FW: RHB FIC Rates & FX Market Update - 28/10/14

28 October 2014

Rates & FX Market Update

Hong Kong Trade Data Fueled Concerns on China’s FY14 Growth; Jokowi’s Cabinet Choice to Ease Obstacles on Fuel Subsidies Cut

Highlights

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¨    Yields on USTs remained subdued as investors pushed back expectations for first rate hike; expect Fed to announce the end of QE3 program but retain its dovish forward guidance, citing uncertainty in global growth momentum. Core European bonds outperformed its peripheral counterparts as Germany’s IFO Business Climate continued its descent, prompting demand for safer Bunds over the riskier peripheral bonds.

¨    SGDCNY direct trading will commence today with the pair allowed to trade within 3% of the central parity rate set at 9.15am on every business day. SGD is the ninth currency to have direct trade links with CNY, which will reduce trade cost and further China’s pursuit of CNY globalisation. Else, Hong Kong’s trade data fueled concerns on China’s inflated exports as discrepancies emerged between Hong Kong imports from China and the corresponding China’s exports, indicating possible capital inflows to China, undermining optimism from China’s robust trade and growth; CGBs expected to trade firm. Indonesia’s 5y CDS fell to the lowest in 5 weeks following Jokowi’s cabinet nomination, naming Bambang Brojonegoro as the next Finance Minister. Brojonegoro, who is the vice finance minister in the previous administration, also shares the same vision to gradually phase out fuel subsidies in favour of infrastructure projects should inject some optimism to support the IDR which has been weighed by the Prabowo’s domination in both houses of the legislature. Meanwhile, World Bank has forecasted for India to grow by 5.6% in FY15, accelerating towards its long-run potential as India prepares for GST implementation; yields on GSecs declined 4-9bps.

¨    While we expect both Fed and BoJ to broadly retain their dovish stance in the meeting later this week, USDJPY is likely to trend lower in the near term as declining oil prices is likely to compound BoJ’s subdued inflationary woes, where we expect BoJ’s FY15 median inflation forecast to be lowered. Also, subdued oil prices should also provide some support for JPY, relieving deficit pressures off rising energy imports.