30 March 2017
Rates & FX Market Update
The “Brexit” Gears Have Been Set in
Motion
Highlights
¨ Global
Markets: UK officially formalised its desire to exit the EU bloc overnight,
with UK’s EU ambassador delivering a letter to EC President Donald Tusk,
triggering Article 50 of the Lisbon Treaty. While the core contents of the
letter contained nothing new, disagreements have begun to surface from both
sides of the table, in what looks to be a tough and challenging negotiation
process. Investors are likely to focus on EU’s initial response to UK’s
exit request, although GBP losses sustained overnight appeared relatively mild;
stay cautious towards the GBP over the near to medium term. Over in the
EU, the common currency underperformed the GBP overnight, weighed down by UK’s
triggering of Article 50, alongside news report that ECB officials appear
unwilling to revise their dovish inclination before mid-year. While a Le
Pen’s presidency is not our base case, as well as the consensus’s scenario, huge
tail risks associated with it should continue to keep the EUR under pressure
ahead of the French elections; we remain mildly bearish towards the EUR
over the near term.
¨ AxJ
Markets: BoT held the benchmark rate at 1.50% yesterday, although the bank
voiced concerns over the strength of the Kingdom’s currency that could
potentially derail the current economic momentum. While BoT upgraded the
2017 GDP forecast to 3.4% (previous: 3.2%), eyeing more foreign tourist
arrivals this year, the bank also downgraded its 2017 inflation forecast to
1.2% (previous: 1.5%) due to lower oil price assumption. We continue to position
for BoT’s status quo decision over the foreseeable future amid financial
stability concerns; stay neutral THB.
¨ AUDUSD
climbed 0.47% overnight to 0.7672 despite the dollar’s strength, likely on
quarter-end fund flows given the recent JPY retracement, amid little
fundamental catalysts. Data due this morning revealed improving New Home Sales
m-o-m, while job vacancies expanded albeit at a slower pace than in January. Expect
the AUD to remain sentiment-driven over the coming weeks; stay neutral AUD at
current levels.
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