Maybank GM Daily - 31 Mar 2015

FX

Global

Global equities enjoyed a rally overnight, helped by hopes of further targeted stimulus from China, Greece’s detailed list of reforms before the deadline and generally strong EU and US data.  USD closed broadly higher; while EUR, GBP, JPY, AUD, NZD and CAD were all weaker. Oil prices fell on hopes of a nuclear deal with Iran amid stronger USD.        Yesterday China policymakers announced further cooling measures in housing mortgage policies. The down-payment for second home mortgage was lowered to 40%, down from 60% previously. The holding period for home sellers to be exempted from commercial tax has been lowered to 2 years, down from 5 years previously. The intent of these cooling measures is expected to boost housing market sentiment and housing transaction and could mitigate the housing downturn in the interim while housing supply overhang takes time to be absorbed. But do not expect to see a material recovery in house prices amid supply overhang. That said this is definitely a positive step. We are hopeful of more targeted measures as the Chinese economy continues to fine-tune itself.         Day ahead brings EC, IT Mar core CPI; FR, IT Feb PPI; EC, GE, IT Feb unemployment rate for Europe. For US, Jan S&P/CS house price index; Mar Chicago Purchasing Manager and Mar Consumer confidence data. Fed’s Fischer, Lacker, Lockhart and Mester scheduled to speak. Day ahead see USD consolidation with bias to buy USD on dips against G7 currencies. For AXJs, continue to see USD supported against most regional AXJs; except against Renminbi (favor long bias on CNH, CNY).

G7 Currencies

       DXY – Consolidation; Buy on Dips. The greenback rose overnight on better than expected pending home sales and personal incomes. Yesterday we highlight that the daily DXY formed a series of two hammer exhaustion patterns and subsequently formed a bullish key day reversal on a marginal new low; calling for USD upside. Indeed DXY rose to 98 levels overnight. We still see further upside. Stochastics is now showing tentative signs of turning higher from oversold levels. Intra-day range of 97.50 – 98.50 expected; remain better buyers on dips. Week ahead brings Jan S&P/CS house price index; Mar Chicago Purchasing Manager; Mar Consumer confidence ; Fed’s Fischer, Lacker, Lockhart and Mester to speak (Tue); MBA Mar Mortgage applications; Mar ADP employment change; ISM Manufacturing; Manufacturing PMI, Fed’s Williams and George to speak (Wed); Mar services/composite PMI; Feb trade balance (Thu); Mar NFP, average earnings, unemployment rate (Fri). 

       USD/JPY – Range-Bound. The USD/JPY climbed to close above the 120-levels overnight, lifted by the resurgent dollar overnight. Intraday MACD is showing bullish momentum, though slow stochastics is at overstretched levels currently. Pair is currently within a thin intraday ichimoku cloud, suggesting rangy trades are likely ahead. With several of our resistance levels taken out, new hurdle is now seen around 120.40 (upper bound of the cloud) ahead of 120.80. Support nearby is around 119.90 before 119.20. Week ahead brings BOJ 1Q Takan report; Mar manufacturing PMI (Wed); and Mar composite/services PMI (Fri).

       AUD/USD – Sell on Rallies. AUD/USD continues to close lower at 0.7654 overnight on falling iron ore prices amid USD strength. We continue to reiterate our bearish view for the AUD.  MACD is showing early signs of bearish bias while daily stochastics is falling from overbought areas, and this could suggest downside pressure. Still favor fading rallies towards 0.7780 levels (50 DMA). 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. Week ahead brings Feb new home sales (Tue); Feb building approvals (Wed); Feb trade data (Thu). 

       NZD/USD – Stay Short. NZD continues to drift lower, tracking its AUD and CAD counterparts. Last Thu we suggested looking for intra-day rally towards 0.7640 to fade into; with stop-loss placed above 0.7700 targeting a move back towards the 0.7465 (50 DMA). We remain short in the pair targeting objective. Slow stochastics is showing signs of falling from overbought areas. Bullish momentum is also slowly dissipating.

