4 August 2014
Rates & FX Market Update
USTs Supported by Disappointing NFP; IDR Weighed by Trade
Deficit Expectations; PBoC Highlights Concerns Over Targeted RRR Cuts
Highlights
¨ USTs
saw fresh gains as US non-farm payrolls fell short of expectations at 209K
in July, (consensus: 235K; June:298K) while unemployment edged up to
6.2% (+0.1%). These should support Yellen’s dovish tilt at the Jackson Hole meeting later this month. However, July’s
reading above 200k suggested that job creation remained strong alongside a stronger
manufacturing ISM reading to 57.1 (+1.8pts) where the employment
sub-index showing strong growth in manufacturing payrolls. Currency flows
were relatively lighter last Friday where DM currencies opened largely
unchanged this morning. Investors turn to Europe this week where UK
and EU will be scheduled to release their final PMI surveys and July IP
numbers.
¨ USDIDR
broke its 200day MA, emerging as top underperformer ahead of weak trade data
expected today, where consensus expects trade balance to return to deficit
from USD70m surplus in May. Turning to China, the official
manufacturing PMI rose to 51.7 in July from 51.4 contrasting the decline in
non-manufacturing PMI for the second straight month. PBoC’s 2Q14 monetary
policy report signaled a continuation of targeted easing but shared
concerns over the effectiveness of targeted RRR cuts; USDCNY remained muted.
Both South Korean (Jul) and Thai (Jun) inflation eased;
the KRW broke 1030/USD on Friday where unwinding of long USDKRW
positions saw the KRW clawing back some losses where investors continue to
anticipate a 25bps cut from BoK in 2014.
¨ IDR
ended its strong post-Jokowi-win rally, breaching resistance and its 200-day MA
to end at 11,825 on Friday. We expect the IDR to remain volatile ahead of a
weaker trade deficit expectations, overshadowing easing inflationary pressures.
It is likely to remain above its 100-day MA of 11,608 despite better
flows as local investors return from the festive break.
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