Maybank GM Daily - 19 Nov 2014

FX

Global

Global equities closed higher overnight, on a slew of better than expected data and news of further stimulus from Japan. The S&P 500 advanced to an all-time high (2051.8) while Nikkei was up +0.5% this morning. USD was broadly weaker, with EUR firming off the back of stronger than expected Eurozone/ German Economic Sentiment. Dovish comments from RBA governor Stevens drove the AUD lower while weak dairy auction overnight kept the kiwi’s advance. JPY eased amid choppy trading after Japan PM Abe called for snap election and confirmed the delay for the sales tax hike for up to 18 months.       In late Asian session yesterday, Bank Indonesia announced a 25 bps hike to its policy rate to 7.75% at its unscheduled monetary policy meeting, while leaving its overnight deposit facility rate (FASBI) unchanged at 5.75% and increasing the lending facility rate by 50 bps to 8.00%, in response to the fuel hike on Monday.

      Day ahead USD and JPY are in focus as markets await the BOJ monetary policy statement/press conference and FOMC minutes from the October meeting. On the US data front, housing Starts, US Building Permits and MBA Mortgage Applications are due for release. 

G7 Currencies

       DXY – Range with mild downside bias. The USD slipped overnight despite better than expected US data. The NAHB index of homebuilder sentiment was better than expected, marking 5 consecutive months in expansion territory. The reading was also the second highest since 2005. October PPI also unexpectedly rose (m/m +0.2% vs. Cons. -0.1%). Later tonight sees the release of housing Starts, US Building Permits and MBA Mortgage Applications. Key focus on October FOMC minutes which could offer insight into the balance of opinions among Fed policy makers on progress towards labour and inflation objectives as well as rate normalisation timing. While we remain constructive of the longer term USD bull trend, both the MACD and stochastic are however displaying tentative bearish signals on the daily technical charts, hinting of a possible pullback in the near term. 86.90 remains an interim support to watch in the short term, while 88.00 should serve as an immediate resistance.

       USD/JPY – Upside Bias. The USD/JPY is back above the 117-figure, spurred by PM Abe’s call to delay second sales tax and a snap election by the end of the year as well as the rally in global equities. The pair has breached the 117.06-barrier, hovering around 117.13 currently, and looks on track to head towards the next barrier at 117.95. Interim barrier is seen around 117.30 today. Intraday chart is now showing the build-up of bullish momentum and RSI continues to edge closer to overstretched conditions. We expect the pair to trade range-bound with an upside bias today ahead of the release of the FOMC minutes and the BOJ policy decision. Any retracement is likely to see support around 116.10 before the next at 115.50 still. The worst kept secret is finally out – Japan will delay its second consumption sales tax for at least 18 months and that Parliament will be dissolved on 21 Nov for a snap election by the end of the year. PM Abe intends to seek a fresh mandate for his plans to revive the morose economy amid a recession. 

       AUD/USD – Testing the Trend Channel. The AUD/USD inched lower towards the 0.87-figure, testing the lower bound of the upward trending channel. 0.8860 is still the technical support to watch. Risks are tilted to the downside after a rather static session on Fri. RBA Glenn Stevens reminded the markets of the downside risks to the AUD but AUD players took his words in their stride with the pair still above the 0.87-figure. Upticks are now guarded by the 0.8750, capped also by the slide in spot iron ore prices. 0.8860 is seen as the next technical resistance.

       EUR/USD – Consolidation. EUR/USD bounced on Tue, underpinned by the firmer ZEW survey. Both scores for current situation and expectations recorded improvement in Nov at 3.3 and 11.5 respectively. Still, the rise in the EUR/USD was not sustained as prices softened from its overnight highs of 1.2520. We still expect the 1.26-figure as a strong barrier and this pair to continue its consolidation within the 1.24-1.26 range.  Euroarea has a lighter data docket today and major event to watch is the Minutes of the Oct FOMC meeting. Anticipation of this release will continue to cap upsides in the pairing and a more hawkish-than-expected tone would drag the pair towards the 1.24-figure.

       EUR/SGD – Buoyant. The EURSGD sprung higher on EUR rise and soggy SGD, last seen around 1.6265. 18-SMA supports the cross on the 4-hourly chart as prices remained underpinned by the better German ZEW survey. While conditions have turned a tad bullish, RSI also indicate near overbought conditions. Bulls need a break above the 1.63-figure to open the way towards the next barrier at 1.6366. Pullbacks to meet first support at 1.6219, marked by the 18-SMA, ahead of the next at 1.6120. All eyes on the Minutes of the FOMC tonight and any unexpected hawkish leanings could drag the cross back towards the strong technical support at 1.6008.

Regional FX

       The SGD NEER trades at 0.31% below the implied mid-point of 1.2946 with the top end estimated at 1.2687and the floor at 1.3206.

