RHB FIC Rates & FX Market Update - 2/7/15

2 July 2015

Rates & FX Market Update

DM Bonds Underperformed on Speculations of Greek Compromise, Stronger US Jobs and Manufacturing Data

Highlights

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¨    DM yields rose as risk aversion eased following Greece’s signal to compromise on the starting point for negotiations. Tsipras however reiterated his stance for voters to reject austerity measures at the 5 July referendum; EUR continued to depreciate yesterday, triggering stops around 1.112/4 levels. In US, the stronger than expected ADP payroll and a modestly stronger pace of manufacturing PMI expansion further kindled market risk appetite; 10y UST yields rose 7bps to 2.422%.

¨    MGS topped outperformance in Asia following Fitch’s decision to maintain Malaysia’s sovereign rating at A- with a stable outlook; 10y MGS yield fell 8bps to 3.937%. MYR saw a relief rally towards the 3.7485/USD but may be short-lived, capped by expectations of a narrower trade surplus. Chinese markets remained muted despite the persistent Manufacturing PMI contraction print (49.4), underscoring the need for further PBoC easing to spur the economy. Closer to home, concerns over Indonesia’s slowing growth intensified on the back of contracting manufacturing activity; 1H15 government growth forecast projected at 4.9% (FY15: 5.2%). While Indonesia CPI rose m-o-m to 7.26% y-o-y (May: 7.20%), CPI was a touch slower than expectations of 7.2% despite higher food prices (+8.6% y-o-y) during Ramadan; inflation is likely to have peaked at 8.2% in January 2015, which may increase scope of BI to begin considering easing in 1H16. Aside, THB held firm at 33.820/USD as persistent disinflationary pressures raised speculation for further easing following the BoT’s downward revision to growth forecasts.

¨    The AUDUSD pair edged closer towards the key 0.76 psychological level, weighed by a stronger USD following upbeat US manufacturing data. The pair is likely to break the 0.76 near term support as RBA continues to talk down the AUD amid expectations for wider trade deficit versus speculations for stronger US NFP prints intensify rate hike expectations in the US.