FW: RHB FIC Rates & FX Market Update - 11/1/18

 

 

 

11 January 2018

 

 

Rates & FX Market Update

 

 

Focus Remained on the Bond Markets

 

Highlights

 

¨   Global Markets: Higher volatility was recorded on Treasury markets following news reporting that China may be willing to slow down US debt purchases amid renewed trade tensions. 10y UST later erased losses reversing just below 2.60%, the descending trend resistance line in place since December 2016 with a daily bearish price action, after the strong USD20bn 10y auction which drew a yield of 2.579% with the strongest BTC ratio since June 2016 at 2.69. We maintain the view at this juncture that any spike in yield is an opportunity to add on duration although cognisant of the oversupply risk and economic developments amid dissension among Fed officials; remain neutral UST. The temporary USD rebound halted yesterday as the greenback erased gains against its G10 and Asian peers. The USDJPY is now nearing 111, the support in the middle of the multi-month range that serves as confirmation for further drop. The EURUSD found support above our defined level at 1.1930, even testing 1.2000 during the day. A softer tone from a leader of the opposition populist party M5S on the status of the common currency might have alleviated risk over the upcoming elections.  ECB minutes due later today and inflation data in the US (PPI today and CPI tomorrow) will be key for currency gyrations in the very near term.

¨   AxJ Markets: Inflation prints in China were mixed as December PPI eased (4.9% y-oy vs. 5.8% in November) while CPI remain largely stable (1.8%y-o-y) which might somewhat take pressure off the PBoC to contain inflation. Borrowing cost are however expected to remain high in order to curb debt growth; remain neutral CNY.

¨   The Australian Dollar rose +0.24% d-o-d and is now nearing a short-term resistance at 0.7900 following the release this morning of the November retail sales data that beat expectations: retail sales rose to 1.2% vs. 0.4% estimated and 0.5% in October. The currency has also been driven lately by the oil rally. Against the backdrop of decreasing US stockpiles, Brent rose above 69 and now close to 70. While there is still room for further upside, continuous appreciation might pose a threat to the global economy. We stay neutral AUD over the medium term.

 

 

 

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