¨ USDJPY was relatively unchanged overnight, hovering between the 113.7-114.2 levels. While the final 4Q16 GDP print improved to 1.2% q-o-q SAAR (previous: 1.0%), supported by robust Capex spending, it lagged behind the 1.5% consensus estimate; both external and private consumption

8 March 2017

Rates & FX Market Update

2nd Parliamentary Defeat for PM May Points to Rocky Roads Ahead

Highlights

¨   Global Markets: UK lords have handed PM May another defeat this week, backing a requirement for the government to send the final Brexit deal to the parliament for approval, despite PM May’s vehement objection. GBPUSD fell 0.29% overnight to the 1.22 handle, and continues to remain under pressure from the strengthening dollars and EU-related woes; we retain our bearish GBP stance ahead of tough roadblocks ahead towards a final Brexit deal. The March RBA policy meeting offered little in terms of incremental details, largely rehashing its previous policy statement; the decision is in line with consensus and market expectations. Amid contrasting economic signals and a marginally more hawkish governor at the helm, we no longer pen in a slight possibility of another rate cut in the middle of the year; expect the RBA to remain neutral over the coming months.

¨   AxJ Markets: Chinese foreign reserves unexpectedly ticked higher above the USD3trn mark (consensus: USD2.97trn), and the first increase since June 2016, as authorities’ pursuant of FX stability and tough crackdowns have helped stemmed capital outflows. We continue to expect the government to remain committed towards a stable CNY policy alongside further reforms and liberalisation if the opportunity arises; stay neutral CNY. Elsewhere, Malaysia foreign reserves were unchanged at USD95.0bn as of end-February, as new FX rules pushed down MYR volatility, yet may continue to side-line sceptical foreign investors. Meanwhile, Indonesia foreign reserves ticked USD3bn higher to USD119.9bn, helping the country to mitigate incoming external risks and uncertainties; we continue to reiterate our neutral stance towards both the MYR and the IDR.

¨   USDJPY was relatively unchanged overnight, hovering between the 113.7-114.2 levels. While the final 4Q16 GDP print improved to 1.2% q-o-q SAAR (previous: 1.0%), supported by robust Capex spending, it lagged behind the 1.5% consensus estimate; both external and private consumption were unchanged from the preliminary reading. While some BoJ members have hinted their preference for a steeper yield curve, we expect the bank to remain committed to hold 10y yields near the 0% level over the near to medium term, widening foreign-Japanese rate differentials, although complicated by the JPY’s safe haven status; stay neutral JPY.

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