Maybank GM Daily - 12 Mar 2015

FX

Global

US Equities continue to close in negative territories overnight as mounting expectation of imminent US rate hike and rising USD continue to weigh on future earnings outlook for US companies. USD bulls continue to print fresh highs of 99.90 levels at time of writing. EUR/USD and GBP/USD nearly broke 1.05-handle and 1.49-handle respectively; AUD and NZD remain soft. USD/AXJs were broadly supported on USD strength, except for USD/SGD and USD/MYR which have eased from their respective highs despite USD strength elsewhere. BoK and BoT are latest in Asia to join the global momentary easing party; while RBNZ stood pat overnight. Oil prices were mixed with WTI soft and Brent rebounding.        China local press reported that China is almost certain to finalise details of the CNY1tn quota to replace maturing local government debt, quoting China Deputy Finance Minister Zhu Guangyao. This programme has been confirmed by the Ministry of Finance but details are unknown at this point, which we believe is likely to be announced when NPC/CPPCC concludes this weekend. This is a major policy move – as it aims to replace local government debt maturing in 2-3 years at higher interest rates with longer tenor debt at lower interest rates. Some likened this to a QE, but we view it more as a US-style Operation Twist and is essentially a debt restructuring and aims to lower funding cost and will remove some of the local government debt concerns that markets have been worrying about.  While this could be interpreted as a major positive for  China and the positive effects be felt on the Renminbi, the short term impact could be negative as markets ponder over possible haircut on local government bonds (by what magnitude).

       Day ahead for Europe brings GE, FR, SP CPI; EC IP. For US, Feb retail sales; Feb import price data are on tap. On FX, trend remains your friend, we remain convicted to USD bullish bias; but on USD/AXJs we are cautious on some pairs on leaning against the wind activity.

G7 Currencies

       DXY – Trend Remains Your Friend. Another day, another high as USD bulls continue to run into fresh 12-year highs, last at 99.90 levels at time of writing. Expectations for an imminent signaling of Fed rate hike to come next Wed/Thu (FOMC meeting) continue to fuel the rally amid monetary policy divergence with the rest of the world. We remain convicted to our USD bullish bias and continue to favor buying USD on dips, targeting next objective at 100-psychological level. Daily MACD continues to exhibit bullish bias while slow stochastics continues to hover in overbought territory. Interim support now at 98 levels. Week ahead brings Feb retail sales; Feb import price index (Thu); Feb PPI, Mar University of Michigan Sentiment (Fri).

       USD/JPY – Capped. USD/JPY remains in consolidative mood after failing to make a daily close above 121.85 (Previous high seen in Dec 2014). MACD is mild bullish bias but stochastics is exhibiting tentative signs of fatigue from the recent run up. If 121.85 resistance holds ground, chart formation suggests a possible double-top formation in the interim. Favor selling rally towards 121.80, stop loss above 122.10, looking for a move back towards 119 levels.

       AUD/USD – Sell on Rallies. AUD/USD broke 0.76-handle to trade a low of 0.7561 before reclaiming 0.76-handle this morning as employment numbers came in better than expected. Daily MACD is bearish bias while stochastics are showing tentative signs of turning from oversold levels. Day ahead expect 0.7560 - 0.7650 range.

       NZD/USD – Relief Rally. RBNZ kept rates on hold at 3.5% as expected but statement appeared to be more hawkish than expected – “Our central projection is consistent with a period of stability in the OCR”. That said, RBNZ remains open to future rate adjustment depending on economic data. 4-hourly MACD and stochastic are showing tentative signs of bullish bias. Intra-day range of 0.7280 – 0.7380 expected.

       EUR/USD – Fade Rallies. EUR/USD continues to push to fresh 12-year lows of 1.0511 overnight amid most European bond yields tumbling to record lows. Intra-day range of 1.050 – 1.06 expected. Daily MACD and slow stochastics remains bearish bias. Week ahead sees GE, FR, SP Feb CPI; EC Jan IP (Thu); GE Feb wholesale price index; Greece sovereign debt rating review by S&P (Fri).

       EUR/SGD – Vulnerable to Another Leg Lower. EUR/SGD continues to tumble to multi-year low of 1.4595 low overnight tracking EUR weakness. Pair remains vulnerable to further downside. MACD remains bearish bias. Still favour a sell on rally.

Asia ex Japan Currencies

       The SGD NEER trades around 1.96% below the implied mid-point of 1.3604 with the top end estimated at 1.3326 and the floor at 1.3881.

       USD/SGD – Fade Rallies. The USD/SGD eased towards 1.3855 levels this morning despite USD strength overnight. We still see some support in the USD/SGD but given S$NEER policy band constraints, upside could be capped at 1.3950. slow stochastics is showing tentative signs of falling from overbought levels; further pullback towards 1.38 levels cannot be ruled out. Favor fading rallies in the pair towards 1.39 levels, against consensus view of buying on dips.

       AUD/SGD - Bearish. AUD/SGD is retreating this morning below the 1.06-handle on the back of the relative strength of the SGD. Moves lower is likely to be limited around 1.0520. Intraday momentum indicators continue to show a bias to the downside with MACD bearish and slow stochastics fast approaching oversold conditions. This suggested further downside ahead. Resistance is seen around 1.0660.  

       SGD/MYR – Downside Bias. SGD/MYR eased on Ringgit strength as the pair drifted a touch lower to trade 2.6520 levels this morning. MACD and stochastics are showing early signs of bearish bias. Continue to see the pair trade range-bound 2.6380 (100 DMA) – 2.6680 (50 DMA).

