FW: RHB FIC Rates & FX Market Update - 24/5/18

 

 

 

24 May 2018

 

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Rates & FX Market Update

 

 

MAS Likely Not Concerned Over 1Q18 GDP, April Inflation Data

 

Highlights

 

¨   Global Markets: Treasuries rose in the wake of Fed’s minutes which, despite signalling a very likely June rate hike, gave no indication on whether the central bank would raise interest rate another time or two with the acceptance that inflation can run above 2%. Risk aversion also supported Treasuries and the 10y UST yield dropped below 3.00%. Trade tensions, geopolitical risks linked to the US – North Korea summit dampened sentiment concurrently to mounting pressure on EM as Turkey raised its key interest rate 300 bps in an emergency meeting to defend its currency. While the country runs a twin deficit making it sensitive to external factors such as the Fed rate hikes, the low debt-to-GDP profile (below 30%) may offer some opportunities to investors as bonds have already cheapened.

¨   AxJ Markets: Over in Singapore, April CPI climbed 0.1% y-o-y (consensus: 0.4%), while the core measure remains manageable at 1.3% y-o-y. Diving into details, weakness in the headline print were mainly driven by transportation and housing. While inflation disappoints, 1Q18 GDP due this morning beat expectations (+1.7% q-o-q annualized; consensus: 1.6%), even as the global environment continues to remain a challenge for the island state’s given its dependency on trade. We think the above does not threaten MAS’s assessment over 2018, with the October MPS review still a “live” one; watch Singapore’s economic data trajectory over the coming months.

¨   MYR fell c.0.4% against the USD overnight, with the USDMYR pair remaining marginally below the 4.00 psychological level. CPI remains subdued at 1.4% y-o-y (consensus: 1.6%), although we expect the measure to normalize over the remainder of 2018. Despite higher oil prices, the stronger USD environment should continue to pose challenges to the MYR; a neutral FX stance remains appropriate.