Global Markets: The DXY index was marginally stronger overnight, while 10y yields retraced c.2bps higher following the decline last Friday, despite slightly underwhelming services PMI (53.6; consensus: 54.0) and ISM services (56.9; consensus: 57.1). April factory and durable goods orders fell on a m-o-m basis, although the re

6 June 2017

Rates & FX Market Update

Expect RBA to Maintain the Status Quo Later Today

Highlights

¨   Global Markets: The DXY index was marginally stronger overnight, while 10y yields retraced c.2bps higher following the decline last Friday, despite slightly underwhelming services PMI (53.6; consensus: 54.0) and ISM services (56.9; consensus: 57.1). April factory and durable goods orders fell on a m-o-m basis, although the recent deterioration in US hard data failed to influence markets’ FOMC expectations materially, with Bloomberg continuing to price >90% of another 25bps FFR hike this June; stay neutral USTs. Over in the UK, pace of service sector expansion fell in May (PMI: 53.8; consensus: 55.0), weighing down on the composite indicator which came in at 54.4 (consensus: 55.5). The upcoming election remains the overarching theme this week, where we recommend maintaining a light GBP positioning into the election, with quick results likely to come in during early morning in Asian. AUDUSD climbed 0.66% overnight towards the 0.75 level ahead of the RBA meeting later today, where we expect a status quo decision, with the bank likely to broadly rehash its previous rhetoric. A monthly private inflation gauge indicated rising price pressure, further complicating RBA’s policymaking given mixed economic outlook alongside mounting pressure from the property sector; stay neutral ACGBs.

¨   AxJ Markets: Chinese Caixin services PMI ticked higher to 52.8 in May (Apr: 51.5), in line with improvement in the official services PMI; composite PMI improved to 51.5 in May (Apr: 51.2) despite the weak manufacturing print. CNY and CNH movements were relatively stable overnight, following the addition of an adjustment factor in the official Yuan fixing, underpinning officials’ resolve to maintain stability ahead of the leadership transition; we are now neutral towards the CNY, eyeing for the pair to close below the 7-handle end-2017.

¨   USDMYR fell 0.39% overnight, the best performer among our AxJ coverage, as foreign capital continues to return to Malaysia after seeing massive outflows post US election. April exports (20.6% y-o-y; consensus: 20.6%) and imports (24.7% y-o-y; consensus: 31.3%) continued to log impressive double-digit growth, supporting the country’s economic outlook after a stellar 1Q17 GDP growth print; we stay constructive towards the MYR over the near-term.

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