Maybank GM Daily - 29 Jan 2015

FX

Global

Central bank meetings continued to dominate the headlines overnight, with Fed on slight dovish tone and RBNZ shifting to neutral stance, with tinge of dovishness, from its previous tightening bias. FOMC maintains “patient” stance, upgraded labor market assessment and highlighted that inflation is anticipated to decline in the near term. Separately while RBNZ kept rate unchanged, it highlighted that inflation “could be negative for a period before moving back towards 2%” and expect to see a further significant depreciation. NZD/USD was -1.5% following RBNZ.        Overnight, most US and EU equities continued to close weaker. VIX is up again +3.22 to 20.4.  Oil prices fell after EIA data showed US crude inventories rose to highest level since 1982. USD was mixed, weaker against JPY but  stronger against EUR, GBP, AUD, NZD and some AXJs including MYR and SGD.          Day ahead  focus on Eurozone Consumer Confidence, Germany CPI. For US, Pending home sales, initial jobless claims data expected. Fed’s Rosenberg will speak. In Asian, PH 4Q GDP is on tap. Day ahead favor buying USD on dips against most G7 and AXJs.

G7 Currencies

DXY – Consolidation. USD remained in consolidation mode. USD was mixed overnight; weaker against the JPY, stronger against EUR, GBP, AUD, NZD and some AXJs including MYR and SGD. FOMC maintains “patient” stance, highlighted that inflation expectation declined and upgrades labor market assessment. While FOMC may seem mild dovish, their stance does not alter its policy adjustment process. While market consensus continues to expect a rate hike in Jun, we maintain our previous call for a rate hike sometime in 3Q 2015. On the tech chart, daily MACD shows a lack of momentum while stochastics are showing tentative signs of turning lower from overbought areas. We continue to expect USD consolidation, with risk of pullback towards 93.20 levels.        USD/JPY – Consolidation. The USD/JPY is on the uptick this morning on the back of a firmer dollar. Pair though continues to trade well within its current trading range, though the upticks could be capped given that intraday momentum indicators are showing tentative signs of a downturn. With FOMC over, next key event to watch out for is Dec CPI data out tomorrow, where a softer print could increase pressure on the BOJ to do more. Pair should remain in consolidative trades within 116.80-119.00 today.        AUD/USD – Bearish bias. AUD/USD remains a sell-on-rally, towards 0.7950 levels looking for a move towards 0.7850. AUD failed to hold on to gains as rally was just shy of the 0.8033 (previous support, now turn resistance) yesterday. Move lower was largely dragged by comments from RBA watcher Terry McCrann who argued that the bank “will almost certainly” cut interest rate next week and dovish tone of RBNZ.  Remaining of the week focus on 4Q PPI (Fri) leading into RBA meeting next Tue. 4-hourly MACD is bearish bias while stochastics are falling.        EUR/USD – Fade Relief Rally.  Sell EUR/USD remains the name of the game as Greek defiance weighs on sentiment and outlook. PM Tsipras questioned the value of raising sanctions further on Russia and has set up an anti-austerity cabinet, suspending austerity measures and privatization plans. Pair now trades around 1.1290; Look to fade rally towards 1.1350s for a move back towards 1.12-lows intra-day. Day ahead focus on EC Jan confidence (Thu); SP 4Q GDP, FR, IT Dec PPI, EC Jan CPI (Fri).        EUR/SGD – Range. EUR/SGD continued to trade higher above 1.53 levels tracking Euro strength and SGD weakness on MAS surprise move to reduce the slope of it S$NEER policy band. Pair likely to stay supported intra-day. Watch for daily close- if it failed to close above where it opened today (1.5240) the pair could reverse lower. Still favour playing from the short side. Fade rallies towards 1.5350s.

Regional FX

       The SGD NEER trades around 1.6% below the implied mid-point of 1.3316. We estimate the top end at 1.3045 and the floor at 1.3587.

       USD/SGD – Consolidating Higher. After the surprised MAS policy action yesterday, the USD/SGD has been trading mostly above the 1.35-handle. Expectations of slower domestic growth and dollar strength ahead should continue to pressure the pair higher in the near term. Intraday momentum indicators are suggesting as much with both MACD and slow stochastics on the rise. Consolidative trades within 1.3460-1.3575 with a bias to the upside are likely today.

