FW: RHB FIC Rates & FX Market Update - 30/1/18

 

 

 

30 January 2018

 

 

Rates & FX Market Update

 

 

Watch Trump's State of the Union Address

 

 

 

Highlights

 

¨   Global Markets: The US Treasury sell-off continued on Monday with the 10y UST yield climbing as high as 2.73%. Treasuries later reversed after mixed personal income and personal spending data, and the Fed's gauge of inflation Core PCE staying at 1.5% y-o-y in December limited losses. 10y UST is now 120bps above the inflation measure, at the highest spread level since 2013/2014 suggesting the sell-off might have been too extended. The 10y yield is at the top of its 30-year-bear-trendline where tactical opportunities can be sought to add on duration; a neutral UST stance remains appropriate at this juncture. The USD took a breather (DXY +0.33% d-o-d) ahead of Trump's State of the Union address today as market participants awaits policy details for 2018, the midterm election year, in particular for infrastructure spending and "America First" policies post higher tariffs imposed last week. We however remains cautious on excessive announcement effects given the deteriorating fiscal position as the twin deficit comes back under scrutiny, amid renewed fears of a trade war. Furthermore political turmoil combined with the razor-thin majority held by Republicans in Senate could upend the political agenda.

¨   AxJ Markets: In the absence, of economic releases in the region, local markets took cues from global developments and Asian currencies closed the day in negative territory as the USD edged higher.

¨   The SGDMYR dropped from April 2017 highs in the 3.15/3.17 area to reach a low yesterday at 2.9549. We now expect the SGDMYR pair to shape a tactical retracement above 2.9500 towards 3.0130 as (i) MYR watchers take profit on realised expectations of BNM OPR hike last week, (ii) focus shifts to MAS expectations of policy tightening in April, and (iii) on technical considerations (daily bullish price action left above a cluster of retracements/projections).

 

 

 

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