Maybank GM Daily - 3 Mar 2015

FX

Global

      US equities started the month on a high with NASDAQ regaining 5,000 level (15-year high) and S&P, Dow nearing all-time high, despite mixed US data overnight. USD managed to hover near its 2015-high of 95.50 levels; USD/JPY still held above its 120-handle while EUR/USD closed below 1.12-levels. GBP dipped on slowing house price and disappointing mortgage lending/consumer credit, after an impressive run up to above 1.55 levels last week. AUD was pressured ahead of RBA meeting later today. Brent prices fell on supply glut concerns.

       Day ahead focus on RBA meeting (1130 SGT). Consensus has been tilted towards a 25bps cut, but remains a close call. We believe a 25bps cut is likely amid weak capex and falling inflation. The obstacle holding back a rate cut lies in the housing market which continues to be strong.  Previous 2015 low at 0.7626 eyed; Remain better sellers on rallies. Week ahead for Australia brings 4Q GDP (Wed); Jan retail sales, trade and RBA deputy governor Lowe speaks (Thu).

       Day ahead for US  ahead brings Feb ISM NY, Fed’s Mester to speak. For EU,  GE retail sales; EC Jan PPI are on tap. Singapore is also due to release PMI. On FX, continue to USD/AXJs consolidate in recent ranges, with bias to buy USD on dips ahead of US ADP (Wed) and NFP (Fri).

G7 Currencies

      DXY – Buy USD dips. USD continues to hold on to gains, holding near its 2015 and 11-year high of 95.50 levels. While ISM Mfg fell, it remains close to market expectation; US Mfg PMI rose above market expectations. Still favour buying USD on any dips. Intra-day range of 95-95.50 levels expected. 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 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 – Consolidation; bullish bias. The USD/JPY finally made a daily close above 120-level after consolidating in 118 – 120 range in the past fortnight. MACD is showing tentative signs of bullish bias while stochastics is rising; continue to favor buying on dips. Day ahead see intra-day range of 118.90 – 120.50. Week ahead sees composite/service PMI (Wed); BoJ Kiuchi to speak (Thu); Jan P Leading/Coincident index (Fri).

       AUD/USD –Sell rallies. AUD/USD fell overnight as China rate cut over the weekend failed to inspire any rally as contractionary NBS PMI weigh on sentiment. Building approvals released this morning came in stronger than expected. Day ahead the key focus on RBA rate decision. Consensus is biased towards a rate cut but remains a close call. We see 25bps rate cut amid falling inflation and weak capex.  Previous 2015 low at 0.7626 eyed; Remain better sellers on rallies. Week ahead brings 4Q GDP (Wed); Jan retail sales, trade and RBA deputy governor Lowe speaks (Thu).

       EUR/USD – Fade Rallies.  EUR/USD managed a move above 1.1240 areas helped by better than expected European PMIs overnight; but eased to close around 1.1180s . Still see further weakness; Rallies remain a sell. Intra-day see 1.1150 – 1.1250. Week ahead brings GE retail sales; 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 – 1.5330 overnight in absence of fresh catalyst as market eyes ECB QE details to be unveiled Thu. Pair expected to consolidate, with MACD not indicating much bias on the daily for now while slow stochastics are falling. Still see 1.52 – 1.53 range.                

         

Regional FX

      The SGD NEER trades around 1.81% below the implied mid-point of 1.3401 with the top end estimated at 1.3128 and the floor at 1.3674.

       USD/SGD – Uptrend Intact. USD/SGD continues to climb higher notching multi-year highs of 1.3663 this morning. Uptrend remains intact amid a raft of calls from various investment banks calling for a re-centering of the midpoint. MACD and stochastics are bullish bias. Favor holding longs; and adding on dips. This week sees Feb Mfg PMI (Tue) and Feb foreign reserves (Thu).

       AUD/SGD – Fade Rallies. We indicated in our weekly tech that a failure to close above the 1.0700-levels (50DMA) could see a resumption of a move lower towards 1.0300/1.0400 levels. The move overnight fell short of 1.0688 (50 DMA) and declined towards 1.06. Daily MACD is now exhibiting tentative signs of bearish bias with stochastics falling, suggesting possible downside.  Expect cross to trade within 1.0400-1.0700 for the week.

       SGD/MYR – Consolidation. The SGD/MYR continues to consolidate 2.65 – 2.6640 range in absence of fresh catalyst. MACD is directionless while stochastics is falling. Likely to see the pair consolidate in 2.64 – 2.67 range.

       USD/MYR – Buy on Dips. USD/MYR opened around 3.6335 and traded a high of 3.64 before easing towards 3.63 this morning. Intraday see 3.62 – 3.64 range with bias to buy dips; Wider range of 3.60 – 3.65 likely for the week. MACD and stochs showing mild bullish bias. 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. Last 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.

       USD/CNH – Buy on Dips. USD/CNH trades around 6.29 levels this morning, after trading a low of 6.2827 low overnight. The CPPCC meeting opens today, while NPC meeting convenes on 5 Mar. Both 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 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 +30 pips at 6.1543 (vs. 6.1513). CNYMYR was fixed higher by +12 pips at 0.5767 (vs. 0.5756).

