Treasury Alert - 8 May 2014

Good Morning

Two main themes in the market is signs of possible easing to the geopolitical concerns over Ukraine and dovish statement by Federal Reserve Chair Janet Yellen indicated continued central bank support for the U.S. economy,

Russian President Vladimir Putin said he was ready to discuss a way out of the Ukrainian crisis and called on separatists in east Ukraine to postpone a May 11 referendum on the status of the mostly Russian-speaking region. 

Putin also said Moscow had withdrawn troops from the border with Ukraine.

However, the White House said it has seen no evidence that Putin has pulled Russian troops back from the Ukrainian border, and said it wants a referendum on secession to be canceled, not merely postponed.

Gold, viewed as a safe-haven asset, fell 1.4%. Gold had risen to a high of US$1,314.70 earlier as fears that a stand-off between pro-Russian separatists and government troops in Ukraine could bring the country to war.

Yellen said the U.S. economy was still in need of support from the central bank given the "considerable slack" in the labor market. She also cited the housing sector and geopolitical tensions as issues of concern.

Yellen's comments also affirmed a view that the Fed will end its asset purchases this fall as expected.

Futures markets showed traders pushed back their expectations for a first Fed rate hike to July 2015 from June 2015.

US Treasury yields remained close to trend lower - with the 10-year yield closing unchanged at 2.59% after touching 2.57% at one stage despite easing geopolitical issues.

Stock markets reacted positively to encouraging developments in the Ukraine crisis and reassuring comments from Fed chair Yellen - with the Dow rising 0.7% higher while the S&P gained 0.56%.

USD rose broadly despite dovish comments from Yellen as traders removed short positions against USD as the comment is seen as having less effective in weakening USD.

NZD was the worst performing currency on Wednesday - falling 0.8% against USD and 0.6% against the AUD.

NZD gave up gains on RBNZ's Wheeler comments regarding the high NZD and intervention possibility and the weaker NZ jobs data.

Asian session, focus will be on Australia employment data and China trade data.

The median expectation for the Aus jobs is plus 6,750.

China trade data will be important, as it comes at a time when concerns the Chinese economy is weakening.

Both exports and imports suffered deep declines in March (6.6% and 11.3% respectively) and expectations for April are for a small 0.9% decline in exports and a small 0.3% pick up in imports.

European Central Bank (ECB) is widely expected will remain on hold, but Draghi's press conference will be closely monitored.

The BoE's two-day meeting started on Wednesday, and this is the committee's first at which the members will discuss a wide array of indicators, not just the jobless rate, to determine how the economy is performing before deciding on interest rates.

USD/MYR traded a 3.2410-3.2535 range on Wednesday; last at 3.2535.

USD/MYR rebounded from earlier lows amid USD buying interest, a rise in USD/CNY and weaker local trade data figures.

Exports moderated to 8.4% yoy in March, from +12.3% in February. Total imports also slowed to only 0.5% yoy in March from +9.5% in February.

Overnight, USD/MYR NDF traded a 3.2485-3.2565 range; last in NY at 3.2500/20.

USD/MYR opened Thursday’s session at 3.2480-2500 and expected to trade between 3.2400-3.2600 range.

Linda Lopez

Derivatives Sales

Global Markets, RHB Bank Berhad

Level 3 Tower Two, RHB Centre, Jalan Tun Razak, 50400 Kuala Lumpur.

DL +603- 92072831 | M +012-3703084  | F +603 9287 4888

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