28 June 2018
Rates & FX Market Update
No Backing Down on “Trade War” From the US Side
Highlights
¨ Global Markets: Trade tensions and risk aversion dominated markets once again following comments from Trump’s economic adviser Larry Kudlow who mentioned that the US President is maintaining his hard stance on trade. Treasuries rallied, 10y yield dropped -5.1bps d-o-d and the US Dollar appreciated across the board (against G10 and EM Asian currencies).
¨ AxJ Markets: Chinese May industrial profits climbed at a healthy pace of 21.1% y-o-y (YTD: 16.5%), rebuffing any imminent slowdown concerns at this juncture. However, the USDCNY surged past the 6.60 mark overnight, with investors fearful of an impending bear stock market, coupled with US officials’ affirmation of not softening towards China at this juncture. However, fixings came in stronger than expected, softly affirming PBoC’s desire to maintain stability to avoid a repeat of 2015/16; we eye a higher USDCNY over the medium term.
¨ The Sterling Pound is the currency that fell the most against the USD under our coverage. While the Dollar rose across the board, the speech by the Bank of England’s governor, Mark Carney, weighed further on the GBP. He expressed concerns about protectionism and the effects on global growth, and the emerging risks of disruption for financial firms with the Brexit. Such factors limit the opportunity for the central bank to raise interest rates this year; remain neutral GBP.
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