Maybank GM Daily - 14 Apr 2014 ( with corrected Tech Weekly)

FX

Global

·         NY indices fell across the board after JP Morgan earnings result disappointed and crisis escalation in Ukraine. DJI was down -0.9%, S&P finished at -1.0% and NASDAQ at -1.3%. 10-year yields slipped towards 2.60%. Local media reported rising concerns on possibly poorer earnings reports to come that could result in a sharp correction in the equity markets. Elsewhere, ECB flagged “unconventional measures” to tackle low inflation. That could cap EUR crosses and support to the greenback.

·         This morning, Singapore’s MAS decided to leave monetary policy unchanged, maintaining its “modest and gradual appreciation” policy stance. The monetary authorities also lowered 2014 CPI-All items inflation forecast from 2-3% to 1.5-2.5% to account for softer imputed rentals for the rest of the year. 1Q 2014 growth decelerated to 5.1% y/y from 5.5% in the previous quarter. USD/SGD was initially little changed after the announcement before moving up on broader dollar gains.

·         There are quite a number of market holidays in South East Asia (SEA) this week. Thailand is off today and tomorrow to celebrate Songkran Festival Day.  Philippines is off from Thursday onwards while Indonesia and Singapore are also having a shortened work week due to Good Friday.  Amid all the market holidays, Asian markets are likely to take the cue from New York and trade on the defensive. That should also keep most currencies within their familiar ranges.

·         Notwithstanding a likely quieter SEA, China will release rest of its Mar data this week with special focus on 1Q GDP. Lackluster 1Q data points to softer growth with a potential to miss the annual target. Risk appetite has been resilient as there is still hope for stimulus despite officials’ repeated warnings of “no more short-term stimulus”. Over in the US, beige book could hold some attention coupled with a line-up of Fed Speakers, including Chair Yellen. We expect tone to remain consistent with the FOMC Minutes released recently. Dollar is seen to remain heavy but with downsides limited by EUR sogginess.

G7 Currencies

·         DXY – Fatigue setting in. Dollar crashed after weaker NFP and the dovish Mar FOMC Minutes spurred more aggressive offers. Last seen around 79.60, the index was unwilling to test next support at 79.268. A break of exposes stronger support at 78.998. Price action in the past few days indicate that bears are feeling the fatigue even though MACD still points south. Minor resistance at 79.688 ahead of the next at 79.920.

·         USD/JPY – Two-Way Interests. USD/JPY barely recovered from its recent plunge and hovered around 101.50, supported by technical support at101.30. Break of this level exposes the next support at 100.77 (5 Feb low). We think there are still two-way interests in this pair within 100.77-102.47. 

·         AUD/USD – Supported. Pair drifted back to sub-0.94 on Fri. Support is now seen at 0.9340. Trend is still up despite the slide but still needs to take out the 0.9450-barrier for the next bullish target at 0.9543. Investors await RBA Minutes for AUD cues. The central bank’s preference for steady rate policy has been consistent in the past meetings. We do not expect fresh signals from the Minutes.

·         EUR/USD – Downside risks. EUR/USD gapped down to 1.3850 this morning. MACD shows upside risks while price action indicates weaker bullish tone. 18-DMA and 40-DMA are also at the brink of a negative cross-over. The pair risks a reversal. Sideway actions dominate for now within 1.3818-1.3914.

Regional FX

·         The SGD NEER trades 0.46% above the implied mid-point of 1.2578. We estimate the top end at 1.2328 and the floor at 1.2829.   USD/SGD – Still pressured to the downside. Following the MAS policy and 1Q14 advanced GDP estimates announcement, the USD/SGD bounced higher above the 1.25-level on the back of slower growth, hovering around 1.2525. With a short week ahead, some re-positioning/profit-taking is likely. The next target is likely at 1.2568 (31 Mar low). Still, with no change in the current policy stance and risks to the downside, upticks could reverse. Support this week is seen at 1.2426/1.2408.

·         Singapore’s MAS kept its current policy stance of a “modest and gradual appreciation” of the SGD NEER today as expected with no change in the slope, width and center of the policy band. The MAS deemed this policy stance ‘appropriate’ to mitigate inflation risks amid uncertainties in external demand. MAS kept its core inflation forecast unchanged at 2-3% for 2014 but revised its overall inflation forecast range lower to 1.5-2.5% from 2-3% to take into account lower input rentals outlook. At the same time, advanced estimates for 1Q14 GDP came in at 5.1% y/y (0.1% q/q annualized) in line with expectations. This was however lower than 4Q13’s 5.5% on the back of more moderate services growth (1Q14: 4.7% vs. 4Q13: 5.9%) due to slower expansion in wholesale & retail trade and finance & insurance sectors.

·         AUD/SGD – Choppy.  The cross tested above the 1.1773-barrier again this morning before being rejected to 1.1768. However, SGD weakness today is keeping the cross elevated. Still, MACD remains flat and the forest prints near zero. We expect the cross to remain choppy wthin the current 1.1623/1.1801 range this week.  SGD/MYR – Wobbly.  The cross is hovering lower this morning on the back of SGD weakness. Still, the cross is off last week’s lows of 2.5786 and is last sighted around 2.5921. Momentum indicators continue to show little directional bias and the cross is likely to wobbly for the rest of the week within 2..5854/2.6019.

