Maybank GM Daily - 13 Apr 2015

FX

Global

      Global equity party continued ending the week on a positive note. USD was bid; EUR and GBP continued to decline to near/at multi-year lows. Oil, copper prices and gold firmed.

      Focus this week on Singapore MAS policy decision (Tue; 8am).  We reiterate our long-standing view that the MAS will not move at the upcoming meeting. We believe support from the expansionary budget stance should keep the economy humming; growth weakness in 1H 2015 and subdued inflation outlook should have already been largely accounted for when MAS reduced the policy slope on 28 Jan at the surprise inter-meeting.  Any adjustments to the policy band then could come via another inter-meeting move with a higher probability that such an unscheduled meeting could take place between Jun and Sep. SG is also due to release its 1Q GDP (Cons. +1.7% y/y) on Tue at 8am. China is also due to release its data dump next week starting with Mar trade data (Cons. +$40.2bn) on Mon; 1Q GDP (Cons. +7% y/y); Mar IP (Cons. +7% y/y); Mar retail sales (Cons. +10.9% y/y); YTD FAI (Cons. +13.9% y/y) on Wed. This set of activity data will be of keen interest as it will be free from Chinese New Year distortion. Bank Indonesia will meet on Tue. We expect no change.

      Other key data in G7 we are watching for the week include US Mar PPI (Cons. +0.2% m/m); EC Feb IP (Cons. +0.6% m/m); UK Mar CPI (Cons. +0.2% m/m) on Tue. For Wed, BoJ Kuroda speaks; ECB meeting; US Apr empire manufacturing (Cons. +7.0); US Fed releases Beige Book. For Thu, Australia Mar employment change (Cons. +15k); (US Mar housing starts and building permits for a gauge of housing activity; Apr Philly Fed Business Outlook (Cons. +5.0). For Fri US Mar CPI (Cons. +0.3% m/m); Apr Prelim University of Michigan sentiment (Cons. 93.7); EC Mar CPI (Cons. +1.1% m/m). Still favor buying USD on dips against EUR, GBP, JPY. USD/AXJs likely to consolidate in recent ranges.

G7 Currencies

      DXY – Buy on Dips. Dollar continued to firm across the board overnight. We remained convicted to our USD bullish bias; reiterate our house-view for the first rate hike to begin in Sep 2015, totaling 50-75bps for year ending 2015and continue to favor buying USD on dips. Daily MACD and stochastics are indicating a bullish bias. Intra-day range of 98.50 – 99.50 expected. Week ahead brings Mar PPI, retail sales (Tue); MBA mortgage applications; Apr Empire manufacturing; Mar IP, capacity utilization, Apr NAHB housing index; Fed’s beige Book (Wed); Mar housing starts, building permits, Apr Philly Fed Business Outlook (Thu); Mar CPI; Apr Univ of Michigan sentiment (Fri). Fed speaks for the week include Kocherlakota (Tue); Bullard and Lacker (Wed) and Lockhart, Mester, Rosengren, Fischer (Thu).

      USD/JPY – Upside. The USD/JPY rallied towards the 121-figure overnight to a high not seen since 20 Mar on the back of a resurgence in the dollar as well as higher UST 10Y yields. Pair is holding steady this morning around the 120.50-levels with both intraday MACD and slow stochastics showing upside bias. With pressure to the upside, a test of our resistance level at 120.80 is possible. A clean break here could see the pair head above the 121-figure towards 121.41 ahead of the next at 121.85. Support remains at 119.50.

      AUD/USD – Shallow Dips. This morning, AUD/USD remained on the decline from its high last week as market players anticipate another decline in China’s imports, due later this morning. Beyond China’s trade data, Australia’s labour report should be watched next, out on Thu. Consensus expects and average addition of 15k employment for Mar, similar to the month prior. Unemployment is expected to remain unchanged at 6.3%. This pair waffled around 0.7670 as we write. Daily momentum indicators not showing much bias on either side. However, weekly tools suggest that bulls might be gaining some momentum and further dips could attract buyers. 0.76-figure is the first support to watch, ahead of the next at 0.7550. On the top side, recent 0.7740 could be the first barrier for bids ahead of the second barrier at 0.7800. 

      NZD/USD – Consolidate. NZD rally remains capped at 0.76 levels (100 DMA). Daily momentum is not indicating a clear bias. Day ahead expect range-trading between 0.75 – 0.7580. RBNZ deputy Governor Spencer is expected to speak on housing on 15^th Apr – potential macro-prudential policies to address housing speculation on the cards.  

