FW: RHB FIC Rates & FX Market Update - 8/6/18

 

 

 

8 June 2018

 

 

Rates & FX Market Update

 

 

China and Malaysia’s Foreign Reserves Contracted in May

 

Highlights

 

¨    Global Markets: US Treasuries and safe haven currencies such as the Japanese Yen rallied on the back of rising tensions ahead of the G7 summit and as some emerging countries in Latam such as Brazil and also South Africa saw their currency weakened (BRL -1.36% and ZAR -2.05% d-o-d respectively). The Euro continued to rise (+0.19% d-o-d) on bets ECB will signal the end of the APP next week backed by comments the head of Germany’s central bank and his Dutch counterpart; globally the US Dollar was under pressure against European currencies.

¨    AxJ Markets: China’s foreign reserves were valued at USD3.111trn as of May 2018, marginally below the USD3.125trn logged in April, but higher than consensus expectations of USD3.107trn. SAFE blamed the depreciation of major non-USD currencies impacting valuations, and reiterated that reserve levels are expected to remain stable over the near to medium term. With outflows not a concern at the moment, we do not expect the above to impact Asian sentiment materially, with Chinese economic and credit conditions still the most important signals to eye; stay neutral CNY.

¨    USDMYR was relatively flat overnight, remaining near the 3.98 level. Foreign reserves fell USD0.9bn to USD108.5bn in the 2 weeks till end-May, while fresh foreign holdings data revealed a c.MYR10bn outflows in MGS/GII over the month of May, pressured by persistent gyrations in global markets. With more EMs succumbing to pressure, while the US Fed shows no signs of slowing down its tightening trajectory, we continue to expect foreign investors to remain cautious over Malaysian assets over the coming months; a neutral MYR stance remains appropriate.