FW: RHB FIC Rates & FX Market Update - 30/8/17

 

30 August 2017

 

 

Rates & FX Market Update

 

 

Strongest BTC Ratio for 15y SGS Reopening Since 2006

 

Highlights

 

¨   Global Markets: Volatile movements were seen on the major FX crosses yesterday following North Korea's provocation, with EURUSD notably testing the 1.20 resistance, surging to a session high of 1.2060 before retracing lower back below 1.20. We continue to view the bloc's currency favourably, recommending for investors to position for a mildly bullish EUR over the medium term, as ECB's tolerance for a strengthening currency, coupled with its improving economic outlook across the bloc and increasing hawkish monetary policy rhetoric sets the platform for further medium term recovery on the EUR. Keep a close eye on economic data coming out of the bloc over the first week of September, where another month of outperforming data could cement EURUSD's surge above the 1.20 handle.

¨   AxJ Markets: Robust demand was seen for the SGD1.3bn 15y SGS reopening yesterday, where the auction garnered the highest BTC ratio for the paper since 2006 at 2.19x. Post auction, yields on 15y SGS continued to decline below the cut-off yield of 2.40% to 2.37% yesterday amid the heightening risk aversion sentiment yesterday. We eye the domestic bank loan data scheduled to be released tomorrow, where another strong expansion in domestic demand for loans are likely to remain supportive of the tight spreads between SGS and USTs over the near term; keep a neutral duration view on SGS.

¨   The overnight rebound on USDKRW was sharp, with KRW depreciating by 0.54% to 1,126/USD following North Korea's most recent missile launch which flew over Japan. Lingering bouts of escalating tensions are likely to fuel volatility on KRW, where we may see currency movements overshoot past major resistance levels, before retracing lower. We keep a mildly bearish view on KRW over the near term, with the geopolitical woes unlikely to be assuaged while the prospect of increasing sanctions on North Korea could fuel further retaliations.