      EUR/USD – Fade Rallies. EUR/USD continued to decline amid widening rate differentials. We continue to maintain our bearish EUR/USD view amid structural decline in Europe fundamentals, concerns over Greece ability to meet repayment schedules, and diverging monetary policies between US and EU. We remain better sellers on rallies; downside at 1.0450 (mar 2015 low) is first objective before market rekindle talks of parity (again); interim resistance at 1.0830 level. Week ahead sees GE Mar wholesale price index IT Feb IP (Mon); EC Feb IP; SP, IT Mar CPI (Tue); ECB meeting; GE FR Mar CPI; EC Feb trade (Wed); IT Feb trade (Thur); EC Mar CPI; ECB Feb current account (Fri). ECB officials will attend the IMF Spring meetings in Washington (Fri – Sun).

      EUR/SGD – Consolidate. EUR/SGD traded a fresh multi-year low of 1.4423 Fri before closing around 1.4510 levels. Pair could consolidate with bearish bias. 1.4570 previous support now turned resistance. Intra-day range of 1.44 – 1.4570 expected.

Asia ex Japan Currencies

      The SGD NEER trades around 1.23% below the implied mid-point of 1.3494. We estimate the top end at 1.3220 and the floor at 1.3767.

      USD/SGD – Sell On Rally. The USD/SGD rebounded off 1.3470 (38.2% Fibo retracement), climbing to 1.3684 on Fri. Pair has since eased off towards 1.3660-levels with the softer dollar tone. Range-bound trades seem likely ahead given that daily MACD is showing bearish momentum, though slow stochastics is indicating upside bias. MAS is poised to release its exchange rate policy decision tomorrow at 8am, and we continue to reiterate our long-standing view that MAS will hold its key policy variables unchanged as it adopts a "wait-and-see" approach as the economy remains supported and disinflationary pressures have been pretty much factored in during the inter-meeting move in Jan. Also released tomorrow will be GDP flash estimates for 1Q15, where we are looking for growth of 1.9% y/y vs. cons 1.7%. Favor fading rallies in the pair towards 1.3730 for a move back towards 1.3450 (100DMA)

      AUD/SGD – Two-way Trades. AUD/SGD bumped into resistance around 1.0526 (50% Fibonacci retracement of Mar-Apr downswing) on Fri and softened this morning, weighed by the heavy AUD in anticipation of the Chinese data due later. This cross was last seen around 1.0465, testing the first support around 1.0459 (38.2% if the Mar-Apr downswing), ahead of the 1.0376. Topsides continue to be guarded at 1.0526 ahead of the 1.0592.

      SGD/MYR – Consolidation. This cross inched higher to levels around 2.6880 this morning as some market players start to long SGD ahead of the MAS policy decision tomorrow. Prices are still caught within the consolidative zone within 2.6660-2.7115. Daily momentum indicates slight bearish momentum and we expect upticks to be on tight leash.  We notice that the ross has double-topped on the 2Apr and we look for a decisive close below 2.6713 for a greater pullback towards 2.6488.

      USD/MYR –Resumption of Mild Uptrend. Technical pullback saw USD/MYR traded a low of 3.6235 (9 Apr). Daily momentum and oscillators are suggesting early signs of bullish bias. Pair could consolidate with mild upside bias; range of 3.65 – 3.70 expected intra-day. We continue to reiterate our view for Ringgit weakness off the back of soft oil prices, risk of rating downgrade amid contingent liability exposure, lower fiscal revenue and narrowing current account surplus remain unchanged.

      USD/CNH – Consolidative. This pair ended Fri, hardly changed within that session, last priced around 6.2180. Still, daily momentum tools exhibit increasing bullish momentum and next resistance around 6.2292 (38.2% Fibonacci retracement of the Oct–Mar rally). 6.2456 marks the upper bound of the consolidative range that the pair now trades in. RSI reads 65.7. Key support still seen at 6.1900 (200 DMA); a decisive close below 200 DMA could open way towards 6.1560 (76.4% Fibonacci retracement of 6.1113 – 6.3021). USD/CNY was fixed 25 pips higher at 6.1395 (vs. 6.1370). CNYMYR was fixed 22 pips higher at 0.5868 (vs. 0.5846). Over the weekend, State Council approved a reorganization that will keep China Development Bank Corporation, Export-Import Bank of China and Agricultural Development Bank focused on providing policy-driven funding (BBG). In a move to increase supervision over credit risks, thee capital adequacy requirement of the three major banks are set higher than the basel III requirement at 10.5%. Premier Li reiterated that downward pressure on economy is increasing (CCTV). His words are likely to increase upside pressure on the USD/CNH, putting the 6.2292 resistance at risk.

      USD/IDR – Bearish Bias.  The USD/IDR is bouncing higher this morning, tracking the dollar moves on Fri, sighted around 12945 currently. Short-term technical are suggesting some downside, possible towards the 12850 levels, given that both daily MACD and slow stochastics are bias to the downside. BI meeting tomorrow is unlikely to see any changes given that BI governor reiterated late Fri that monetary policy will stay in tight bias. Support is seen around 12850, while resistance is around 13000 this week. Foreign funds bought a net USD58.95mn in equities last week, but removed a net IDR0.64tn on 6-7 Mar. 1-month NDF is back above the 13000-level this morning with both intraday MACD and slow stochastics showing bearish bias. JISDOR was fixed lower at 12910 on Fri from Thu’s 12973 and a higher fixing is possible given the spot’s drift higher this morning.

