RHB FIC Rates & FX Market Weekly - 30/03/15

30 March 2015

Rates & FX Market Weekly

Softer Bids in 5y and 7y UST Auctions; EUR & GBP Rebounded w-o-w on Improving Data in Europe

Highlights

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¨    Global Markets: US will take center stage this week, where we expect the market to take cue from the string of crucial economic releases namely the non-farm payrolls, ADP payrolls, ISM and PMI manufacturing and consumer confidence. Consensus expectations towards improvements in the mentioned data releases are likely to assert upward yield pressure across the USTs over the near-term, following the softer bids at the 5y and 7y auctions last week. However, we opine that the USD will likely continue a modest trend of appreciation as we see multinational corporations beginning to feel the brunt of the stronger Dollar. In Europe, we expect UK’s PMIs for March to continue showing expansionary trends in business activities throughout the services, manufacturing and construction sectors, while the 4Q14 GDP release is expected to be a non-event. In addition, the continued Greek debt talks will continue to keep investors on a cautious stance while ECB’s QE program is likely to tighten core-peripheral spreads which may translate to better bids at the BTP auctions next week. In terms of economic data, we look towards Eurozone’s unemployment and CPI data which are expected to remain sluggish while German manufacturing is expected to print higher, supporting the EURUSD’s near-term bullish streak. In Australia, expect the trade deficit to widen which may pare AUD’s gains and pressure the AUD lower towards mid-0.77 levels. On ACGBs, expect demand to remain well supported for the 9y ACGB auction (BTC: >3x).

¨    AxJ Markets: USDKRW is likely to strengthen on the back of subdued CPI prints while a stronger trade surplus should cap large upside movement in the week ahead; expect KTB yields to trend lower should inflation prints surprise at the downside. Over in China, expectations of a contractionary signal in China’s official manufacturing PMI which may be in congruence to last week’s dismal HSBC PMI data could imply added risk towards China’s growth momentum, which underscores heightened prospects for further monetary easing by the PBoC. In Malaysia, GIIs are expected to remain supported by foreign investors given its impending inclusion in Global indices, while expectations for Malaysia’s narrowing trade balance print due Friday could assert weakening pressure to the MYR in the near-term. Heavy week of data in Thailand, as we look towards trade balance data where weaker exports alongside subdued CPI should bolster further prospects for a rate cut by BoT; expect the USDTHB pair to trade closer towards the near term resistance of 32.9. In Indonesia, we look towards CPI prints where a softer inflation print is likely to see BI hold interest rates in its April meeting while positive PMI prints should improve investor sentiment, supporting both IDR and IndoGBs; expect firm demand for the long dated auctions next week while the IDR is likely to weaken past the 13,000/USD level should US labour data improve. In India, manufacturing PMI should remain in expansion but is unlikely to move markets substantially as markets are likely to focus on US labour market data while market and fiscal developments should cap any significant losses to the INR. 

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¨            Selected Trade Reviews:

¨    Trade Idea: UST 2/5y Flattener (Current: 85bps; Entry: 95bps; Stop Loss: 130bps; Take Profit: 59bps)

¨            Fed expected to raise interest rates in 2H15; upward yield pressure tilted at the short-end curve

¨    Trade Idea: Short EURINR (Entry: 72.235  ; Current: 66.858 ; Stop Loss: 82.400 ; Target: 63.450)

¨            INR expected to outperform against the EUR with sustained optimism post-India budget

¨    Trade Idea: Short AUDUSD (Entry: 0.7809  ; Current: 0.7820 ; Stop Loss: 0.8924 ; Target: 0.7000)

¨            Prospects of RBA easing on the cards

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¨            Weekly Positioning

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¨	¨                  Rates	¨                  FX
¨                  Overweight	¨	¨
¨                  Mild Overweight	¨                  GILT, P. EGB, ACGB, ThaiGB, IndoGB, GSec	¨                  USD
¨                  Neutral	¨                  UST, C. EGB, SGS, CGB, KTB, MGS, RPGB	¨                  GBP, HKD, KRW, MYR, THB, PHP, IDR, INR
¨                  Mild Underweight	¨	¨                  JPY, SGD
¨                  Underweight	¨                  JGB, HKGB	¨                  EUR, AUD