Maybank GM Daily - 12 Feb 2015

FX

Global

      Global equities closed marginally weaker; EU-Greek talks failed to make much headway – even failed to release a statement. Focus now on the next EU Finance Ministers meeting Mon (which seems never-ending). USD was marginally stronger, with DXY traded up to high of 95-levels before easing; EUR traded around 1.13-handle within narrow ranges; USD/JPY back above 120-handle. Oil prices slide on rise in US oil inventories.  

      This morning Aussie Jan employment data came in weaker than expected, -12.2k vs. -5k Cons. Data is much worse if it only includes full-time employment and exclude part time employment. AUD/USD dipped towards 0.7650 low off the back of the data, taking AUD/NZD lower towards 1.0420.

      Day ahead for Asia sees Malaysia’s 4Q GDP (+5.1% y/y Cons.), 4Q current account ($9.8B Cons.); Philippines central bank meets (rate expected to remain unchanged). For Europe, Jan GE CPI, Dec EC IP is on tap. BoE will release its Inflation Report. For US, focus on retail sales.  Cautious trading/EU headline-trading likely to dominate currency markets. Still favor buying USD/AXJ on dips.

G7 Currencies

      DXY DXY – Buy dips. USD consolidation continues, with mild bias to the upside. Fed’s Fisher commented that it dangerous to delay rate hike until full employment is reached. Day ahead sees Jan retail sales (Thu). DXY still in consolidation mode in absence of fresh catalyst. This month’s focus is on Yellen’s testimony on 24 Feb. Favour buying USD dips.

      USD/JPY – Temporary Dips. Onshore markets have re-opened today and the USD/JPY continues to trade above the 120-figure despite some safe haven plays over concerns about Grexit. Pair is hovering around 120.17 currently with intraday MACD showing bullish momentum while slow stochastics remains in overbought territory, suggesting further upside moves cannot be ruled out. With the bias to the upside, look for topside to be guarded by around the 121-figure, while further dips are likely to see support around 119-figure should interim support at 120 is broken today. Buy on dips is still preferred.

      AUD/USD – Bearish bias. AUD/USD dipped towards 0.7650 levels this morning on weaker than expected employment numbers amid weak commodity prices. Still favor fading rallies. Momentum remains bearish. Day ahead sees RBA Asst. Governor Debelle speaking 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 1.1280 – 1.1350 overnight ahead of today’s EU meeting. Failure to agree on a statement now sees more discussion ahead of another Finance Ministers meeting on Mon. Range of 1.1250 – 1.14 likely during Asia hours, with choppy price action expected. Day ahead sees Jan GE CPI, Dec EC IP (Thu); tomorrow sees EC trade balance, EC GE, FR, IT 4Q GDP (Fri).

      EUR/SGD – Range. EUR/SGD remains stuck in recent ranges of 1.5280 – 1.5480 in absence of fresh catalyst. Eyes still on EU meeting today, and EU Finance Ministers meeting scheduled Mon. Still see recently established range of 1.5250 – 1.54 to hold with bias to fade rallies.

Regional FX

      The SGD NEER trades around 1.73% below the implied mid-point of 1.3379. We estimate the top end at 1.3107 and the floor at 1.3652.

      USD/SGD – Consolidation. The USD/SGD took out several of our barriers on its way back above the 1.36-levels yesterday underpinned by dollar strength. Pair is currently sighted around 1.3611 with intraday MACD still showing bullish momentum, though it is currently overstretched. Moves higher so far has been capped by some safe-haven plays and we are likely to see the pair in consolidative trades after the move higher. Immediate barrier is seen around 1.3632 ahead of the next at 1.3660, while support is around 1.3570.

      AUD/SGD – Bearish Bias. The AUD/SGD has broken out of the intraday ichimoku cloud it has been trapped in for the past few sessions and has slid past our support level at 1.0445 this morning. With the AUD sluggish, cross is sighted around 1.0425 currently with intraday momentum indicators showing a bias to the downside. Support is seen around 1.0324 while any rebound should meet resistance around 1.0640.

      SGD/MYR – Bullish. The SGD/MYR is bouncing higher to around 2.6592 this morning on the back of MYR weakness following a dip in global oil prices. Intraday momentum indicators are all showing a bullish bias today. Immediate barrier is around 2.6650 ahead of the next at 2.6770. Dips are likely to find support around 2.6270 still.

      USD/MYR – Range; Bias to buy USD dips. USDMYR traded higher towards 3.62 levels as oil price declines continue to weigh on the Ringgit. Day ahead sees 4Q GDP and current account numbers. Still favour buying USD on dips against the backdrop of potential USD strength on US rate hike to come earlier than later and domestic economic challenges. To add 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 3.60 – 3.63 range intra-day.

