FW: RHB FIC Rates & FX Market Update - 25/5/18

 

 

Rates & FX Market Update

 

 

Trump Cancelled Summit With North Korea

 

 

 

 

Highlights

 

¨   Global Markets: The Japanese Yen led the rebound against the US Dollar (+0.69% d-o-d) benefitting from safe haven flows as US President unilaterally decided to cancel the summit with North Korea while declaring that US military is ready in the event of a conflict on the Korean peninsula. US Treasuries were also supported and the 10y yield dropped further (-1.7bps d-o-d). On the monetary policy front, messages emerging from the latest Fedspeak were mixed and not did not support unambiguously fourth hikes this year, likely adding some gains for USTs.

¨   AxJ Markets: Over in Indonesia, USDIDR retraced from the 14,200 handle and closed c.0.5% lower overnight. Newly-appointed BI governor Perry Warjiyo vowed to prioritize currency and inflation stability, via pre-emptive policy shifts and continued participation in the FX and bonds markets. The central bank revealed that it had bought IDR50trn worth of sovereign bonds YTD, and will continue to keep a close eye on market movements, amid the current US tightening cycle. A stronger USD will continue to pile pressure on the IDR, even with further rate hikes and other supportive measures; expect a higher USDIDR towards the end of 2018.

¨   The EURUSD found some support around a cluster of projection and retracement in the 1.17 area and staged a modest rebound to end the day higher +0.15%. The pair likely rose on the soft USD and as investors may start to get accustomed to the new political paradigm in Italy. While the nomination of a novice PM who will have to handle an almost utopian political agenda (as we know so far) given the country’s public debt and manage and/or arbitrate divergences emerging from the disparate coalition sends an alarming message to European watchers and markets, we believe that the lack of political experience (of the PM and both parties) will mitigate the risk when facing the intricacies of policy-making should they contain their anti-EU stance. On a tactical basis in the near term, we would look to buy dips above the 1.1500 support as the ECB is likely to communicate on the next monetary policy step and a confirmation date to end the APP.