FW: RHB FIC Rates & FX Market Update - 16/5/18

 

 

Rates & FX Market Update

 

 

Eye Weekly Close of 10y UST Yields

 

Highlights

 

¨   Global Markets: The 10y US Treasury broke the psychological 3% level underpinned by Fedspeaks advocating for 3-4 rate hikes in total for 2018. Consequently on the positive rates/currency correlation the US Dollar rose (DXY Index +0.68% d-o-d) despite unsurprising retail sales data. The DXY performance is also attributed to a weak Euro as German growth in the first quarter of 2018 missed expectations (2.3% y-o-y vs. 2.4 expected). Lastly, the USDJPY broke above 110 on Dollar strength and did not benefit from safe heaven flows following North Korea’s announcement to suspend talks with South Korea as the US continues military drills with South Korea; USDJPY rose +0.58% d-o-d. Over in Australia, RBA minutes due revealed that recent pace of economic improvements are likely to remain gradual, thus “no strong case for any near-term adjustment in monetary policy”. This will likely affirm RBA’s neutral stance over the coming months, as well as keeping ACGB yields below that of similar USTs. 2y and 10y ACGB yields climbed c.4-6bps overnight largely attributed to upticks in US yields; stay neutral ACGBs in line with our US view.

¨   AxJ Markets: Elsewhere in China, the trifecta of data due overnight were mixed, with Industrial Production printing better than expected (7.0% y-o-y; consensus: 6.4%), while FAI (7.0% y-o-y YTD; consensus: 7.4%) and retail sales (9.4% y-o-y; consensus: 10.0%) disappointed. Chinese officials attributed the FAI slowdown to PPP clean-up and measures to slow credit creation, although warned that US-China trade disputes have yet to show up in the data. US-China trade negotiations remain underway, although it could be a monumental task to reconcile the differences; a neutral CNY stance remains appropriate.

¨   THB fell c.0.7% against the USD overnight, largely attributed to USD momentum alongside bearish EM sentiment. While the relentless upward surge in the USD, favourable technicals and the continued sweep in short dollar positioning points to attractive risk-reward betting on a dollar reversal, the recent reprieve in the THB proved short-lived as 10y Treasuries threaten to breach the 3% psychological level once again. We closed out our tactical short USDTHB trade for now, eyeing a potential re-entry over the near-term. Meanwhile, Thailand’s strong external fundamentals should anchor itself against other EMs over the medium term, with BoT unlikely to hope for a substantial depreciation in the THB to preserve macroeconomic stability; a neutral THB stance remains appropriate.