RHB FIC Rates & FX Market Update - 8/5/15

8 May 2015

Rates & FX Market Update

GBP Rebounded as Exit Poll Favours UK Conservatives; BNM Maintained OPR Unchanged; INR Tumbled Amid MAT Uncertainty

Highlights

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¨    USTs rebounded overnight as investors turned cautious ahead of the NFP release later today, as the recent disappointing ADP payrolls and rising jobless claims dampened optimism on the labour market recovery; the flatter curve was driven by the strong overnight rally at the 10y and 30y tenures (-6 to -8bps), with the curve expected to stay low given the risk averse sentiment. In the European markets, GBP touched its 4m high of 1.55/USD this morning while Gilts outperformed as UK exit polls showed the Conservative party is set to win more parliamentary seats than the Labour party. The increasing likelihood of another Conservative / Liberal Democratic coalition is expected to support a near-term rally on the GBP and Gilts. In the Eurozone, Core-peripheral EGB spreads tightened c.15bps, easing prior losses, while the EUR slid 0.80% to 1.125 where the 1m volatility remains at its 2y high. Meanwhile, AUD remained low as RBA lowered its 2015-16 growth forecast to 2-3% while the recent statement on monetary policy released earlier today suggested further room for easing, exerting near-term pressure on the currency.

¨    Over in Asia, USDIDR edged closer to its 3-week high of 13,248/USD, as Indonesia’s vice president Jusuf Kalla reinforced prospects of a gradual easing by Bank Indonesia following the deepening economic slowdown as reflected by IMF’s downward revision of growth forecasts; IndoGBs extended losses as yields edged higher by 11-30bps, in line with our underweight call. Meanwhile, MGS space remained lacklustre as BNM maintained status quo while GolSecs and INR continued to trade weaker amid uncertainty arising from the Minimum Alternative Tax (MAT) imposed on foreign investors.  

¨    Strong GBP rally overnight allays market concerns on the election uncertainty as the conservative-led exit polls may have indicated continuity with regards to UK fiscal reform plans by the previous Conservative/LibDem coalition. We believe a win is likely to test GBP’s resistance of 1.5507, in addition to expectations of improving labour data and factory output.

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