FW: RHB FIC Rates & FX Market Update - 28/11/17

 

 

28 November 2017

 

 

Rates & FX Market Update

 

 

North Korea Back in the Headline

 

Highlights

 

¨   Global Markets: Geopolitical tensions came back in focus after news reported that Japan received signals pointing towards new missile launch test by North Korea. As a result, the JPY briefly tested the 111 level against the USD where we wait for a clear below it to trigger a deeper drop within the multi-month range; remain neutral JPY. US Treasuries also advanced on the reported news with the US curve bull flattening and stronger gains recorder in the 5y-30y sector (2y: -0.4bps; 10y: -1.4bps). We maintain our flatter US curve view as the Fed is willing to continue increasing its benchmark interest supporting short term yields, while low inflation prospects and risks keep longer tenors in check. After the Thanksgiving recess, politics take centre stage again as the US Senate is expected to vote on its version of the tax plan before the end of the week. Hurdles remain as Republican Senators still oppose the proposal. That said, this USD-positive news is probably already priced in which should cap any short term USD rebound; remain neutral USD.

¨   AxJ Markets: While October's China Industrial Profits continued to climb strongly (25.1% y-o-y), Asian market movements appear relatively subdued as investors await Chinese PMI prints due later in the week for any signs of strength or weakness. S&P warned that bond defaults in China could rise as monetary conditions are tightened, although authorities appear cautious against any aggressive credit tightening; stay neutral CGBs at this juncture.

¨   USDIDR held near the 13,500 level, despite USD softness over the past few trading sessions. A senior BI deputy governor reaffirmed that the bank will likely pursue a stable monetary policy to maintain macroeconomic stability, as opposed to a more aggressive stance to prop up the mildly disappointing growth rates YTD. BI's pursue of macroeconomic stability should continue to suppress IDR's volatility over the near term, and should enhance the currency's allure as a high-yielding carry FX despite the recent lacklustre performance; stay neutral IDR.

 

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