RHB FIC Rates & FX Market Update - 19/6/15

19 June 2015

Rates & FX Market Update

Bond Market Gained on Less Hawkish Fed; BI Maintained Policy Rate; Hong Kong Lawmakers Rejected China-backed Bill

Highlights

¨                   

¨    Short dated USTs remained supported by expectations for a less hawkish policy path. In Europe, UK Gilts took directional cues from USTs, with the FOMC outcome overshadowing positive retail sales figures; expect the respite in Gilts to be momentary where we maintain our neutral stance over the near to medium term. Similarly, EGB yields trended lower on murmurs of Greece extending its current bailout program to end of the year; expect further volatility among P.EGBs ahead of today’s unscheduled ECB ELA discussion with Greek officials. Notably, Portuguese officials have stated that they are prepared for a ‘Grexit’ stating that strategy to extend duration was to reduce its debt burden over the near term and leveraging on lower borrowing costs; this further reinforces our view of limited contagion risks from Greece..

¨    Meanwhile, BI held rates for fourth straight month in lieu of rising inflation and weak IDR which has stymied efforts to improve the current account deficit; IndoGBs outperformed regional peers as investors welcomed Fed’s slower rate liftoff; USDIDR held firm at the 13,300. Aside, Modi placed price ceilings for rice and lentil which should contain inflationary pressures and support expectations for further RBI rate cuts this year; expect firm demand at GolSec auctions today. Meanwhile, Hong Kong’s Legislative Council failed to achieve two thirds majority to pass the China-backed bill, where we may see the political divide weigh on medium term growth as pan-democracy supporters continue to campaign for China to drop candidate vetting for its Chief Executive elections. 

¨    The MYR broke below its near term support of 3.7069/USD given broad weakness in the USD following a less hawkish Fed statement. We expect the reprieve to be short lived as we approach Fitch’s sovereign review, while expectations for upbeat PMI and housing data in the US may lead to a modest pullback in the MYR.

¨             

¨