FW: RHB FIC Rates & FX Market Update - 27/10/14

27 October 2014

Rates & FX Market Update

Bunds Marginally Rallied Ahead of ECB AQR Results; GBP Held Ground at 1.60 As UK 3Q GDP Met Estimates

Highlights

¨   Market action saw USTs traded sideways as US macro releases were relatively in line with expectations. Meanwhile, German Bund yields pushed marginally lower ahead of the ECB AQR results on Sunday, where 25 banks showed shortfall in capital of EUR25bn through the review period-ended December 2013. However, most of the affected banks only include peripheral European banks (Italy and Greece) and have since raised capital to curb the shortfall required to withstand a sharp recession. On a lighter note, GBP recovered 0.34% higher overnight as UK’s first estimate of the 3Q13 GDP showed the country’s economy expanded 3.0% y-o-y, in line with expectations. The solid growth was attributable to +0.7% increase in services sector, +0.5% in production as well as +0.8% growth in construction sector. Separately, yields on JGBs continued to be pressured lower on firm demand from continued bond buying from the BoJ.

¨   Over in Asia, Singapore’s industrial production declined in September by 1.2% y-o-y (August: +4.2%), as manufacturing continued to be weighed down by the weaknesses in electronics (-1.7% y-o-y) and biomedical manufacturing sectors (-10.3% y-o-y). While the IP was a non-mover, this may weigh on 3Q GDP which may be poised to be revised downwards in the next reading. Over in Indonesia, IndoGBs rallied across the curve, suggesting heightened market confidence for Jokowi’s choice of ministers ahead of his new cabinet announcement over the weekend.

¨   GBPUSD staged recovery on Friday to hold at 1.608 as UK growth showed resiliency in the 3Q14 despite facing the brunt of Eurozone’s slowdown. Reversing signs of disinflation in Eurozone with October CPI due Friday could give a marginal boost to the GBP in the near-term, while we still hold a neutral view on the currency.