FW: RHB FIC Rates & FX Market Update - 22/9/14

22 September 2014

Rates & FX Market Update

G20 Leaders Cautions on Complacency over Low Interest Rates; MGS Outperformed Asian Bond Markets

Highlights

¨    The G20 meeting highlighted concerns on the complacency over low interest rates and potential financial market risks amid the uneven global growth, particularly if volatility spikes. Both the UST and USD traded firmer on Friday, with the bulk of investors’ attention diverted to the Euro area. The failed Scottish referendum led to strong selling of the GBPUSD (-0.74%), more pronounced during the US afternoon session, breaching its near term support of 1.6366. The rejected Scottish independence also eased concerns over a similar attempt by the Catalunya; SPGBs led the Eurozone government bond rally overnight. EURUSD declined to a fresh 14 month low, with better selling against majors following the dismal TLTRO take-up, escalating QE expectations from Draghi’s testimony to the Parliament Committee. The AUD fumbled further against the USD as investors continued to sell ACGBs; implied volatility on the pair spiked to c.8.5% (avg: 6.6%).

¨    Asian bonds and currencies were largely mixed with MGS markets outperforming on expectations for BNM to leave OPR unchanged this year. Malaysia’s Ministry of Finance has revised 2014 growth projections up to 5.5-6.0% (previous: 5.0-5.5%) given the strong 1H14 growth (+6.3%). Aside, Chatib Basri has highlighted higher US rates as one of Indonesia’s key risk given the country’s weak budget and fiscal outlook; investors remain peeled to the pending fuel subsidy cut announcement at this juncture.

¨    EURUSD broke 1.29 to a 14 month low of 1.2828 on better selling following the tepid TLTRO reception. Effects of the September rate cut appear to be thinning out, spurring expectations for a broader based asset purchase program. The divergent monetary outlook and recovery between Fed and ECB continues to support our pessimism on the EUR, particularly a broadly stronger USD.