Maybank GM Daily - 2 Mar 2015

FX

Global

US equities eased into NY close last Fri, after Chicago PMI slumped into contractionary territory and 4Q GDP (second estimate) was revised lower. USD managed to hover near its 2015-high of 95.50 levels; USD/JPY still held above its 119-handle while EUR/USD stays soft below 1.12-levels. Oil price firmed on supply disruption. Over the weekend, China PBoC cut benchmark lending and deposit rates by 25bps. China Feb NBS PMI remains in contractionary territory.

       Week ahead sees 5 central banks meeting over policy rate decisions including RBA (Tue), BoC (Wed), ECB, BoE and BNM (Thu). We expect all, except RBA to keep policy rate on hold. ECB’s Draghi is expected to provide further details of the QE program and announce new economic forecasts. Another key data of keen interest is US Feb NFP (Cons. +240k; Prior +257k), average hourly earnings (Cons. +0.2%; Prior +0.5%) on Fri. Question is whether strong momentum in US labor market can persist further. For China the National People Congress (NPC) convenes on 5 Mar and the Chinese People’s Political Consultative Conference (CPPCC) convenes on 3 Mar. These meetings known as the 两会 or “liang hui” are expected to last till 15 Mar. The government is expected to announce changes to growth and policy targets for 2015, including the lowering of GDP target to 7%, from “about 7.5%”; lower CPI target; raise fiscal budget deficit target. We continue to reiterate that the Renminbi will see downward pressure in the near-term due to ongoing growth, debt, fx/capital outflow concerns, possible interest rate (RRR, lending rate) cuts in 1Q and further intensification of USD strength. Our call for 6.32, 6.38 for 1Q, 2Q 2015, respectively remains unchanged.

       Day ahead for US brings Jan PCE core, Feb ISM and PMI, Former Fed Bernanke and PLosser to speak. For Euro-area, EC, GE, FR, SP, IT Feb PMIs, EC Feb core CPI, IT 2014 GDP are on tap today. Remain better buyer of USD on dips.

G7 Currencies

       DXY – Buy USD dips. USD managed to hold on to gains, with DXY trading near its 2015-high of 95.50. US data last Fri was mixed with Chicago slumping into contractionary territories (45.8 in Feb) and Univ. of Michigan consumer sentiment revised higher.  Still favour buying USD on any dips. Decisive close above 95.50 could open way towards 97 levels. Support levels seen at 94-levels, 93.66 (23.6% Fibonacci retracement of 87.627 – 95.527). MACD is showing tentative signs of bullish bias. Week ahead brings Jan PCE core, Feb ISM and PMI, Former Fed Bernanke and Plosser to speak (Mon); Feb ISM NY, Fed’s Mester to speak (Tue); Feb ADP, composite/services PMI, Fed’s Evans to speak (Wed); Beige Book, 4Q unit labor cost, Fed’s Williams to speak (Thu); Feb NFP, unemployment rate, Feb average hourly earnings and Jan trade (Fri).

       USD/JPY – Bullish Bias. The USD/JPY continued to consolidate within 118.50-119.85 for the past week with the pair climbing higher towards the end of the week, tracking the dollar higher. Upside for now appears capped by 119.85 and we need to see a breakout here for the pair to head towards 121.85 (Dec 2014 high) with 120.50 acting as interim barrier. Support nearby is seen around the 119-handle before 118 (23.6% Fibo retracement of the Oct-Dec upswing); 117.30. Daily MACD and slow stochastics are showing a tilt to the upside, suggesting potential for further rebounds ahead. Continue to favor adding USD longs on dips. Week ahead includes BOJ Kiuchi to speak (Thu).

       AUD/USD –Sell rallies. AUD’s rally above 0.79-levels was short-lived as the AUD soon reversed gains to trader lower towards 0.78 levels at time of writing. Daily stochastic is now falling from overbought areas while mild bullish momentum is showing tentative signs of stalling.  Intra-day range of 0.7750-0.7850 ahead of RBA tomorrow. Week ahead brings Jan new home sales (Mon); RBA cash rate, Jan building approvals, 4Q current account (Tue); 4Q GDP (Wed); Jan retail sales, trade and RBA deputy governor Lowe speaks (Thu).

       EUR/USD – Fade Rallies.  EUR/USD remains under pressure after breaking key support at 1.1250-60 levels. MACD and stochs are now signaling a bearish bias; we remain better sellers on rallies towards 1.1250, for a test of 2015 low at 1.1098. Week ahead brings EC, GE, FR, SP, IT Feb PMIs, EC Feb CPI core, IT 2014GDP (Mon); EC Jan PPI (Tue); EC GR, FR, SP, IT service/composite Feb PMI, EC Jan retail sales (Wed); GE Jan factory orders; ECB meeting (Thu); EC 4Q GDP, GE, SP Jan IP, FR Jan trade, IT Jan PPI (Fri).

