Global macro picture is relatively weak

Global macro data continues to be weaker than expected. While Europe's growth appears to be picking up, it remains to be seen if this is sustainable. Similarly, while US growth seems to be holding up, recent data releases have been more negative (ISM manufacturing, PMI data, ADP/payroll, retail sales) than positive (factory orders, home sales). Global growth is also falling below expectations, from Europe (Germany, the UK, Norway) to Asia (Indonesia, Thailand).

Data from China - including retail sales, industrial production and PMIs - has weakened. Inflation also remains stubbornly low, necessitating a looser policy stance. Investment, a key growth driver, has fallen over the past year. China continues to use policy levers to sustain growth momentum - the People's Bank of China cut the deposit and lending rates by 25bps on 10 May. 

"China's inflation is expected to rise in H2, whereas, further interest rate cuts are unlikely in the current cycle. However, another 100bps of reserve requirement ratio (RRR) cuts is likely in H2-2015 along with other liquidity injection and credit easing measures. This should continue to benefit China Inc. spreads. The policy environment is expected to support broader Asian credit, particularly China credit, with the financing-intensive HY property sector benefiting the most from easier financial conditions", according to Standard Chartered.