       USD/SGD – Consolidating. The USD/SGD is bouncing higher this morning at around 1.2986 but remains within its current trading range of 1.2940-1.3000.  Intraday MACD is showing little momentum in either direction, suggesting range-bound trading is likely ahead. In the absence of fresh domestic cues, pair is likely to take it cues from the FOMC minutes that will be released later tonight. Until then, the 1.30-figure continues to be the resistance level to watch today ahead of the next bullish target of 1.3092, while dips are likely to see support around 1.2940. Final GDP print for 3Q14 will be released on 25 Nov. Recall that the flash estimates showed the economy rising by just 2.4% y/y and market is expecting growth to pick up slightly to 2.5%.

       AUD/SGD – Edging Lower. The AUD/SGD is edging lower, hovering around 1.1285 at last sight, dragged lower by the relative weakness of the AUD. Intraday chart is now showing risk biased to the downside with the RSI edging closer to oversold conditions. Further dips today are likely to see support around 1.1211 today while rebounds should meet resistance around 1.1391. 

       SGD/MYR – Downside Tilt.  The SGD/MYR is inching lower this morning but continues to trade at the upper bound of its current trading range of 2.5715-2.5912. Cross is current sighted around 2.5839 with intraday chart indicating that the pair has lost most of its bearish momentum. Price action today should continue to see the pair trade within the confines of 2.5715-2.5912 with the bias tilted to the downside today. 

       USD/MYR – Upside Risks. USD/MYR has cleared the 3.35-figure and last printed 3.3570. Whispers of agents offers continue to slow aggressive upmoves though the pair is undeniably bid. Sluggish oil prices continue to underpin the pair with 3.36 a tentative barrier. Support is marked by the 18-SMA at 3.3443. Prices have pared bearish momentum and risks are tilted to the upside. 1-month NDF is also on the uptick, on the verge on of testing overnight highs. 3.3730 (14-Nov) marks the first barrier while 3.3600 continues to slow offers. On Tue, BNM Zeti told the press that there is still strong growth and highlighted the fact that 60% of Malaysia’s exports go to Asia where there is growing domestic demand.

       USD/CNY was fixed at 6.1397 (-0.0033), vs. previous 6.1430 (+2.0% upper band limit: 6.2650; -2.0% lower band limit: 6.0193). CNY/MYR was fixed at 0.5476 (+0.0017). USD/CNY – Rangy. USD/CNY was dragged by the lower fixing, last seen around 6.1180.  Demand for offshore yuan also acts as a boost the onshore spot prices, in addition to the home-bound flows from the through-train Shanghai-Hong Kong Connect. Support is seen at 6.1140. In news, a former SAFE official, Chen Bingcai sees room for interest rate cut as inflation slows (China Securities Journal).

       1-Year CNY NDFs – Tilting Lower. The NDF slumped towards the 6.25-figure this morning, after the lower fixing. Pair gained bearish momentum overnight and heads towards next support at 6.2445. Yuan strength will dominate in the session ahead given the recent development for the Renminbi Qualified Domestic Institutional Investor (RQDII) scheme. USD/CNH –Sideways. USD/CNH slid below the 6.12-figure on Tue, weighed by the approval of the RQDII scheme as well. News of greater competition for deposit rates also boosts the CNH demand. The 18-SMA crossed below the 40-SMA, signalling bearish momentum and eyes are on the next barrier at 6.1130. A break here opens the way to the next technical support at 6.0973. CNH now trades at a premium to CNY.

       USD/IDR – Consolidation With Downside Bias. Following the BI’s surprise move to hike its policy rate by 25bp to 7.75% yesterday evening, the USD/IDR gapped lower again at the opening this morning to 12092 from yesterday’s close of 12136. Since then, the pair has regained some of its morning losses and is currently back above the 12100-handle at 12133 at last sight. However given the expectations of dollar strength and Fed rate normalization and the challenges President Jokowi faces, downsides are likely to be limited, especially after the euphoria of the fuel price hike fades. Dips today are likely to meet support around 12050 with a firm break of this support level exposing the next at 11950. Rebounds are likely to meet resistance around 12200 today ahead of the next at 12280. Given the positive sentiments, foreign funds bought a net USD20.09mn in equities, and added a net IDR2.18tn to their outstanding holding of debt on Mon, providing support for the IDR. Continued positive sentiments today should a similar pattern and should weigh on the USD/IDR. After sliding lower yesterday, the 1-month NDF is bouncing higher again, sighted around 12145 currently, though intraday MACD is still showing bearish momentum. The JISDOR was fixed lower at 12146 yesterday from Mon’s 12146, and the spot’s drift lower today is likely to result in a lower fixing. After its extraordinary meeting yesterday, BI commented that it expects inflation to be higher between 7.7-8.0% while GDP growth in 2014 is likely to come in at 5.1%.

