RBF UCITS Monthly - June 2018

  • UST curve continued to flatten in June
  • Global trade tensions mounted and the US faced retaliation
  • China cut RRR, as expected, following growing trade tensions
  • Offshore renminbi up 0.25% ytd, in total return terms
  • Protectionism remains the largest risk to global growth

The yield on the 10-year UST was marginally unchanged in June, although the curve flattened; the 2s30s spread tightened to 2007 levels. Meanwhile the dollar retained its upward momentum. Elsewhere, Brent rallied after the OPEC meeting resulted in a smaller-than-expected increase to nominal output; closing just below $80pb. Trade tensions mounted as the Trump-administration announced a review of further trade and investment policies; with the likes of China, EU as well as neighbouring Canada and Mexico retaliating. The US tariff deadline on China goods and services will be announced on July, 6. Meanwhile, the Trump-Kim summit in Singapore, appeared to go through without a hitch; although nothing concrete was announced; there was some talk of denuclearisation and subsequent US and China sanction easing. Another key event was the FOMC meeting where, as largely priced in, the Fed hiked rates by 25bps, to 1.75%-2.00%. There was a fairly muted market response following the end of a relatively more hawkish FOMC meeting and China surprised some market players by refraining from increasing its repo rate in response to the Fed hike; the PBoC appears unfazed by the narrowing interest rate differential.

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