FW: RHB FIC Rates & FX Market Update - 15/5/18

 

 

Rates & FX Market Update

 

 

10Y UST Tested 3.00% Once Again

 

 

 

Highlights

 

¨   Global Markets: The 10y US Treasury briefly tested the 3.00% on Monday on global correlation as German Bunds declined following ECB policymaker and Governor of the Banque de France François Villeroy de Galhau, not known to be hawkish, mentioned that raising rates is a matter of quarters not years, i.e. likely to be in 2019 following the end of the Asset Purchase Program (APP) in 2018. The EURUSD however failed to bypass as 1.2000 as political risk came back to the fore front. Italy may finally get a government, but a populist one composed of a disparate coalition with the far right League party and anti-establishment Five Star Movement. We continue to expect short-term consolidation on the EURUSD between 1.1760 and 1.2050. Trade negotiations have also resurfaced while the positive US rates/USD correlation remains one of the main supportive catalyst for the greenback.

¨   AxJ Markets: In Indonesia, a series of bombings shook the country and may cause some concern for investors. The USDIDR pair has however remained stable just below the 14,000 handle as Bank Indonesia mentioned on Friday it could act “pre-emptively” in order to ensure the currency’s stability in the wake of the recent currency depreciation (-3.15% YTD spot return; --1.15% YTD carry adjusted). The meeting scheduled on Thursday is likely to attract great attention although we expect the central bank to stay on hold balanced between low inflation / slowing growth and IDR weakness. Watch trade date scheduled today.

¨   The Ringgit traded sideways as local markets reopened following last week’s election. The USDMYR ended the day where it started around the 3.95 handle after reaching a high at 3.9875. At this juncture, we do not change our Ringgit forecasts as we await clarity on the political and economic agenda. While the abolition of the GST or the restauration of oil subsidies caught the headlines and may weaken Malaysia’s ongoing fiscal consolidation, the sanguine oil outlook should alleviate concern over fiscal risks while the current appointments, such as the finance minister, have reassured market participants. Until the full economic agenda is known, we continue to focus on the country’s robust macro fundamentals while the current USD strength theme underscores our neutral MYR view.