FW: RHB FIC Rates & FX Market Update - 19/9/14

19 September 2014

Rates & FX Market Update

GBP Rallied Ahead of Vote Against Scotland Independence; Dismal ECB TLTROs Adds QE Pressure; BNM Left OPR Unchanged

Highlights

¨    G20 meeting underway; expect further discussions on growth trajectories and supportive policies for the weaker countries. USTs closed mixed, partly driven by the sharp drop in jobless claims with the 4-week average tailing the post-crisis low at 299.5K, while disappointing US housing starts and building permits supported lower yields. Meanwhile, GBP climbed to 1.64/USD, its highest since early September as final YouGov polls predicted a 54% of the “No” victory for the Scotland referendum, ahead of the results today. Separately, the disappointing take-up of the first ECB’s TLTROs by European Banks added QE speculations where we opine is priced in the Bunds at this juncture; front-end bund yields edged slightly lower overnight. In Japan, the USDJPY hit a 6y high, where the weakness was further exacerbated by the net selling of domestic bonds from Japan’s pension funds in favour of overseas allocation in search for higher yields.

¨    BNM maintained the OPR at 3.25% on moderating growth and a steadying CPI following the fiscal rationalization measures. Slow exports growth and disappointing factory output dampened prospects of another rate hike this year. IDR fell further against the USD overnight on fuel subsidy cut speculations of IDR3,000 by November and IDR1,500 by end 2015. Aside, India secured a USD20bn 5y plan from China, which includes the set up of industrial parks in India, a positive step for India’s trade deficit.

¨    KRW declined to a 5-month high of 1043.1/USD this morning following the release of FY15 budget where the allocation for welfare spending took up 30.7% of the KRW376trn budget. Also, initial plans for the government to return to fiscal balance by 2017 will be delayed for at least two years which will continue to weigh on the KRW in the near to medium term as a majority of Asian and global economies begin to tighten MPC.