FW: RHB FIC Rates & FX Market Update - 1/6/18

 

 

 

1 June 2018

 

 

Rates & FX Market Update

 

 

Trade Disputes Continue to Cast a Dark Cloud over Market Sentiment

 

Highlights

 

¨   Global Markets: What have caught the headlines and markets’ attention recently (Italy, trade wards and geopolitics) continued to take centre stage. First, the third largest EU economy’s political crisis may be over as Italy is finally getting a coalition government led by neophyte Guiseppe Conte with Giovanni Tria, a little-known economist favourable to keep the country within the EU, as the finance minister and Enzo Moavero and Paolo Savona on foreign and European affairs respectively, both known to be euro-sceptic. Overall as the political crisis seems to be over, Italian debt rallied further with the 2y BTP closing close to 1% after reaching as high at 2.77% on Tuesday and the EURUSD held around 1.17 (+0.21% d-o-d); the common currency also got supported by better-than-expected CPI prints for the Eurozone. Second, trade wars now materialise as the US administration will impose tariffs on foreign metals from the EU, Canada and Mexico which are likely to retaliate. Treasuries were supported paring earlier losses and the broad Dollar index retreated against majors and Asian currencies while both CAD and MXN were however closing in the red. Lastly, uncertainties remain on the US / North Korea summit and overall safe havens were mildly supported: JPY +0.08% d-o-d.

¨   AxJ Markets: Strong Chinese official PMIs due overnight further helped stabilize sentiment in Asian markets, with most regional FX gaining against the dollar. SAFE will continue to promote FX and capital account reforms, potentially allowing greater CNY convertibility and market access for foreigners, which remains a medium-term positive catalyst for Chinese assets. Over the immediate months, investors’ concern remains fixated on PBoC’s monetary policies, where further RRR cuts appear likely, which should help stabilize CGB yields amid rising global rates; stay neutral CGBs.

¨   MYR strengthened c.0.2% against the USD overnight, with the USDMYR pair remaining near the 3.98 level. The Malaysian government announced that the administration remains on track to achieve the 2.8% deficit target, despite bringing the GST rate to 0%. The government eyed additional revenues from higher oil prices and higher dividends from GLCs, as well as the re-introduction of the 10% sales tax. Growth is likely to remain robust, benefitting from stronger domestic consumption; we remain neutral MYR.