FW: RHB FIC Rates & FX Market Update - 26/9/17

 

 

26 September 2017

 

 

Rates & FX Market Update

 

 

FOMC Members Split on US Monetary Policy Trajectory

 

Highlights

 

¨   Global Markets: 10y UST yields fell c.3bps overnight, possibly on renewed concerns after North Korea's speech, although markets are nowhere close to pricing in a full-scale conflict. Fed's Dudley kicks off the first wave of Fedspeak overnight, as the NY Fed President eyes more rate hikes on the horizon given fading inflationary weaknesses. However, Fed's Evans and Kashkari dissented with the above view, where the former hopes to see actual inflation ticking higher before the next tightening, while the latter reiterated that higher rates may be "a mistake". Fed chairperson Yellen will need to build consensus among policymakers and reconcile the differences between the two camps, where we continue to eye only a gradual pace of tightening over the next 12 months; stay neutral UST duration. Over in Japan, September Japanese manufacturing PMI inched higher to a 4-month high of 52.6 (Aug: 52.2), as firms signalled strengthening demand both domestically and abroad. However, PM Abe's calling for a snap election likely overshadowed the data release, although the announcement was not unexpected given leaks to the media in the previous week. Another solid LDP victory will likely be the most JPY-negative outcome, with a high likelihood for BoJ's Kuroda (or another dove) to be re-appointed under such a scenario; stay neutral JPY, with USDJPY likely to be anchored above 110 over the coming weeks.

¨   AxJ Markets: Singapore's August headline inflation came in weaker than consensus expectations (0.4% y-o-y; consensus and July: 0.6%), with core inflation exhibiting weakness as well (1.4% y-o-y; consensus and July: 1.6%). With no further inflation data due ahead of the October MAS decision, we expect the monetary authority to stand pat on its current NEER policy, with little risk of a hawkish surprise; USDSGD risks tilted towards the upside over the coming weeks.

¨   EURUSD dipped 0.6% overnight to c.1.1850, after Chancellor Merkel's CDU/CSU alliance electoral results were worse-than-expected, weighed by a surprisingly strong performance by the AfD, and marking the first time in over 6 decades that a far-right party will be represented in the Bundestag. With SPD reluctant to team up with the CDU/CSU, expect a prolonged coalition talks and heightened risks of an early election and/or a weak mandate, although we do not expect the above to weigh on the EUR trajectory over the medium term; we remain mildly bullish towards the common area currency.

 

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