RHB FIC Rates & FX Market Update - 15/4/15

15 April 2015

Rates & FX Market Update

IMF Raises Outlook for Eurozone and Japan; US Retail Sales Provided Excuse for Profit Taking on Long USDs; BI Held Rates  

Highlights

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¨    Despite retail sales rebounding from several months of contraction, March’s retail sales at +0.9% y-o-y (Feb: -0.6%) fell short of expectations (1.1% exp), dampening risk appetite and supporting UST gains while some profit taking on long USD drove the currency broadly weaker. Similarly, subdued inflation prints in the UK pressured Gilt yields lower, which we opine may supportive for the upcoming 30y Gilt auction (21 April). ECB’s PSPP remains well underway, easing rate cut pressures at the upcoming ECB meeting alongside a set of encouraging data including the region’s IP and IMF’s upward growth revision to 1.5% (+0.3%) which should be constructive for P.EGBs. Nonetheless, a Grexit and UK elections lingers at the back of investors’ minds.  

¨    Chatters surround another RBA rate cut in May are likely to be reinforced by dismal employment prints, with investors shrugging off Moody’s comment for Australia’s Aaa to remain well supported by robust growth and low government debt ratios. We expect the AUD to extend declines on the weak Chinese growth (1Q15: +7.0% y-o-y) and IP data (+5.6% y-o-y) alongside lower aggregate financing. Investors have also begun to re-price in further easing from the PBoC where yields on short to belly CGB and CNH fell 2-4bps. In South Korea, the downtick in March’s unemployment rate to 3.7% (-0.2%) is unlikely to influence BoK’s dovish tilt, which should remain constructive for KTBs over the medium term. Else, IndoGB yields gapped higher alongside a 9bps jump in its 5y CDS ahead of weak trade data expectations in addition to BI’s status quo decision yesterday.

¨    EUR outperformed global currencies, piercing above 1.065/USD after the broadly weakening USD overnight. The pair remains below its 50 day MA, trading close to record lows. We expect some near term strength in the EUR ahead of ECB’s meeting where we expect the spate of positive data to fuel bullish sentiment but remain cognizant over lingering Greek concerns.

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