: RHB FIC Rates & FX Market Update - 10/9/15

10 September 2015

Rates & FX Market Update

Hawkish BoE Rhetoric Dampened by Weak UK Data; India Delayed GST Implementation

Highlights

¨   Demand for 10y USTs was strong with the cutoff yield at 2.235%, 1.1bps lower than WI, with strong interest from direct and indirect bidders as investors begun to see value in USTs amid the recent sell off; UST yields inched higher by 1-2bps overnight where we maintain our neutral to mild overweight call on USTs underpinned by steady safe haven demand. In UK, disappointing industrial production and trade balance is likely to weigh on 3Q growth, casting doubts over any premature rate hikes by BoE which is likely to lag Fed’s tightening move; GBPUSD fell 0.21% on the poor data where we remain neutral to mildly bearish over the near term. Over in Japan, Prime Minister Abe unveiled new plans to cut corporate taxes by at least 3.3ppt to c.31.3% in the next fiscal year starting April 2016, in hopes of reversing the slump in business investments and GDP growth; recent hints of a supplementary budget is likely to build on BoJ growth optimism but unlikely to dampen investors’ expectations for further easing. USDJPY climbed 0.41% overnight on better risk appetite; we recommend being neutral to mildly bullish on JPY as global downside risks persist.

¨   Indonesia unveiled the first part of a stimulus package announced last month, aimed at boosting growth by cutting red tapes; although a positive step in the right direction, we remain bearish on IDR on elevating external risks. The Indian government delayed a plan to implement a GST tax by April 2016 as it lacks opposition support, in a setback to the current reform-oriented cabinet. Impact on GSecs are relatively muted (-1bps); we still remain constructive on short-dated GSecs as RBI turns incrementally dovish.

¨   AUDUSD fell 0.47% overnight even as risk sentiment broadly improved, with most of the losses seen after New Zealand cut rates by 25bps as the Australian economy faced similar risks. We remain mildly bearish on the AUD, as the transition towards the non-mining sector continues to be sluggish, while external risks have elevated due to slower Chinese and EM growth.