FW: RHB FIC Rates & FX Market Update - 23/1/18

 

 

 

23 January 2018

 

 

Rates & FX Market Update

 

 

Contained Enthusiasm Post-Shutdown; Decisive BoJ Today

 

Highlights

 

¨   Global Markets: Tepid reactions on the Rates & FX markets after the news that US Congress cleared the bill to end a three-day government shutdown. While stocks continued to make record highs, the DXY though holding above 90 closed -0.23% lower d-o-d while 10y UST hovered at 2.65%, on the high likelihood similar issues arise once again in two and a half weeks when the current stopgap funding bill expires on February 8^th. On the trade political front, President Trump imposed higher tariffs on solar panels and washing machines, a move aimed at Asia, to prepare Davos summit and Nafta negotiations and finally likely to firm up "America First" both domestic and foreign policies ahead of the midterms. With policies moving away from direct growth support, increasing fears of a trade war and with concerns over the sovereign credit outlook, we prefer to maintain a mildly bearish USD view.

¨   AxJ Markets: The Ringgit gained 0.11% against the USD overnight amid mixed performance seen across the AxJ FX space, after foreign reserves rose to USD103bn as of mid-Jan (end-Dec: USD102.4bn), persisting in its upward trend given improving foreign sentiment towards Malaysian bonds. BNM is widely expected to raise its OPR over the near term, which should continue to attract carry-seeking investors into the space; remain mildly bullish on the MYR at this juncture.

¨   Expectations are strong for BoJ today amid speculations on Kuroda's own succession. While BoJ used to surprise markets, Haruhiko Kuroda is likely to try to avoid igniting unnecessary market volatility, a complicated task as Kuroda might try to sound dovish to cap JPY's appreciation against the backdrop of increasing anticipations that a policy change is nearing in the wake of the bank's latest operations and better economic outlook. Ultimately, investors will dissect BoJ's growth and inflation projections. As such, a retest of 110 will confirm that a hawkish shift is coming and/or that Kuroda cannot fight against improving data.

 

 

 

 

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