Maybank GM Daily - 23 Feb 2015

FX

Global

      Global equities ended the week on a high, with DJIA and S&P500 at all-time high. An 11^th hour EU-Greek conditional agreement reached on Fri supported risk sentiment. VIX closed down 1.00 to 14 levels. USD was a touch weaker, while high-beta currencies benefited. Oil prices slipped: WTI and Brent at around US$50/bbl, US$60/bbl, respectively. 

      For this week all eyes are on Fed Chair Yellen’s testimony to Senate Bank Panel in Washington (Tue) and to House Financial Services Committee (Wed). Markets are watching for hint of timing of Fed rate hike. Given recent labor market improvement, she could sound hawkish and offer some sensitive insights.

      Some of the key data/events we are watching for the week includes Singapore Jan CPI (-0.2% y/y prior) and Singapore budget on Mon. For Tue, GE 4Q GDP, trade data; EC Jan CPI (-0.1% m/m prior). For Thu, AU 4Q Capex (-1.6% Cons.), US Jan CPI (+0.8% y/y prior), durable goods order (-3.4% prior). For Fri, GE and IT CPI inflation; GE Jan retail sales (+4% y/y prior); UK 4Q GDP (+2.7% y/y prior); Japan Jan CPI (+2.4% y/y prior), retail sales (-0.3% m/m prior), jobless rate (+3.4% prior). Day ahead, focus still on EU-Greek agreement deadline - Troika needs to accept Greece’s proposals to ease elements of austerity before the 4-month agreement is finalized. China markets remain closed for Lunar New Year; will return on Wed. Still look to buy USD dips.

G7 Currencies

      DXY – Consolidation; Buy USD dips. DXY was little changed for last week at around 94.40 levels. Focus this week on Jan CFNAI, Jan existing home sales (Mon); Feb PMI, Fed Chair Yellen to testify to senate bank panel (Tue); Jan new home sales, Fed Chair Yellen to testify to house financial services committee (Wed); Jan CPI, durable goods, house price index (Thu); 4Q GDP, Feb Univ. of Michigan Sentiment, Fed’s Mester and Lockhart to speak (Fri). Daily momentum remains bearish bias; next support level at 93.66 (23.6% Fibonacci retracement of 87.627 – 95.527) before 92.50 (50 DMA and 38.2% Fibonacci retracement). We continue to caution that a USD pullback could be on the cards taking another leg up. Still favour buying USD dips.

      USD/JPY – Capped. The USD/JPY continues to consolidate within the 117-120 levels for the past week, but has been edging closer to the upper bound of the range recently. Pair has been lifted by the firmer dollar tone as well as the more positive risks environment following the Greek deal, even though additional monetary stimulus by the BOJ has not been forthcoming. Daily MACD is showing waning bullish momentum and slow stochastics is on the downward move, suggesting that further upside to the pair could be capped ahead. We continue to favor buying the JPY on dips. Look for further consolidation within 118.00-120.00 ahead. The week ahead has Jan CPI, Jan retail trade, Jan jobless rate and Jan household spending all on Fri. Later this morning, BOJ governor will appear in parliament.

      AUD/USD – Supported. AUD/USD managed a weekly close above 0.78-handle for the first time in 4 weeks. Weekly, daily MACD and stochastics are indicating bullish bias. Day ahead sees 0.7780 – 0.7880; do not rule out further move to the upside towards 0.7980s into especially if Aussie data surprise to the upside, stable commodity prices and disappointment with Fed’s Yellen testimonial. Key data we are watching for the week ahead includes Nov weekly wages and 4Q Capex (Thu). Prefer to look for better levels to sell AUD/USD.

      EUR/USD – Consolidation.  EUR/USD rebounded to close near 1.14-level last Fri after EU officials agreed to extend Greek aid by 4 months on conditions that the Troika accepts Greece’s proposals to ease elements of austerity. Dateline is today. EUR/USD trading is expected to remain headline-driven.  Day ahead sees 1.1320-1.1480 range. Week ahead brings GE Feb IFO (Mon); GE 4Q GDP, trade, EC Jan CPI (Tue); GE Feb unemployment change (Thu); GE, IT Feb CPI, FR Jan PPI, GE Jan retail sales (Fri).

