Maybank GM Daily - 11 Feb 2015

FX

Global

      Global equities closed in positive territories on positive economic data out of US (JOLTS), and Europe (FR, IT IP). There were some market talks of possible EU-Greek compromise, which supported sentiment. VIX was down +1.32 to 17.23. USD was broadly stronger, with DXY closing at 94.75; EUR traded around 1.13-handle in narrow ranges; commodity-linked currencies AUD, CAD fell off the back of oil and copper price declines. UST 10Y yields rose near 2%. 

      Hard talks between Greece-EU seemed to have softened overnight with possible compromise scenario back on the table. Recent development includes possible 6 months extension to the current bailout, a “new deal” starting Sept which would involve a change in the arrangement with creditors and some changes to the austerity mix, Greece will continue to adhere to 70% of the austerity measures previously agreed on. Development remains fluid; all eyes on the Euro-area Finance Ministers meeting tonight.

      Little significant data for the day ahead. Fed’s Fisher will speak to Economists in NY tonight.  Range trading in currency markets expected ahead of Euro-area Finance Ministers meeting today.

G7 Currencies

      DXY – Buy dips. USD consolidation continues, this time with mild bias to the upside on JOLTS report which saw new highs in job openings, Fed talks supporting rate to be raised sooner – Fed’s Lackers says June is “attractive option” to raise rates and Fed’s Williams commented that “getting closer” to conditions where rate normalisation needs to be considered seriously. Fed’s Fisher (hawk) due to speak later. Still favour buying USD on dips. This week on the data front, sees Jan retail sales (Thu); Feb P. Univ. of Michigan Sentiment (Fri).

      USD/JPY – Range-Bound. Onshore markets are closed for a public holiday today and re-opens tomorrow. The USD/JPY broke above the 119-handle, which we had identified as barrier, to a weekly high of 119.62 overnight on the back of a dollar resurgence. Since then pair has retreated but still above the 119-handle over concerns about Greece and Chinese growth. Trades though are likely to be quiet given that onshore markets are closed today, though the bias is still to the upside given that intraday momentum indicators are showing a bullish tilt. Look for range-bound trades today with new barrier at 120.00 and support at 118.50.

      AUD/USD – Bearish bias. AUD/USD initially rose off the back of expectation that China may cut rate again due to worse than expected China CPI yesterday. AUD strength was later reversed as USD strength took over, oil prices and copper prices declined. Still favor fading rallies. Week ahead sees Jan employment data (Thu); RBA Asst. Governor Debelle to speak on Thu; and RBA Stevens to deliver semi-annual testimony on monetary policy on Fri, which may offer some sensitive market insights.

      EUR/USD – Fade Rally.  EUR/USD traded narrow range of 1.1273 – 1.1345 overnight ahead of today’s EU Finance Ministers meeting. There was news flow of Greek/EU talks arriving at a compromise – 6 months bridging loan. Details remain iffy. Trading off headlines likely to dominate. Range of 1.1250 – 1.14 likely during Asia hours, with choppy price action expected leading into the meeting. Day ahead FR current account data on tap; ECB Coeure to speak. Week ahead sees Jan GE CPI, Dec EC IP (Thu); EC trade balance, EC GE, FR, IT 4Q GDP (Fri).

      EUR/SGD – Range. EUR/SGD continues to trade a lacklustre range of 1.5283 – 1.5365 ahead of EU Finance Ministers Emergency meeting later this evening. Still see recently established range of 1.5250 – 1.54 to hold with bias to fade rallies; slow stochastics is suggesting some early signs of bearish bias.

Regional FX

      The SGD NEER trades around 1.64% below the implied mid-point of 1.3334. The top end is estimated at 1.3063 and the floor at 1.3605.

      USD/SGD – Capped. The USD/SGD re-tested the 1.3550-handle overnight to hit 1.3571, a high not seen since Aug 2010 before retreating to around 1.3550. Still, further upside could be capped given that the pair has lost most of its bullish momentum, while slow stochastics has tilted to the downside. Barrier remains around 1.3570 but a firm break could see the pair headed towards the 1.36-figure. The 1.35-level continues to supportive before the next at 1.3460. Note that final 4Q14 GDP will be released on 17 Feb (Tue).

