Despite no major economic data release yesterday, USDJPY broke the 110 barrier, trending lower by 1.03% overnight to 109.36 as investors unwound long USD positioning ahead of FOMC meeting next week. Delays in Trump administration’s tax cuts and fiscal stimulus plan coupled with recent spate of soft economic data dulls the case for another FFR hike in September, exerting pressure on USD over the past months. In addition, spreads

7 June 2017

Rates & FX Market Update

USDJPY Broke 110, Weighed by the Tightening UST-JGB Spreads

Highlights

¨   Global Markets: Stronger than expected retail sales continued to bolster the upward climb on EUR as the EURUSD pair hovered marginally below the 10-month high of 1.1278 ahead of ECB’s decision on Thursday. While an upgrade on the bloc’s economic outlook and forecasts by ECB on Thursday could signal the possibility of ECB policy normalisation on the cards over the medium term, we continue to recommend a neutral view on EUR, as ECB’s commitment towards fulfilling ECB’s inflationary target of around 2% could spur Draghi to raise concerns on the recent EUR strength.

¨   AxJ Markets: Decent demand was seen for the MYR2.5bn 20y MGS reopening, with a BTC ratio of 1.7x and an average yield of 4.56%, in line with WI; interest at the primary auction was dominated by pension funds and lifers given its long duration. Post auction, yields on the 20y paper remained stable amid the fairly quiet bond market ahead of the widely expectation FOMC decision to raise rates by 25bpps later next week. With compelling value in MGS vis-à-vis regional peers, we expect healthy demand for MGS to persist over the coming months; keep a neutral duration on MGS.

¨   Despite no major economic data release yesterday, USDJPY broke the 110 barrier, trending lower by 1.03% overnight to 109.36 as investors unwound long USD positioning ahead of FOMC meeting next week. Delays in Trump administration’s tax cuts and fiscal stimulus plan coupled with recent spate of soft economic data dulls the case for another FFR hike in September, exerting pressure on USD over the past months. In addition, spreads between USTs and JGBs has tightened to its 7-month low, with 10y spreads declining to 211bps from the high of 254bps seen in March. Expectation for a dovish FOMC rhetoric is likely to dampen strength on USD despite its overall tightening FFR trajectory, underscoring our neutral USD and JPY views.

This message is intended only for the use of the person(s) to whom it is addressed and may contain information that is privileged or otherwise protected from disclosure. If you are not the intended recipient you are hereby notified that any use, review, disclosure or copying of this message and the information it contains is prohibited. If you receive the message in error, please notify the sender by reply e-mail and discard all its contents.   Thank You.