FW: RHB FIC Rates & FX Market Update - 28/8/14

28 August 2014

Rates & FX Market Update

Global Rally Overnight; USD Takes a Breather; Solid 5y UST Auction; Weak Demand for Thai Exports  

Highlights

¨    Global markets rallied overnight, USD a touch weaker. UST yields fell -2 to -6bps across the mid-to long-end following a solid 5y USTs auction (yield: 1.646%) yesterday which garnered a strong BTC of 2.81x, with stronger bids from non-PDs. Meanwhile, US budget deficit for FY14 is expected to end wider at USD560bn vs April’s forecast of USD492bn, due to lower corporate tax revenues, but below FY13’s USD680bn. Despite the relatively modest deficit projection, public holding of USTs is expected to reach 74% of GDP by end 2014, the highest since 1950s.  Elsewhere, Bunds extended gains following the weaker GfK consumer confidence survey and ahead of the CPI numbers, where a slower print than July’s 0.4% (exp: 0.3%) could push for an ECB action next week to avert prospects of deflation in the Eurozone.

¨    Asian markets mostly positive overnight, demand for currency supported gains across Asia in the absence of data movers. South Korea’s current account recorded a surplus of USD7.91bn for the 29^th successive month, supported by firm exports which could buoy the KRW in the near-term. Elsewhere, Thai custom exports turned negative to -0.85% y-o-y in July, suggesting weak external demand despite the stronger custom imports print (-2.86% vs -14.03% prior); resultantly the 15y ThaiGB reopening garnered relatively weak demand

¨    PHP gained 0.27% overnight ahead of better 2Q14 GDP expectations this morning (actual: 6.4%). However, a stronger growth over 2H14 is necessary for Philippines to achieve its 6.5-7.5% target. The pair broke its 50-day MA of 43.65 this morning, and further speculations of another 25bps rate hike could support the strengthening PHP trend.