FW: RHB FIC Rates & FX Market Update - 3/10/14

3 October 2014

Rates & FX Market Update

ECB Meeting Disappointed Investors; EGBs Fell; Markets Took Profit on EUR’s Shorts; Yudhoyono Reinstitutes Direct Elections

Highlights

¨    UST losses were mitigated by the weak factory orders even as the stronger initial jobless claims set the stage for a firmer NFP rebound labour market data tonight, supporting higher UST yields. Investors were perhaps more fixated on European developments overnight; the EURUSD’s climb halted ahead of 1.27 during Draghi’s speech given the clear disappointment towards the lack of details on the asset purchase programmes and the absence of any further QE; the main policy rate unchanged at 0.05%; EGBs posted losses, returning prior gains as market remained doubtful on Draghi’s commitment to “do whatever it takes” to lift EU out of its weakness. Gilts posted overnight, supported by the weaker manufacturing PMI print, where the split within BoE is expected to intensify

¨    The escalation of protests in Hong Kong (HK) has left China banning mainland tours to HK during the Golden Week, highly detrimental to the country’s economy given that c.50% of sales in 4Q14 is typically derived in the week. Thailand’s government has approved the usage of surplus budget from FY14 (THB364.5bn) for the rest of CY14, largely utilized for infrastructure spending is likely to boost the weak 2H recovery. BoT’s Prasarn maintained expectations for 2H growth to print 3%; short dated ThaiGBs posted modest gains while THB remained resilient despite weak trade data. Else, outgoing Indonesian President Yudhoyono has signed the bill to reinstate Indonesia’s direct elections, overturning the earlier elimination. Jokowi’s reforms continues to be sidelined amid the political divide; IDR to remain under pressure.

¨    Malaysia raised fuel prices yesterday, a fiscal positive move, ahead of its budget on 10 October. The USDMYR strengthened by 0.76% following the sentiment boosting move. Further fiscal consolidation plans through further subsidy cuts and widening of tax base should continue to support the MYR against the USD appreciation in addition to its strong reserves of c.8 months to imports.