China Trade Data Disappointment to Keep Easing Speculations Alive

9 March 2016

Rates & FX Market Update

Highlights

¨   Global Markets: Risk-off dominated overnight US movements, with UST yields 4-8bps tighter as Brent oil prices failed to sustain above the USD40/bbl psychological level. The UST 3y auction tailed (HY: 1.039%; WI: 1.036%) alongside the lowest BTC ratio since July 2009 (2.71x), as investors remain skeptical towards the front end; we reiterate our preference towards longer tenor USTs. European data delivered positive surprises, with a stronger German IP (+2.2% y-o-y; consensus: -1.6%) and Euro Area 4Q15 GDP (1.6% y-o-y; consensus: 1.5%), but failed to dampen dovish ECB expectations as EUR and EGB yields edged marginally lower; stay constructive towards EGBs. Elsewhere, long-end JGB yields fell violently after a strong 30y auction, with 30y yields declining c.18bps overnight to 0.502% as the JGB curve continues to flatten; risk-reward towards long JGB positions remain underwhelming over the medium term. In Australia, RBA’s Lowe highlighted that low wage growth and contained price pressures can provide room for further easing if necessary, and reiterated his preference towards a weaker AUD; with recent strength driven by gains in commodity prices, expect RBA to keep a keen eye on the commodity markets for policy cues; stay mildly bearish AUD.

¨   AxJ Markets: Chinese trade data in February was a big disappointment, with exports and imports declining 25.4% and 13.8% y-o-y respectively in USD terms; YTD export growth remained lackluster at -17.8% y-o-y. With Chinese policymakers’ preference to maintain a growth of at least 6.5% this year, expect further monetary easing to complement the higher fiscal spending; maintain mildly bearish on CNY. In Malaysia, we expect the BNM to stand pat in the policy meeting later today, where January’s 3.5% CPI print suggests little urgency to shift the bank’s policy stance in governor Zeti’s final meeting; stay neutral MYR.

¨   USDIDR climbed 0.57% overnight to 13,160, failing to sustain the break below 13,000, as commodity prices pared back recent IDR gains. We upgraded our IDR view to neutral, expecting the recent euphoria to persist through 1H16, where further monetary easing appears increasing unlikely to dampen upward IDR movements; expect the currency to remain sensitive to global risk sentiment.