RHB FIC Rates & FX Market Update - 2/4/15

2 April 2015

Rates & FX Market Update

Unconvincing Jobs Data For June Rate Hike; 10y UST Back Towards 1.90%; IMF Upgrades Philippines Growth Forecasts to 6.7%

Highlights

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¨    10y UST yields dipped back below 1.90% once again as dismal ADP and ISM manufacturing data dampened sentiment for a June rate hike. The ISM’s weaker exports orders sub-index likely due to the stronger USD may provide an additional basis for a slower rate liftoff, scaling back near term bullish USD bets. Meanwhile, better EU manufacturing PMI data supported a reprieve in EURUSD, even as looming worries of Greek repayment to IMF weighed on peripheral EU sentiment, driving yields on 10y BTPS and PGBs higher by 4bps and 1bp. Else, ongoing apprehension over UK’s May General Elections overshadowed the strong PMI expansion, where we opine for GBP to remain under pressure till May, with further affirmation of BoE rate hike unlikely to offer any strong support. AUDUSD touched fresh multi-year lows after the trade deficit widened for a third month; we expect further bearish pressures on the pair.

¨    In Asia, SGS saw better buying post MAS announcement to reopen the 2y non benchmark SGS in its inaugural mini auction; maintain neutral SGS duration. Yields on ThaiGBs inched lower, as March’s CPI print fell further to -0.6% y-o-y (Feb: -0.5%), underscoring the prospects for BoT rate cut while Thai’s transition from martial law to Article 44 is unlikely to exude positively on the Thai markets as the Junta remains fully empowered to maintain peace and order. Else, modest gains were seen on IndoGBs as March CPI print remained in line with consensus; the weak sentiment on IDR and higher gasoline prices may seek to drive CPI higher, eroding the opportunity for further BI rate cuts. Meanwhile, IMF revised Philippines growth by +0.6% to 6.7% in 2015, given lower commodity prices and stronger export growth; PHP fell to 44.63/USD.

¨    Impact from weak Tankan survey was overwhelmed by the surprise downside in US ADP data, sending the USDJPY pair lower to 119.71. Yellen’s emphasis on a data dependent rate hike trajectory may pose risk to our long USDJPY call, where further downside surprises in US labour data this week may dampen short term bullish bets, sending the pair below the head and shoulders neckline at 118.30.

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