FW: RHB FIC Rates & FX Market Update - 14/10/14

14 October 2014

Rates & FX Market Update

Chinese Trade Data Fueled Consumption Woes; MAS Maintained SGD NEER Stance; India’s CPI Boosts Prospect of Sustainable Growth

Highlights

¨    Subdued trading overnight as US and Japanese markets were closed for holidays. GBP remained relatively unchanged while UK govies continued to extend rallies as the Gilt curve was 1-6bps lower as investors expect a delay to the BoE’s tightening cycle on anemic global growth woes.  By contrast, EGBs underperformed led by PGBs (10y:+8bps) following disappointment stemming from Portugal’s rating affirmation by Fitch BB+ (pos) even after the country’s exit from the international bailout fund. AUD reversed previous day losses touching an intra-day high of 0.8782, lifted by the better than expected Chinese trade data; expect the AUD reprieve to be momentary given the weak business and economic sentiment in the country.

¨    CNY and CNH firmer overnight as export and import growth unexpectedly surged albeit against a narrowing trade surplus, suggesting continued reliance on investments rather than domestic consumption. This also paints a somewhat contradictory picture against the declining PMI manufacturing trend. In Singapore, the economy expanded 2.4% y-o-y in 3Q (2Q: 2.4%) as the manufacturing segment was aided by a modest improvement in global activities; MAS maintained a modest and gradual appreciation stance for the SGD this morning. SGD was choppy ahead of MAS decision and subsequently rebounded towards 1.2696 against the USD. In India, long-end Gsec yields gapped lower on easing inflationary pressures in September (6.46%), helped by lower food prices, boosting prospects of a sustainable growth in India within RBI’s target of 8% by January 2015.

¨    EURUSD touched a high of 1.2761 overnight, inching closer to its near term resistance of 1.2825. The pair continued to trade in a wide range of 1.259–1.279 (3m implied vol: 6.8% vs YTD avg: 6.16%) weighed by the dovish market sentiment. Nevertheless, the anemic growth in the region should continue to weigh on the single bloc currency. Investors to keep eyes peeled for ECB to introduce a broad-based QE.