      EUR/SGD – Consolidation. EUR/SGD briefly traded above 1.55 levels last Fri on EUR strength following EU-Greek 11^th hour conditional agreement. MACD is mild bullish bias while slow stochastics are at overbought levels. Day ahead sees 1.5420 – 1.5550 range.

                         

Regional FX

      The SGD NEER trades around 1.71% below the implied mid-point of 1.3366. The top end is estimated at 1.3094 and the floor at 1.3638.

      USD/SGD – Sideways. The USD/SGD climbed to an intra-week high of 1.3624 on Fri even though onshore markets were closed for the Chinese New Year holidays. Since then, the pair has retreated back to hover around the 1.36-handle, likely on the back of improved risk sentiments following the Greek deal. Though Jan IPI is on tap this Thu, market focus will be on the FY2015 budget this afternoon, though a significant impact on the pair is not expected. For the week ahead, pair is likely to trade sideways within 1.3540-1.3660, though any surprises on either side could see the pair trade in a wider range within 1.3460-1.3790. Daily charts are showing little momentum in either direction ahead. Preference is still to buy the SGD on dips.

      AUD/SGD – Bullish Bias. The AUD/SGD has been on the uptick towards the 1.07-handle since hitting a low of 1.0324 on 3 Feb. Cross remains bias to the upside targeting 1.0861 (50% Fibo retracement of the Nov-Feb downswing). Support is seen around 1.0578 (23.6% Fibo retracement). Daily MACD and slow stochastics are signalling bullish bias.

      SGD/MYR – Bullish Tilt. The SGD/MYR climbed to a recent high of 2.6890 on Fri despite both the onshore SGD and MYR markets closed for the Chinese New Year holidays. With the return of onshore markets, the cross has come off to hover around the 2.68-handle currently. Expect 2.7000 to cap upside this week with 2.6600 supportive.

      USD/MYR – Stay long. USD/MYR is now trading at its new-2015 high of 3.6450 at time of writing on concerns with 1MDB despite seelting the 2b loans with banks. Media reports that 1MDB may require 3bil Ringgit cash injection as income from power assets are not enough for debt servicing. MoF awaits Cabinet approval before stepping in. This relates to the contingent liability exposure which we have been highlighting, that could put pressure on Malaysia’s ratings. FX technicals are indicating a bullish bias; support at 3.62, before 3.5700 (23.6% Fibonacci retracement of 3.3478 – 3.6375). Next resistance at 3.65-psychological level before 3.70.

      USD/CNH – Range. No fixing today as China market is closed for Chinese New Year from 18 -24 Feb. USD/CNH continue to climb towards 6.2750.  We remain convicted to our 3m-4m view for USD/CNH to be higher on a combination of drivers including further intensification of USD strength, ongoing domestic growth, debt, capital, fx outflow and liquidity concerns. Expect 6.27 – 6.30 range intra-day; remain better buyers on dip

      USD/IDR – Bullish Bias. The USD/IDR has been trading with a upside bias since the BI cut rates by 25bp on 17 Feb. Pair has climbed back above the 12800-levels and has remained at those elevated levels since. Further moves towards the 12900 levels remains a possibility, though the grind higher could be tempered by BI intervention. The rate cut, coupled with expectations of a higher current account deficit in 2015 and still conflicted by on-going domestic political concerns, is likely to bias the pair higher ahead. Look for 12700-12940 range to hold this week. Last week, foreign funds bought a net USD100.18mn in equities, helping to support the IDR. The 1-month NDF is retreating after trading briefly above the 13000-handle on Fri and is seen around 12921 currently. Daily MACD is bullish bias still. The JISDOR was fixed higher at 12849 on Fri compared to 12742 at the start of the week and could be fixed lower today should the spot’s drift lower holds.

