FW: RHB FIC Rates & FX Market Update - 17/7/14

17 July 2014

Rates & FX Market Update

Long-end USTs Rallied on Dovish Fed, Disappointing US IP; Robust Jobs Data Lend Support to GBP

Highlights

¨    USTs saw rallies at the 10y and 30y tenures, driven partly by the dovish Fed in addition to the slower growth expectations indicated by the disappointing factory output print in June; as the pace of growth remained moderate in June indicated by the Fed’s beige book, demand for USTs continued to be strong despite the Fed’s indication of its full wind down by October 2014, with the 30/5y spread narrowing to 163bps, its lowest level since March 2009. Meanwhile, GBPUSD held firm at 1.71 as UK unemployment rate fell to 6.5% in May (April: 6.6%). Between March to May, jobs creation rose by 254K to 30.6m, the highest on record. The US will offer updates on the housing market as housing starts and building permits are expected to increase in June.

¨    China’s 2Q GDP grew +7.5% y-o-y, compared with +7.4%, driven by the rise in external demand, expansion in the services industry as well as pick up in industrial production. Positive growth momentum boosted risk appetite, reflective of the softer auction result in the 10y CGB where BTC came in lower at 1.43x versus 1.72x prior.  Elsewhere, Malaysia’s inflation picked up to 3.3% y-o-y in June, in line with consensus following a 3.2% rise in May; MYR strengthened 0.05% to 3.1875 possibly on sentiment suggestive of another rate hike by BNM this year.

¨    The USDKRW pair was pressured above its 50-day MA, and up 0.45% to 1032.0 and could be testing its 1041 resistance as investors continue to price in a BoK rate cut this year, and near-term expectations of improvements in US housing starts and building permits could exert pressure on the Won.