      AUD/SGD – Sideways. The AUD/SGD continues to be trapped within a thin intraday ichimoku cloud. Cross is hovering around 1.0554 with slow stochastics showing a bias to the downside. Expect the cross to trade sideways today with the downside limited by the lower bound of the cloud around 1.0445 and the topside guarded by 1.0585.

      SGD/MYR – Consolidating Higher. The SGD/MYR is in consolidative trades after its climb higher yesterday. Cross is sighted currently higher around 2.6472 despite rising oil prices overnight with intraday momentum indicators showing a tilt to the upside today.  With the bias to the upside today, look for cross to consolidate higher within 2.6270-2.6650 today.

      USD/MYR – Range; Bias to buy USD dips. USDMYR traded higher towards 3.58 levels as oil price declines continue to weigh on the Ringgit. Immediate support of 3.5430 (50 DMA) continues to be of focus; with resistance at 3.60-psychological level. Given potential USD strength on US rate hike to come earlier than later, the pair could have more upside to go amid domestic economic challenges (which has yet to be forgotten). Malaysia’s vulnerability to externalities remains high (as measured by FX reserves to imports ratio and FX reserves to short term external debt). Day ahead expect 3.56 – 3.60 range intra-day.

      USD/CNY was fixed at 6.1315 (+0.0020) vs. Previous 6.1295 (+2.0% upper band limit: 6.2566; -2.0% lower band limit: 6.0113). CNY/MYR was fixed at 0.5727 (+0.0023). USD/CNH – Range. USD/CNH traded higher towards 6.2570 levels on USD strength and market talks that another rate cut could be on the cards. We remain convicted to our view for USD/CNY, USD/CNH to be higher in the near term (3-4m view) on a combination of drivers including further intensification of USD strength, ongoing domestic growth, debt, capital outflow and liquidity concerns. Expect 6.24 – 6.2650 range intra-day; remain better buyers on dip.

      USD/IDR – Gapped Higher. The USD/IDR gapped higher at the opening to 12703 following the dollar resurgence overnight from yesterday’s close of 12670. Pair’s climb higher has stalled around the 12705 as the dollar retreats but the bias remains slightly to the upside with intraday momentum indicators showing a mild bullish tilt. Continuing domestic political and global concerns continue to weigh on the IDR. Upside today should be capped by 12785 while any dips should be limited by 12610. Foreign funds bought a net USD20.32mn in equities yesterday. The 1-month NDF climbed above the 12800-handle overnight to hit a high of 12829 but has since eased to hover around the 12808-levels this morning. Intraday chart is still showing bullish momentum ahead. The JISDOR was fixed lower at 12644 on Tue from Mon’s 12679, but the spot’s bounce higher this morning could see a higher fixing today.

      USD/PHP – Rangy. The USD/PHP is inching higher this morning, sighted currently around 44.380 but remains well within an intraday ichimoku cloud. Intraday MACD continues to show bullish momentum, while slow stochastics are showing overbought conditions. Expect trades to remain rangy within 44.250-44.570 today with the bias tilted to the upside. Flows reversed yesterday with foreign funds selling a net USD32.1mn in equities, weighing on the PHP. The 1-month NDF continues to climb higher, sighted around 44.470 currently with slow stochastics falling from overbought conditions, suggesting a potential pullback ahead.

      USD/THB – Tight Range.  The USD/THB continues to trade at the upper half of its narrower trading band of 32.570-32.670, supported by dollar strength overnight. Pair is inching lower this morning at around 32.620 with slow stochastics on the climb higher, suggesting that downside could be limited. So far, portfolio flows have been supportive of the THB with foreign funds buying a net THB298.7mn in debt yesterday that offset their selling of a net THB145.2mn in equities and more of the same is likely today. Expect continued trades within a tight range of 32.570-32.670 today.

Rates

Malaysia

      Profit taking was seen on the local government bond curve, while the weaker MYR yesterday triggered weak long positions on the bonds. The 7y SPK 7/22 retap auction went well with a strong bid-to-cover of 2.4x. Successful yields came in at a high of 4.115% and a low of 4.08% and the average bid was 4.103%.