       EUR/SGD – Consolidation. EUR/SGD continues to trade range-bound 1.52 – 1.5280 in absence of fresh catalyst. Pair is likely to consolidate with mild bearish bias. MACD and stochastics are indicating mild bearish bias. Prefer to trade the pair from the short side.                         

Regional FX

       The SGD NEER trades around 1.75% below the implied mid-point of 1.3404 with the top end estimated at 1.3131 and the floor at 1.3677.

       USD/SGD – Uptrend Intact. The USD/SGD climbed passed 1.3639 (12 Feb high) towards a high not seen since 16 Aug 2010, spurred by dollar strength.  Uptrends remain intact for now with next resistance seen at 1.3660 ahead of the next at 1.3680 (16 Aug 2010 high). For the week ahead, further upside is possible especially heading towards US ADP and NFP later this week. Both daily MACD and slow stochastics are showing a bias to the upside ahead.  Pullback if any should see support around 1.3540. Remain better buyers on USD dips. This week sees Feb Mfg PMI (Tue) and Feb foreign reserves (Thu).

       AUD/SGD – Fade Rallies. The AUD/SGD enjoyed a drift higher from 1.0324 to 1.0700 during Feb. Daily momentum indicators continue to show a bullish bias while slow stochastics is falling from overbought levels. A failure to close above the 1.0700-levels (50DMA) could see a resumption of a move lower towards 1.0300/1.0400 levels. Expect cross to trade within 1.0400-1.0700 for the week.

       SGD/MYR – Consolidation. The SGD/MYR consolidated within the 2.6300-2.6900 range over the past week in the absence of fresh catalyst. Daily MACD shows no strong momentum while stochastics are falling. Moreover, cross remains trapped in a daily ichimoku cloud, suggesting range-bound trading ahead. Look for consolidative trades within the 2.6350-2.6800 range to be in focus.

       USD/MYR – Buy on Dips. USD/MYR continues to trade higher towards 3.6350 high this morning before easing to 3.6270, tracking USD strength and Renminbi weakness. On Fri, Petronas Group posted its 1^st quarterly loss and mentioned in a statement that the Group is taking steps to reduce its planned capital investments (by 10% for 2015 and 15% for 2016) and operating expenditure (by 30%) in order to mitigate the potential adverse effect on its profitability and cash flow. Ringgit weakness is expected 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. Still favour buying USD dips. Intra-day range of 3.6200 – 3.6350 expected.

       USD/CNH – Buy on Dips. USD/CNH continues to get whipped a lot higher today; traded high of 6.30 before easing towards 6.2970 levels. PBoC cut benchmark lending and deposit rates by 25bps. China Feb NBS PMI remains in contractionary territory. These are consistent with our call for USD/CNH to rise to 6.32, 6.38 for 1Q, 2Q 2015, respectively and we continue to see USD/CNH higher on a combination of drivers including further intensification of USD strength, ongoing domestic growth, debt, capital, fx outflow concerns and possibility of another 50bps RRR rate cut. Remain better buyers on USD dips. USD/CNY was fixed higher by +38 pips at 6.1513 (vs. 6.1475). CNYMYR was fixed higher by +68 pips at 0.5756 (vs. 0.5688).

       USD/IDR – Consolidation. The USD/IDR had been showing tentative signs of edging lower below the 12800-levels at the end of last week. But comments by BI governor that the central bank sees further depreciation of the IDR going forward sent the pair climbing higher towards the 13000-levels. Market though appeared to ignore his other comments that the BI would guard the stability of the exchange rate. Pair could test the 13000-levels but possible BI intervention could cap upside. Look for choppy trades within 12750-13000 this week. Both intraday MACD and slow stochastics are signalling an upside bias ahead. The week ahead has Feb CPI due later today and Feb foreign reserves.  Foreign funds bought a net USD262.07mn in equities last week, and added a net IDR7.28tn to their outstanding holding of debt on 23-25 Feb (data available). The 1-month NDF broke above the 13000-figure on Fri and has since remains above that level, sighted around 13140, and is currently overstretched with daily MACD showing bullish momentum. The JISDOR was fixed at 12863 on Fri, little changed from the previous day’s fixing but still up from the start of the week. The index is likely to be fixed higher today the spot’s current uptick.

       USD/PHP – Range-Bound. The USD/PHP gapped slightly higher at the opening to 44.130 from Fri’s close of 44.095, lifted by dollar strength. This comes after the pair attempted but failed to break below the key 44-figure last week. With fresh impetus lacking, we expect the pair to remain in consolidative trades ahead of the US ADP and NFP later this week. Look for the 44.000-44.250 range to hold this week. Last week, foreign funds bought only a net USD52.46mn in equities, which supported the PHP. The 1-month NDF rebounded, climbing towards the 44.200-levels, with daily MACD signalling no strong momentum though stochastics is showing a tentative tilt to the upside. This week sees Feb CPI and Dec budget balance (Thu) and Feb foreign reserves (Fri).

