FW: RHB FIC Rates & FX Market Update - 18/7/14

18 July 2014

Rates & FX Market Update

Safe Haven Assets Supported by Renewed Geopolitical Tensions

Highlights

¨    Investors returned to safe haven bids on renewed geopolitical tensions, bolstering demand into USTs and UK GILTs where yields were down 6-8bps across the curve; 10y UST at 2.44%. US data was mixed overnight where the disappointing US housing starts (June: -9.3%; consensus: +1.9%) and building permits (June: -4.2%; consensus: 3.0%) adding to the safe haven bid, overshadowing Bullard’s urge for an earlier policy normalization and the better jobless claims for the week ended 12 July. Meanwhile, Eurozone inflation remains stable at 0.5% y-o-y in June, but quickened slightly by 0.1% m-o-m. The persistently subdued inflation below its 2% target continues to exert pressure on ECB to act; EUR expected to weaken further. We expect investors to remain skewed towards safety bids particularly heading into the weekend, lending support to safe haven assets.

¨    Quiet data week with focus largely on China; INR, MYR, THB led Asian currencies weaker. CGBs extended its losses as the surprise upside in GDP and credit growth figures buoyed risk appetite. In Singapore, NODX fell by -4.6% y-o-y (May: -6.6%) attributed to the persistent weakness in electronics exports (-17.4%); a prolonged decline in the NODX and IP may limit the upside on the SGD. However at this juncture, we still expect MAS to maintain its modest appreciation tone for the SGD in October’s MPC meeting to contain inflationary pressures.

¨    JPY to benefit from the near-term bullish momentum amid renewed geopolitical risks. The USDJPY turned away from its trend line resistance, strengthening 0.49% overnight to 101.18 amid safe haven play; we opine that the pair is likely to test the support of 101.10. BoJ June meeting minutes due today is unlikely to have any major impact on the JPY.