       AUD/SGD – Capped. The AUD/SGD slipped lower overnight underpinned by a relative weakness of the AUD, but has rebounded this morning with the uptick in the AUD. Intraday MACD is showing waning bullish momentum while slow stochastics has started to dip, suggesting upside today could be capped. Resistance is still around 1.0880 and support around 1.0550.

       SGD/MYR – Rangy. The SGD/MYR is back on the uptick, lifted by the rebound in the USD/MYR this morning. Pair is sighted around 2.6842 with intraday MACD still showing a tilt to the downside, suggesting limited upside momentum. Look for trading range around within 2.6600-2.700 to remain. 

      USD/MYR – Supported. USD/MYR spot opened around 3.6220 but was taken higher towards 3.6350 tracking the move in lower oil prices and higher USD/SGD. BNM meeting yesterday kept rates on hold at 3.25% as expected; reiterated that monetary policy stance to remain accommodative and highlighted that inflation is expected to rise slower than expected.  Domestic concerns – fiscal slippages unresolved, and 1MDB requesting for further extension on repayment, there could be risk for MYR to trade on the weaker side possibly towards 3.64. Intra-day range of 3.62 -3.64 expected. Hourly momentum is biased for further upside.

       USD/CNY was fixed at 6.1335 (+0.0053) vs. Previous 6.1282 (+2.0% upper band limit: 6.2587; -2.0% lower band limit: 6.0312). CNY/MYR was fixed at 0.5869 (+0.0035). USD/CNH – Range. USD/CNH remained supported around 6.2450 levels.  6.2400 – 6.2750 intra-day range likely, with mild bias to upside on broad USD strength; possible China easing/band widening. Since the beginning of this week, USD/CNY onshore has been deviating about +1.8% to +1.9% from the mid-point and this is testing the maximum allowable limit of +2%. Prolonged pressure could see the PBoC taking this opportunity to widen the trading band to tolerate for weaker CNY, reduce the need for intervention and allow for greater 2-way volatility. To note, USDCNY-USDCNH spread has widened to -115pips from nearly 0 yesterday.

       USD/IDR – Stuck-In-Range. The USD/IDR remained above the 12500-figure this morning, lifted by a firmer dollar as well as ongoing concerns about ability of the Widodo to act independently of his political party and allies as reflected in the tussle between the police and anti-corruption commission. Slow stochastics is currently flat, suggesting the lack of directional momentum for now. Lacking fresh impetus, pair should remain in range-bound trades within 12400-12550 ahead. Latest flows data showed that foreign funds sold a net USD34.04mn in equities yesterday. The 1-month NDF remains on the uptick, rising to 12568 this morning with intraday MACD still showing bullish momentum. The JISDOR was fixed slightly higher at 12498 on Wed compared with Tue’s 12493 but could be fixed higher given the spot’s uptick this morning.

       USD/PHP – Slow Grind Higher. The USD/PHP appears to be in consolidative trades within its current trading range of 43.900-44.400, even as it ticks higher on the back of a firmer dollar. Slow stochastics continues to rise, suggesting upside pressure on the pair remains. Look for the pair to trade in familiar ranges today with the bias to the upside. Yesterday, foreign funds bought a net USD11.7mn in equities, which supported the PHP. The 1-month NDF is inching higher this morning but remains largely in its current trading range of 43.900-44.400 with slow stochastics still showing little directional clues.

      USD/THB – Consolidation.  The USD/THB is retracing following the BoT decision to hold its policy rate steady at 2.0% yesterday, contrary to speculation of a rate cut. Firmer dollar overnight amid rising concerns over Greece could limit downside today. Intraday chart is now showing tentative signs of an upturn, suggesting upside pressure could be building up. Look for the pair then to trade range-bound within its current 32.420-32.670 range today. Foreign buying was mixed again with a net THB3.76bn in equities purchased yesterday but with a net THB2.67bn in debt sold.

