FW: RHB FIC Rates & FX Market Update - 3/1/18

 

 

3 January 2018

 

 

Rates & FX Market Update

 

 

Manufacturing PMI Readings Broadly Picked Up Across the Globe

 

Highlights

 

¨   Global Markets: Manufacturing activity broadly picked up in December across the global, including the US (55.1; Nov: 53.9; consensus: 55.0); the December reading was the strongest since 2015. Risk-taking was evident in the first full trading session in 2018 as equities eked gains, although the DXY fell 0.4% overnight as downward momentum seen in end-2017 persisted into the New Year, bolstering gains in the EUR and EM currencies. We remain mildly bearish at this juncture given lingering fiscal risks arising from the recent tax reform package, and ahead of the US mid-term election later this year. UK December manufacturing PMI printed lower than expected (56.3; consensus: 58.0), although it remained firmly in expansionary territory, amid lingering Brexit worries weighing on forward-looking investments. While GBP climbed overnight on USD weakness, on-going Brexit negotiations should remain a headwind for the Sterling; eye GBPUSD at 1.30 by end-2018.

¨   AxJ Markets: Over in China, Caixin manufacturing PMI rose to 51.5 in December, continuing the positive backdrop in the world’s 2^nd-largest economy. USDCNY fell below the 6.50 psychological handle as PBoC strengthened its reference rate amid dollar weakness, while the central bank remains committed to slow down credit and liquidity growth, skipping OMOs for the 7^th day straight; eye tactical mild underweight CGBs over 1H18. Elsewhere, Indonesian December CPI reading came in at 3.61%, above consensus expectations although well within BI’s target range of 3-5%; the increase is mainly driven by food products and transportation. With elections ahead in 2019, the government has hinted that it will not raise fuel prices this year, which should keep administered prices in check; a neutral IndoGB stance remains appropriate at current price levels.

¨   EURUSD climbed 0.4% overnight, and broke the 1.20 handle convincingly, amid a soft USD backdrop alongside robust European manufacturing PMIs (60.6 in December). Higher European bond yields should continue to offer a tailwind to the EUR on favourable yield differentials, as net supply of European govies climb on fewer ECB purchases; we remain mildly bullish towards the EUR.

 

 

 

 

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