FW: RHB FIC Rates & FX Market Update - 2/10/14

2 October 2014

Rates & FX Market Update

Risk Aversion Supported Global Bond Rally; 10y Bund Sold Below 1%

Highlights

¨    Yields on 10y UST declined 10bps on risk aversion, falling below 2.4% as investors shrugged off the strong ADP print as ISM manufacturing eased to 56.6 (Aug: 59.0), compounding on weaker manufacturing PMI from UK and EU. Meanwhile, the Fed will start to publish the labour market index on a regular monthly basis starting October 6, which will be used to provide a broad assessment on labour market slack, even as unemployment rate declines. 10y Bund paper printed below 1% for the first time at a primary auction; demand was weaker with Bundesbank taking 17.5% of the issuance. EGBs and Gilts rallied across the curve following weaker PMI readings; ECB is expected to maintain its dovish tone at the meeting today.

¨    South Korea’s CPI eased to 1.1% y-o-y, intensifying hopes for a BoK rate cut; 3y KTB yields declined 8bps, falling below the 2.25% policy rate where we opine for no change the BoK meeting next week given low translation to GDP growth. China’s official manufacturing PMI reported flat but was generally a non-mover with Chinese markets closed for the golden week. The subdued CPI in Thailand (Sep: 1.75%; Aug: 2.09%) continue to support BoT to maintain its accommodative policies, supporting the gradual recovery. IDR gained overnight on strong PMI and export growth, shrugging the higher CPI at 4.53% (Aug: 3.99%) impacted from weak IDR and rising energy prices.

¨    Strength in USDJPY abated (-0.58%), dampened by the weak US, UK and EU PMI exuding growth concerns. This is in addition to the weak demand from Europe which boosted demand for the safe haven JPY. We expect US data to continue driving the USDJPY pair this week, where a rebound in NFP data alongside firm labour market data should bolster further confidence in the US recovery