FW: RHB FIC Rates & FX Market Update - 5/1/18

 

 

 

5 January 2018

 

 

Rates & FX Market Update

 

 

String of Healthy Economic Data Globally Lifted Sentiment

 

Highlights

 

¨   Global Markets: US economic data due overnight were robust, with Markit services PMI printing 53.7, notably better than the flash estimate of 52.4. ADP report due later revealed that the US added 250k jobs (consensus: 190k) in December, adding on to positive data releases in Asia and Europe. While the EUR weighed down on the DXY overnight (-0.3%), 2y and 10y UST yields ticked c.1-2bps higher on hawkish Fed prospects; we continue to call for a flatter UST curve over 2018, driven by rising front-end yields. Over in Europe, December final composite PMI improved to 58.1 (flash: 58.0; Nov: 57.5), as the region's economic outlook remains on a positive momentum. EURUSD climbed 0.44% overnight to 1.2068 as investors buy into the European recovery story, although European govie yields appeared more subdued, despite recent hawkish speak from ECB governing council members. While the central bank could remain cautiously optimistic over the near-term, we still expect further policy normalisation further down the line, possibly in 2H18; stay mildly bullish EUR.

¨   AxJ Markets: Over in Asia, Chinese services PMI indicated accelerating pace of expansion in the sector (53.0; Nov: 51.6), driven by upticks in output and new orders. Recent manufacturing and services PMI should offer relief to Chinese watchers, as the world's 2^nd largest economy continues on its path of relatively high growth. We continue to remain of the view for PBoC's credit tightening to persist over 1H18, which should exert pressure on CGBs; we hold a mild underweight duration view towards CGBs at this juncture.

¨   AUDUSD climbed c.0.4% overnight on the dollar's weakness, but pared some of its gains this morning after Australian trade data missed expectations (-0.63bn; consensus: +0.55bn). While the AUD should remain supported on the upside by stable Chinese economic indicators and strong domestic growth and labour prospects, continued RBA's apprehension over the strength of the currency should keep any sustained strength in check; expect AUDUSD to face a stronger resistance within the 0.80-0.82 range.

 

 

 

 

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