FW: RHB FIC Rates & FX Market Update - 19/1/18

 

 

 

19 January 2018

 

 

Rates & FX Market Update

 

 

Market Focuses on Risk of US Government Shutdown

 

Highlights

 

¨   Global Markets: The US Dollar moved in tandem with political headlines about the uncertain outcome on the funding bill negotiations and increasing risk of shutdown; the DXY erased previous day gains closing -0.38% lower despite hawkish comments by NY Fed Dudley. While the House passed a stopgap measure to keep the government open, extending funding through the 16^th of February, the scramble has shifted to the Senate. Should Senators approve the measure, likely bringing short term relief to the greenback, it would only kick the can down the road again – as the funding bill remains an issue unresolved since last September - highlighting lingering US political risks and uncertainties, one factor supporting our mildly bearish USD view.

¨   AxJ Markets: Chinese 4Q17 GDP growth printed better than consensus expectations (6.8% y-o-y; consensus: 6.7%), offering a relief to global and EM economic watchers; IP beat expectations as well (6.2% y-o-y; consensus: 6.1%), although retail sales came in marginally weaker at 9.4% y-o-y (consensus: 10.2%). Strong growth data should continue to deter foreign outflows, with the CNY likely to remain relatively supported over 1H18, although trading sentiment will be highly dominated by dollar confidence as well; stay neutral CNY. Over in Indonesia, BI held its benchmark 7-day RRR at 4.25%, in line with consensus expectations. The bank also loosened reserve requirements to accelerate monetary policy reforms, slashing daily minimum primary reserve requirement ratio by 0.5ppt, and is in line with what was previously communicated. While markets could have seen it as an easing measure, speculators are unlikely to step up dovish bets as the Bank continued to talk down any possibility of rate cuts over the near term; a neutral IDR stance remains appropriate at this juncture.

¨   In the UK, GBPUSD is approaching the 1.40 handle as the lack of demand for the US currency is boosting the pair's allure. UK Retail Sales will be released later today and better than anticipated prints could push the pair to test 1.40. We however prefer to maintain a neutral GBP stance as Brexit developments remain key while the GBPUSD faces technical resistance at 1.40.

 

 

 

 

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