       USD/MYR – Supported. USD/MYR has been on a decline after a rally to 3.7190 yesterday, Pair now trade 3.6850 despite USD strength almost everywhere. Day ahead 3.65 – 3.70 range expected; continue to be wary of leaning against the wind activity. Industrial production data on tap later today. We still expect ringgit weakness to persist on a combination of factors including strong USD trend, soft oil prices for an extended period, vulnerability to foreign fund outflow and heightened risk of rating downgrade following contingent liability exposure, lower fiscal revenue.

       USD/CNH – Stable for now. USD/CNH continued to trade around 6.2775 levels despite USD making fresh multi-year highs almost every day. Stability is likely due to policymakers’ intent to anchor some stability during the NPC/CPPCC meeting. We suggest turning neutral in the pair for now in light of China launching local debt replacement program. This is a major policy move – as it aims to replace local government debt maturing in 2-3 years at higher interest rates with longer tenor debt at lower interest rates. Some likened this to a QE, but we view it more as a US-style Operation Twist. This is essentially a debt restructuring in some sense and aims to lower funding cost and will remove some of the local government debt concerns that markets have been worrying about.  While this could be interpreted as a major positive for  China and the positive effects felt on the Renminbi, the short term impact could be negative as markets ponder over possible haircut on local government bonds (by what magnitude). We still see possible upside but could be limited. We suggest turning neutral for now and evaluate the impact further.  USD/CNY was fixed higher by +20 pips at 6.1617 (vs. 6.1597). CNYMYR was fixed higher by +31 pips at 0.5870 (vs. 0.5839).

       USD/IDR – Neutral for now. Pair remains elevated nearing 13,200 levels. MACD and stochastics are suggesting further upside but we are cautious of leaning against the wind activity. Not surprise if the pair drifts lower towards 13,050 levels.

       USD/PHP – Range-bound; Bullish Bias. The pair met with some resistance around 44.38 levels (50 DMA) yesterday. MACD and stochastics remain bias to further upside. Pair now trades around 44.30 levels (200 DMA). Pair could trade 44.20 – 44.40 range intra-day.

       USD/THB – Bullish Bias.  USD/THB continues to trade higher towards 32.90 levels following BoT’s surprise decision to cut interest rates by 25bps. Momentum and oscillators remain bias for further upside. Pair could re-visit its previous high at 33.10 levels.

Rates

Malaysia

       Local government bond curve ended steeper as buying was seen on the 5y MGS and below while the longer end bonds saw selling pressure. The cheapening of the long ends since last week may be due to the upcoming supply of long end govvies from this month’s auctions as well as forthcoming GG issuances. Offshore participation in today’s 10y MGS auction may be subdued given the MYR performance of late, but we think the auction would be well absorbed by the local market.

       IRS traded on better bids and the curve steepened circa 1.5bps higher, despite lower fixing on KLIBOR and a surprise rate cut from the Bank of Thailand. There were decent volumes on the 1y, 3y, 5y and 10y points. 3M KLIBOR lower by 1bp at 3.77%.

       The PDS market saw muted activity. 9y AAA names were offered 1bp higher and Danga 30s widened 3bps with MYR20m done. In the GG space, Dana 29s and PASB 20s widened 2bps and 1bp respectively. We heard Prasarana would be opening its books for a new issuance soon and hence, players would prefer to stay on the sidelines at the moment.

Singapore

       SGS yields turned around from the rise in previous trading days and the curve ended lower as yields were down by 6-8bps across the curve. This movement tracks the US Treasury yields which fell on a relative basis to lower yields in Europe as a result of ECB’s QE programme.

       Asian credit market was focused on PETRONAS’ book for its new USD issuances of 1) 5y Sukuk at CT5+135bps, 2) 7y Conventional at CT7+150bps, 3) 10y Conventional at CT10+175bps, and 4) 30y Conventional at OLB30+220bps. We think the 5y sukuk would garner interest from the Middle-Eastern accounts, provided the pricing does not tighten further. The existing PETRONAS 2022 maturity, which appears more attractive than the new 7y issue, tightened about 3-5bps after the price guidance of the new issue was announced. There were some selling on Malaysian names post announcement of the deal. Elsewhere also saw selling activity. Indon and Phlilip sovereigns continued to trade lower and Indian corporates saw some profit taking.

Indonesia

       Weakening of LCY bond prices continue as the Rupiah currency continues to depreciate which have triggered an outflow from the bond market. 10y benchmark series have now reached 7.70% which is in line with our indicative range expectation this week. This weakening in prices may continue till the end of this week. We see that 10y yield may move to a highest level of 7.85% today yet with a chance to strengthen as some buying was seen yesterday by foreign names. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 7.282%, 7.704%, 7.897% and 8.094% while 2y yield shifts up to 6.981%. Heavy volume at secondary market remains to be traded heavy at government segments amounting Rp14,280 bn with FR0070 (10y benchmark series) as the most tradable bond. FR0070 total trading volume amounting Rp5,199 bn with 138x transaction frequency and closed at 104.300 yielding 7.704%.

       Corporate bond trading traded heavy amounting Rp477 bn. NISP01ACN2 (Shelf registration I OCBC NISP Phase II year 2015; A serial bond; Rating: _idAAA) was the top actively traded corporate bond with total trading volume amounted Rp247 bn yielding 8.993%.