FW: RHB FIC Rates & FX Market Update - 29/9/14

29 September 2014

Rates & FX Market Update

Strong 2Q GDP Fuelled USD Appreciation Momentum; S&P Revised India’s Outlook to Stable

Highlights

¨    Strength in USD remains sustained, with DXY pushing higher to 85.64, as 2Q GDP growth was revised higher to an annualized 4.6% (previous estimate: 4.2%), while core PCE remained stable at 2.0% q-o-q; yields on USTs added 2-5bps. Mixed bond movements were seen in Europe, where weak demand for TLTRO and lackluster CPI data expected to be released later this week may fuel speculations for another round of easing. Else, RBA’s projections showed that a 10% appreciation in AUD unrelated to trade or interest rate differential will reduce real GDP and inflation by 0.3%, reinforcing its preference for a modestly weaker AUD.

¨    The 5y SGS new issue was well-received with cut-off yields at 1.65% and should continue to attract spread trading between the UST-SGS. HKD decline to 7.7592/USD, as protests in Hong Kong escalated, paralyzing the central business district; financial markets opened this morning contrary to earlier announcements. Thai government expects growth to be less than 2% this year, as 2H recovery remains dampened by weak exports, domestic consumption and tourism; ThaiGBs posted modest gains on the short to belly maturities while THB remains resilient against the stronger USD. Elsewhere, yields on 10y GolSec fell 4bps to 8.443% while INR gained 0.31% despite the stronger USD, buoyed by S&P’s outlook revision from Negative to Stable, given the government’s willingness and capacity to implement reforms to restore its lost growth potential.

¨    The JPY has declined 8.68% since its peak of 100.76/USD, largely driven by the stronger USD. Although the JPY’ weakness remains in favour with BoJ, the unrelenting weakness has drawn market concern on the impact of weaker consumer spending weighing on economic growth. On technicals, USDJPY remains in the overbought region, where we see the weaker trend in JPY likely to be sustained in the near term