FW: RHB FIC Rates & FX Market Update - 20/12/17

 

 

 

20 December 2017

 

 

Rates & FX Market Update

 

 

Trump's First Legislative Victory to be Slightly Delayed

 

Highlights

 

¨   Global Markets: Investors sold USTs and the dollar, with 10y yields 7bps higher while USD fell c.0.3% overnight, after the House mostly confirmed the passage of the Republicans' proposed tax bill, and with investors "selling the news". A small technicality forced the House to hold another vote later today, although broad expectations are still for the tax reform to pass. We eye little legislative victory for President Trump into the 2018 mid-term elections, which should keep the USD strength in check; we are now mildly bearish towards the Greenback.

¨   AxJ Markets: WSJ reported that China is leaning towards controlling debt increases, instead of directly slashing borrowings, in an effort to maintain the 6.5-7.0% growth momentum. As we have previously argued, it appears increasingly difficult for China to maintain both growth and credit deleveraging momentum; we still eye upticks in CGB yields over 1H18. Over in Indonesia, Finance Minister Indrawati set the 2018 growth target at 5.4%, marginally higher than 2017's growth rate. While upward momentum of commodity exports and synchronized global growth looks set to continue, the government remains wary towards lingering downside risks, including rising threat of protectionism. The still-sanguine growth outlook should keep IndoGB movements in check, as the central banks adopt a neutral rhetoric; a neutral IndoGB stance remains appropriate.

¨   GBPUSD was relatively flat overnight, despite a c.0.5% climb in the EUR amid low liquidity ahead of the holiday season. Despite lingering Brexit fears which have deepened given recent events, the GBP has been remarkably resilient over the year, supported by a BoE rate hike and derivative impacts due to the weaker USD and stronger EUR. We still eye GBPUSD falling to 1.30 by end-2018, as markets price in an increasingly difficult Brexit process, although the currency is likely to avert the worst-case scenario.

 

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