FW: RHB FIC Rates & FX Market Update - 11/8/15

RHB FIC Rates & FX Market Update - 11/8/15

11 August 2015

Rates & FX Market Update

Strong NFP Fueled FFR Hike Expectations; FX Majors Broke Key Resistance Levels; USDSGD Broke 1.39 on Dismal 2Q15 GDP

Highlights

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¨    July’s NFP printed at 215k, shy of estimates at 223k, resulting in a mixed USD session. A continuous print above 200k highlights a steady path of labour market improvement, reinforcing a nearing FFR hike, supported by Lockhart; we view any pullback in the USD as an opportunity to add towards our secular USD appreciation view. UK’s BoE MPC was disappointed investors, with only McCafferty voting for a hike. More importantly, BoE cut their CPI forecasts to 0.3% for FY15 from 0.6% on the back of lower oil prices and a stronger GBP. The revision signaled optimism towards the domestic economy but remained wary of external downside risks; mildly bullish GBP. BoJ was also status quo although Kuroda signaled the possibility of stimulus expansion if lower energy prices persist; USDJPY briefly pierced 125.

¨    China’s trade balance deteriorated further, driven by a sharp decline in exports (-8.3%, June: +2.8%) while CPI edged higher to +1.6% (+0.2% m-o-m) on higher but volatile pork prices. The negative Chinese data should support further fiscal/monetary stimulus; maintain overweight short-dated CGBs. Malaysia’s reserves declined to $96.7bn (-$3.8bn m-o-m) or 7.6 months to retained imports. We expect the weakening MYR and reserves data to undermine capital management confidence amid external and political noise; expect USDMYR to stay under 4.00 in the near term. Meanwhile, USDSGD spiked above 1.39 following the dismal 2Q GDP print (+1.8% y-o-y), sharply lower than 1Q15’s 2.8%; MTI revised FY15 GDP forecast to 2.0-2.5% while our base case stays unchanged for MAS to remain on hold in October.

¨    EURUSD broke above its 1.10 support on a weaker USD and possible short-covering. Positive Greek developments also supported the pair, as Greece and its creditors aim to reach a deal within the next few days ahead of the 20 August ECB repayment. We remain mildly bearish on the EUR, as a stronger USD and potential political volatility from the peripherals may continue to weigh on the EURUSD.