FW: RHB FIC Rates & FX Market Update - 17/06/15

17 June 2015

Rates & FX Market Update

Investors to Eye FOMC Statement for Hints of a FFR Hike This Year; Indonesia Government May Remove Electricity Subsidies in 2016

Highlights

¨   Greek impasse continued to headline sentiment ahead of Fed’s meeting outcome later today; UST yields were down to a 2 week low. With consensus not expecting a FFR hike in June, investors will focus on the probability of a hike either in September or December. In UK, price pressures picked up marginally in May (0.1% y-o-y) but remains below consensus expectations. This topped with a weak core inflation print (-0.2% y-o-y) suggest further uncertainty to UK’s inflation trajectory where energy and food prices will continue weighing on the index over the near term and support BoE’s status quo decision. Notably, core-peripheral spreads widened further with the 10y Bund/SPGB spread touching July 2014 highs of over 170bps before settling at mid-150 levels. Greece woes were further exercerbated by German and European ZEW surveys which dipped to multi-month lows. The EUR weakened modestly against the stronger USD while the GBPUSD remained above its 200-day MA (1.5484) on higher CPI prints.

¨   In Asia, the IMF has revised Indonesia’s 2015 growth expectations downwards to 4.7% (-0.3%) on softer commodity prices and exports. The Indonesian government is also proposing tweaks to its initial reform program, including the removal of electricity subsidies in 2016, where we reserve any immediate optimism while eyeing the rechanneled spending; 2015’s power subsidies were expected at IDR73.1trn. Aside, India’s trade deficit narrowed slightly but unlikely to divert apprehension ahead of its seasonal monsoon weakness and external risk-aversion where domestic CDS continued to climb.

¨   Modest SGD gains vs USD given expectations for Fed to remain dovish at this juncture, lending brief support to the SGD. The soft NODX print is likely to be a non-mover where we expect the pair to be range bound between 1.34-1.36. Although periods of disinflation MAS with room to ease the SGD NEER, there is no exigency until downside risks to growth amplifies.