FW: RHB FIC Rates & FX Market Update - 14/05/15

14 May 2015

Rates & FX Market Update

Soft US Retail Sales Accentuated Lukewarm Economic Transition; Firm Bund & BTPS Auctions; Weak Chinese Data to Support Dovish PBoC

Highlights

¨   USD tumbled in response to April’s soft retail sales print which accentuated a lukewarm economic transition afflicted by the seasonal winter woes. The UST curve continued to bear steepen amid a volatile session as investors continued to push out Fed’s rate normalisation expectation. Meanwhile, higher EGB yields continued to draw sound investors’ interest with a stronger demand for BTPs vs the 10y Bund. The region’s 1Q15 GDP releases were relatively mixed with the tepid German growth concerns given its high external dependency; maintain EUR bearishness, add EURUSD on downside opportunities.

¨   GBPUSD broke its 200day MA yesterday, adding to post election gains. The dovish BoE inflation report highlighted downward revisions to growth forecasts through 2017 while adjusting its inflation normalisation path to 2% within 2 years. In line with our expectations, the report also suggests a delay in its first rate hike towards mid-2016 while Carney stressed fiscal policy continuity post-election but insinuated stricter fiscal consolidation over the near future.

¨   China dominated Asia’s attention with its lacklustre aggregate financing and IP prints, further underscoring PBoC’s accommodative policies; expect further PBoC easing in the near term; maintain mild overweight on CGBs. Aside, IMF forecasts Singapore’s 2015 growth at 2.5-3.0% (MAS: 2.0-3.0%), highlighting key risks from protracted global growth weakness and lower reliance on foreign labour; expect no change at October’s MAS MPC meeting at this juncture.

¨   THB strengthened to 33.52/USD, despite the dovish BoT minutes which embedded expectations for a slower recovery given headwinds the export sector. Despite decreasing likelihood for another rate cut, we expect further measures from the Capital Account Liberalization Master Plan to fuel THB weakness close to its 34.00 resistance.