Notes from Morning Meeting - 26 May 2015

Notes from morning meeting 26 May 2015

Fx
USD bullish trend may resume if DXY break the crucial level of 96.80. FX market is expected to be macro data driven this week, as the releases of US GDP, durable goods and etc slated for this week.
Despite that USD/MYR was trading in range, MYR weakened in other crosses against GBP and EUR lately. Traders viewed that the 1MDB negative impact was largely priced in, while rangebound oil prices played smaller impact to the MYR's strength at this juncture.
Economics
Japan 1Q2015 GDP grew by 0.6% QoQ, beating consensus estimate of 0.4% QoQ, supported by private consumption and residential investment, which rose by 0.2% and 0.1% QoQ.
11MP was tabled by the PM last week. Encouraging is the continued focus on income growth, fiscal consolidation and private sector-driven growth. The plan will also address the issue of income equality with measures to lift the bottom 40% of the country, signifying a change in the government’s approach to relative poverty rather than absolute. Development expenditure will come in at RM260bn (vs. RM230bn in 10MP), but will be focused on initiatives that have the highest impact with the lowest cost. The plan will aim for 5.0-6.0% p.a. growth, while reining in the fiscal deficit to 0.6% of GDP and public debt to below 45% of GDP by 2020.
Malaysia headline inflation rose by nearly 1% pt to 1.8% yoy in Apr (vs. +0.9% in Mar). This rise was, however, lower than CIMB Economics Research's expectation as well as consensus, thanks in part to petrol prices remaining unchanged in Apr while various government initiatives have had an effect in keeping prices contained. Furthermore, the top five goods that recorded the largest rise in prices (communication, miscellaneous goods, furnishings and household equipment, alcoholic beverages and tobacco and health) make up less than 20% of the total CPI basket, dampening its effect on headline inflation. However, it remains to be seen for how long these efforts can keep a lid on prices, especially when global oil prices continue to rise.
USD credits
Primary market remained active with $4.2 billion issuance from 6 issuers, which consisted ICBC, Beijing State-owned Asset Management and Indonesian Sovereign Sukuk. The newly issued names were well absorbed and traded tighter than re-offer levels, as ICBC's 5-year bond tightened by 7bps and Beijing State-owned 10-year paper tightened by 13bps.
In secondary trading, China IG names drew decent bidding interest, led by banking sector. Aside, Korean, Indian and Thai names were unchanged to 5bps tighter amid rising UST yields.
MYR govvies
Rates market was pretty quiet, as players mainly stayed at the sidelines last week.
Similarly, Ringgit govvies were seen largely unchanged, while the traders saw some buying into off-the-run papers for better yield pickup amid stagnant yield curve.
The new 20-year auction ended with a bid-to-cover ratio of 2.724 times, with an average yield of 4.254%. Post auction saw continued demand and pushed the yield lower at 4.23% on Friday. Traders expect the reopening of 7-year GII this week, with an estimated issue size of RM3-3.5 billion.
MYR credits
Benih Restu (guaranteed by Genting Plantation) priced AA2 rated 10-year Senior Sukuk at 4.62%. Issue size was RM800 million. On top of that, Jambatan Kedua's (guaranteed by GoM) 10- and 15-year tranches were issued at 4.30% and 4.52% each, with sizes of RM1.3 billion and RM700 million respectively.
Trading volume was heavier at RM3.1 billion, against RM2.9 billion a week ago. Credit spreads tightened by about 3bps at the far end of the curve. Traders anticipate to see spreads further tighten on the back of good demand in primary space.
SGD govvies
SG IRS ended higher amid bear steepening curve, trekking the higher UST yields. This week, traders think that the SG rates may climb further if UST is under selling pressure.
This week, market is expecting SGD2.6 billion of 10-year SGS this week.
SGD credits
Secondary trading activities improved slightly last week. Elsewhere, primary deals included Gallant Venture's 2018 retap and Frasers Centrepoint's 7-year retail bond.
Indonesia govvies
IDR government bonds weakened last week, after BI decided to keep the interest unchanged at 7.50%, as some players expected for a rate cut.
This week, government will conduct a bond auction with indicative target of IDR10 trillion, comprising 9-month bills, FR70 and FR68.
Thai govvies
Thai rates drifted lower, reacting to the BoT's comment which stated the possibility to ease rate further. Traders view that the short term govvies remained decent at this juncture.
Upcoming events are the releases of export (May 29), CPI (Jun 01) and MPC meeting (Jun 10).
Thai credits
Credit curves ended flatter, amid quiet market for corporate bonds for the week ended May 22. Traders continue to see value in short term papers (with maturity less than 3 years), in line with govvies, supported by good demand.
Equities
Shanghai Composite rose to the 7-year high at 4813, by 12% on a week-on-week basis, amid anticipation of continued easing of the China authority.
KLCI was among the laggards, down 3% week-on-week, driven by some lacklustre earnings reported by a few big counters such as Axiata and Sime Darby. Elsewhere, Malakoff dealt poorly, dipped to 1.71, from the IPO price of 1.80. TNB drop to RM13.24, amid speculation of potential acquisition of 1MDB assets.