Maybank GM Daily - 9 Feb 2015

FX

Global

      US equities ended modestly weaker into Fri NY close, despite very positive US payrolls data. Sentiment was weighed down by news that S&P downgraded Greece by one notch to B- and cautioned for the risk of bank run, Grexit and capital controls. Oil prices continue to stay supported with Brent above its 50 DMA at $58/bbl. USD was broadly stronger; USDJPY near 119-handle, EUR/USD back to 1.13-lows, AUD, NZD weaker. USD/SGD back above 1.35 handle.

      On Sunday, China released its trade data. Trade balance hit an all-time high of +RMB366.9bn, but this is due to much weaker import growth (-19.7% y/y vs -2.3% prior). Export growth also disappointed (-3.2% y/y vs. +9.9% prior). This underscores our view that both domestic and external demand remains sluggish and could add downward pressure on the CNY.

      Looking at data for the week ahead, Japan market is closed for National Foundation day on Wed.  For AXJs, focus on China’s Jan CPI (+1% y/y Cons.), PPI (-3.7% y/y); Malaysia Dec IP (+4% y/y Cons.); Philippines Jan exports (+19.7 y/y prior) on Tue. For Thu, 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 Fri, Indonesia 4Q current account (-$6836M prior). For the majors, some of the key data we are watching include Germany and Japan Dec trade data on Mon; US Jan retail sales (-0.3% w/w Cons.), Australia employment change (+10k Cons.), Japan Jan PPI (-0.7% m/m Cons.), EC and German CPI on Thu. For Fri, US Feb Univ. of Michigan sentiment (98 Cons.); EC, GE, FR, IT 4Q prelim GDP are in focus. Central bank speaks for the week includes Fed’s Lacker (Tue), Fisher (Wed, Fri). Both are Fed Hawks. RBA Governor Stevens to speak on Mon and Fri, RBA Asst. Governor Debelles to speak on Thu. EU Finance Ministers and EU Summit on Wed and Thu will be closely watched as negotiation over Greek debt remains very fluid and is expected to drive sentiment either way.

G7 Currencies

      DXY – Buy dips. USD surged on much stronger than expected US payrolls data. Almost every aspect of the US jobs report is positive. The US labor market is gaining momentum, and expectation for FOMC to drop the word “patient” in the March meeting is building. This is expected to be USD-positive. Extension of the rally could see DXY at 95.52 (previous high in Jan). While we continue to see USD strength, we are not ruling out any potential pullback towards 93.50, which we remain better buyers on USD dips. This week on the data front, sees Jan retail sales (Thu); Feb P. Univ. of Michigan Sentiment (Fri). Fed’s Lacker (Tue), Fisher (Wed and Fri) are due to speak. Both are Fed hawks.

       USD/JPY – Consolidating Higher. The USD/JPY broke above the upper bound of its recent trading range of 115.50-119.00 underpinned by dollar resurgence on Fri, though capped by the 120 resistance level we had identified. Trades ahead could be cautious with hawkish US FOMC voters to speak this week. Domestically, trade data for Dec (Mon) and Machine Orders for Dec (Thu) will be eyed. On Wed, onshore markets will be closed for a public holiday (National Foundation). Week ahead should see the pair consolidate higher within 117.30-120.00. Daily charts are all pointing to bullish momentum ahead.

       AUD/USD – Bearish bias. AUD/USD rejected the 0.7880 resistance and traded lower to 0.7780 off the back of strong US NFP into NY close Fri. PM Abbott survived no-confidence vote this morning. Continue to favor selling AUD on rallies towards 0.7850. RBA Stevens speaks today but likely to be a non-event. 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 usually offer some sensitive market insights.

       EUR/USD – Fade Relief Rally.  EUR/USD fell towards 1.13s on strong US payrolls data and S&P downgrade of Greece by 1 notch to B-. The S&P cautioned the risk of bank runs, capital controls and Grexit. The 1.1260 – 1.1520 recently established range could hold; we favor fading rallies. Next week sees Dec GE trade (Mon); Jan GE CPI, Dec EC IP (Thu); EC trade balance, EC GE, FR, IT 4Q GDP (Fri). EU leaders/finance ministers will convene on Wed and Thu for EU meeting; Greek PM Tsipras and Fin Minister Varouifakis are expected to attend. Brace for tough talks between Greece and Germans/ECB over Greek debt. Risk of Grexit has not subsided. Looking ahead it is really just about negotiation and situation remains fluid and could drive sentiment either way.

