supporting our neutral view on MYR. Yields on 10y MGS inched lower by 1bp
overnight to 4.17%, where we opine for value of MGS to remain compelling
vis-à-vis its regional peers, reiterating our neutral duration view on MGS.
¨ The
prospect of a supplementary budget to be released in 2H17 by a newly elected
President further diminished the likelihood of another BoK rate cut, buoying
strength on KRW to 1144/USD (+1.14%). Coupled with the recent improvements on
external export demand seen for the region, we expect an aggressive fiscal
spending to take the limelight as concerns for elevated household debt and
tightening interest rate differentials with US constrain BoK rate cut decision;
we reiterate our cautious stance for long KRW positions as the currency
remains susceptible to external gyrations over the medium term.
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