FW: RHB FIC Rates & FX Market Update - 31/10/17

 

 

 

31 October 2017

 

 

Rates & FX Market Update

 

 

Chinese PMIs Continue to Indicate Expansion

 

Highlights

 

¨   Global Markets: US Treasuries gained yesterday with 10Y yield continuing the retreat below the 2.48/2.50% resistance. September Core PCE, Fed's preferred way to gauge inflation, coming as expected at 1.3% YoY, reports that the proposed corporate tax plan might be progressive over the coming years reducing the prospects of a strong economic impact amid new developments stemming from the Mueller's Russia probe boosted the allure of Treasuries while exerting downside pressure on the US Dollar. The Fed's succession race is now expected to end on Thursday and Powell being the next Chairperson is also probably partly priced in thus creating a mild upside risk to the USD should Taylor be nominated instead; however both candidates could be appointed as Chair/Vice Chair hence cushioning extreme reactions ; remain neutral USD and UST.

¨   AxJ Markets: Chinese October official PMI prints came in a touch weaker than September numbers; manufacturing PMI printed 51.6 (Sep: 52.4; consensus: 52.0) while services PMI printed 54.3 (Sep: 55.4). Still, the numbers were indicative that the Chinese economy remains on an upward trajectory, which should offer comfort to regional economies over the remainder of 2017; stay neutral CGBs at this juncture.

¨   The USDJPY dropped ahead of BoJ's meeting against the backdrop of a softer US Dollar. We expect the central bank to keep its monetary policy unchanged at this juncture as inflation remains far from target given slower-than-expected upside progress. In that sense, inflation forecasts will be closely scrutinized. Lastly and looking forward into 2018, the victory of PM Abe's coalition increases the chances of a reappointment of Kuroda at head of the BoJ. We remain neutral USDJPY for now given the monetary policy discrepancy; as the pair remains sensitive to US developments, only a break below 112.85 would trigger a deeper drop to 111.75 max 111.00 in the short term.

 

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