AxJ Markets: Strong expansions from China’s manufacturing and services segment remain conducive for China to commit towards further SOE reforms and a neutral monetary stance. With NPC set to commence on 5 March against the backdrop of leadership transition, we opine for China to target for a stabilising GDP growth alongside prudent ma

1 March 2017

Rates & FX Market Update

USD Remain Resilient as Markets Eye President Trump’s Speech

Highlights

¨   Global Markets: While US 4Q GDP underperformed consensus expectations, affirmatively hawkish Fedspeak from Fed’s Dudley, Williams and Harker supported resilience on USD ahead of President Trump’s address to Congress where expectations remain skewed for announcements of large infrastructure spending which could buttress Fed’s hawkish inclination over the past month. UST curve bear flattened overnight, with yields on 2y adding another 7bps to 1.26% as positioning towards a probable case of FOMC 25bps FFR hike in March intensifies with FFR futures indicates 52.0% probability.

¨   AxJ Markets: Strong expansions from China’s manufacturing and services segment remain conducive for China to commit towards further SOE reforms and a neutral monetary stance. With NPC set to commence on 5 March against the backdrop of leadership transition, we opine for China to target for a stabilising GDP growth alongside prudent management of the elevating debt levels; keep a neutral duration stance on CGBs. Robust exports from South Korea and Thailand overwhelmed expectation, benefitting from improving global and Chinese demand. While outperformance in external balances continue to buoy tactical strength on AxJ currencies, concerns over the sustainability of global trade improvements against the backdrop of trade protectionist sentiment alongside pace of FOMC tightening remain an overarching theme, fuelling our cautious view on the bloc.

¨   Prospects of an RBA rate cut eased further following the release of stronger than expected 4Q GDP print this morning, which saw the economy expanding by 2.4% y-o-y (consensus: 2.0%), buoyed by robust private consumption growth. Strength on AUDUSD however, remained limited ahead of the President Trump’s address to Congress, where we reiterate our neutral view on AUD over the medium term, underpinned by stabilising commodity prices and the domestic economy.

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