       USD/THB – Consolidating.  The USD/THB traded lower towards 32.200 by the end of the week, underpinned by strong foreign inflows into debt on the back of an economic pick-up underpinned by lower oil prices as well as possible BoT intervention. Foreign funds bought a net THB17.84bn in debt last week, offsetting the net THB0.77bn sell-off in equities. Pair has since rebounded slightly on the back of a firmer dollar tone, but upside could be capped by 32.500. Both daily MACD and slow stochastics continue to show a slightly bias to the downside ahead. For bearish control to continue towards the 32-figure, we need to see a firm break of the recent low of 32.290. Expect pair to remain in consolidation within 32.290-32.500 this week. The week ahead has Feb CPI (Mon) and 27 Feb foreign reserves (Fri).

Rates

Malaysia

       Local government bonds traded softer on the back of higher US Treasuries (UST) while a higher USDMYR spurred players to take profit. The MYR also traded weaker on news of the Cabinet rejecting 1MDB’s proposed cash injection. We continue to see the curve trade expensive with GIIs trading rich against MGS.

       IRS saw better paying interest by foreign banks. 5y IRS dealt at 3.87% and 3.88% while 3M KLIBOR stayed at 3.79%.

       The local PDS market ended last week on a similar note to Thursday's trading session with longer AAA papers accounting for the bulk of trading volume. In addition to Plus, we saw Northport 24s being traded at MTM levels. For high grades at the belly of the curve, we only saw Putrajaya 2020 traded with over MYR20m volume at 4.25%. The 10y AAA space has tightened to around 4.50% level but we think there is still some room for further compression. Elsewhere, we saw shorter dated AA names being traded possibly for better yield carry due to the bear flattening of the benchmark curve. We saw BGSM 15s tightening about 3bps while AMMB 17s senior notes traded at 4.45%, almost 9bps tighter than MTM levels.

Singapore

       SGS yields closed 2-4bps higher with the curve flattening a little while SGD IRS rallied about 5bps. There was not much trading as there was little interest to do much on the last trading day of the month. Bond swap spread for the 10y benchmark widened about 1bp. SGD FWDs traded slightly higher with the USDSGD moving back up from previous day lows. SGS will have difficulty going back up if SGD funding does not come off.

       In the Asian credit space, the new Country Garden issue opened at around 100.20/100.50 level (issued at par) and led other Chinese HYs to rally as well. Indon and Phillip sovereigns were a shade lower though we think they are still fairly supported even with the UST movement overnight. Malaysian and Korean names traded tighter with high demand on financial names like AMMMK and RHBCMK. Good two ways were seen on various tenor of PETMK and SIMEMK. We expect the buying spree to continue this week as market is generally reluctant to deal at month end. We think there is value in Indon sovereigns, Indian corporates and some selective Japanese and Korean corporate names.

Indonesia

       Indonesia bond markets opened with minimum volatility as market were waiting for economic data release today. Yet, a surprise statement given by Bank Indonesia government which stated that Rupiah would further depreciate had not only made the currency to depreciate to intraday high of Rp12,983 before closing it at Rp12,932 but has also made bond prices to slump. Hence, bond prices manage to close on the positive territory at the finals. Bank Indonesia on Friday sold their 3mo bills worth of Rp4.48 tn at WAY of 6.24520% and 6mo bills worth of Rp2.495 tn at WAY of 6.49467%. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 6.693%, 7.899%, 7.060% and 7.296% while 2y yield shifts down to 6.587%. Heavy volume at secondary market remains to be traded heavy at government segments amounting Rp13,445 bn with FR0068 (20y benchmark series) as the most tradable bond. FR0068 total trading volume amounting Rp2,279 bn with 113x transaction frequency and closed at 111.001 yielding 7.296%.

       Our economist sees that inflation which will be published by Indonesia statistic today would ease to 6.87% yoy from 6.96% yoy in January 2015. On monthly bases, February inflation is expected to reach 0.18% mom higher than in January 2015. These expectations are based on increase in prices of staple foods, LPG 3kg and transportation tariff (incl. motorcycle and car prices). Core inflation in February is expected to reach 0.35% mom or 4.97% yoy.

       Corporate bond trading traded heavy amounting Rp722 bn. PNBN04SB (Bank Panin subordinate III Year 2010 bond; Rating: idAA-) was the top actively traded corporate bond with total trading volume amounted Rp135 bn yielding 10.067%.