FW: RHB FIC Rates & FX Market Update - 5/12/17

 

 

5 December 2017

 

 

Rates & FX Market Update

 

 

London and Brussels Remain in Deadlock over Exit Deal

 

Highlights

 

¨   Global Markets: Positive developments on the tax overhaul - the Republican passed their version of the reform over the weekend - pushed the Dollar moderately higher (+0.21 d-o-d).  We remain cautious however on the short term greenback outlook as positive news have already been priced in, and as the probe into connections between Trump's network and Russia intensifies again. Lastly, the current funding bill expires on Friday and the government may face a partial shutdown although House Republican leaders agreed to extend it until December 30^th.

¨   AxJ Markets: Over in Singapore, PMI climbed to the highest level since 2009 (52.9; consensus: 52.8), while Nikkei Singapore PMI recorded the strongest print since the series started in 2015, suggesting a robust outlook into early-2018 as regional and global demand held up. Sustained strengthening trend in the external sector may eventually feed through to the domestic-oriented sectors, driving a balanced, strong growth momentum in 2018; stay neutral SGD at this juncture. Over in Indonesia, Nikkei manufacturing PMI expanded to 50.4 in November (October: 50.1), remaining in expansionary territory. November CPI continues to indicate waning upward price pressures (headline 3.05% y-o-y; consensus: 3.10%, core: 3.30%; consensus: 3.41%), although we remain of the view that economic data have to deteriorate significantly for BI to consider concrete easing measures; stay neutral IndoGBs.

¨   Brexit optimism faded away after London and Brussels failed to reach an agreement on the exit fine. Talks between Theresa May, Jean-Claude Juncker and Michel Barnier stopped after May did not get support from her DUP (Democratic Unionist Party) allies as the status on the Irish border remains in contention. While negotiations are likely to resume during the week, it illustrates the internal struggle within May's cabinet. The Sterling Pound dropped following the news but overall closed in green territory. However, as the GBP is near September's tops against the USD and the SGD and since too much Brexit optimism has been priced in by complacent FX markets and furthermore not supported by yield differentials, we expect the GBP to setback against the two currencies over the near term horizon.

 

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