¨ AxJ Markets: South Korean trade data due this morning missed expectations, but headline numbers were re-assuring, with both exports and imports logging double-digit growth rates; manufacturing PMI however, dipped marginally to 49.2 in May from 49.4 in April. We continue to eye details of the supplementary budget in the days ahead, with BoK likel

1 June 2017

Rates & FX Market Update

Strong Japanese Data Unlikely to Move the BoJ’s Stance

Highlights

¨   Global Markets: Both EU May headline (1.4% y-o-y; consensus: 1.5%) and core (0.9% y-o-y; consensus: 1.2%) inflation came in softer than expected, while the bloc’s unemployment rate improved to 9.3% (consensus: 9.4%). EURUSD climbed 0.55% overnight, fanned by the weaker dollar backdrop amid month-end rebalancing flows and renewed concerns surrounding Washington’s political climate. Expect EUR to remain supported over the coming days ahead of the ECB meeting, with investors repositioning towards a less dovish ECB forward guidance; we stay neutral EUR over the medium term. Japanese data due this morning were surprisingly robust, with 1Q17 capital spending printing better than expectations (4.5% y-o-y; consensus: 4.0%), while the Nikkei manufacturing PMI surged to 53.1 (flash print: 52.0), although we do not foresee any shifts in the current BoJ stance over the near-term; a neutral JPY stance remains appropriate at current prices.

¨   AxJ Markets: South Korean trade data due this morning missed expectations, but headline numbers were re-assuring, with both exports and imports logging double-digit growth rates; manufacturing PMI however, dipped marginally to 49.2 in May from 49.4 in April. We continue to eye details of the supplementary budget in the days ahead, with BoK likely to remain on the sidelines as fiscal initiatives replace monetary ones to spur the Korean economy; stay neutral KTBs.

¨   USDTHB fell 0.23% overnight, but remained above the 34 handle, amid BoT concerns over the recent inflows of “hot money” and the THB’s near-term strength. Thai data due appeared mixed; while production and manufacturing PMI prints were softer, current account balance ticked higher in April in contrast to consensus estimate. We continue to remain neutral towards the THB, given relatively subdued volatility amid improvements in the Thai economic outlook. However, we eye improving risk-reward to short the THB over the near-term, given dwindling THB upside amid BoT’s toughening rhetoric against short-term capital inflows.

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