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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