4 July 2014
Rates & FX Market Update
NFP Data Outperforms Expectations; TLTRO Details from ECB
Positive for Peripheral European Carry Trade but Bearish on EUR
Highlights
¨ US
NFP rose to 288k while unemployment fell to 6.1%, both lending support to
better risk taking overnight; DXY rebounded back above 80 while the UST curve
bear steepened up to +6bps. ECB meeting came and went away rather quietly with
no major changes; the ECB committee will meet 8 instead of 12 times annually
starting 2015. Yesterday's focus was on the modalities of TLTROs which hinted
at preparatory plans for ABS purchases, we expect the liquidity to continue
support carry trades in the peripheral bonds but presents additional downside
risks for the EUR; the EURUSD touched a low of 1.3596 resultantly. ACGB yields
and the AUD traded lower overnight after Glenn Stevens stressed that the AUD
was overvalued while emphasizing that recent GDP data does not reflect the true
pace of economic growth.
¨ Asian
bond markets were broadly negative with the exception of RPGBs ahead of
expectations for inflation to ease marginally. The CNY steadied yesterday after
3 days of lower PBOC fixing rather than being data sensitive. Else, Indonesian
election uncertainty has heightened given the narrowing gap between Jokowi and
Prabowo where the latter has executed a strong campaign with better media and
funding support; we turn tactically bearish towards Indonesian markets ahead of
election results. Back home, the MYR strengthened against the USD supported by
offshore demand ahead of the 5y MGS reopening and trade balance data.
¨ AUDUSD
broke the 20day SMA on RBA comments for a weaker AUD and a stronger USD, with
strong support at 0.9345/8 yesterday. Despite RBA’s recent tolerance towards
the AUD’s strength post budget, dovish comments from Stevens reinforced the
notion for a significantly weaker AUD “at some point”.
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