FW: RHB FIC Rates & FX Market Update - 24/8/17

 

24 August 2017

 

 

Rates & FX Market Update

 

 

US Debt Ceiling Uncertainties Weighed on Risk Sentiment

 

Highlights

 

¨   Global Markets: Short dated USTs underperformed the curve following President Trump's threats to shut down the US government if Congress does not fund his proposed border wall. Additionally, rates on short-term bills rose to the highest level in months on renewed debt ceiling uncertainties, although Republican lawmakers' assurance to work with the President in order to avoid a government shutdown remained marginal in mitigating the increasing anxiety. Political volatility coupled with the softer flash manufacturing PMI (52.5; consensus: 53.5; Jul: 53.3) sent the dollar moderately lower overnight, and while we eye a consolidating USD trend over the near-term, we continue to voice concerns over the Greenback's longer-term potential.

¨   AxJ Markets: Singapore's July headline inflation came in at 1.6% y-o-y, marginally higher than the 1.5% logged in June, given accelerating transport and retail prices although overall price gains remain manageable. Core CPI print however, fell short of expectations (0.6% y-o-y; consensus: 0.7%) despite the higher water tariffs kicking in. Given uneven growth prospects between domestic and external-oriented drivers, alongside subdued inflationary pressures, we think the likelihood of a premature MAS NEER tightening in October remains low, limiting the scope for SGD to outperform regional currencies this year; a neutral stance remains appropriate at this juncture. Over in Malaysia, July inflation continued to undershoot expectations, printing 3.2% y-o-y against consensus of 3.4% and the 3.6% print logged in June, as gains in fuel prices slowed. Malaysian assets were little changed overnight, where we continue to eye marginally lower MGS yields over the near horizon on favourable inflation trends and robust economic growth momentum. Likelihood of a surprise BNM monetary easing remains modest over the coming months, given no immediate downward growth pressures and the bank's goal to maintain macroeconomic and capital stability.

¨   EURUSD climbed c.0.4% above the 1.18 handle overnight after the stronger flash manufacturing PMI due (57.4; consensus: 56.3; Jul: 56.6) and ECB's Draghi silence on the EUR. Instead, his speech in Lindau focused on defending the bank's QE programs. We do not expect Mr Draghi to announce fresh monetary policy tweaks in his Jackson Hole speech later this week, which should embolden EUR bulls to extend long speculative positions towards the 1.20 psychological resistance; stay mildly constructive on the shared currency over the near-term.