RHB FIC Rates & FX Market Update - 9/7/15

9 July 2015

Rates & FX Market Update

Fed June Minutes Highlighted Early Concerns on Greece and China; South Korea Revised GDP Target Lower; JPY Outperformed

Highlights

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¨    June’s FOMC minutes invoked further uncertainty regarding the country’s recovery momentum, compounding on global risk aversion stemming from Greek woes and the negative Chinese equity rout. Heightening downside risks supported another strong UST performance overnight where yields declined 2-7bps. Expectations on Fed’s liftoff remains data dependent with investors eyeing Yellen’s speech on Friday for further clarification on the central bank’s view following recent market turmoil. EGBs were somewhat firmer yesterday as EU leaders extended its ultimatum for Greece to table fresh reform proposals by Friday ahead of Sunday’s emergency summit. The EUR edged higher to 1.1073/USD where we expect EURUSD to trade closer to the 1.0916 near term support heading towards the weekend.

¨    The elevated relevancy of Chinese equity collapse to Asian markets versus Greek woes should support ‘safe haven’ demand in the region, albeit selectively. The slowing Chinese economy would weigh on export demanded from the region, manufacturing production among others; maintain mild overweight on short dated CGBs. Elsewhere, the South Korean government revised the 2015 GDP and fiscal deficit target lower to 3.1% and 3.0% respectively (previous: 3.9%; 2.1%) following the supplementary budget approval, pricing in a weaker domestic economy following the MERS outbreak amid budget expansion limitations. We expect BoK to extend its dovish stance, pressuring short dated KTB yields lower. 

¨    Mounting risk aversion compounded on Greek woes and Chinese stock market rout supported safe haven demand, including the JPY which rallied to 120.6/USD. We expect the bullish momentum on JPY to be relatively short term in nature. We maintain our YE15 target at 125/USD, underpinned by the diverging growth and policy outlooks between US and Japan.

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