FW: RHB FIC Rates & FX Market Update - 20/1/15

20 January 2015

Rates & FX Market Update

EGBs Generally Traded Firmer Ahead of ECB Meeting; Malaysian Budget Revision to be Announced Today

Highlights

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¨    While US markets were closed yesterday in observance of Martin Luther King Day, we generally saw market attention turning to European markets. Core and peripheral EGBs generally traded firmer ahead of the ECB meeting on Thursday, even as Greek electoral woes continued to dampen optimism, with the Greek opposition led by Syriza currently leading in the polls. In Japan, IP recorded another negative month, underscoring the sluggish and bumpy recovery path in Japan. Yields on 10y JGBs declined further to 0.20% (-4bps), where we see fairly limited expectations for upside movements on JGB yields given lacklustre improvements from economic data alongside expectations for possible additional easing by BoJ.

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¨    Details on Malaysian budget revision will be released later today, where focus of the Prime Minister’s speech is likely to be on the declining oil prices, alongside revision of the oil price assumption which was previous set at USD100 bbl in October. Yield movements on MGS were mixed, with yields on 10y edging higher to 3.93% (+3bps) as investors stayed cautious ahead of the budget revision announcement. In Indonesia, the IDR declined to 12,618/USD (-0.22%) as BI expectations for 2015 current account deficit remains elevated at 3.3-3.5% of GDP (2014: 3.3%), despite being a beneficiary of declining oil prices. We maintain our neutral view on IDR, where we see a plausible rate hike by BI this year which is likely to lift some of the downward pressures on the IDR. Aside, we watch out for Chinese 4Q GDP data, where the softer print may spur some risk aversion in Asia.

¨    Focus turned to EUR last night as German Chancellor downplayed the implications of the impending QE decision, stressing that fiscal reforms to boost competitiveness remain imperative. Nonetheless, investors are likely to remain positioned ahead of the ECB meeting, where we may see a large pullback towards 1.175/USD should Draghi disappoints with a QE package of less than EUR500bn.

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