24 July 2015
Rates & FX Market Update
Weaker Oil Prices Supported Gains on
Long Dated USTs; Malaysian Foreign Reserves Fell to 5y Low
Highlights
¨
¨ The
UST curve bull flattened on the back of a bullish initial jobless claims print
which declined to a 4-decade low, bolstering Fed rate hike chatters and
further cementing economic optimism amid a subdued inflation outlook as
commodity prices continued easing. Over in EU, the Greek Parliament has
approved the second series of reforms demanded by EU creditors in order to
secure the second bailout package, supporting firmer gains in both the core and
peripheral EGBs. EUR climbed higher to 1.098/USD on the back of softer USD
performance, providing investors with opportunities to add EUR shorts
premised on further downside risk from Greek restructuring alongside CPI and
growth concerns. Elsewhere, IMF remains unconvinced of Japan’s efforts in
fiscal consolidation, urging for further curbs on spending; Japan’s exports
accelerated in June, aided by the weaker JPY and strong demand from US
where we expect the strengthening external balances to support the
lackluster economic recovery.
¨ Singapore’s
CPI picked up in June (0.3% vs May’s -0.4%) but still within the lower half of
MAS’ forecasted range. We anticipate IP data this afternoon, where another
negative y-o-y IP print may see continued softness on the SGD but at this
juncture, we prefer to maintain a no change expectation at October’s meeting.
Meanwhile, the decline in Malaysia’s foreign reserves persisted to a 5y low of
USD100.5bn as at July 15 (7.9 months of retained imports; 1.1x short term
debt), suggesting the likelihood of prudent FX intervention to manage the
volatility on MYR in the FX market; USDMYR remained sticky near its 3.800
psychological level.
¨ Softer
than expected retail sales print in UK stymied the appreciating momentum of
GBP, driving it lower to 1.551/USD overnight as the softer print suggests that
growth momentum in UK may have yet to firm up. We have revised our
stance on GBP to tactical bullish, where we see the brief reprieve in
the GBPUSD pair to offer opportunities to add GBP longs, with a target of
1.580/USD.
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