Maybank GM Daily - 18 Mar 2015

FX

Global

Equities closed in negative territories overnight as uncertainty over FOMC tomorrow morning (2am SG/HK time Thu) weigh on sentiment.   USD-longs continued to see some position adjustment as DXY slipped towards 99.30 levels overnight before rebounding slightly to 99.50 levels this morning. EUR managed to hold above 1.06-handle. A$ still holding on to its recent range. NZD$ saw a pullback following disappointing GlobalDairyTrade auction. Oil prices remain on a decline continued with WTI and Brent below $43/bbl and $54/bbl, respectively on ongoing supply glut concerns.        Key focus tonight is on FOMC meeting as market focuses on whether the Fed will make changes to its “patient” language and signal an imminent rate hike or will there be a status quo. The FOMC member projections of the “dots” will also be of keen interest especially on their expectation of Fed fund rate at end of year.  This morning Fitch said Malaysia rating sits ‘more naturally’ in BBB range. As we highlighted previously Fitch is currently reviewing Malaysia rating and is due to make a decision in mid-may or early June.  Malaysia’s credit rating is currently at A-. This is coherent with what we have previously been cautioning for - further weakness in Ringgit on a combination of domestic worries including vulnerability to foreign fund outflow and heightened risk of rating downgrade following contingent liability exposure, lower fiscal revenue.        Day ahead brings EC, IT Jan trade; EC Jan Construction output; ECB Coeure speaks for EU. For UK, BoE minutes, ILO unemployment rate and pre-election budget due for release today. For US, focus on FOMC meeting/press conference; 4Q current account data on tap. Day ahead USD/AXJs may consolidate at current levels ahead of FOMC.

G7 Currencies

DXY - Holding Ground Ahead of FOMC. USD-longs continued to see some position adjustment ahead of FOMC Thu (2am SG/HK time). US data was mixed overnight with housing starts disappointing while building permits surprising to the upside. Key focus tonight is on FOMC meeting as market focuses on whether the Fed will make changes to its “patient” language and signal an imminent rate hike or will there be a status quo. The FOMC member projections of the “dots” will also be of keen interest especially on their expectation of Fed fund rate at end of year. We have cautioned on possible USD pullback on profit-taking in the near term leading into FOMC. Slow stochastics continues to exhibit tentative signs of falling from overbought levels. Interim support now at 98-levels (before the breakout). Over the medium term we remain convicted to our USD bullish bias and continue to favor buying USD on dips, targeting 102-levels. Daily MACD remains bullish bias. Day ahead brings FOMC meeting/press conference; 4Q current account and on Fri, Fed’s Lockhart and Evans to speak on monetary policy.        USD/JPY – Consolidation. USD/JPY continued to trade in familiar ranges for the past few sessions. With BOJ keeping policy unchanged yesterday, focus is now on US FOMC tomorrow. The narrowing trade deficit (Feb: JPY424.6bn vs. Jan: JPY1179.1bn) on the back of stronger exports is weighing slightly on the pair this morning. Intraday MACD is still showing bearish momentum though slow stochastics is showing little bias in either direction. This suggests that sideway trades within 119.00-121.85 should continue to hold today.        AUD/USD – Sell on Rallies. AUD rally continues to stay capped at 0.7660 levels overnight amid falling commodity prices. Pair is likely to remain range-bound 0.7560 – 0.7660 ahead of FOMC meeting (2am SG time Thu).  Looking out we continue to see further weakening in the A$ on a combination of factors including soft domestic economic growth, falling inflation and further intensification of USD strength. We still see at least another rate cut to come possibly in Apr or May meeting. Little on the data front for the week; late week on Fri, RBA Governor Stevens to speak (Fri).        NZD/USD – Range-bound. NZD/USD traded well bid and briefly went above 0.74-handle yesterday before falling back to the lows of 0.7310 levels on disappointing GlobalDairyTrade auction – whole milk prices fell 9.6%. Focus next on 4Q GDP (Thu). Day ahead pair is likely to remain range-bound as market awaits FOMC meeting tomorrow (2am Thu). Intra-day range of 0.7280 – 0.7380 likely.         EUR/USD – Fade Rallies. EUR/USD briefly rallied to 1.0650 overnight on better than expected ZEW readings. The pair now trades around 1.06-handle ahead of FOMC meeting on Thu (2am SG/HK time). We continue to maintain our core bearish EUR/USD view amid structural decline in Europe fundamentals but caution for possible consolidation ahead of FOMC meeting tonight. Daily MACD remains bearish bias but slow stochastics is indicating signs of rising from oversold levels. This suggests possible rebound and could re-visit 1.0860 levels (38.2% Fibonacci retracement of 1.1450 – 1.0495).  This week sees EC, IT Jan trade; EC Jan Construction output; ECB Coeure speaks (Wed); EC 4Q labor cost (Thu); GE Feb PPI; FR 4Q wages growth; EC Jan Current account (Fri). 2-days EU Leaders summit over Thu-Fri.