      USD/PHP – Range-Bound.  The USD/PHP gapped slightly higher at the opening this morning to 44.575 from Fri’s close of 44.385, playing catch-up with its regional peers. Pair is edging towards the 44.650-levels with daily MACD and slow stochastics indicating downside bias. Lacking fresh impetus, we continue to expect range-bound trades within 44.300-44.800 in the week ahead. 1-month NDF continues to trade near the middle of its current trading 44.400-45.230 range with daily MACD still showing no strong momentum and slow stochastics showing only bullish bias.

      USD/THB – Rangy.  It is a very short week for the USD/THB as onshore markets are closed for Songkran holidays and re-opens on Thu. Pair is currently holding steady around 32.550-region amid quiet trades. Pair is currently trapped within an ichimoku cloud, suggesting range-bound trades ahead. In a quiet week ahead domestically, we expect rangy trades within 32.500-32.640 to hold in the week ahead. Last week, foreign funds purchased a net THB2.72bn and THB3.64bn in equities and government debt, which weighed on the pair.

Rates

Malaysia

      Local government bonds traded range bound, though some selling was seen on the 5y MGS with the announcement on the issue size of the new 5.5y MGS 10/20. The MYR4.0b size was within market expectations and WI was last done at 3.60%. In the afternoon, we saw some light selling on the front end amid a weaker MYR but overall the curve remains range bound.

      IRS market was very quiet with only the 5y IRS dealt at 3.76%. Basis is notably tighter by 5bps across the board partly due to a general lack of bid-side deals in the market. As most corporates usually take banks’ offer side, the banks would eventually have to pay the market to square off receive basis positions. 3M KLIBOR remains at 3.73%.

      Overall in the PDS market last week, buying interest was robust for AAAs. We saw 9y Telekom papers tighten 4-5bps and 2-3bps for Plus and Aman papers. At last traded levels, AAAs still offer decent spreads over the benchmark. We also saw further tightening in the GG curve with the usual names tightening 1-3bps, though some papers traded flat on MTM levels. While GG spreads are also decent, we prefer AAA names as they offer better carry. The AA curve saw Gamuda, SEB and Malakoff trading 2bps tighter.

Singapore

      SGS market had a volatile trading session last Friday. Both the SGS and SGD IRS curves steepened further with the front end down by about 1bp while the back end rose 1-4bps. SGD funding remains soft and demand for shorter dated SGS is still there, with some interest to begin going short on the bonds. Bond swap spreads widened again by another 3-4bps and the 10y benchmark closed at around -23bps. We suggest to consider reducing bond swap spread positions if it continues to widen.

      The Asian credit market was active despite the US Treasury movement overnight. INDON and PHLLIP sovereigns opened slightly lower but traded back up to previous day levels. In the Chinese space, market was contending for AMC and SBLC names. HRAM, Shengy, Chalum, and Sinoce were among those that were fiercely sought after. Moody's revised Korea's outlook from stable to positive which led Korean papers to trade 3-4bps tighter. With oil prices slightly more stable of late, O&G names are starting to outperform. PETMK rallied 3-5bps at the long end and names such as CNOOC and ANTOIL traded up as well.

Indonesia

      Our economist several economic reports on Friday. We still see that Bank Indonesia would keep its reference rate halt at 7.50% on April RDG Meeting as well as maintaining the deposit facility and lending rate at 5.50% and 8.00% respectively. On another report, our economist sees that Indonesia March Trade Balance would come in surplus of US$0.52bn with export value reaching US$12.74bn while import value would reach US$12.22bn. The rise in Indonesia’s export performance is due to the improving in the economy of the countries of Indonesia’s major trading partners that impact the increases demand for goods and services from these countries. In addition, the increasing exports were also triggered by the seasonal factors demand in March where the number of working days more than the previous month. The increase in the performance of Indonesia imports was caused by the improving domestic economy activities. In addition, the increasing imports were also triggered by the seasonal factors demand in March where the numbers of working days were more than previous days.

      Indonesia bond market closed slightly higher on Friday’s trading amid a quiet market due to minimum sentiment domestically and globally as well. This week we see the volatility of bond prices would be better as several data domestically such as Indonesia reference rate and trade balance data would be published as well as market would wait for U.S. retail sales and inflation data publication this week. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 7.147%, 7.191%, 7.426% and 7.605% while 2y yield shifts up to 6.954%. Trading volume at secondary market remains heavy at government segments amounting Rp12,795bn with SR007 (3y) as the most tradable bond. SR007 total trading volume amounting Rp7,588bn with 1,362x transaction frequency and closed at 102.266 yielding 7.385%.