FW: RHB FIC Rates & FX Market Update - 29/10/14

29 October 2014

Rates & FX Market Update

FOMC to Retain its Dovish Tilt; BoE Signaled a Delay in Rate Hike; Indonesia's First Parliamentary Meeting a Mild Disappointment

Highlights

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¨    Risk-on sentiment aided by a 7y high consumer confidence print, improvements in the labour market and falling oil prices drove yields on USTs modestly higher; 10y UST yields touched 2.3% for the first time in 2 weeks. We expect FOMC to announce the end of QE3 but retain a dovish tilt, remaining cautious of global growth momentum. Demand for the 2y UST was relatively softer with a BTC of 3.1x, compared to an average of 3.4x from the past 10 auctions. In UK, Gilts tracked UST yields higher despite dovish remarks from BoE’s Cunliffe, signaling the possibility for the central bank to delay the rate hike given the softer rise in wage and inflation in the recent months. Aside, movements across the EGBs were muted after Bunds recorded strong gains in the prior session, buoyed by the grim growth outlook; EUR steadied overnight with investors attention diverted to the US.

¨    IndoGBs and USDIDR traded softer overnight on dissapointment from the absent fuel subsidies discussion at the parliament first meeting which may indicate a possible delay in fuel price hike. The USDKRW broke its 1050 support, boosted by its persistently robust current account surplus, suggesting further downside risks albeit muted ahead of the FOMC meeting. Meanwhile, investors shrugged off developments on the Hong Kong protest front even as the protestors demand a meeting with Premier Li; HKGBs relatively stable. Singapore’s MAS reiterates for growth to range between 2.5-3.5% in 2014 and 2015, with core inflation likely to remain moderately high, pressured by tight labour market as well as higher prices of food imports from the region.

¨    EURUSD steadied around the 1.273 levels overnight after a failed breakout during the US session given the stronger than expected US consumer confidence data. The pair may trend higher next week given expectations for ECB to stand pat next week, pausing to assess the effectiveness of covered bond purchases, alongside Fed’s dovish stance tonight.

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