       USD/IDR – Consolidation. USD/IDR eased towards 12,970 levels this morning after trading a high of above 13,000 yesterday. Momentum remains bullish bias, pointing to further upside. But wary of “leaning against the wind” activity. Intra-day see 12,930 – 12,990 range. On the data front, Feb headline CPI rose 6.3% y/y, lower than 6.7% Cons. Core CPI was 4.96% vs. 5% Cons.

       USD/PHP – Consolidation; Mild Upside Bias. An interim double bottom appears to have formed around 44-levels. Could see potential upside towards 44.30-40 levels if momentum gains traction. MACD is directionless for now while Stochastics is showing tentative signs of rising. Favor buying USD dips towards 44-levels, targeting 44.40. This week sees Feb CPI and Dec budget balance (Thu) and Feb foreign reserves (Fri).

       USD/THB – Consolidating.  Pair stayed heavy after breaking the 200 DMA at 32.50. Momentum is bearish bias on the daily and weekly chart; stochastics is falling on the weekly but less clear on the daily chart. Intra-day could see the pair consolidating around 32.30 – 32.40 range; bias remains to be downside. Favor fading rallies towards 32.50 targeting 32-levels (100 WMA).

Rates

Malaysia

      Local government bond market had a lacklustre start to the week with the bonds trading almost unchanged from previous close despite the MYR weakening against the USD. Most trades were focused on the 5y GII 8/20s with the Islamic bonds ending unchanged from previous close at 3.78%. Players are awaiting BNM’s MPC meeting outcome on Thursday evening for leads.

       IRS market had an uneventful day with no trades amidst mixed interests. 3M KLIBOR remained at 3.79%.

       Local PDS space had a quiet trading session with only AAA names like Telekom and Plus being quoted. We saw Plus 24s being taken at 4.51%, 1bp higher than the previous traded level. In the AA curve, Malakoff 29s traded 4bps tighter at 5.81% which we think is close to its fair value. Other trades were crosses as a result of portfolio rebalancing. Market activity is likely to remain muted over the next few days ahead of the MPC meeting on Thursday.

Singapore

      SGS opened with yields about 2bps higher and got sold down on the back of higher SGD funding through FWDs. The selling was met with taking interest and SGS yields ended the day 3-5bps higher from previous close. SGD IRS was rather steady throughout the day with minor bidding interest bringing it up by 1bp. Bond swap spread for the 10y benchmark tightened by about 1bp. For now, the SGS market still hinges on SGD funding.

       Asian credits seem to be trading stronger. Indon 2025 opened around 103.65/103.95 and by lunch time it was taken back to above the 104.00 level. PBOC cut benchmark lending and deposit rates over the weekend, but it appears the Chinese space was hardly affected and CNH funding still seems high. Most Chinese IGs remained unchanged with trading focused on usual names like TENCNT, BIDU, HRAM and SHENGY, and HYs traded better with the new COGARDs trading around 100.875/101.125. New issuances yesterday include 1) Frasers Centrepoint Limited’s (Not rated) SGD Perp NC5 at the guidance of low 5%, 2) Times Property’s (rated B by S&P) USD250m 5NC3 at 11.625% and 3) Mitsubishi UFJ Lease & Finance’s (rated A by S&P) USD 5y at T5+125bps.

Indonesia

      Indonesia bond markets closed slightly lower amid better economic data. We see the slight decline occurred (1) on the note of conventional auction today (2) March inflation expectation with government increasing fuel and LPG 12 kg prices last Sunday. Deflation of 0.36% mom (6.29% yoy) occurred in the month of February with declining price of staples foods (excluding Rice) as the main contributor to the deflation while core inflation reached 4.96% yoy. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 6.710%, 6.9120%, 7.091% and 7.315% while 2y yield shifts down to 6.570%. Heavy volume at secondary market remains to be traded heavy at government segments amounting Rp11,662 bn with FR0070 (10y benchmark series) as the most tradable bond. FR0070 total trading volume amounting Rp2,313 bn with 78x transaction frequency and closed at 109.707 yielding 6.912%.

       DMO will conduct their conventional auction this week with four series to be auctioned which are SPN03150604 (Coupon: discounted; Maturity: 4 Jun 2015), SPN12160304 (Coupon: discounted; Maturity: 4 mar 2016), FR0070 (Coupon: 8.375%; Maturity: 15 Mar 2024) and FR0068 (Coupon: 8.375%; Maturity: 15 Mar 2034). We believe that the auction will be oversubscribe by 2.0x – 3.0x from its indicative target issuance while our view on the indicative yield are as follows SPN03150604 (range: 5.630% – 5.730%), SPN12160304 (range: 6.250% – 6.350%), FR0070 (range: 6.920% – 7.020%) and FR0068 (range: 7.320% – 7.420%). Till last week, Indonesian government has raised approx. Rp71.3 tn worth of debt through bond auction in 1Q 15 which represents 90.8% of the 1Q 2015 target of    Rp78.5 tn. On total, Indonesia government has raised approx. Rp124.6 tn worth of debt through domestic and global issuance which represent 27.6% of this year target of Rp451.8 tn.

       Corporate bond trading traded heavy amounting Rp554 bn. BNGA02SB (Bank Panin subordinate III Year 2010 bond; Rating: AA(idn)) was the top actively traded corporate bond with total trading volume amounted Rp70 bn yielding 10.802%.