FW: RHB FIC Rates & FX Market Update - 17/10/14

17 October 2014

Rates & FX Market Update

Bullard Called For Delay to QE End; 7 Day Chinese Repo Rate Fell Below 3%, Further Bolstering Stimulus Speculations

Highlights

¨   Overnight markets were weighed by Bullard’s dovish comment (non-voter) to delay QE, contrary to his earlier comments for Fed to hike rates earlier; Bullard marks the first Fed member to introduce the idea of a delay in tapering. Some profit taking witnessed within the DM govies space. European sentiment remains undermined by concerns over global growth, deflationary pressures and geopolitical tensions; yields on 10y Greek govies spiked c.200bps over 2 days, touching a high of 9.026% as election uncertainty posted further deficit and debt woes. ACGB curve bull flattened while the AUD retreated closer to its near term support of 0.8727 in line with our mildly bearish outlook.

¨   Asian markets may bounce around yesterday’s close following a slighter calmer end to the developed markets. More crucially, China’s 7 day repo rate fell for the third consecutive day to 2.9306%, inching below 3.0%, the 12-month savings rate. This is likely to bolster further speculations for PBoC to introduce stimulus where the bank cut rates twice at the same occurrence in 2012; developments alongside a tight supply in the coming week should continue to support CGBs. Singapore NODX continued to be weighed by the persistent weak global demand for electronics exports; USDSGD to range trade at 1.27-1.28 amid USD consolidation. Else, we view Modi’s appointment of Arvind Subramaniam (ex-IMF official) as the government’s economic advisor as a positive development; Subramaniam’s experience and pragmatism has also resulted in criticism towards Modi’s far-fetched budget revenue projections.

¨   USDINR broke its near term resistance of 61.563 yesterday despite the weaker USD. This followed by the golden cross (50/200day MA) signal early this week which highlighted a strong bearish momentum but expect the downside to be limited as lower oil prices should support the fiscal and trade deficits. Hence, we expect the encouraging domestic progress and an increasingly credible government to provide support to the weak INR.