      USD/PHP – Sideways. Since hitting a recent high of 44.465 (12 Feb), the USD/PHP has been stuck in range within 44.110-44.370. Pair is likely to be pulled in either direction this week given that daily MACD is showing bullish momentum while slow stochastics is signalling a downside bias. Look for the pair to trade sideways with its current trading range of 44.110-44.420 in the week ahead. Dec trade is on tap on Tue. Portfolio flows remains supportive of the PHP with foreign funds purchasing a net USD11.81mn in equities last week. The 1-month NDF continued to trade range-bound within 44.20-44.40, hovering around 44.310 currently, with daily MACD still showing little momentum in either direction.

      USD/THB – Slight Downside Bias.  The USD/THB has been on the slide for most of last week to around the 32.50-region, though trades have been choppy. Support for the THB probably came from foreign inflows to debt with a net THB5.03bn bought between 16-19 Feb compared to a net outflow of THB4.4bn the week before, which offset the net THB5.08bn in equities sold last week (previous week: +THB1.69bn). Pair has lost most of its bullish momentum with slow stochastics showing a slight tilt to the downside. This week, customs trade data for Jan (due 23-26 Feb), Jan current account (Fri) and foreign reserves for 20 Feb (Fri) are on tap. A deterioration in any of the data could weigh on the THB this week. Look for the pair to trade in a wider 32.420-32.720 range this week.

Rates

Malaysia

      In the local government bond market, the morning trade session last Wednesday saw the 5y MGS 10/19s traded 1bp lower from previous close and was actively traded despite the shortened week. We saw some flows into the front end and belly of the curve, which closed 1bp lower amidst pretty decent volumes for a holiday week.

      5y IRS traded at 3.87% before CPI results were released. Post the low CPI growth rate of 1.0% YoY for the month of Jan 2015, IRS levels were quoted 3bps lower. 3M KLIBOR was unchanged at 3.79%.

      Activity was muted in the local PDS market. At the time of writing, we only heard SEB 2019s were traded at MTM levels of 4.35%. Other quotes were largely one sided and focused on longer dated GGs and AAAs. The rest of the trades were crosses due to portfolio rebalancing.

Singapore

      SGS continued to soften with yields higher by roughly 12bps before longer ends got snapped up around the 10bps region. Market closed with yields up 5-13bps. We think this softness would continue until the 30y auction on Wednesday and maintain a steepening bias view ahead of it. SGD IRS space appear to favour higher rates and we think this trend could persist.

      Another quiet day for the Asian credit market with most players out for the Chinese New Year holiday. The most actively traded papers were Indon sovereigns following the unexpected rate cut, which market has viewed positively and led to a slight rally on the sovereign bonds. US Treasury (UST) have reached a high thus far in 2015 with the 10y yield at around 2.13% amidst rumours that Greece’s government will seek an extension for its loan agreement and some expectations of the Federal Reserve raising rates by the end of the year.

Indonesia

      Indonesia bond market was relatively quiet on Friday trading as some offshore investors within the region are still in holiday mood due to CNY. Nothing much happen within the day with minimum sentiments globally and locally. Bank Indonesia sells 9mo Islamic bills and conventional bill worth of Rp1.6 tn and Rp5.99 tn respectively at WAY of 6.67192% each. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 6.810%, 7.060%, 7.213% and 7.428% while 2y yield shifts down to 6.715%. Heavy volume at secondary market remains to be traded heavy at government segments amounting Rp10,963 bn with FR0068 (20y benchmark series) as the most tradable bond. FR0068 total trading volume amounting Rp3,016 bn with 82x transaction frequency and closed at 109.569 yielding 7.428%.

       Corporate bond trading traded thin amounting Rp132 bn. MFIN01ACN2 (Shelf registration I Mandala Multifinance Phase II Year 2014; A serial bond; Rating: _idA) was the top actively traded corporate bond with total trading volume amounted Rp40 bn yielding 10.469%.