      USD/CNY was fixed at 6.1333 (+0.0018) vs. Previous 6.1315 (+2.0% upper band limit: 6.2585; -2.0% lower band limit: 6.0130). CNY/MYR was fixed at 0.5769 (+0.0043). USD/CNH – Range. USD/CNH continues to consolidate in 6.2450 – 6.2520 range in absence of fresh catalyst. USD/CNY also traded a tight range of 6.2410 – 6.2460 yesterday-today. Talks of seasonal demand for CNY; and market positioning for carry trades ahead of CNY holidays next week. We remain convicted to our short-term 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 12841 following the dollar resurgence overnight from yesterday’s close of 12723. A combination of dollar strength expectations and domestic political concerns are keeping the pair on the uptick. Intraday MACD is showing bullish momentum, though the pair is overstretched currently. With our barrier at 12785 taken out, new resistance is now around 12940 (2014 high). Support is seen around 12700. Foreign funds bought a net USD47.58mn in equities yesterday. The 1-month NDF jumped towards the 13000-handle overnight before retreating to hovering around the 12900-levels currently. Slow stochastics continues to be in overbought territory, suggesting the 1-month could remain elevated. The JISDOR was fixed higher at 12700 on Wed from Tue’s 12644, and the spot’s drift higher this morning could see another higher fixing today.

      USD/PHP – Range-Bound. The USD/PHP remains trapped within an intraday ichimoku cloud, suggesting rangy trades are likely ahead. Currently sighted around 44.352, slow stochastics are showing a gentle tilt lower, suggesting further upside could be curbed today. Ahead of the central bank’s policy meeting this afternoon, we expect the pair to trade range-bound within 44.250-44.570 today. Any surprises from the BSP could see the pair trade in a wider 44.000-44.810 range. Flows remained supportive of the PHP yesterday with foreign funds buying a net USD20.5mn in equities. The 1-month NDF remains in choppy trades, sighted around 44.450 currently with slow stochastics still on the downtrend, suggesting a potential pullback ahead.

      USD/THB – Waffling.  The USD/THB tested our barrier at 32.670 overnight on the back of a firmer dollar tone. The 32.670 level continues to be tested today and a firm break is likely to expose the next hurdle around 32.720. 32.570 should remain supportive today. Intraday MACD is showing bullish momentum though slow stochastic is showing tentative signs of a downturn, suggesting that upside moves could be capped today. Yesterday, foreign funds sold off a net THB1.27bn in debt, which offset the net THB0.56bn gain in equities.

Rates

Malaysia

      Local government bond market resumed its weak sentiment mainly driven by weak US treasuries (UST) and MYR. Almost all benchmark MGS yields closed higher despite the government’s announcement to reduce power tariffs. Market appears to be supported although some large notable trades were done on the 10y and 15y benchmarks at higher yields.

      IRS went up yesterday possibly led by some offshore paying, while onshore players were limping around. Onshore paying interest was quite pronounced after selling interest from foreign banks faded as well as flat onshore/offshore spreads. Nothing was traded and 3M KLIBOR dropped 1bp to 3.80%.

      There was volatility in the local PDS market and we saw increased trading volume. Yields on high grades (HG) traded wider compared to levels in the previous week. We saw AAA names such as Plus 24 trading 1-2bps wider with MYR30m volume traded. Aman 24s had offers quoted 3bps wider than previous close although nothing was traded. In the AA curve, we saw trades generally done at the longer end of the curve with names such as BGSM, Kesturi and Sarawak Energy being traded. In view of uncertainties in the domestic environment, we think there may be more appetite for higher yielding papers in the AA curve for better carry, while in the HG space players would be more likely to adopt a wait and see approach especially with regards to the spreads against benchmark govvies.

Singapore

      SGS yields opened about 1bp higher before some local names came in to buy up SGS 7/23, bringing the yield down. Yields ended 1-3bps lower across the curve. Bond swap spreads narrowed another 3bps with fairly depressed interest on the 10y SGS benchmark. SGD IRS softened by about 3bps and ended with a slight flattening bias. On a rate hike scenario, we think the curve could flatten out slightly from the 10y point and beyond but the 5y point and below might have a steepening bias.

      Japan was out in the morning and we only had UST during London time. CT10 came off slightly from the 2.00% handle and we saw more buyers coming in. Indon and Philip sovereigns traded slightly higher in cash as players continue to take advantage to buy cheap papers. The size of Evergrande's new USD bond came out slightly smaller than expected at USD1b (vs estimate of USD1.5b). The 12% bond was priced at par but later traded down to 98.50/99.00 level which could have been due to the issuer re-tapping the market and slightly weaker fundamentals. Credit spreads for Chinese IG names have gone tighter with names like Huarong and HTISEC remained sought after. We expect liquidity to be light soon as the market is looking to stay on the side lines with the Chinese New Year holidays coming and the uncertainty surrounding the standoff issue on Greece’s debt.

Indonesia

      Bond prices continue moving lower as there are minimum market sentiments during the day. Foreigners were seen on the selling side throughout the day. The decline in bond prices was also supported by investors waiting and seeing result of Greece-EU meeting as well as 4Q current account data release. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 6.959%, 7.233%, 7.313% and 7.498% while 2y yield shifts up to 6.699%. Heavy volume at secondary market remains to be traded heavy at government segments amounting Rp15,059 bn with FR0070 (10y benchmark series) as the most tradable bond. FR0070 total trading volume amounting Rp4,415 bn with 91x transaction frequency and closed at 107.500 yielding 7.233%.

      Corporate bond trading traded thin amounting Rp400 bn. SMRA01CN1 (Shelf registration I Summarecon Agung Phase I Year 2013; Rating: _idA+) was the top actively traded corporate bond with total trading volume amounted Rp60 bn yielding 9.959%.