       EUR/SGD – Range. EUR/SGD traded lower towards 1.53 into NY close within recent established range of 1.5280 – 1.5490 (between 23.6% and 38.2% Fibonacci retracement of 1.6389 – 1.4936). Still see recently established range to hold with bias to fade rallies; slow stochastics is suggesting some early signs of bearish bias. Intra-day expect 1.5250 – 1.54.

Regional FX

      The SGD NEER trades around 1.60% below the implied mid-point of 1.3315. We estimate the top end at 1.3044 and the floor at 1.3585.

      USD/SGD – Still Supported. After giving up the 1.35-handle for most of last week, the USD/SGD has again been pulled back above that handle following a dollar resurgence. In a quiet data-week, directional cues are likely to come externally with Fed speakers, Grexit and Ukraine likely to dominate. A break above current resistance at 1.3570 this week could see the pair head towards the next barrier at 1.3630. Buying on dips is still preferred. 1.3460 should be supportive. Pair has lost most of its bearish momentum, though slow stochastics are showing tentative signs of a bearish bias.

      AUD/SGD – Bearish Bias. The AUD/SGD traded to a low of 1.0324 (3 Feb) after RBA rate cut, though it has since recovered to trade around 1.0500-levels. Downside bias remains intact targeting 1.0140 (76.4% Fibo retracement of 0.9066-1.3612 on the weekly chart). Resistance is seen around 1.0730 this week. Daily MAC is showing a bearish bias but stochastics is showing tentative signs of an upturn, suggesting sticky price action lower. Price action this week is likely within 1.324-1.0730.

      SGD/MYR – Gapping Lower. The SGD/MYR gapped slightly lower at the opening to 2.6202 from Fri’s close of 2.6348 following a rebound in oil prices. Daily MACD and stochastics are showing a bearish bias with the pair possibly slipping lower towards the 2.61-levels this week. Look for trades within 2.6100-2.6700 for the week.

      USD/MYR – Range. USD/MYR traded down to low of 3.5380s  last Fri, tracking the rise in oil prices. Pair has now bounced towards 3.5600 levels this morning tracking USD strength. Immediate support at 50DMA of 3.5375 continues to be in focus; beyond that sees 3.5270 (38.2% Fibonacci retracement of 3.3478 – 3.6375). Resistance at 3.57 (23.6% Fibonacci retracement), before 3.60-psychological level.

      USD/CNY was fixed at 6.1311 (+0.0050) vs. Previous 6.1261 (+2.0% upper band limit: 6.2537; -2.0% lower band limit: 6.0085). CNY/MYR was fixed at 0.5696 (+0.0035). USD/CNH – Range. USD/CNH traded higher towards 6.2530 tracking USD strength and higher USD/CNY fix. While Jan trade surplus was at record high, both import and export growth were weak, which underscores our view of sluggish external and domestic demand. We remain convicted to our view for USD/CNY, USD/CNH to be higher 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 – Bullish. The USD/IDR gapped higher at the opening to 12676 from Fri’s close of 12621 on the back of a dollar resurgence.  Aside from global risks concerns, how the appointment of the new police chief as well as the simmering tensions between the police and the anti-corruption agency are resolved will be closely watched. Both daily MACD and slow stochastics are showing a bullish bias. Expect the pair to trade within the 12550-12785 range this week. Last week, foreign funds bought a net USD197.12mn in equities but removed a net IDR3.04tn from their outstanding holdings of debt on 2-4 Feb. The 1-month NDF continues remain supported around the 12600-handle, currently sighted around 12690. Both daily MACD and stochastics are showing a bullish bias. The JISDOR was fixed lower at 12613 to end the week on Fri from Thu’s 12653, but is expected to start the new week higher given the spot climb this morning.

      USD/PHP – Bullish Bias. The USD/PHP gapped higher at the opening to 44.300 from Fri’s close of 44.180 following the bounce in the dollar. So far, equity inflows have been supportive of the PHP and should continue to do so given the strong economic fundamentals with foreign funds buying a net USD205.31mn in equities last week. Nevertheless, expectations of dollar strength and concerns over Grexit and Ukraine should continue to weigh on the PHP, lifting the pair higher ahead. Daily charts are showing a bias to the upside this week. Expect the pair to trade within the 44.000-44.500 range in the week ahead.  The 1-month NDF is retreating slightly this morning after spiking on Fri to 44.400, though both daily MACD and slow stochastics are showing a bullish bias.