       EUR/USD –Fade Rallies. EUR/USD closed relatively weaker at 1.0833 amid USD strength overnight. We continue to maintain our bearish-bias EUR/USD view amid structural decline in Europe fundamentals and diverging monetary policies - the Fed is still expected to be on a tightening bias as compared to its Euro-counterparts whom have just began QE amid ongoing unresolved Greek issues. Stochastics indicators are showing signs of falling from overbought areas. We remain better sellers on rallies. Intra-day see 1.08 – 1.0950 range. Daily close below 1.830 could open way for further downside towards 1.7 levels. Week ahead brings EC, IT Mar core CPI; FR, IT Feb PPI; EC, GE, IT Feb unemployment rate (Tue); EC, GE, FR, IT Mar Manufacturing PMI (Wed); IT budget balance (Thu).

       EUR/SGD – Range-bound. EUR/SGD continues to close relatively unchanged at 1.4911 overnight. Pair now at 1.4913 levels and remain in consolidative mood awaiting fresh leads.  1.50 levels (23.6% Fibonacci retracement of 1.6390 – 1.4573) will continue to serve as resistance.  Slow stochastics showing tentative signs of falling from overbought levels - suggesting some fatigue in recent rally. Intra-day range of 1.4850 – 1.4950 expected.

Asia ex Japan Currencies

       The SGD NEER trades around 1.85% below the implied mid-point of 1.3514. We estimate the top at 1.3238 and the floor at 1.3789.

       USD/SGD – Range-Bound. USD/SGD is on the slide this morning, tracking the dollar moves. Pair continues to trade above the 1.37-levels with intraday MACD showing bullish momentum and slow stochastics in overbought levels, suggesting the potential for a pull-back ahead. Pair is currently within a thin intraday ichimoku cloud that could keep the pair trading sideways intraday. Immediate resistance is seen at the upper bound of the cloud at 1.3775 ahead of the next at 1.3800. Further dips today should see support around 1.37-figure today.

       AUD/SGD – Capped.  AUD/SGD slipped below the 1.05-levels overnight, underpinned by dollar strength but has since rebounded back above the 1.05-levels following the softer dollar tone. Still, intraday MACD is showing bearish momentum, though slow stochastics is indicating oversold levels, suggesting a rebound could be in the offering. Downside today should be limited by 1.0500 before 1.0450 while rebounds should be capped around 1.06.

       SGD/MYR – Temporary Respite. After climbing to a high not seen since 22 Jan, the SGD/MYR is seeing some relief, retracing back below the 2.70-levels this morning. This respite could be temporary given that both intraday MACD and slow stochastics are showing mild bullish bias. Look for topside to be guarded by the 2.7064 (yesterday’s high) intraday with down moves limited by 2.6770.

       USD/MYR –Supported. USD/MYR traded a high of 3.7222 amid stronger USD and falling oil prices yesterday. We continue to reiterate that the trend-line support at 3.66 levels should provide strong support in the interim. Day ahead MACD is turning mild bullish bias with slow stochastics showing tentative signs of rising from oversold levels. We favour buying on dips; intra-day range of 3.6850 – 3.7200. Trade data on tap on Fri.  There are a few reasons for keeping a weak-bias for MYR. Oil prices though risen were due to geopolitical tension in Yemen; we maintain our view for oil prices to remain soft and this could weigh on the ringgit further. While lower oil prices are expected to benefit oil import countries (smaller import bills, leading to widening trade balance/current account), Malaysia is a net oil exporter and do not benefit as much relative to its regional peers. On medium term fundamentals, we continue to see further weakness in the Ringgit on a combination of domestic worries including risk of smaller net foreign fund inflows and heightened risk of sovereign rating downgrade amid contingent liability exposure, lower fiscal revenue and declining current account surplus.