Rates

Malaysia

Local government bond curve rallied throughout yesterday with pretty much everyone buying, especially on the 7y and 15y bonds, and ended 1-6bps lower from previous day. There was no change in the OPR of 3.25% as expected. WI for 3y MGS 10/17 was last dealt 4bps lower at 3.54%.        IRS levels tanked amidst a rally in govvies, which saw yields fall back to best levels seen last year, while USDMYR remains very well bidded. IRS of 2y, 3y and 5y traded at 3.735%, 3.75% and 3.83% respectively. Presently, the belly and long end are seeing good payers, while receivers are heavy on the 1y-3y. 3M KLIBOR unchanged at 3.85%.        The local PDS market was bullish yesterday prior to the MPC outcome in the evening, with high grade AAA and GG papers being snapped up across the entire yield curve. At the shorter end of the curve, we saw Aman 3/18 traded at 4.04% and Aman 10/18 at 4.13%. At these levels, we think the former is relatively more expensive as the 7 months difference does not correspond to a 9bps spread. We estimate the value of Aman 18s around 4.15% level. At the longer end of the curve, we saw more Plus papers being picked up, with Plus 24 rallying to 4.57% which is a 74bps spread over the benchmark. Even Suria KLCC 24 tightened and last traded at 4.61%. Given the attractive spreads, we think interest will remain on GGs and AAAs for the coming weeks.

Singapore

      SGS prices slumped likely on the back of a depreciating SGD after the surprise move by MAS to reduce the slope of the SGD NEER. The short end till the belly of the curve was badly hit with yields rising 12-28bps, while yields at the long end rose 8-9bps, resulting in a flatter curve. We think the 2y point was also affected by the additional supply from yesterday’s auction of 2y bonds which garnered a bid-to-cover ratio of 1.61x with an average bid of 0.70% and a cut off of 0.86%.

       In the Asian credit space, sovereigns traded actively both ways and with more heavy interest on the buying side, the curve moved 2-3bps tighter. However, lesser demand was seen on Philippines. Chinese property names continued their rally from previous day with mostly PBs interest on buying. Names like Kaisa, Logan, and Futlan were all in demand. New issuances include Delhi International Airport (rated Ba1) 7y USD288.75m bond at 6.125%. Upon FTT, the bond traded up and closed almost 3pts up. Philippines' Security Bank Corp new issue also rallied by almost 2pts. Sino-Ocean Land came to the street issuing 5y and 12y USD bonds at T5+345 (+/-5bps) and 6.10% respectively. The book had an overwhelming USD9b of orders while the issue size is said to be capped at USD1b.

Indonesia

      Our economist releases his outlook on upcoming January inflation data and December trade balance publication. Our economist sees that inflation would continue to occur by 0.28% mom or 7.51% yoy amid fuel, cement and LPG price cut. This is caused by several foodstuffs which are still experience a price hike. January core inflation is expected to reach 0.35% mom or 4.72% yoy. Our economist also sees that December trade balance would record a surplus of US$0.22 bn as exports value is expected to reach US$14.22 bn while import value would come in around US$14.00 bn. The rise in Indonesia's export performance is due to the improving in the economy of the countries of Indonesia's major trading partners that impact the increased demand for goods and services from these countries while the fall in import value may occur by the slowing domestic economy activities.

       Indonesia bond market started to be rather quite after a more than two weeks price rally. We see that all investors might be looking forward for FOMC meeting results. However, bond prices closed slight higher. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 6.792%, 7.056%, 7.305% and 7.425% while 2y yield shifts down to 6.682%. Heavy volume at secondary market remains to be traded at government segments amounting Rp13,580 bn with FR0070 (10y benchmark series) as the most tradable bond. FR0070 total trading volume amounting Rp2,163 bn with 49x transaction frequency and closed at 108.752 yielding 7.056%.

       Bank Indonesia sold 3mo bills at WAY 6.50% amounting Rp3.13 tn while selling 6mo bills at WAY of 6.850% amounting Rp1.11 tn.

       Corporate bond trading traded heavy amounting Rp433 bn. ISAT01ACN1 (Shelf registration I Indosat Phase I Year 2014; A serial bond; Rating: idAAA) was the top actively traded corporate bond with total trading volume amounted Rp75 bn yielding 9.394%.