       EUR/SGD – Consolidation. EUR/SGD staged a rebound towards 1.4789 overnight before easing to 1.4720 levels this morning. Day ahead the cross is expected to take cues from US FOMC meeting. Daily slow stochastics are showing tentative signs of rising from oversold levels, suggesting possible rebound. Intra-day range of 1.4680 – 1.4780 likely for the day. Further upside towards 1.49 levels cannot be ruled out if FOMC maintains status quo to their “patient” language. This will dampen market expectation for an imminent rate hike and could see USD pressured and lend some mild support to the EUR in the interim.

Asia ex Japan Currencies

       The SGD NEER trades around 1.85% below the implied mid-point of 1.3615. We estimate the top end at 1.3343 and the floor at 1.3887.

       USD/SGD - Capped. The USD/SGD continues in sideway trades below the 1.39-handle, supported by the bounce in the EUR/SGD and dip in the SGD/JPY. With US FOMC just round the corner, cautious trades are likely today. Upside move should continue to be capped at 1.3950 due to SGD NEER policy band constraints, while support is seen around 1.3850. Intraday MACD and slow stochastics are showing downside bias, suggesting any rebounds could be capped. Remains better buyers on USD dips.

       AUD/SGD – Bearish Bias. AUD/SGD is wobbling this morning, oscillating between AUD and SGD strength, trading below the 1.06-handle. The pair is bias to the downside today as indicated by both intraday momentum and oscillators. Further dips today should see support around 1.0520, while any rebound should be guarded by 1.0700.

       SGD/MYR – Still Mildly Bearish. SGD/MYR is on the slide this morning underpinned by relative MYR strength, though it continues to hover within familiar ranges. In the absence of fresh catalyst, expect trades to remain confined with the 2.6520-2.6770 range. Intraday MACD continues to show bearish momentum, while slow stochastics is indicating tentative signs of a downside bias.

       USD/MYR – Consolidation. USD/MYR remains in consolidation mood, trading 3.6860 – 3.70 range despite falling oil prices yesterday. We remain cautious of leaning against the wind activity. Day ahead see 3.6850 – 3.72 range. Slow stochastics is showing tentative signs of falling from overbought levels, which could suggest some pullback. However over a medium term we continue to see further weakness in Ringgit on a combination of domestic worries including vulnerability to foreign fund outflow and heightened risk of rating downgrade following contingent liability exposure, lower fiscal revenue. This morning Fitch said Malaysia rating sits ‘more naturally’ in BBB range. As we highlighted previously Fitch is currently reviewing Malaysia rating and is due to make a decision in mid-may or early June.  Malaysia’s credit rating is currently at A-. This is coherent with what we have previously been cautioning for.

       USD/CNH – Downward pressure. The pair continues to ease towards 6.2380 levels this morning tracking lower USD/CNY fix and a slightly weaker USD ahead of FOMC meeting tonight. There were market talks of long USD/renminbi position unwinding post-NPC as expectation for band widening did not materialise. We think otherwise. The pullback is due to long positioning adjustment ahead of FOMC and also due to major positive news on “local debt swap” program and commitment to interest rate liberalisation timeline. The debt swap program will partially ease some market concerns over local government debt. Day ahead, technicals continue to suggest some downward pressure possibly towards 6.2360 levels. A daily close below key support could see further downside towards 6.20. MACD and stochastics are mild bearish bias. That said, we continue to stress that the economy still face economic headwinds in particular to growth, debt, fx/capital outflow pressures and is likely policymakers may need to do more. We continue to see a 50bps cut to RRR sometime now till Apr. USD/CNY was fixed lower by -29 pips at 6.1556 (vs. 6.1585). CNYMYR was fixed lower by -5 pips at 0.5902 (vs. 0.5907).

       USD/IDR – Bearish Bias. USD/IDR is again on the retreat, hovering below the 13200-levels this morning, helped by the softer tone and by the BI standing pat on policy interest rate yesterday. Expect the lingering impact of BI’s holding steady to weigh on the pair still with intraday range of 13100-13285 to still hold. Intraday MACD and slow stochastics are showing downside bias ahead. 1-month NDF slipped below the 13300-levels this morning with further downside possible given that both momentum and oscillators are still showing bearish bias. The JISDOR was fixed lower at 13209 yesterday from Mon’s historic high of 13237 with a lower fixing likely given the spot’s drift lower this morning. Foreign funds once again sold off Indonesian assets yesterday, selling a net USD51.7mn in equities and removing a net IDR2.03tn from their outstanding holding of debt on 13 Mar (latest data available).

       USD/PHP – Overbought. The USD/PHP gapped higher at the opening this morning to 44.640 from yesterday’s close of 44.585 on likely speculation that the BSP could be the next central bank to move on rates. Intraday MACD is showing bullish momentum while slow stochastics is now in overbought territory. With our barrier at 44.500 taken out, new resistance is now seen around 44.700. Our former resistance at 44.500 is now support for today. 1-month NDF jumped towards the 44.80-range yesterday and has remained around those levels this morning with intraday MACD showing bullish momemtum and slow stochastics still in overbought territory.

