RHB FIC Rates & FX Market Update - 2/6/15

2 June 2015

Rates & FX Market Update

UST Yields Rose on Renewed Prospects of Stabilizing Economic Recovery; RBA & RBI to Reconvene Today

Highlights

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¨    The modestly stronger Manufacturing PMI and construction spending print dampened demand on USTs, as they indicated renewed prospects of a stabilizing economic recovery following the weaker seasonal growth during the winter months. Yields on USTs rose 4-6bps where we caution on interpreting the data with too much optimism as personal spending data has remained weak over the last few months. Over in the EU, stronger-than-expected Manufacturing PMI prints in the region were insufficient to dampen the rise in both core and peripheral EGB rates amid tight liquidity conditions during the summer period and ongoing Greek bailout talks which continue to cloud sentiment, while discussions intensify among leaders from the EU, IMF and Greece ahead of the June repayment deadline. The EUR remained below the 1.10/USD handle, declining 0.53% overnight where we expect a Greek stalemate to dominate investors’ focus and, in turn, maintain downward pressure on the EUR.

¨    The official and HSBC Chinese PMIs released yesterday painted distinct pictures of the Chinese economy with HSBC Manufacturing PMI remaining in contraction zone, contrasting with healthy expansions seen from the official PMIs. Nonetheless, investors continue to price in further PBoC rate cuts, anchoring short end rates in China and resulting in a steeper CGB curve, spurred by supply risk concerns in China. Turning to Indonesia, May’s CPI print continued to edge higher to 7.15% y-o-y, keeping BI’s rate cut options at bay; IndoGBs traded stable while USDIDR continued to hover above its 13,000 psychological level. 

¨    USDKRW treaded higher above 1110 following another weak set of trade data, with exports growth declining by double digits for the first time since 2009. The protracted sluggish growth has ignited Korean Finance Minister Choi’s pledge to maintain expansionary policies which is likely to add to KRW downside risks, supporting a modest USDKRW rally.