FW: RHB FIC Rates & FX Market Update - 19/8/14

19 August 2014

Rates & FX Market Update

Global Bonds Returned Gains on Easing Tensions; Carney Retreated From Last Week’s Dovishness; Thai Budget Approved on First Reading

Highlights

¨    Global bond yield curves bear steepened yesterday as easing geopolitical tensions prompted a reversal of safe haven flows; 10y bond yields mostly rose 5- 10bps. UK Gilts underperformed global peers following Carney’s comment for policy tightening ahead of wage growth increments; yields up 7-10bps. Over in US, 10y UST yields remain firmly below 2.5% ahead of the Jackson Hole meeting where we expect no major surprises from Yellen dovishness but may overshadow firm CPI and manufacturing data. Similarly, European bonds broadly declined despite the narrowing trade balance to EUR13.8bn, from EUR15.2bn prior in May, where investors begun to raise concerns over the fragmented Euro area economic structure and the waning appetite for the TLTROs.

¨    THB posted modest gains (+0.10%), supported by the expansionary 2Q GDP print (+0.4% y-o-y; +0.9% m-o-m), outperforming consensus estimates of 0.0%. The Thai Legislative Assembly also unanimously passed the FY15 budget worth THB2.575trn on the first reading, with additional details set to be released during the second and third reading on 17-18 September. Else, SGS and HKGBs posted small gains, tracking prior day’s UST gains where we are likely to see a reversal in safe haven flows upon optimistic US CPI release while profit taking continued in the KTB space, with markets disappointed with the BoK’s forecast for GDP to add 0.1% due to this month’s 25bps rate cut compared to May 2013 25bps rate cut which was forecasted to add 0.5% to GDP.

¨    EUR depreciated 4.57% since its peak (1.3993/USD) in May against a challenging EU recovery trajectory. Despite EURUSD inching towards its 9-month low, we opine a gradual downward momentum towards its 1.3325/USD support in the near term before retracing towards 1.3455/USD, particularly if US data continues to print positively. Short contracts on the EUR also fell for the first time in 5 weeks.