USD/THB – Sideways.  USD/THB continues to trade just off the key 33-levels, lack any conviction for a break for now. We need to see a firm break of this key level for bullish extension to continue. Intraday MACD and slow stochastics are still downside bias. Ahead of US FOMC meeting tomorrow, expect the pair to trade cautiously still within 32.770-33.00. Yesterday saw foreign funds selling off Thai assets with a net THB1.98bn and THB4.71bn in equities and debt sold off, which weighed on the THB.

Rates

Malaysia

       The local government bond curve ended 1-2bps lower on the front end to the belly. We saw more buying sentiment on front end bonds by foreign names. Issue size for the new 15.5y GII 9/30s was lower than expected at MYR1.5b. WI was seen quoted 4.30/20% but no trades yet.

       IRS rates were quoted marginally lower as buying sentiment in govvies persisted. However, there were no trades. 3M KLIBOR remained at 3.77%.

       Local PDS market saw solid demand for AAA bonds at the belly and the long end of the curve. Offers were about 2bps lower than previous close and trades were done 1-2bps lower than MTM levels. Traded names include Plus, Manjung, Putrajaya and Aman. Prasarana opened its books for the following new issuances and final pricing levels: 1) 5y MYR700m at 4.02%, 2) 10y MYR200m at 4.38%, and 3) 15y MYR1.1b at 4.64%. We think pricing for the 10y tranche is a tad tight given that other 9y GGs such as Dana and PTPTN are roughly 2-4bps lower. Meanwhile, we think the 5y and 15y tranches are likely at fair value with not much upside to offer.

Singapore

       The SGS market saw light trading volume ahead of the FOMC later this week. Nonetheless, SGS rallied on the back of softer short dated USDSGD forwards. The SGS yield curve closed 4-6bps lower whilst SGD IRS curve ended 1-4bps down. Bond swap spreads improved by about 3bps.

       The Asian credit space traded mix. Indon sovereigns recouped some of the previous day losses trading 0.5-1.0pt higher. Selling on the new PETRONAS bonds persisted due to the weak oil price and the bonds widened 3-5bps. The same goes for Chinese O&G names. Other Chinese IGs such as Tencent and Baidu had good two way interest. We also saw good volumes on Polyre 2018 after it reported a 12% growth in net profit. Evergrande bonds traded lower on the back of default rumours but PB came in later and bought them back up. Players are looking to reposition themselves in view of the FOMC meeting.

Indonesia

       Indonesia bond market continues closing lower during the day supported by worst performance of incoming bid during the auction and ahead of FOMC meeting. There were no changes to Bank Indonesia reference rate post RDG meeting. The reference rate remains at 7.50% while deposit facility and lending facility rate remains at 5.50% and 8.00% respectively. From the beginning of the month till March 16th, foreigners have recorded a net sell of Rp11.05 tn in Indonesia bond market. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 7.236%, 7.455%, 7.621% and 7.764% while 2y yield shifts up to 7.017%. Trading volume at secondary market was seen heavy traded at government segments amounting Rp11,301 bn with FR0070 (10y benchmark series) as the most tradable bond. FR0070 total trading volume amounting Rp2,175 bn with 60x transaction frequency and closed at 105.954 yielding 7.455%.

       Indonesian government conducted their auctions yesterday and received incoming bids of Rp17.28 tn bids versus its target issuance of Rp10.00 tn or oversubscribed by 1.7x. Yesterday’s bond auction could be defined as the worst performing auction since the start of this year. Incoming bids significantly decline by 24% compared to 3 Mar conventional auction. However, DMO only awarded Rp6.75 tn bids for its 1y, 5y, 15y and 30y bonds which is also below the initial target issuance. Incoming bids were evenly distributed among the offered asset except for FR0067. 1y SPN was sold at a weighted average yield (WAY) of 5.92043%, 5y FR0069 at 7.27938%, 15y FR0071 at 7.62988% while 30y FR0067 was sold at 8.02978%. No bids were rejected during the auction. Bid-to-cover ratio on today’s auction came in at 1.55X – 5.74X. Till the date of this report, Indonesian government has raised approx. Rp90.14 tn worth of debt through bond auction in 1Q 15 which represents 114.8% of the 1Q 15 target of Rp78.50 tn. On total, Indonesian government has raised approx. Rp165.5 tn worth of debt through domestic and global issuance which represent 36.6% of this year target of Rp451.8 tn.

       Corporate bond trading traded thin amounting Rp315 bn. NISP01CCN1 (Shelf registration I OCBC NISP Phase I Year 2013; C serial bond; Rating: idAAA) was the top actively traded corporate bond with total trading volume amounted Rp145 bn yielding 8.664%.