Friday, June 16, 2017

USDJPY surged above the 110 handle yesterday, climbing by 1.13% to 110.88, buoyed by unwinding of USD shorts post FOMC. While BoJ is unlikely to alter the official BoJ QQE purchase target of JPY80trn later today, acknowledgement of a lower QQE purchase of JPY60trn could gradually steer towards increasingly


16 June 2017


Rates & FX Market Update


Hawkish Dissent within BoE Intensifying with a 5-3 Vote to Hold Rates

Highlights

¨   Global Markets: The diverging views within BoE intensified, with Saunders and McCafferty joining Forbes in her call for a 25bps rate hike yesterday, citing risk of an accelerating inflationary pressure coupled with increasing uncertainties on economic outlook following the elections where PM Theresa May ceded parliamentary majority. Even as BoE’s Forbes is expected to leave at the end of her term in June, we expect the hawkish dissent to continue to intensify, with May’s CPI hovering at the 3-year high of 2.9%, overshooting BoE’s target of 2% more than previously assessed post EU Referendum. Yields on GILTs surged by 8-12bps yesterday, although we remain of the view for an unchanged BoE bank rate till at least 2018; stay neutral Gilts.
¨   AxJ Markets: BI’s decision to hold rates at 4.75% remained in line with consensus view, underscored by stabilising inflationary pressures. USDIDR inched higher by 0.07% to 13,286, while moderate gains were recorded on the IndoGB curve, bolstered by strong net inflows into the IDR bond market in search of higher nominal yields and strong carry. Manageable CPI prints are likely to provide BI with policy manoeuvrability to maintain the accommodative monetary conditions as Indonesia targets GDP growth to remain above 5% in 2017 and 2018; keep a neutral duration view on IndoGBs. Over in Singapore, a strong climb in electronics exports (May: 23.3%; Apr: 4.8%) helped to cushion the contraction in NODX, which fell by 1.2% y-o-y (consensus: -5.6%; Apr: -0.8%). Singapore’s economic growth remain boosted by externally oriented industries while the domestic economic outlook remains soft, which could further limit MAS manoeuvrability over the next meetings where we expect a status quo MAS decision; keep a neutral view on SGD.
¨   USDJPY surged above the 110 handle yesterday, climbing by 1.13% to 110.88, buoyed by unwinding of USD shorts post FOMC. While BoJ is unlikely to alter the official BoJ QQE purchase target of JPY80trn later today, acknowledgement of a lower QQE purchase of JPY60trn could gradually steer towards increasingly hawkish bank rhetoric, underscoring USDJPY sticky movements along the 110 handle.

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