Rates & FX Market Monthly Fixed Income & Currency Research

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Polly Chase
6 years ago
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1 , Rates & FX Market Monthly May 8 y USTs Failed to Break Above % Global Markets: US & UK: The USD strongly rebounded in April across the board as the correlation with interest rate differentials resumed. Indeed, the global synchronized growth story appears to fade as other major economies started 8 on a weaker footing putting growth differentials and consequently monetary policies asynchrony to the fore front as the US is seen to take the growth / hawkish lead. That s why the EUR (-.%), JPY (-.88%) and AUD fell the most against the greenback given the respective central banks cautious stance and the rise of UST yields which saw the y testing the psychological % level. In the UK, the economy cooled down in the first quarter as GDP growth missed expectations (.% vs.%). The GBPUSD which initially rose on easing political concerns later tumbled (-.8%) as the odds of a BoE May rate hike fall to c.% from c.7% at the end of March. Eurozone: The EURUSD under the pressure of growth and interest rate differentials. The month of April saw a change of regime as the beta between the EURUSD and interest rate differentials strongly rebounded. Indeed the currency has increasingly been sensitive to monetary policy discrepancy, a factor ignored since H7. While the Fed remains embarked on a tightening cycle, disappointing Q8 economic data in the Eurozone gave more resonance to ECB President Mario Draghi s usual cautious stance although the bank is still expected to start normalizing in 8. Japan & Australia: The Japanese Yen also suffered as the risk sentiment improved. Once feared by market participants, trade tensions eased over the course of April as US President Donald Trump flip-flopped his stance on trade lowering the risk of an all-out trade war. The safe haven Yen was the first currency under pressure against the USD in April, and the pair later on climbed further on the growth and interest rate factor. Over in Australia, y and y ACGB yields climbed c.-7bps m-o-m, pressured by higher global rates. Q8 inflation data revealed disappointing headline CPI, although core prices were a touch firmer than expected. While Australian money market rates faced greater upward pressure on rising USD funding costs, momentum has stalled on this front, with RBA eyeing a mild reversal over the coming months. AUD fell almost % against the USD amid the latter s strength, not helped by mildly disappointing labour data alongside iron ore prices coming under pressure. Chart : Major y Bond Yields % Apr 7 Jul 7 Oct 7 Jan 8 Apr 8 US UK GE JP Source: Bloomberg, RHBFIC Chart : Selected AxJ y Bond Yields % % Apr 7 Jul 7 Oct 7 Jan 8 Apr 8 SG SK MY Source: Bloomberg, RHBFIC AxJ Markets: China & Singapore: PBoC delivered a surprise RRR cut to ease liquidity conditions; MAS steepened SGD NEER slope. Moving on to China, y and y CGB yields fell c.-bps w-o-w after PBoC announced a surprise ppt broad RRR cut that could unleash a net CNYbn of liquidity after MLF repayments. Despite the move, USDCNY proved more resilient against regional currencies, with the pair c..9% higher m-o-m compared to more than % uptick in the DXY. Q8 GDP grew at 6.8% y-o-y, in line with consensus, underscoring healthy economic dynamics and sustain the Chinese growth story. In Singapore, MAS decide to increase slightly the slope of the SGD Quek Jia Wen quek.jia.wen@rhbgroup.com Nicolas Sopel nicolas.sopel@rhbgroup.com See important disclosures at the end of this report

2 NEER (from flat previously) on emergent inflation pressures alongside a relatively sanguine economic view, although it acknowledged several contentious areas (including US-China trade war). However, both March CPI and core CPI disappointed consensus expectations, although unlikely to derail MAS s inflation views at this stage. Despite the tightening, SGD fell c..% against the USD, while y and y SGS yields climbed c.5-bps amid higher UST yields. Thailand, Malaysia & Indonesia: THB, MYR and IDR fell more than % against the USD as y USTs tested the % level. The THB fell c..% against the USD, while y and y ThaiGB yields were c.-bps higher m-om, mostly in line with regional market movements. Economic drivers remain intact at this stage amid steady trade activity and an improving tourism sector. BoT remains watchful of market conditions, although recent THB weakness should offer a reprieve, given the relentless strengthening of the currency since 7. Elsewhere, Malaysian assets moved in line with regional market movements, driven by higher US yields and a rebound in the USD. March inflation came in below expectations (.% y-o-y; consensus:.6%), although not sufficient to dampen BNM s normalization stance. PM Najib vowed to cut corporate and personal taxes over the next 5 years, with the Malaysian government aiming to achieve a balance budget by or. Last but not least, y IndoGB yields inched c.bps higher m-o-m to 6.88%, and broke through the 7% psychological level intra-month, pressured by rising US rates alongside EM-wide selloff. Investors have also begun to speculate BI tightening in order to counter IDR weakness, even as BI kept its 7D benchmark rate unchanged at.5% with no notable change in the statement s rhetoric. However, BI officials hinted that any policy tightening will be the last resort to keep IDR strength in check. Rates & FX Market Monthly May 8 See important disclosures at the end of this report

3 May 8 Monthly Sovereign Rates and FX Changes Country Closing Yield (%) y Yield Change m Avg Yield (%) Closing Yield (%) Yield Change y m Avg Yield (%) Current vs m Avg /y Spread US Currency ** FX Rate (per USD) Last Traded Price Daily Change (%) DXY ADXY UK GBP GE FR SP EUR IT PO JP JPY AU AUD SG SGD SK* KRW, CH* CNY CH (offshore)* CNH MY* MYR SGD/MYR TH THB ID* IDR, Source: RHBFIC, Bloomberg *y **Against USD unless otherwise mentioned

4 Yield Curve Recap UST GILT Bund M M 6M Y Y Y 5Y 7Y Y Y M 6M Y Y Y 5Y 7Y Y 5Y Y Y OAT SPGB PGB M 6M Y Y Y 5Y 7Y Y 5Y Y Y M 6M Y Y Y 5Y 7Y Y 5Y Y Y JGB ACGB SGS M 6M Y Y Y 5Y 7Y Y 5Y Y Y KTB CGB CNH CGB M 6M Y Y Y 5Y Y Y Y MGS ThaiGB IndoGB Y Y Y 5Y 7Y Y 5Y Y Y M Y Y Y 5Y 7Y Y 5Y M 6M Y Y Y 5Y 7Y Y M M 6M Y Y Y 5Y 7Y Y 5Y Y Y May 8 Y Y Y 5Y 7Y Y 5Y Y Y M 6M Y Y Y 5Y Y Y M M 6M Y Y 5Y Y 5Y Y Y Y Y 5Y 7Y Y 5Y Y Y Y 5Y 7Y Y 5Y Y Y Source: RHBFIC, Bloomberg

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Rates & FX Market Update Fixed Income & Currency Research

Rates & FX Market Update Fixed Income & Currency Research US, China to Again Attempt Negotiating Over Trade Rates & FX Market Update Global Markets: The DXY was relatively unchanged overnight while increases in 2y and 10y UST yields were limited to within 1bps,