Maybank GM Daily - 24 Nov 2014

FX

Global

Equities ended in positive territory on unexpected China rate cut and Draghi’s comments on monetary stimulus. EUR fell more than 1%. DXY closed above 88.3, a multi-year high. JPY firmed modestly. AUD, NZD rallied initially on PBoC rate cut but eased into NY close.        On Friday after Asia close, PBoC announced cut to the 1-year benchmark lending and deposit rate by 40bps (to 5.6%) and 25 bps (to 2.75%), respectively. The deposit rate ceiling was increased by 1.2x the benchmark deposit rate (from 1.1x previously), effectively from 22 Nov. Separately on Friday evening, ECB President Draghi told spoke about deflation risks across the Euro zone and said “we will do what we must to raise inflation and inflation expectations as fast as possible”. He also defined clear criteria for extending accommodative policy, which could include sovereign bond purchases.

       Day ahead Japan is out for Thanksgiving holiday. Singapore CPI data, German IFO expectation data and US PMI data are due for release. Asian markets could start the week on risk-on footing following China rate cut, ECB dovish comments. Watch out for any follow-through on EUR shorts against AXJ longs. 

G7 Currencies

       DXY – Range. USD closed firmly (88.31) into Friday NY close, stronger against the Euro, but a touch weaker against JPY and EM currencies such as BRL. ECB Draghi’s comments stoking QE expectation and PBoC rate cut were the main drivers in FX markets. DXY opened higher above 88.40 earlier this morning and moving a touch lower towards 88.30 as we write. Day ahead, the greenback could be mixed against a weaker Euro and stronger AXJs as market digests the aftermath of the China rate cut and Draghi’s dovish comments.  On the daily technicals, DXY is testing the top side of the range 87.20 – 88.30, a break above could see the rally extending towards 89.00 levels.

       USD/JPY – Uptrend. The USD/JPY continues on the retreat to start the week after coming within striking distance of the 119-figure on the back of profit-taking as well as polls showing PM Abe’s cabinet losing support and rising opposition to his economic policies. Uptrend though remains intact given bullish momentum though MACD forest on the daily chart shows waning of the momentum. However, any retracement is likely to be shallow given ultra-loose BOJ monetary policy with support nearby seen around 115.58 this week. The recent high of 118.98 marks the first barrier ahead of the next hurdle at 119.83 (8 Aug 2007 high). Watch the BOJ Oct 31 meeting minutes and BOJ speakers (Kuroda and Nakaso) for clues about further easing measures. 

       AUD/USD –Range-bound. AUD extended its rise from the rebound on Thu low and traded at levels around 0.8690, underpinned by the surprise China rate cut. Daily tools indicate slight bullish momentum but we continue to see gyrations within the 0.8540-0.8800 range with a possible upward bias. Next barrier is seen at 0.8900. 3Q CAPEX will be released on Thu and consensus expects a decline in the CAPEX for the quarter, underscoring the decline in the mining investment and lack of interest in business spending in other non-mining sectors.

       EUR/USD – Upward Tilt. EUR/USD slam-dunked on Fri and remained soft around the 1.2380-support as investors continue to digest dovish comments from Draghi on Fri. He urged the need to bring inflation “back to target” and further stimulus could be launched. With the 1.2368-support at risk, a clean break here could easily expose the next technical support at 1.2256. Rebounds to meet barrier at 1.26-figure. IFO surveys for Nov are in focus and could be watched for further market cues.

      EUR/SGD – Back to Range. EURSGD slipped on the confluence of EUR weakness and SGD strength on Fri and remains on the slide this morning, last seen around 1.6070. The pair has crossed below the 18-DMA and 40-DMA. Momentum tools are back near the zero line.  We still reckon the 1.6008-support is still a strong one that could deter aggressive offers. A break here could expose the next at 1.5836, allowing bears to reassert themselves. If not, we see greater likelihood of rangy trades within 1.6008-1.6400 to continue. Expect players to watch the Nov IFO surveys out of Germany for cues on intra-week moves.

Regional FX

       The SGD NEER trades at 0.17 below the implied mid-point of 1.2962 with the top end estimated at 1.2702 and the floor at 1.3221.

       USD/SGD – Consolidating. Retracement Amid An Uptrend. The USD/SGD had a big push towards the 1.31-figure last week before retreating back below the 1.30-figure as we write. Pair has lost most of its bullish momentum and a move towards 1.2860 (Nov low) is a possibility this week given the recent PBOC rate cut and retracement in the USD/JPY. Rebounds this week is likely to be capped by 1.3099 (20 Nov high) ahead of the next at 1.3150. A rash of data is out in the first half of the week with Oct CPI, final 3Q14 GDP and industrial production due on Mon, Tue and Wed respectively. There are unlikely to be any surprises from these releases that would impact the pair significantly.

