18 November 2014
Rates & FX Market Update
USTs Muted Amid Weaker Data; Japan’s Abe Likely to Delay
Sales Tax Hike; BI Expected to Hike Rates in Extraordinary Meeting Today
Highlights
¨ USTs were
little changed amid weaker industrial production (Oct: -0.1% vs Sept: 1%),
while DXY rose as markets began to gradually price a hawkish tone in the FOMC
minutes today. Meanwhile, EUR responded negatively to Draghi’s remark over
ECB’s potential government bond buying on worsening outlook, but remained muted
on widening trade surplus (Sep: EUR17.7b; Aug: EUR15.8); 10y bund yield inched
higher to 0.8%. Separately, GBPUSD fell to 1.564 following Carney’s remarks on
disinflationary pressure, and could justify slower inflation expectations,
likely pressuring GBP further. Else, JPY touched an intraday high of 117/USD
following the GDP contraction in 3Q GDP. Prime Minister Abe is expected to
speak at a press conference today where we opine for him to delay the sales tax
hike for 18-months and call for snap elections, alongside possible fiscal
stimulus which is likely to drive the JPY weaker.
¨ The Indonesian
government hiked fuel prices last night by IDR2000 where we expect the hike to
bolster support for the IDR as well as to narrow the current account deficit to
an estimated to 2.7% to GDP in 2015. BI will reconvene today in an extraordinary
meeting where we may see a 25bps rate hike, mitigating higher inflationary
pressures from the higher fuel price and especially as we head into the holiday
season; expect IndoGB curve to bear flatten. THB was little changed in the
event of modest 3Q14 GDP, attributing to the weakness in export recovery.
Meanwhile, Philippines remittances print rose 7.9% y-o-y, boosting PHP and 10y
RPGB. Lastly, INR remained in a bearish channel overnight, pressured by weaker
exports and a widening trade deficit (Oct: USD13.4b).
¨ Weakness in GBP
stemmed from dovish comments by the officials over disinflationary risk, where
CPI print today may likely disappoint the market. Most technicals indicate the
pair has broken major support of 1.573, where we believe a close below 1.56
would send the pair lower to 1.542, while a potential upside would likely be
capped at 1.575.
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