21 April 2017
Rates & FX Market Update
Stable Sentiment Heading Into the
French Presidential Election
Highlights
¨ Global
Markets: The US reflation theme got a boost overnight following Treasury
Secretary Mnuchin’s optimism that a major tax reform may come very soon,
further supported by decent initial and continuing claim numbers and a strong
TIPS auction. 2y and 10y UST yields climbed 1-2bps overnight, although the DXY
remained relatively unchanged; we reiterate our neutral UST stance. Over
in the EU, EUR managed to hold its ground against the USD after a Harris poll
revealed a 0.5ppt boost to Macron, while National Front’s Le Pen saw a 1ppt dip
in support, compared to last week’s Harris poll; 2y and 10y OAT yields fell
c.1-3bps overnight, while yields on Bunds widened. The tight 4-way race into
the first round of polling this Sunday continues to introduce uncertainties
among market participants, which could extend into the second round if either
Le Pen or Melonchon advances; stay mildly bearish EUR.
¨ AxJ
Markets: USDMYR broke the 4.40 psychological support overnight, and
continued to dip this morning towards 4.39, as movements throughout AxJ
appeared subdued. Malaysia’s foreign reserves data due later today may offer
some insights into BNM’s FX stance and investors’ sentiment towards the
country; we stay neutral MYR over the near term. Elsewhere, BI held its
benchmark policy rate at 4.75% with a neutral policy inclination, although a
senior official mentioned the possibility of rate hikes if condition
necessitates it. The policy flexibility towards both ends of the spectrum
should continue to underpin relative FX stability within the region; we remain
neutral IDR, as the currency remains attractive on a carry basis.
¨ USDJPY
jumped 0.40% overnight after BoJ Governor Kuroda stated that he does not see
any restrictions to the bank’s ability to implement its policies, and that the
current pace of asset purchases “would continue for some time”. He also
reaffirmed that the bank’s policy remains targeted towards price stability,
where we judge the probability of being called out as a FX manipulator over
the near term remains very low; stay neutral JPY.
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