       USD/PHP – Edging Higher. Like its regional peers, the USD/PHP is on the uptick this morning around our 45.050 resistance level. With our resistance level at 45.050 tested this morning, the next hurdle to cross today is 45.130. Intraday chart is showing risks tilted to the upside though the pair appears to be overstretched. Any retracement today is likely to see support around 44.880 before the next at 44.820. Foreign funds bought a net USD14.3mn in equities yesterday and improved risk sentiments today could see further buying that should cap upside to the pair today. The 1-month NDF is bouncing higher this morning, sighted still above the 45-figure at 45.150 with intraday MACD showing risks bias to the upside.

      USD/THB – Rangy. The USD/THB is on the uptick this morning ahead of the release of the FOMC minutes later tonight. Pair is currently sighted around 32.784, still trapped within the intraday ichimoku cloud, which suggest further sideways moves are likely ahead. Risks though are now tilted to the downside with the 18-SMA lying below the 40-SMA. In the absence of fresh impetus, we continue to expect rangy trades within the confines of 32.585-32.966. Improved risk sentiments yesterday saw foreign funds purchasing a net THB1.43bn and THB3.61bn in equities and debt, and the uptick in sentiments today could see further interest in Thai assets, which cap USD/THB upside today.

Rates

Malaysia

      The local government bond market saw selling on the 5y MGS 10/19 yesterday with the bond ending +2bps from previous close. We noted better sellers again on the belly as USDMYR drifted higher and onshore IRS remains well bid.

       IRS quoted and dealt higher as MGS yields continued to weaken on higher USDMYR. 2y and 3y IRS traded at 3.77% and 3.835% respectively.  3M KLIBOR was unchanged at 3.78%, but looks like it may rise to 3.79% soon.

       Overall, local PDS space was dominated by portfolio rebalancing trades. Generally, the market remains well offered as investors seem to be taking profit in view of year-end. We noticed buying interest focused on high quality papers. AAA rated Rantau 19 was actively traded with MYR65m exchanging hands and it tightened by as much as 18bps lower early in the morning before trading back up to previous closing levels. In addition, longer dated AAA names such as Aman, Manjung and Plus were also well bidded. We continue to like names in the power sector, such as YTL Power and TNB Nothern Energy, as we think that the current low commodity prices will yield higher profitability for power producers.

Singapore

      SGS market was quiet yesterday, opening about 1bp lower and SGD IRS 2bps higher. Some buying interest came in after lunch on the 20y benchmark, SGS 7/23 as well as on belly bonds. Bond swap spread widened about 2bps, undoing the previous day’s tightening. SGS market remained relatively calm despite the anticipation of a delay in sales tax hike in Japan as well as European economic data.

       Overall, Asian credit space was quiet. The newly printed Shui On traded around 99.50/100.00. We saw Indon trading slightly tighter yesterday after the fuel price hike announcement. China National Petroleum Corp (CNPC) is issuing 3y and 5y USD issues, with the 3y (fixed and/or floating) guiding at T3+135bps and 5y at T5+150bps. We saw some selloff on the existing CNPC curve after the new deal was announced. Overall, we like the 3y floater and 5y fixed at their current guidance and we think there could be 15-20bps pickup from the guidance levels.

Indonesia

      The government’s decision to hike the fuel subsidized prices by Rp2,000 per litter since 18 Nov-14 have positively impacted to Indonesia’s government bond market. It seemed that almost all the government’s bonds prices were getting stronger. Indonesia’s 3Y government bonds booked the highest appreciation by 9 bps of declining yields in yesterday transaction. We believe the positive momentum in Indonesia’s government bonds may still persist until the end of this year. Moreover, more limited supply of the bonds, after the government’s bond auction ended in early this month, will boost the transactions in the secondary market. 

       An escalation of the subsidized fuel prices occurred amid recent down trend on the Brent oil price. Brent oil price is equal to Indonesia Crude Oil Prices (ICP) that used as the benchmark in the government’s state budget. Recent Brent oil price at around US$79/barrel is still below the government’s ICP assumption at US$105 per barrel. However, the average prices of Brent Oil from Jan-Nov-14 at around US$102.13/barrel have shown that the subsidized fuel prices need to hike. By lifting the subsidized fuel prices, the government expect will receive a budget efficiency up to Rp100 trillion (US$8.3 billion). The government expects this efficiency will be shifted to finance its other productive programs, such as infrastructure development and social welfare. Hence, its economic growth target at 7% can be achieved within five years.

       Regarding the government’s decision to hike the fuel subsidy prices, Bank Indonesia unexpectedly lifted its monetary rate by 25 bps to 7.75%. This action is a preventive action to guard Rupiah and inflation from further second round effects of the fuel prices hike. By lifting the BI Rate, the central bank also tried to improve the bank’s liquidity position through boosting the bank’s third party funds. Higher BI Rate will implicate to higher bank’s deposit rate. Higher deposit rate will make the bank’s funding rate to be more attractive, then improving bank’s liquidity position. Therefore, bank’s loan deposit ratio position will be improved. It will give more space for the bank to boost the credit supply to ignite further national economic growth.