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

15 October 2015

Rates & FX Market Update

Markets Braced for Further Delays in FFR Hike; Singapore’s MAS Eased SGD NEER Slope Modestly Although Growth Remains Challenging

Highlights

¨   US economic data continued to disappoint on weaker retail sales and PPI numbers, as sales to inventory ratio reached cycle highs while PPI deflation persisted; UST yields fell c.7bps while DXY sold off sharply (-0.87% overnight), with markets now expecting the first hike to occur in April 2016. Fed’s beige book highlighted strong labour recovery but sluggish manufacturing activity still; maintain our mild overweight UST call as rate normalisation appears incrementally challenging amid diverging labour and activity indicators. In UK, GBP rebounded 1.51% overnight on the backdrop of weaker USD and unexpectedly lower unemployment rate, after the disappointing CPI dampened BoE tightening expectations; we remain constructive on GBP but cognisant of potential downside risks arising from any Fed hike delay. Eurozone’s IP continued to exhibit weaknesses alongside benign CPI prints from France and Spain, raising the stakes during ECB meeting in the week ahead; stay mildly bearish on EUR as ECB remains concern over the below-target inflation. Over in Japan, the government lowered its optimism over the economy on weak activity levels and capex, although JPY climbed 0.84% overnight on USD weakness; further BoJ easing remains on the cards.

¨   Over in AxJ, China’s September CPI print was weaker (1.6% y-o-y; August: 2.0%) alongside persistent PPI deflation, reigniting speculations of further PBoC easing; stay mildly bearish CNY. In Singapore, the open economy narrowly avoided a technical recession as GDP SAAR printed 0.1% q-o-q (consensus: -0.1%). MAS opted to ease the slope of the SGD NEER modestly, disappointing markets who expected a flat slope or re-centering of the NEER; USDSGD fell -1.8% overnight. We continue to expect the pair to grind higher towards 1.45 in 2016 as global demand stays tepid; stay mild bearish on SGD.

¨   India’s inflation stayed soft; September’s WPI printed -4.5% y-o-y (August: -5.0%). While the 50bps rate cut should help support India’s growth, we opine for RBI to stay at the sidelines in the December meeting as the bank monitors the easing impact. We remain constructive on INR, as lower oil prices continue to benefit India’s external strength alongside its relatively closed economy and lower exposure to China.