FW: RHB FIC Rates & FX Market Update - 30/5/18

 

 

 

30 May 2018

 

 

Rates & FX Market Update

 

 

Unscheduled BI Meeting Later Today amid Market Turmoil

 

Highlights

 

¨   Global Markets: The Italian political crisis deepened and exacerbated the risk sentiment: 10y UST yield dropped another -15.0bps closing below 2.80% while the Japanese Yen rose +0.70% against the greenback. Italian assets are under pressure: the MIB equity index sold-off erasing 2018 gains, 5Y CDS swaps skyrocketed above 250 and BTP collapsed with the 2y yield rose above 2.50% raising questions about the country’s solvency. The Euro consequently plunged losing -0.73% on Tuesday; while the pair is now close to 1.15 as we expected there is little catalyst that could push the EURUSD higher in the short/medium term as the headline risk should remain elevated until the political situation resolves in Italy.

¨   AxJ Markets: Over in Indonesia, BI has an unscheduled policy meeting later today, where another 25bps rate hike is expected amid rising global markets volatility. USDIDR was unchanged overnight amid holidays across many ASEAN markets, although the pair now hovered around 14,000, where it was c.14,200 in the previous week. Rising global market uncertainty should continue to pile pressure on the IDR, although we do not eye a material Rupiah depreciation at the current juncture; stay neutral IDR in view of the carry.

¨   AUD fell c.0.5% against the USD overnight, driven by a stronger USD amid Italian political woes impacting higher-beta currencies, including the Australian Dollar. Expect volatility on the AUD to persist, given the currency’s tendency to be used speculatively. We also eye a lower AUDUSD pair going forward, given RBA’s non-commitment towards policy tightening vis-à-vis the US Fed.