       AUD/SGD – Range-Bound. The AUD/SGD has traded weaker for much of last week after hitting a two-month high of 1.1399. Cross lost most of its bullish momentum as shown by daily MACD forest with RSI showing ample room in either direction. However, the recent move by the PBOC should provide the AUD with a temporary boost this week. Expect some consolidation in the week ahead with topside capped around the 1.14-figure, while downside favours a move towards the 1.1020 levels (2014 lows). 

       SGD/MYR – Consolidation. The SGD/MYR had ended last week little changed but the recent move by the PBOC has provided the MYR with a leg up, lifting the cross higher to start the week. Daily chart is now showing momentum tilted to the downside, but prices are still within the upward sloping trend channel. We expect consolidative moves ahead with 2.5940 seen as barrier ahead of the next at 2.6100, while 2.5715 continues to provide support nearby before the next at 2.5630. 

       USD/MYR – Retracements. Pair slipped towards the 18-DMA at 3.3376, last printed 3.3410. MYR was well supported by the removal of fuel subsidies as well as the surprise interest rate cut by PBOC. Risks are to the downside for the USD/MYR. Support is seen at 3.3340 ahead of the next at 3.3257. Bounces are to meet barrier at 3.3511. 1-month NDF extended downsides as well, last seen around 3.3470. In news, the government announced RON 95 and diesel prices will be “managed float” on 1 Dec 2014. This could alleviate concerns over the budget deficit target for 2015 as government will save on the MYR 11bn allocated to fuel subsidies. Data-wise, inflation quickened to 2.8%y/y in Oct from the previous 2.6%, underpinned by the cut in fuel subsidies during the month.

       USD/CNY was fixed at 6.1420 (+0.0033), vs. previous 6.1387 (+2.0% upper band limit: 6.2673; -2.0% lower band limit: 6.0216). CNY/MYR was fixed at 0.5449 (-0.0019). USD/CNY – Range-trades. USD/CNY bounced this morning and hovered around the 6.13-figure this morning, underpinned by the USD rally on Fri as well as the higher fixing. Still, the pair is back on the downtick, weighed by the USD/AXJs downmove after PBOC eased last Fri. The 6.14-figure has become the next barrier to watch but intra-week moves are likely to remain rangy within 6.1080-6.1400, given PBOC’s penchant for currency stability. In news, there are already rumours of grater interest rate cut. This was after PBOC lowered the deposit rate and 1-year benchmark lending rate by 25bps and 40bps respectively after Asian hours last Fri. The deposit rate ceiling was also raised to 120% of benchmark rate from previous 110%. Five of 16 listed Chinese banks raised deposit rates to ceiling.

       1-Year CNY NDFs – Tilting Lower. The NDF was on the uptck this morning, last seen around 6.2525, underpinned by a higher onshore fixing. 18-DMA is above the 40-DMA still and bias is still to the upside. Dips to meet support at 6.2445 while upticks are capped by 6.2650 this week. USD/CNH –Downside Bias. USD/CNH bounced towards the 6.14-figure this morning, underpinned by the upmove in the rest of its USD/yuan peers. Next barrier is seen at 6.1429 (7 Nov high). Bullish momentum is gaining for this pair and interim support is seen around 6.1280. CNH trades at a discount to CNY.

       USD/IDR – Sideways. The USD/IDR is drifting lower this morning, helped by the surprised PBOC rate cut on Fri. However, expects of expectations of dollar strength, Fed rate normalization and the political and economic challenges facing the new administration should keep the pair buoyant this week and keep any dips shallow. An inchimuko cloud has formed below price action that should provide support for the pair this week. Choppy trades within the confines of 11950-12280 are expected for the pair this week. Foreign funds bought a net USD76.14mn in equities last week, while adding a net IDR7.65tn to their outstanding holding of debt between 17-19 Nov. Improved risk sentiments this week could see further buying, helping to keep the IDR buoyant. The 1-month NDF is on the retreat this morning, sighted around 12134 with daily MACD forest showing bearish momentum, though the 1-month is currently trapped in a daily ichimuko cloud, suggesting rangy trades ahead. The JISDOR was left unchanged at 12161 on Fri from Thu, but the spot’s drift lower this morning suggest a lower fixing is possible today.

