23 February 2015
Rates & FX Market Update
Core-Peripheral EGB Spreads Tightened on Greece Bailout
Extension; Softer CPI Print in Malaysia Could Buoy Optimism in MGS & MYR
Highlights
¨ Risk appetite
improved on Friday as Greece clinched a deal with its international creditors
for a four month extension to its bailout program. Nevertheless, Greek PM,
Alexis Tsipras is to announce fiscal measures later today that will satisfy
both creditors as well as his party where we expect Greek fiscal negotiations
to weigh on the EURUSD over the medium term. Risk-on sentiment was further
supported by the pickup in Eurozone Composite PMI in February, attributed to
rising new orders; 10y Bund-peripheral spreads tightened 1-5bps while the EUR
edged 0.23% higher on Friday. Looking ahead, expectations for a marginal
contraction in US existing home sales is likely to keep UST yields subdued
while Yellen’s congressional testimony on Tuesday could echo FOMC’s US economic
assessment in the latest meeting minutes which leaned less dovishly; her
testimony may shed clarity to whether the jobs growth is sufficient enough to
be a precondition for a mid-2015 rate hike.
¨ The bulk of the
financial markets in Asia were closed late last week for the festive break,
only China and Taiwan remains on holiday. BoJ’s January minutes continued to
highlight lingering concerns on CPI target amid subdued oil prices, which could
likely push the JPY weaker amid speculations for further easing. Back home,
Malaysia’s CPI eased to its lowest since 2009 due to decline in oil prices,
where the softer CPI could likely buoy optimism in the MGS and MYR.
¨ AUDUSD saw a
relief rally, rising towards its two week high of 0.7848 supported by higher
global oil prices and a weaker USD. Over the medium-term, we expect the pair to
trade closer to our 0.70 trade target given the RBA-Fed policy divergence
alongside further expectations for RBA to cut interest rates given the slack in
employment growth and subdued inflation.
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