RHB FIC Rates & FX Market Update - 14/7/15

14 July 2015

Rates & FX Market Update

Greek PM Accepted Tedious Creditor Terms but Steep Uphill Looms Ahead; Singapore 2Q Growth Disappoints; BI to Stand Pat

Highlights

¨                   

¨    Risk markets to find brief reprieve from positive Greek developments where Greek PM has accepted the creditors’ detailed conditions which include privatization of Greek assets, bank recapitalization, debt repayment, VAT and pension reforms as a precursor to kickstart formal negotiations on Wednesday to receive aid. While overnight risk markets found better footing on Greek progress, the next crucial step stems from parliamentary approval and a new Greek government. We expect bridging facilities and IMF participation to remain; remain watchful of the July 20 ECB deadline while maintaining call for ECB to maintain the ELA ceiling through to 15 July. More importantly, we stress that the deal does not erase execution risks which could face strong domestic backlash, adding further political and economic pressures; expect the EUR to test the 1.09 support.

¨    Among Asian data, Singapore’s 2Q GDP declined to 1.7% y-o-y (1Q: 2.8%) with growth slowing across the board, easing below the government’s FY15 2.0-4.0% target; SGD to trade softer in the day ahead (see also currency writeup on USDSGD below). India’s CPI printed above expectations at +5.4% y-o-y (May: 5.0% y-o-y) but WPI eased another 2.3% in June, further widening the gap between WPI and CPI. Given the lagging impact of RBI’s previous rate cut amid an uncertain monsoon outcome, we expect RBI to stand pat in the near term. BI’s is also expected to stand pat later today, where we expect further easing to be driven by macro prudential measures rather than outright cuts. 

¨    USDSGD climbed above 1.36 this morning, weighed by the softer than expected 2Q GDP data (1.7% y-o-y), below the 2% lower bound growth target. We await IP and NODX prints to determine if growth has bottomed which may otherwise induce MAS to shift to a neutral bias similar to 2009. Meanwhile, we maintain a no change expectation at October’s meeting.

¨             

¨