       USD/CNH – Consolidation. The pair traded to the soft side after China policymakers announced housing cooling measures. Pair trades under 6.21 levels and could consolidate further with downside bias on sentiment boost to housing market. There are also hopes of further easing from both the monetary and fiscal fronts. Weekly MACD and stochastics are mild bearish bias; a down trend remains in play. We remain better sellers on rallies towards 6.2200 levels (100 DMA) to fade into, playing the China financial reform/CNY potentially gaining reserve currency status story. We continue to expect a 50bps cut in RRR and targeted monetary easing to align its policy with fundamentals. We reiterate our view that the objective of policymakers is to lower the cost of funding to support SMEs. It is also not our base case scenario for the PBoC to widen its trading band at this stage as we see little incentive to do so now. Widening the trading band will have a tendency to see one-way bets and throw the currency stability objective off-course. Yesterday’s announcement for housing cooling measures take effective today – the key changes are (1) down-payment for second home mortgage was lowered to 40%, down from 60% previously; (2) holding period for home sellers to be exempted from commercial tax has been lowered to 2 years, down from 5 years previously. The intent of these cooling measures is expected to boost housing market sentiment and could mitigate the downturn in the interim while housing supply overhang takes time to be absorbed  USD/CNY was fixed higher by 20 pips at 6.1422 (vs. 6.1402). CNYMYR was fixed higher by 28 pips at 0.5935 (vs. 0.5907).

       USD/IDR – Consolidation. USD/IDR remains on its slow grind higher, still hovering above the 13000-levels. Pair though is currently trapped within an intraday ichimoku cloud, suggesting range-bound trades are likely. Both intraday MACD is showing mild bullish momentum, though slow stochastics are at overbought levels currently, suggesting a potential pull-back could be likely ahead. For now, continue to look for consolidative trades within 13000-13150 intraday. Foreign funds continued to sell-off equities with a net USD13.62mn sold yesterday, but a net IDR1.16tn were added to their outstanding holding of government debt on 26 Mar (latest data available). 1-month NDF is back above the 13200-levels this morning at 13208 with both intraday MACD showing mild bullish momentum but slow stochastics falling from overbought levels, suggesting sideways moves are likely ahead. JISDOR was fixed higher on Fri at 1.3086 as expected from 13064 on Fri, and a higher fixing is likely should the spot continue its climb higher this morning.

       USD/PHP – Consolidating Lower. USD/PHP is tracking the dollar lower this morning, hovering back below the 44.700-levels. Fresh catalysts continue to be lacking and continued trades within familiar ranges of 44.500-45.000 with a bias to the downside is likely to hold. Intraday MACD and slow stochastics are both showing mild bearish bias ahead. 1-month NDF continues to trade in familiar ranges within 44.400-45.230 with intraday MACD showing no strong momentum and slow stochastics fast approaching overbought levels. Last week, foreign funds bought a net USD69.04mn in equities, helping to cap PHP upside.

       USD/THB – Sideways. USD/THB is currently hovering below the 32.600-levels on the back of a softer dollar tone this morning In the absence of fresh catalyst today, pair should continue to trade in familiar ranges of 32.430-32.650 intraday. Both momentum and oscillators are showing a mild bullish bias ahead, suggesting that dips today are likely to be limited. Moreover with an intraday ichimoku cloud forming ahead, upside could be capped as well. Trade and current account data are due today and any surprises in either direction could see the pair attempt a move towards the boundaries of its current trading range. Look for sideway trades to continue intraday within 32.430-32.650. There was some respite for the THB yesterday with foreign funds buying of a net THB0.07bn and THB6.5bn in equities and government debt yesterday.

Rates

Malaysia

       In the local government bond market, the 7.5y new MGS 9/22 auction recorded a lower bid-to-cover ratio of 1.802x compared to previous auctions this year. Successful bids averaged 3.795% with a high of 3.814% and a low of 3.770%. Post auction the price of the bond hovered lower as players reduced exposure on the back of MYR weakness against the USD. Elsewhere the curve traded range bound amid thin liquidity.

       IRS were quoted 1-2bps higher as the new 7.5y MGS auctioned at yields at the tail end of the pre-auction WI. 5y IRS traded at 3.79% and 3.80%. 3M KLIBOR unchanged at 3.73%.

       The local PDS market was quiet probably due to the weaker MYR. Most of market interest were on long dated AAA names such as Aman, Plus and Telekom. However, bid-offer spreads were mostly wide at about 5-8bps. In the GG space, short dated PASB papers widen 2bps from last traded. We also saw some trades in the AA space as Bright Focus 17s and Tanjung BP 19s tightened 1bp.