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Friday, February 27, 2015
Malaysian insurance to stay on strong growth path
Maybank GM Daily - 27 Feb 2015
FX
Global
Early week started with Fed’s Yellen attempting to
tame USD bulls but as the week progresses, it was Fed’s Bullard who unleashed
USD bulls overnight. In his comments to CNBC last night, he
commented that the Fed should make a change to the FOMC statement next month,
dropping the word “patient”, paving the way for a summer rate hike. He also
noted that labor markets are improving rapidly, that it seems “bit little
extreme” if unemployment drops below 5% and Fed still keeps rate near zero.
USD rallied with a vengeance, with DXY rising above 95
levels. EUR/USD tumbled to 1.12-levels. Commodity-linked currencies (AUD, NZD
and CAD) all declined. Oil prices fell, with WTI leading the decline (-4%), on
supply glut concerns.
Day ahead brings US 4Q GDP, Feb Univ. of Michigan
Sentiment, Fed’s Mester and Lockhart to speak later. For EU, GE, IT Feb CPI, FR
Jan PPI, GE Jan retail sales are due for release. We remain better buyers
of USD on dips.
G7 Currencies
DXY – Buy USD dips. USD rebounded with a vengeance overnight, with DXY rising above 95
levels on stronger than expected core CPI (+0.2% y/y vs. +0.1% Cons.) durable
goods order and Fed Bullard speech. He commented that the Fed should make a
change to the FOMC statement next month, dropping the word “patient”. Still
favour buying USD on any dips. Next support level at 94-levels, 93.66 (23.6%
Fibonacci retracement of 87.627 – 95.527). Resistance still seen at 95.50
levels (Jan high); decisive close above 95.50 could open way towards 97 levels.
Focus today on 4Q GDP, Feb Univ. of Michigan Sentiment, Fed’s Mester and
Lockhart to speak later.
USD/JPY – Bullish Tilt. The USD/JPY tracked the
dollar higher overnight pass the 119-handle before retreating this morning on
month-end exporter selling. Last sighted around 119.28, intraday MACD and slow
stochastics are signaling a bullish tilt ahead, suggesting that moves lower
could be limited. Lower-than-expected Jan inflation increases the pressure on
the BOJ to act, but recent comments by the BOJ suggest no additional measures
are imminent. Expect a bullish tilt within 118.50-119.85 today. Dips are
opportunities to accumulate dollar.
AUD/USD –Sell rallies. AUD/USD fell to a low of 0.7786 levels
overnight on USD strength following strong US data and Fed’s Bullard hawkish
talk. Pair now trades around 0.7810 at time of writing; and stochastics are
falling from overbought areas. AUD/USD still needs to manage a daily close
above 0.7880-0.7910 in order to see another leg higher. Failing which, should
see the pair trade 0.7750 – 0.7880 intra-day range. Still prefer to trade the
pair from the short side.
EUR/USD
– Fade Rallies.
EUR/USD dived towards a low of 1.1184 overnight on a combination of drivers
including strong US data, Fed’s Bullard hawkish talk. To some extent, market
chatters also attributed the plunge to imminent start of ECB QE. MACD and
stochs are now signaling a bearish bias; we remain better sellers on rallies;
1.11 – 1.13 range intra-day expected. Day ahead brings GE, IT Feb CPI, FR Jan
PPI, GE Jan retail sales.
EUR/SGD – Consolidation. EUR/SGD plunged overnight, driven by weaker EUR as
broad USD strength took over. Pair has broken below 1.5280 its lower end of the
Feb consolidation range and looks poised for further declines, with MACD and
stochastics bearish bias. As we have mentioned yesterday, we prefer playing the
pair from the short side. Day ahead see 1.5160 – 1.5280.
Regional FX
The SGD NEER trades around 1.49% below the implied mid-point of 1.3368.
We estimate the top end at 1.3096 and the floor at 1.3639.
USD/SGD – Limited Downside. The USD/SGD see-sawed yesterday; first plunging to a
recent low of 1.3486 and then rebounding to an intraday high of 1.3588 as the
EUR/USD slipped below the 1.12-handle. Since then, pair has settled lower,
sighted around 1.3573, weighed by the softer dollar tone this morning. Dips
today could be shallow with 1.3545 supportive while rebounds should meet
barrier around 1.3620. Intraday charts are showing a bias to the upside,
suggesting moves lower could be limited. Preference is still to buy the dollar
on dips.
AUD/SGD – Bearish. The AUD/SGD remains on the slide, currently sighted below the
1.06-handle at 1.0579. Intraday MACD and slow stochastics are signalling a
downside bias ahead, suggesting continued retracement is possible. Support
nearby remains at 1.0570 with a firm break exposing the next at 1.520. Rebounds
should be capped around 1.0640 today.
SGD/MYR – Rangy. The SGD/MYR bounced higher to 2.6592 this morning on the back of MYR
weakness after sliding to a low of 2.6512 overnight. Cross is currently trapped
in a thin intraday ichimoku cloud and a break out higher could be capped by
2.6700 (18SMA). Dips should see technical support around 2.6430 (bottom of the
cloud). Intraday charts continue to signal bearish bias ahead.
USD/MYR – Buy on Dips. MYR gains overnight were reversed on broad USD strength. Onshore USDMYR
now trades around 3.6080 at time of writing. Local media reported that Malaysia
cabinet has rejected the MYR3bn proposed injection into 1MDB. This underscores
our view for persistent weakness in the Ringgit on contingent liability
exposure which could put pressure on credit rating. Still favour buying USD
dips. Intra-day range of 3.60 – 3.63 expected.