       USD/PHP – Consolidation With Downside Bias. The USD/PHP is on the slide this morning after bouncing to a recent high of 45.156 last week, dragged lower by the surprise PBCO rate cut on Fri as well as expectations of strong growth in 3Q (3Q14 GDP is out on Thu). Daily MACD is showing little momentum in either direction, suggesting rangy trades are likely ahead. Moreover, an ichimoku cloud is forming below price action that is likely to limit downside for the pair today. Expect dips today to see support nearby around 44.911 with a firm break of this level exposing the next support around 44.820. Rebounds are likely to meet immediate barrier around 45.050 ahead of the next at 45.130. Foreign funds bought a net USD156.2mn in equities last week, and improved risk sentiments this week could see further buying, weighing on the pair this week. The 1-month NDF slipped below the 45-figure this morning, sighted around 44.980 with daily MACD forest now showing bearish momentum.

      USD/THB – Consolidation. The USD/THB remains on the retreat, this time on the back of positive sentiments from China’s PBOC rate cut and the pull-back in the USD/JPY. Still, this pairing continues to trade close to the middle of its current trading range of 32.585-32.966. Daily MACD forest is now showing bearish momentum, though RSI is indicating ample room in either direction. Dips are likely to be shallow though given expectations of dollar strength and Fed rate normalization and domestic growth concerns. Foreign funds were net buyers of THB1.32bn and THB1.25bn in equities and debt last week and continued positive risks sentiments this week could see more portfolio inflows, helping to cap the pair’s upside. Expect further consolidation this week with resistance still seen around 32.966 and support at 32.585 this week. A slew of data is due this week starting with customs trade and further disappointment in the data could trigger another round of weakness in the THB this week.

Rates

Malaysia

      Local government bond market saw mixed trading last Friday, with most trades left unchanged by day end. The 10y part of the curve was the most active as 10y MGS 7/24 dipped lower by -2bps, closing at 3.89%. We still noted better sellers on any rally as players preferred to stay nimble ahead of the next auction, which is a retap on the 5y MGS 10/19.

       IRS curve flattened last Friday as rates from the belly to the long end fell 1-4bps while the shorter end was up 1bp. No reported trades. We think the move could have been due to offshore buying on 10y MGS which has erased last week’s losses. Even the short end 2y IRS seems well offered with the higher KLIBOR. 3M KLIBOR was up 1bp to 3.80%.

       The local PDS market remained well offered with flows dominating most of the MYR486m transacted volume last Friday. We saw mostly offers with a lack of bidding interest in the market. A few short dated and high grade papers such as PASB 16 and Danga 16 were picked up. PASB 16 was last traded at 3.78%, 3bps higher than the 3.75% choice quote we heard in the afternoon. Longer dated and higher yielding AAA Aquasar papers also exchanged hands at MTM levels with over MYR35m trades done. With the announcement of the removal of RON 95 petrol and diesel subsidies, which is credit positive for Malaysia, we hope to see more interests in the local PDS space.

Singapore

      The SGS market saw little trading interest again. There was good two way interest in the afternoon before buying interest dominated the session around the belly bond area and up to the 5y benchmark. Bond swap spread closed about flat again.

       Asian credit space focused on Alibaba’s deal last Friday, with an overwhelming USD52b of orders, pricing their books overnight. The issuances were only due for FTT in the afternoon due to some document issues, and most of them traded around reoffer although there were more selling interest in the grey during the morning session. The best performer was the 20y issue which tightened almost 25bps before closing around T30+128 (priced at +148). This should be due to the relatively small issuance size (USD700m) compared to demand from lifers. Tencent and Baidu traded slightly wider after Alibaba was priced. Outside the tech market, we saw some buying interest on Chinese oil and gas. Cnooc and Sinopec traded 2-3bps tighter.

Indonesia

      Bond prices continue to surge amid minimum market sentiment. Two main reason on why flows might occur on Friday trading session: 1) better expectation of Indonesia expectation and 2) cancelation of the final conventional bond auction in December as DMO might be satisfied with this year issuance. Huge inflows were seen during Friday’s trading session as investor might be buying their bonds through the secondary market. This might have caused the bond prices to rise as well. At this point, investors should also be quite cautious at this point as prices might start correcting this week should there be any outflow or global negative sentiments. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 7.673% (-6.9bps), 7.808% (-4.3bps), 8.120% (-5.3bps) and 8.238% (-5.7bps) while 2-yr yield shifts down to 7.384% (-6.3bps). Government bond traded heavy at secondary market amounting Rp16,809 bn from Rp16,980 bn with FR0068 (20-yr) as the most tradable bond. FR0068 total trading volume amounting Rp4,334 bn with 204x transaction frequency and closed at 101.295 yielding 8.238%.

       Corporate bond trading was heavy amounting Rp753 bn (vs average per day (Jan – Aug) trading volume of Rp650 bn). BNLI02SB (Subordinated II Bank Permata Year 2011; Rating: idAA+) was the top actively traded corporate bond with total trading volume amounted Rp120 bn yielding 10.692%.