      IRS saw better bids amid softer MGS and MYR yesterday. There were only small trades reported the 2y and 5y points. The curve steepened as the front end was lower by 2-3bps while the back end was higher by 5-6bps. 3M KLIBOR fell 1bp to 3.81%.

      The local PDS market saw a lack of bidding interest with the upward shift in the MGS curve. Trades were focused on high grades at the belly of the curve with Dana 7/21 actively traded with a volume of MYR40m. Yield on this bond tightened up to 3bps before moving back and closing only 1bp tighter. Moving down the maturity curve, we saw Dana 10/20 also trading tighter at 4.08%. The AAA space was pretty quiet with only Rantau 19s being traded with MYR40m done at its MTM level of 4.12%. We saw some very short dated papers in the AA curve being dealt such as BGSM 15s and Malakoff 15s, while the rest of the trades were potential crosses. 

Singapore

      The yield for 10y SGS opened about 2.5bps higher but ended worse with the selloff in US Treasuries (UST) Futures. SGS yields from the belly to the long end of the curve were up 6-7bps from previous close, while the short end was unchanged. SGD IRS ended 4.5bps higher. It appears SGS has been outperforming after the unexpected statement of a milder SGD NEER slope. The 10y bond swap spread traded to a high of -19 yesterday. SGD funding is still relatively manageable with the overnight rate at around 0.40% and with the gradual ease off in funding, we may see higher SGS prices and bond swap spreads. In the meantime, we prefer to cover some shorts.

      Asian credit market mostly traded weaker, tracking the UST movement. Sovereign cash traded almost 0.5-1pt. In the Chinese IG space, we saw some buyers taking advantage of the move in UST and bought names like Tencent, CITPAC and HRAM. More buyers emerged in the Indian space. CNH papers continue to see selling interest even though we saw more easing on funding yesterday. We believe the market will continue to be nimble ahead of the Chinese New Year holidays.

Indonesia

      Indonesia Bond market closed slightly lower amid a successful sukuk auction. Minimum domestic sentiment along with minimum foreign flows to the bond market have made bond prices slightly decline. Notting specific happened during the day. We still see bond prices would move within a tight range within this week. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 6.895%, 7.068%, 7.224% and 7.415% while 2y yield shifts up to 6.676%. Heavy volume at secondary market remains to be traded heavy at government segments amounting Rp15,190 bn with FR0071 (15y benchmark series) as the most tradable bond. FR0070 total trading volume amounting Rp3,580 bn with 81x transaction frequency and closed at 115.530 yielding 7.224%.

      Indonesian government conducted their weekly auctions yesterday and received incoming bids of Rp11.62 tn bids versus its target issuance of Rp2.00 tn or oversubscribed by 5.8x. Incoming bids were lower by 39.1% compared to 27 Jan sukuk auction, hence in our view, incoming bids during the auction was relatively heavy. However, DMO only awarded Rp2.32 tn bids for its 5mo which was sold at a weighted average yield (WAY) of 5.84375%, 1.5y PBS008 at 6.88529% while 6y PBS006 was sold at 7.26337%. Incoming bids were mostly clustered at the front end tenor specifically SPN-S and PBS008 series. PBS007 bid was rejected during the auction. Bid-to-cover ratio came in at 1.42X – 8.01X. WAY awarded during the auction was lower compared to previous auction by an average of approx. 20bps and yesterday closing by approx. 10 bps. Huge incoming bids in our view occurred as investor purchasing in a bulky quantity would be convenient purchasing Indonesia sukuk through the primary market rather than secondary market. WAY awarded during the auction came in slightly lower compared to our indicative WAY expectation. Till the date of this report, Indonesian government has raised approx. Rp56.68 tn worth of debt through bond auction in 1Q 15 which represents 72.2% of the 1Q 15 target of Rp78.50 tn. On total, Indonesian government has raised approx. Rp110.05 tn worth of debt through domestic and global issuance which represent 23.9% of this year target of Rp460 tn.

      Corporate bond trading traded thin amounting Rp465 bn. PNBN04SB (Subordinated Bank Panin III Year 2010; Rating: _idAA-) was the top actively traded corporate bond with total trading volume amounted Rp70 bn yielding 10.056%.