FW: RHB FIC Rates & FX Market Update - 21/11/17

 

 

21 November 2017

 

 

Rates & FX Market Update

 

 

German Political Risk Weighed on the Euro

 

Highlights

 

¨   Global Markets: In the US, in the wake of the political news in Germany (see below Daily FX Write-up) leading to a weaker EUR, the USD was up against most of its G10 peers. Else, Janet Yellen declared to leave the Fed once Jerome Powell is sworn in affirming political continuity and the central bank is close to achieve its dual mandate despite the core inflation measure stagnating at 1.3%. As a likely December hike and hopes of a (diluted) tax reform are largely priced in, we prefer to maintain a neutral USD stance at this juncture. Over in Australia, RBA minutes showed little surprise and the bank emphasised on the uncertainties pertaining to when and how quickly wage growth might emerge and to which extent it would contribute to inflation. With benign inflation and high household debt RBA is not in a hurry to raise interest rate anytime soon; remain neutral AUD.

¨   AxJ Markets: In Thailand, the economy has continued to accelerate into the third quarter with stronger-than-expected GDP growth printing at 4.3% y-o-y (consensus: 3.9%; 2Q17: 3.7%). Strong export, consumption and fixed asset investments contributed to the performance. The THB registered strong gains with the USDTHB pair declining -0.25% on the day. Despite the improving outlook, BoT is not a rush to hike interest rate as MPC member commented than fiscal and monetary policy should remain accommodative to keep macro conditions stable theoretically capping upside pressure on the currency.

¨   Wild swings were observed yesterday on the EURUSD pair (Low: 1.1722; High: 1.1809) as political risk resurfaced in Germany. Chancellor Merkel failed to form a coalition government leaving the country with no governing majority for the first time since 1949. While Merkel would rather face new elections confident in her ability to win again, German's President Steinmeier called political leaders to resume negotiations. While uncertainty could persist in the short term horizon, the ongoing broad-based economic recovery in Europe combined with prospects for further ECB's normalisation in 2018 should continue to support the common currency. We are neutral EUR in the short term with the 1.19 handle as a near term upside confirmation level.

 

 

 

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