FW: RHB FIC Rates & FX Market Update - 2/11/17

 

 

2 November 2017

 

 

Rates & FX Market Update

 

 

Fed Policy Stability Expected on Powell's Nomination

 

Highlights

 

¨   Global Markets: The DXY were c.0.3% higher overnight amid a busy US calendar, beginning with a stronger-than-expected ADP (235k; consensus: 200k) and Markit manufacturing PMI (54.6; consensus: 54.5) reading, although ISM manufacturing came in mildly disappointing. The FOMC meeting statement due overnight was firmly within expectations, acknowledging that economic activity has been expanding at a solid rate, although inflation remains below the Fed's 2% target. FFR Futures indicate an extremely high probability towards another 25bps hike in December (>90%), while market movements post-statement appeared relatively muted. Following the FOMC meeting, news media reported that President Trump will be nominating Powell as the new Fed Chairperson. DXY dipped slightly on the news through Asian morning session, although we expect little market reaction into the European and US trading sessions, as the appointment is well-expected by market participants already. A Powell-led Fed is likely to signal policy continuity and keep yield movements relatively mild; stay neutral USTs.

¨   AxJ Markets: Indonesia October headline CPI came in at 3.58% y-o-y, softer than the 3.68% consensus expectation and the 3.72% printed in September, driven by slower gains in food and transportation prices. We remain watchful of Indonesia's 3Q17 GDP print due early next week (consensus: 5.1%), where any weaknesses may renew speculations over further BI rate cuts over the remainder of 2017 that could weigh on the IDR; stay neutral IDR at this juncture.

¨   In the UK, the BoE is widely expected to increase its interest rate benchmark by 25bps to 0.50%. Should the central bank dismiss expectations that this is only a one time rate hike and rather support a gradual hiking cycle to defend the currency's purchasing power, the GBP could be supported in the near term where we eye the next resistance in the 1.3380/1.3440 area. However, the main question remains: can the economy withstand rate hikes when Brexit-related risks and uncertainties linger and potentially cast clouds on the economic outlook; remain neutral GBP.

 

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