RHB FIC Rates & FX Market Update - 29/7/15

29 July 2015

Rates & FX Market Update

Greek Technical Negotiations Officially Begin; UK 2Q GDP Supportive of BoE’s Hawkish Tilt

Highlights

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¨    US consumer confidence disappointed falling to its 10-month low, compounding on the weak retail sales print released earlier, alongside last Friday’s sharp fall in new home sales. While services PMI printed higher m-o-m, USTs fell modestly ahead of the closely-scrutinized FOMC meeting later in the day, where investors will discern the Fed’s stance ahead of September. Meanwhile, EURUSD remained sticky below 1.11, where negotiations between Greece and the Troika’s technical team officially began, which we opine for core EGBs to remain supported amid further debt resolution negotiations during the otherwise quiet summer break; maintain our mildly bearish call on EUR.

¨    Thailand’s Fiscal Policy Office (FPO) revised its 2015 GDP growth forecast lower to 3.00% (April’s forecast: 3.70%), with growth trimmed by weaker private consumption and public investment through 2015. We maintain our mild overweight on short to belly ThaiGBs on continued accommodative interest rate policy, but remain mildly bearish on THB. The Malaysian PM reshuffled his cabinet yesterday, promoting Datuk Seri Dr Ahmad Zahid Hamidi to Deputy PM alongside 4 new cabinet members from the Parliament’s Public Accounts Committee. This could reduce the ongoing political noise, while impact on the real economy is likely to be limited. MGS yields inched higher amid mixed performance in the rest of AxJ, with the MGS 10y to stay near 4% and USDMYR to remain sticky near 3.80.

¨    UK GDP bounced +0.7% q-o-q in 2Q15, improving from +0.4% recorded in the previous quarter, backing the case for UK rates to rise as soon as this year. BoE is likely to retain its hawkish rhetoric, but low inflation would allow them to retain policy flexibility. GBP has been an underperformer for years, but the cycle could be turning soon; recommend tactical long GBPUSD.