¨ Performance on JPY lagged FX majors yesterday, with the USDJPY pair edging modestly higher to 112.02 following a softer tone by US President Trump over the North Korean issue. Weakness on JPY was also compounded by the dovish rhetoric reiterated by BoJ meeting minutes where BoJ members concurred to maintain the target of long term inte

3 May 2017

Rates & FX Market Update

Chinese Manufacturing PMIs Eased amid Weaker Orders

Highlights

¨   Global Markets: RBA held rates yesterday, in line with consensus expectations, citing a gradual increase in underlying inflation alongside higher commodity prices underscoring a boost to Australia’s national income. RBA’s neutral tone supported modest strength in AUD to 0.7534/USD (+0.11%), where we expect the central bank to remain on hold through 2017; remain neutral on AUD.

¨   AxJ Markets: Softer Caixin manufacturing PMI (Apr: 50.3; consensus: 51.3) echoed official PMI data, attributed to weaker new orders and new export orders. While the lacklustre PMI data had marginal impact on movements of CGBs and CNY yesterday, concerns of the moderating growth over the near term could fuel concerns on China’s ability to achieve its 6.5% GDP growth target, particularly amid its drive to reduce leverage within the economy. We maintain our neutral duration view on CGBs, with CGB’s potential inclusion into major indices likely to cushion further climb in CGB yields over the medium term. Singapore’s manufacturing PMI moderated to 51.1 (Mar: 51.2), dampened by weaker expansions in new orders, new export orders, and inventory. With inventory rebuilding and base effects likely to wean over the coming months, concerns pertaining to the sustainability of strong external demand emerge, raising downside risks for the export dependent nation. Yields on SGS inched higher across the curve, with 10y UST-SGS spreads tightening further by 6bps to 14bps; keep a neutral duration view on SGS. Indonesia’s CPI rose to its 13-month high of 4.2% (Mar: 3.6%), pressured by government’s decision to raise electricity tariff in March. With CPI print rising towards the upper bound of BI’s 3-5% target, prospect of further rate cut is likely to fade, underscoring our neutral view on IndoGBs over the near term.

¨   Performance on JPY lagged FX majors yesterday, with the USDJPY pair edging modestly higher to 112.02 following a softer tone by US President Trump over the North Korean issue. Weakness on JPY was also compounded by the dovish rhetoric reiterated by BoJ meeting minutes where BoJ members concurred to maintain the target of long term interest rates despite higher yields seen in foreign bond markets. We maintain our neutral view on JPY, with bouts of risk aversion likely to offset bearish pressures fuelled by BoJ’s dovish rhetoric over the medium term.

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