USD/CNH – Buy on Dips. USD/CNH has been whipped a lot higher today, tracking
USD strength and higher USD/CNY fixing this morning. We continue to see USD/CNH higher on a combination
of drivers including further intensification of USD strength, ongoing domestic
growth, debt, capital, fx outflow concerns and possibility of further rate cuts
(RRR and lending rate). Remain better buyers on USD dips. The pair now trades
6.2820; expect 6.2750 – 6.2900 range intra-day. USD/CNY was fixed higher by +96 pips at 6.1475 (vs.
6.1379). CNYMYR was fixed lower by -22 pips at 0.5688 (vs. 0.5710).
USD/IDR – Choppy. The USD/IDR is on the uptick this morning, playing catch up after the
dollar edged higher overnight. Pair is sighted around 12866 though both
intraday MACD and slow stochastics signalling a bias to the downside,
suggesting upside could be capped. Dollar strength expectations ahead are
likely to be tempered by BI moves to guard against volatility in the FX
markets. Expect choppy trades within 12800-12945 to continue. Foreign funds
bought a net USD96.72mn in equities yesterday, and added a net IDR1.32tn to
their outstanding holding of debt on Wed. The 1-month NDF climbed within the
13000-figure, sighted around 12976 this morning, with slow stochastics showing
a tilt to the upside. The JISDOR was fixed lower at 12862 yesterday from Wed’s
12887 but could be fixed higher today given the spot’s uptick this morning.
USD/PHP – Capped.
The USD/PHP tested but failed to close below our support at the 44-figure
yesterday and is on the uptick this morning, playing catch up with the dollar
moves overnight. Sighted around 44.080 currently, intraday charts are still
signalling bearish momentum ahead, suggesting upticks today could be capped.
Resistance is seen around 44.230 today. Dips today should see support nearby at
the 44-figure still before the next at 43.930. Foreign funds bought only a net
USD0.45mn in equities yesterday, but which still provided support for the PHP.
The 1-month NDF slipped briefly below the 44-figure this morning before
rebounding to 44.080 with both the intraday MACD and slow stochastics are
showing signs of a tentative bullish tilt.
USD/THB – Consolidation. The USD/THB took out key support at 32.500
yesterday on its way down towards 32.290. Strong inflows to debt in a search
for yields probably accounted for this move. Yesterday, foreign funds purchased
a net THB4.04bn in debt, which more than offset the THB2.86bn in equities sold.
As well, there have been rumors of BoT intervention. Pair has since rebounded
slightly to 32.378 but is still below yesterday’s close of 32.389. While
continued inflows to debt should weigh on the pair, expectations of a narrower
current account surplus could limit downticks today. After yesterday’s massive
move lower, expect consolidative moves today within 32.290-32.500 though the
bias remains tilted to the downside. Slow stochastics is signalling little
directional bias but intraday MACD is showing bearish momentum.
Rates
Malaysia
Local government bond benchmarks traded mix but the overall sentiment
was bullish, helped by the MYR appreciation. Meanwhile, the 5.5y GII 8/20s
auction received very strong demand with bid-to-cover ratio of 3.015x on a
MYR4b size. Post-tender, we saw buying interest continue as some local funds
missed the auction. The strong MYR and auction bid spurred buying interest in
the GII market and the Islamic benchmarks ended 1-3bps lower.
In the IRS market, there was pretty good paying interest but nothing
dealt. 3M KLIBOR unchanged at 3.79%.
The local PDS market saw increased buying interest on the back of a
stronger MYR and seemingly stable oil prices. Longer dated AAA bonds did well
yesterday. We saw Plus 24s being taken at 4.50% (2bps tighter than MTM levels),
Plus 32s taken at 4.96% (1bp tighter) and Telekom 22s and 24s taken at 4.54%.
While there is an increase of flows back into the market, we note that
investors remain cautious and prefer the AAA space, seeing value at the long
end of the curve.
Singapore
SGS prices across the curve rose, tracking the movement in US Treasuries
(UST) which extended the rally from the previous day after Federal Reserve
Chair Yellen’s similar message to the Financial Services Committee. The SGS
curve flattened with yields down by 2-7bps.
Asian credit space continued to trade firmer on the back of the UST
movement. Sovereign cash traded higher again, especially in the Indon space
with Indon 2025 being taken above the 104 level. Country Garden Holdings (rated
BB+ by S&P) is proposing a USD issuance of 5NC3 year bonds at the guidance
of 7.875%, which appears attractive as market views the fair value to be around
7.30%-7.50%. However, with Kaisa's news still lingering, players may be less
motivated to go into HY property market unless a premium is given on it.
Elsewhere, Bank of Tokyo-Mitsubishi (BUTM) priced its USD issuances the
previous night which included: 1) 3y fixed rate at CT3+77bps for USD1b, 2) 3y
FRN at 3ML+55bps for USD500m, and 3) 5y fixed rate at CT5+87bps for USD1.5b.
BUTM later traded 3-4bps tighter on the back of better onshore buying interest
and lower UST yield.
Indonesia
Indonesia’s government bond was closed higher by 15-75bps yesterday. It
was triggered by BI’s comment that February should be a deflation month and
lower target on conventional auction next Tuesday (target Rp10 trillion). The
10Y yield declined to 7.10% and 20Y at 7.31%. Onshore foreign banks tried to
replenish liquid series in anticipation of buying from offshore investor. We
saw also they were looking for non-benchmark series as they still offer good
yield, compared with the benchmark one.
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