FW: RHB FIC Rates & FX Market Update - 7/10/14

7 October 2014

Rates & FX Market Update

DM Govies Broadly Gained as German Factory Orders Wanes; USD Squeezed; HKGBs Fell on Easing Political Tensions

Highlights

¨    DM govies broadly gained as safe haven bids dominated following the disappointing German factory orders print (-5.7% m-o-m) in August. The DXY retreated from its 4-year high, even though the rise in Fed’s LMCI index echoed the strong September US payrolls last Friday. Separately, Greece unveiled its 2015 budget which includes tax cuts aiming to narrow its fiscal deficit as well as reducing austerity measures given improving public finances and a better economic outlook; GDP projected at +2.9% for FY15, up from +0.6% projected for 2014. EUR was partly supported by the budget optimism, recovering +1.12% to 1.265/USD. Looking at the auctions ahead, the new 3y UST should continue drawing interest from offshore players, while the 30y GILT to remain supported by pension funds. Else, RBA and BoJ will reconvene today where we expect the former to maintain its accommodative monetary policy in bid to support Australia’s non-mining sector and the latter to reiterate its dovish rhetoric to the market.

¨     Over in Asia, mixed overnight markets with better selling on the USD amid a relatively sluggish session; KRW however slid lower to 1069/USD (-0.65%) following its second monthly decline in foreign reserves (-0.84% m-o-m). HKGB yields rose 1-2bps across the curve on progress towards the pro-democracy protests in Hong Kong on Monday, where the Government held the first of many talks with Hong Kong Federation of Students. BI is expected to maintain status quo today, while expectations of slower inflation will provide a breather to BSP’s tightening speculations.

¨    The JPY has marked a 5.3% depreciation against the USD since September. Despite Kuroda highlighting benefits of a weaker Yen, we expect the weaker currency to limit BoJ from further stimulus at the meeting today, contrary to market chatters. The USDJPY should remain driven by the USD, but a short term pullback may occur should BoJ officially abandon its 2y inflation target.