FW: RHB FIC Rates & FX Market Weekly - 7/9/15

RHB FIC Rates & FX Market Weekly - 7/9/15

7 September 2015

Rates & FX Market Weekly

BoE, BoK and BNM to Stand Pat Ahead of FOMC; Investors Eye Weak Chinese Trade Data to Set Market Tone in Asia

Highlights

¨   Global Markets: With the key US NFP data behind us, expect investors to scrutinize Fed Kocherlakota’s (Dovish, non-voter till 2017) speech in the week ahead for additional clues on any FFR lift off prior to the September 17 FOMC meeting. Initial claims and PPI data due the week ahead are unlikely to be game changers in any hike decisions; we recommend being mildly bullish on USD heading towards the actual lift off. BoE reconvenes on 10 September, where we expect BoE to stand pat as price pressure remains subdued while the weaker services PMI spurred concerns over UK’s growth; remain neutral to mildly bearish on GBP as BoE continue to delay the first rate hike. Following ECB’s comments on QE the week before, expect markets to eye activity and price indicators (eg. Germany IP and final CPI); any softening going forward may compel ECB to undertake further easing measures. Upcoming Greek election may add to uncertainties within the bloc; stay neutral to mild overweight core EGBs and neutral on P.EGBs. Over in Japan, the affirmatively weak 2Q GDP print is unlikely to be a major mover; yields on JGBs to remain supported by BoJ easing expectations over the medium term. Despite the dovish outlook, weaker sentiment headlined by the Chinese trade data could keep the USDJPY near 120. In Australia, the unemployment rate is expected to remain broadly stable, but external risks continue to compound on the Australian economy; stay mildly bearish on AUD as China continues to weigh on the currency.

¨   AxJ Markets: Chinese trade data to remain closely watched that can compound on the weak EM sentiment, where we expect the weak string of data to build the case for further easing measures from PBoC and the government; expect CNY to remain sensitive to the daily PBoC Yuan fixings while demand for the 5y and 10y CGBs are likely to remain strong on policy easing expectations. Meanwhile, BoK reconvenes on Friday, where we expect a status quo decision but increasing dovish inclination given little reprieves in the underperforming economy; expect USDKRW to test the 1200 resistance over the near term. Elsewhere, Singapore heads into elections on Friday, which is likely to be a non-market mover barring a strong negative surprise; short dated SGS to remain sensitive to SGD movements and developments in the US. In Malaysia, BNM is likely to keep the OPR unchanged on Friday, but comments regarding the recent selloff in MYR assets will be key to look out for to gauge BNM’s next steps; expect USDMYR to remain under pressure as bearish sentiment persists despite sound fundamentals. Over in Thailand, demand for the long dated 2037 ThaiGB auction is likely to remain tepid given investors’ preference for shorter duration papers; the quiet week ahead is also likely to keep Thai investors sensitive to external gyrations where we recommend to maintain a mildly bearish stance on THB. Indonesia’s foreign reserves due in the coming Monday should shed some light on any BI’s intervention. Any prolonged sell down of reserves will be negative for Indonesia’s external fundamentals; stay bearish on IDR.

   

Selected Trade Reviews:

¨   Trade Idea: Long ACGB 4.25 7/17 (Closed (4Sep): 1.775%; Entry (29June): 2.000%; Geometric Return: 0.76%)

Further RBA monetary easing expectations supported front-end rates

¨   Trade Idea: Short EURINR (Entry (13Jan): 72.235; Current: 73.714; Stop Loss: 82.400; Target: 63.450)

Positive carry and solid fundamentals still support the trade, even as external risks weigh on performance

¨   Trade Idea: Long USDSGD (Entry (14 April): 1.3567; Current: 1.4167; Target: 1.4200; Stop Loss: 1.3100)

Weak macro data, further MAS monetary easing expectations should push USDSGD beyond 1.42 over the near term

Weekly Positioning

	Rates	FX
Overweight
Mild Overweight	UST, C.EGB, GolSec	USD
Neutral	P.EGB, ACGB, GILT, MGS, CGB	HKD, INR, JPY, GBP, EUR
Mild Underweight	KTB, SGS, IndoGB, JGB, HKGB, ThaiGB	AUD, THB, CNY, SGD
Underweight		KRW, MYR, IDR