RHB FIC Rates & FX Market Update - 26/5/15

26 May 2015

Rates & FX Market Update

Heightened Greek Woes Unlikely to Spiral Contagion Risks; Singapore‘s Growth Quickened; Investors Eye RBI Rate Cut Next Week   

Highlights

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¨    Subdued trading overnight as US, UK and German markets were closed for holidays. Stronger durable goods orders in US may pave the way for a less dovish rhetoric which may dampen demand for the 2y UST later today. Meanwhile, core EGBs were mostly flat while P.EGBs were broadly mixed on heightened Greek default concerns. Debt negotiations continued to draw blanks between Greek officials and its creditors where Greek FM, Varoufakis, blamed creditors’ for the apparent stalemate. We maintain our stance that the political noises stemming from Greek woes are unlikely to spiral contagion risks and maintain mild overweight on P.EGBs with suggestions of an accelerated bond purchasing program to offset some of these concerns.

¨    In Asia, Singapore’s GDP exceeded initial expectations (+2.6% y-o-y) while headline CPI fell further into the negative region (-0.5%), pushing the lower bound of MAS CPI target. This triggered some speculations for MAS to ease further should growth falls below its 2.0-4.0% target. At this juncture, we remain neutral on SGS while subdued inflationary conditions and attractive valuations versus USTs should remain constructive for the upcoming 10y SGS. In India, short dated GoISecs outperformed as investors continue to price in a RBI rate cut next week on deflationary and growth concerns which we opine should remain supportive of Friday’s GoISec auctions. We also noted that recent outflows from the INR space remains concentrated among corporate bonds rather than the govies, suggesting investors still rooted to India’s improving macro story, albeit over a stretched term.  

¨    USDMYR edged higher overnight trading closer towards its near term resistance of 3.6235 as markets reacted to Yellen’s hawkish rhetoric and softer oil prices. We remain neutral on the MYR at this juncture and expect the USD to be the major directional determinant of the pair this week amid a thin economic calendar in Malaysia.

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