RHB FIC Rates & FX Market Update - 16/10/15

16 October 2015

Rates & FX Market Update

10y UST Yields Back Above 2.0%; BoK & BI Held Rates

Highlights

¨   UST 10y yields climbed back above 2.0%, spurred by declining US jobless claims alongside a flat September CPI print vs -0.1% consensus. The array of Fedspeak this week continued to portray the divided views of FOMC members, signaling a weaker conviction for Fed to act in 2015 lest supported by strong US growth and improving global sentiment; maintain mild overweight USTs. Meanwhile, movements on EGBs were muted ahead of the EU CPI print, with ECB’s Nowotny highlighting the need to lift inflation. We continue to see support for EGBs as we expect ECB to expand PSPP over the medium term to boost the region’s economic recovery amid tepid global demand; stay mildly bearish EUR. Although weak IP in Japan intensified BoJ easing expectations, impact on USDJPY were marginal ahead of 30 October BoJ meeting where we expect another downward revision in growth and CPI forecasts to drive BoJ to contemplate its easing options.

¨   BoK’s decision to hold rates at 1.5% yesterday were within expectations, as the recent spate of manufacturing data ease bearish concerns on the export oriented economy; BoK’s revised 2015 GDP forecast modestly from 2.8% to 2.7%. USDKRW declined to 1130 as investors scaled back easing expectations; we maintain mildly bearish on KRW, recommending for short KRW positions below 1120/USD as BoK remains poised to maintain its dovish tilt given the modest 2016 budget even as Fed begins its tightening policies. Meanwhile, USDIDR dived lower to 13,418, supported by the widening trade surplus from faster declines in imports while BI remained constrained by the elevated inflation, holding rates at 7.5%. Elsewhere in Thailand, interim plans has been drafted to cut personal income tax rates from its current 35.0% which could be supportive of the domestic economy over the medium term; constructive on short dated ThaiGBs.

¨   Upside surprise from NODX print released this morning continued to bolster near term optimism and affirmed MAS decision on Wednesday for a fairly token monetary easing. USDSGD declined to 1.378 yesterday amid easing growth concerns; we expect investors’ attention to turn back to FFR liftoff timing and its subsequent tightening pace, limiting further strength on SGD over the medium term; maintain mildly bearish.