20 April 2017
Rates & FX Market Update
US-EU Monetary Policy Gap to Remain
Over the Near Term
Highlights
¨ Global
Markets: UST yields climbed 2-5bps while the dollar ticked 0.24% higher
overnight, as the Fed Beige Book highlighted modest to moderate improving
outlook across the US, although inflationary pressures continue to remain
modest given subdued wage growth. Fed’s Rosengren indicated that balance sheet
tapering “can begin soon”, while Fed’s Fischer downplayed the impact of US rate
hikes on the global economy. We remain neutral towards USTs, given FOMC’s
hawkish inclination balanced by an anaemic global outlook. Elsewhere, EU March Final CPI
delivered no surprises, affirming a steady albeit subdued pace of price gains.
ECB’s Villeroy, Praet and Coeure all voiced support for the current monetary
policy trajectory, cautioning against removing any stimulus too soon before a sustained
recovery emerges; we maintain our mild overweight Bunds call.
¨ AxJ
Markets: Malaysia’s March CPI printed 5.1% y-o-y (Feb: 4.5%), continuing to
reach multi-year highs given sharp jumps in transportation and fuel costs. With
BNM likely to remain cognisant of rising price pressures and soft MYR
sentiment, our base case remains for the bank to maintain the current
monetary stance over 2017; stay neutral MGS. Elsewhere, incumbent Jakarta
governor Basuki conceded the local election to Anies, with exit polls showing a
c.16% margin of loss. While USDIDR surged above the 13,300 level, the impact
appeared relatively subdued; we think the risks are transitory in nature, and
unlikely to threaten the Central Government’s reform plans; stay mild
overweight IndoGBs.
¨ While
the GBPUSD pair held above the 1.28 handle over the Asian and European
sessions, dollar’s strength into the US session pushed the pair down 0.48%
overnight to 1.2783. PM May easily won Parliament’s approval to hold the snap
election on June 8, with the Conservatives appearing likely to extend its
17-seat working majority lead against Labour. However, the election is not
without risks, given UK’s past polling volatility and the likelihood for
opposition parties to mould the election into a referendum of PM May’s Brexit
strategy; we are now neutral towards the GBP, with the Cable potentially
testing 1.30 over the near term if dollar failed to rebound materially from
current levels.
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