Macroeconomics

• It was another boring day with most markets moving sideways in the absence of fresh leads. Nonetheless, there were some noises over China's policy tightening, triggered by the faster than expected surge in February CPI, which again was distorted by seasonal factors.
• US initial jobless claims fell slower than expected while trade deficit surprisingly narrowed on the back of slower imports. Imports fell for the first time in 5 months while exports posted its first decline in 9 months on fewer exports of aircraft and autos, giving a dent to the otherwise improving trend.
• Back home, industrial production posted a larger than expected gain of 12.7%YOY in January, spurred by higher output gains across the board in manufacturing, mining and electricity. Monthly momentum also appeared positive, with overall IPI rising for the 2nd month in a row, by 2.9%. This, coupled with rising exports, laid the grounds for substainable rebound in the Malaysian economy in 1Q.
• In a separate release, current account surplus rose 7.9% QOQ to RM27.3bn in 4Q, as higher surplus in the goods account offset shortfall in the services and income account. However, investment inflows remained a concern as evidenced ny the larger outflow of RM17.9bn in the financial account, as a result of larger outflow of FDI aggravated by a smaller inflow of foreign portfolio funds.

Forex

• USD traded mixed against majors as risk aversion continued to dissipate. Expect USD to range trade as the economic docket for the US remains fairly light.
• EUR gained vs USD as the currency took a breather after recent losses. We maintain our near team bearish stance on the EUR.
• GBP climbed vs USD and EUR after UK inflation expectations climbed to the highest since Nov 08, fueling speculation interest rates may rise. GBP is likely to retain its downward tendencies on political and public finance concerns.
• JPY dropped against EUR on speculation BOJ to take more credit-easing steps. Expect JPY to stay bear on strong expectations that BOJ will do more easing.
• AUD was near a 7-week high vs USD and JPY as traders bet accelerating growth will prompt the central bank to increase rates. Expect AUD to stay bid.
• MYR closed higher against USD in anticipation a stronger Chinese Yuan may boost Asian currencies. Expect Ringgit to hover at 3.3000 - 3.3200 levels today.

Fixed Income

• UST traded mixed yesterday, with shorter-dated 2s paring lower while longer-dated 30s gained after demand came in strong for yesterday's $13bn 30-year note auction. Shorter-dated notes were seen trending lower following reports that revealed weekly jobless claims declined. Meanwhile bid-to-cover for the 30-year debt sale registered a sturdy 2.89x, up from 2.36x at previous auction held in February. Strong demand at this week's $74bn debt sale indicated that appetite for safe-haven assets remains strong. For next week, all eyes will be on the FOMC's rate decision meeting. Expect no surprises from the Fed, following its earlier hints and assurance on keeping interest rates low as US job markets remain sluggish.
• Back home, MGS traded sideways, with yields relatively unchanged as players stayed sideline awaiting the upcoming RM3.5bn 7.5-year MGS to be auctioned later today. Only yields of the 10s closed 1bp higher to settle at 4.24%. Trading volume for benchmark govvies came in at RM25m, RM160m, RM277m for the 3s, 5s and 10s respectively. Separately yesterday's upbeat IPI report may again pave the way for further rate normalization by the central bank. For next week, players will be tracking closely upcoming inflation data for directives.