      USD/THB – Range-Bound.  The USD/THB was pretty well-behaved for most of last week, trading within 32.500-32.670. Dollar resurgence following a strong US NFP lifted the pair higher to the 32.700-level. Aside from global events like US Fed speakers and Grexit, domestic concerns will likely dominate with political tension possibly rising following the travel ban on former PM Yingluck. As well, growth outlook will come in focus towards the end of the week given 4Q14 GDP release next Mon. It is otherwise a quiet data week for Thailand. Look for the pair to remain in range-bound trade this week though in a wider trading range of 115.00-32.785. Daily momentum indicators are showing little directional cues ahead. Last week, foreign funds bought a net THB6.01bn in equities but sold a net THB4.72bn in debt, providing the THB with support.

Rates

Malaysia

      Local government bond trading remained well supported with buyers seen at any dips. The curve ended mixed with profit takers seen in the afternoon session. BNM announced the 7y reopening of SPK 7/22 with a size of MYR2b for open auction and a separate MYR2b for private placement. WI was seen bidding at 4.20% but nothing traded by day end.

      IRS moved lower again on fears of KLIBOR going down. The 3y IRS traded down from 3.71% to 3.69% and 5y IRS was done at 3.79%. As suspected, 3M KLIBOR fell 1bp to 3.84%, though we note that 0-6y IRS are still below it.

      The local PDS market ended last week with most of the trades focused on 10y AAAs and GGs. We saw MYR90m of PTPTN 24s being traded at around MTM levels of 4.40%. Oddly, Dana 7/24s traded at 4.34% while the shorter dated Dana 4/24s traded 7bps wider at 4.41%. Nonetheless, the spreads when benchmarked against govvies still seem attractive at these levels. We heard Plus 24s are being offered at 4.45%, down from the last traded yield of 4.52%. The tightening of Plus 24 prices in the past few weeks has been a good indicator for how other AAAs and GGs should trade at but liquidity continues to be a drag. We think there are still opportunities in the market, especially for GG and AAA papers, as spreads remain attractive and hope to see more liquidity in the coming weeks.

Singapore

      SGS closed last Friday with a steepening bias in the curve. Yields on front end SGS (<5y) ended about 2bps lower than previous close whereas yields for SGS above the 10y point ended 1-2bps higher. The SGD IRS curve moved in line with the SGS curve, ending about 2bps lower in the short end and about 3bps higher at the long end. We are expecting a rather non-eventful NFP print between +230k to +240k.

      Asian credits traded very actively in the morning. The new Qingdao, which was priced at T5+370, rallied up and was last quoted 340/337. Other new issues like Tencent and ICBC also traded better. We were surprised to see buying interest around the IGs ahead of NFP release. Kaisa made headlines again as it was confirmed on Euroclear that the company has paid last month’s missed bond coupon and the market is trading the bond with accruals again. In the Chinese space, sellers were seen across short dated bonds given the depressed CNH funding. Overnight funding rate went up from 7% to 10% and we expect it to remain high until Chinese New Year.

Indonesia

      Indonesia Bond market moved mixed within the day and closed lower. FY2014 GDP data which came in at 5.02% was lower than consensus expectation of 5.06%. This slowdown in growth was actually expected due to tight monetary program started by Indonesia central bank. Based on GDP expenditure approach, all components such as private consumption, government spending, investment and exports growth slowed. (For more details on recent Indonesia GDP release, please read: Economic and Market Research: Economy Posted at Slowest Pace since 2010). How this release would affect LCY bond market? In our view, investors will start to concern on Indonesia's economic growth slowdown. Furthermore, investors will look at issues related to the normalization of monetary policy by the Fed and the increasing tension between Greece Government and ECB which can lead to turmoil in global financial markets. In addition, due to massive purchase by investors in Indonesia bond market within last few weeks which have made bond yields fall rapidly or far below the benchmark rate (BI Rate), have opened the chance for profit-taking. Looking at the conditions mentioned above, we expect limited room for bond prices to continue its hike.

      Foreigners continue to be seen on the seller side. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 6.816%, 7.007%, 7.093% and 7.271% while 2y yield shifts up to 6.613%. Heavy volume at secondary market remains to be traded at government segments amounting Rp13,716 bn with FR0071 (15y benchmark series) as the most tradable bond. FR0071 total trading volume amounting Rp3,551 bn with 121x transaction frequency and closed at 116.811 yielding 7.093%.

      Corporate bond trading traded heavy amounting Rp958 bn. PNBN01SBCN1 (Shelf registration subordinated I Bank Panin Phase I Year 2012; Rating: idAA-) was the top actively traded corporate bond with total trading volume amounted Rp119 bn yielding 10.054%.