ECB Mulled Steps Towards an Eventual Withdrawal from QE

7 July 2017

Rates & FX Market Update

ECB Mulled Steps Towards an Eventual Withdrawal from QE

Highlights

¨   Global Markets: Weaker-than-expected US ADP data (158k; consensus: 188k; May: 230k) overshadowed the stronger Markit services final PMI print and ISM services, sending the DXY 0.51% lower overnight, not helped by the hawkish-tilted ECB minutes as well. We eye the NFP print later tonight if it will affirm the weak ADP print, as well as the G20 summit over the weekend, with Trump-Merkel and Trump-Putin to be closely watched for any reconciliation between the worlds’ major powers; we maintain our neutral USD stance. Over in the EU, ECB minutes due revealed that governing council members contemplated changing the current QE easing bias amid economic improvements being held back by the low inflationary environment. While this should not come as a surprise to European watchers, traders sent the EURUSD pair 0.62% higher overnight, where we think the upward EUR trend could persist over the near term; stay mildly bullish EUR.

¨   AxJ Markets: Elsewhere, the USDMYR marginally broke above the 50DMA into the 4.30 handle on rising external uncertainties and unfavourable oil commentaries, which likely impacted sentiment towards the nation. However, demand for MGS remained healthy given the relative carry, with the 2024 auction garnering a BTC of 2.87x, the highest since May; stay neutral MGS.

¨   USDIDR ticked 0.20% higher overnight towards the 13,400 handle, which the pair broke this morning. The IndoGB bond yields were also higher overnight, pressured by higher global yields, alongside a projected higher budget deficit that could reach c.2.9-3.0% of GDP. However, the government remained optimistic towards the economic outlook, eyeing growth to come in at 5.2% this year amid robust domestic consumption; stay neutral IDR.

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