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

 

 

 

6 June 2018

 

 

Rates & FX Market Update

 

 

Italy’s Radical Fiscal Plans Sent Yields Soaring

 

Highlights

 

¨    Global Markets: The US Dollar dropped on Tuesday (DXY -0.17%) despite strong ISM non-manufacturing data. The EURUSD erased earlier losses as (i) the ECB is now expected to discuss on the winding down of the APP at next week’s meeting, and (ii) the new Italian PM clarified that leaving the EU is not a goal of the populist coalition. However the announcement of a program for fiscal expansion sent BTP lower with yields rising as much as c.25bps across the curve since such a program would challenge the EU’s 3% limit for the fiscal deficit. Italy has managed to remain above the limit since 2012. Over the near-term horizon, we prefer to remain caution with mounting uncertainties: while there is a Trump normalization, the repetitive flip-flops on trades create volatility, the Fed and the ECB meetings are due next week, and the outcome of the US / North Korea summit on 12^th of June is hard to predict.

¨    AxJ Markets: Over in Malaysia, April exports climbed 14% y-o-y, better than the 6.3% expected; imports surged 9.1% y-o-y (consensus: 3.8%). Overall trade balance came in better than expected (USD13.1bn; consensus: 12.7bn), and the overall rhetoric remains supportive of Malaysia’s trade outlook. MGS yields and the USDMYR were relatively unchanged overnight, while recent news flow over BNM’s leadership is unlikely to have a material impact over the medium-term, given strong growth fundamentals and external balances; stay neutral MYR against peers.

¨    AUDUSD fell c.0.4% overnight despite a softening in the dollar, amid a weaker-than-expected current account report and RBA maintaining its previous policy stance, which continues to disappoint hawks. RBA eye contained, low inflation “for some time”, with the Australian dollar within range over the past 2 years, likely indicating that the bank remains comfortable towards the current cash rate; a neutral AUD stance remains appropriate.