23 June 2015
Rates & FX Market Update
Risk Appetite Boosted by Signs of
Positive Progress in Greek Debt Talks
Highlights
¨
¨ Positive
developments within Greek debt negotiations alongside upbeat housing data in
the US improved risk appetite and pressured demand for safe haven yields;
10y UST and Bund yields were up 10-11bps overnight while the Gilt curve bear
steepened. SPGBs and PGBs were among the top performers in the region as
Tsipras handed in a reform package, which focused on pension reforms alongside
higher business and wealth taxes, suggesting signs of progress after five
months of a stalemate. Nevertheless, we reserve our optimism at this
juncture given the negative implications to the Greek economy should the
reforms push through as it continues to harbor unemployment levels north of
25%. As such, this is likely to translate into further volatility among
P.EGBs.
¨ In
Asia, KTB curve bear steepened as investors anticipate additional spending
by the government in a bid to shield the economy from the MERS outbreak which
has taken a toll on what is already weak consumer confidence; maintain
neutral to mild overweight KTBs on prospects of further cuts by BoK. Aside,
China’s Beige Book reveals the economy is on the mend, supported by retail
consumption and a rebound in the property sector. Nevertheless, we maintain
expectations of further rate cuts by PBoC to support the recovery which should
remain constructive of short-to-belly CGBs. Elsewhere, BI (2016: 5.4-5.8%)
and MoF (2016: 5.8-6.2%) have proposed conflicting growth prospects for the
economy in 2016 which highlights concerns for the slowing economic growth
and reform prospects.
¨ USDKRW
broke below the key 1100 level where we expect the respite
to be short-lived given the deterioration in economic fundamentals
on top of BoK’s prolonged policy easing, highlighting increasing
downside risks to the KRW. Investors remain watchful of the JPYKRW pair where
we see the stabilizing JPY as favorable to our long call.
¨
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