·         USD/MYR – Capped. Pair bounced a long with most of its peers on dollar resurgence but was capped by the 3.2495. A failure to make a sustain move above this level risks a deeper pullback and leave bears in control. Next bearish target is 3.1980. A more aggressive target could be 3.1470 in the medium term. The rebound started last week when local bond markets saw some investors taking profit.  1-month NDF hovered around 3.2540, increasing bullish momentum. Next resistance is seen at 3.2820. Over the weekend, BNM Governor Zeti expressed confidence in an interview that inflation will remain contained and moderate into 2016, noting the absence of “secondary effects” from the price increase. She also said that there was  no disruptions in credit flows.

·         USD/CNY was fixed higher at 6.1531 (+0.0036), vs. previous 6.1495 (+2.0% upper band limit: 6.2787; -2.0% lower band limit: 6.0325). CNY/MYR was fixed at 0.5245 (+0.0007).

·         USD/CNY – Still Holding Steady. The fixing is a tad higher but USD/CNY is little moved at around 6.2110. MACD shows paring bearish momentum still though directional bias at this point is still unclear. We think pair is likely to remain capped by 6.2177 while downsides will still face a technical support at 6.1930. China’s PBOC Yi Gang reiterated that China will not use broad stimulus to cushion a slowdown (BBG). China’s 1Q GDP will be released this week with the rest of Mar data. There is a rather wide consensus that 1Q growth missed the annual target base on the lackluster indicators so far.

·         1-Year CNY NDFs – Firmer. The 1Y NDF edged higher this morning, almost testing the upper bound of the 6.2160-6.2425 range. Direction is still unclear for the moment and the MACD shows downside risks still. Next barrier is seen at 6.2475 while downsides are slowed by 6.2330 for now.

·         USD/CNH – Firm. Pair bounced in reaction to higher fixing and firmer dollar and was last seen around 6.2150. Pair is now near recent highs though daily momentum indicators are still not giving a clear bullish signal. Pair is now capped by the 6.2186-barrier. A strong move above this level exposes next at 6.2266. Downticks to be slowed by 6.2004.

·         USD/IDR – Still bullish. The USD/IDR continued to climb higher amid lingering disappointment of a lack of strong political leadership ahead because of a fragmented parliament. Last sighted around 11445, momentum is still bullish though. We reckon that it will be a slow grind higher towards 11500 with a sustained break of this level to expose the next hurdle at 11585.11340 supports. The 1-month NDF remains is inching lower but remains above the 11500-level at 11505 this morning, though risks remains to the upside. The JISDOR was fixed higher again on Fri at 11450 from 11342 on Thu.

·         USD/PHP – Still heavy. USD/PHP tested above 44.421-barrier but was repelled lower to 44.410 currently. Dollar strength is keeping PHP bulls at bay currently even as momentum remains tilted to the downside. We reckon the pair would trade in a wider range between 44.150/44.700 this week as a result. The 1-month NDF is inching slightly higher to 44.400 to start the week from Fri’s close of 44.320 with momentum still bearish.

·         USD/THB – Supported.  With onshore markets closed for the Songkran holidadys on Mon and Tue, it should be a quiet week ahead. Risks remain slightly to the downside, but dollar strength is likely to keep the pair supported in the week ahead. Moreover, moves lower are likely to be deterred by the protracted political crisis. Price action this week should see the pair hover in a wider range between 32.050/32.480 this week. Onshore markets re-open on Wed.

Rates

Malaysia

·         Yields on local bond market ended a tad higher in reaction to weaker MYR which touched 3.2415 from 3.2220-40 at previous close. Prices opened on the defensive side with better sellers. At market close, 3 and 5-year benchmark MGS inched up 2bps to close at 3.41% and 3.59% respectively while the 15-year benchmark ended a tad lower at 4.43%.

·         The IRS curve generally shifted 1-3bps higher today without dealing. Basically, MGS yields and offshore rates were also slightly higher. Basis curve shifted 10bps tighter on the offer side.

·         The PDS market’s interest remained on high-grade short-end papers, with the normal GG and AAAs being sought after. Danainfra WI 2021 was given at 4.38%, 2bps lower than its printed price. IJM 2021 also was taken lower from its last done price transacting at 4.80% and 4.79%. Prices are more actively seen on the new issuances.

Indonesia

·         Indonesia bond market closed lower on the note of disappointment as legislative election Quick Count result didn’t match pre-election polls despite the election was carried out smoothly and successfully. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield slightly shifted up to 7.619% (0.1bps), 7.869% (0.8bps), 8.222% (2.4bps) and 8.411% (3.3bps) while 2-yr yield shifted up to 7.360% (4.5bps). Trading volume at secondary market was remains heavy as trading volume amounted Rp10,194 bn (vs average per day trading volume of Rp7,602 bn). FR0070 (10-yr benchmark series) and SR006 (3-yr) was the most tradable bond during the day. FR0070 total trading volume amounting Rp2,057 bn with 68x transaction frequency and closed at 101.048 yielding 7.869%.while SR006 total trading volume amounted Rp1,743 bn with 274x transaction frequency and closed at 101.709 yielding 8.084%.

·         Indonesia Debt Management Directorate General (DMO) release bond ownership data as of April 8th, 2014. Foreigners were seen buying during the conventional auction held on April 2nd amounting Rp2.63 tn while banking and insurance sector bought Rp4.13 tn and Rp1.96 tn respectively during the auction. Foreigner recorded net buy amounting Rp6.23 tn during the period of April 1 – 4 resulting in Foreign ownership of Rp368.12 tn (34.05% of total outstanding of government bond). During the same period, banking sector booked net buy of Rp5,95 tn while insurance sector bought Rp1.92 tn. On the other hand, individuals recorded net sell of Rp6.35 tn. This net sell might occur as retail investor sold their SR006 to either securities houses or banking sector since SR006 can now be traded at the secondary market after a one month holding period.

·         On the corporate bond segment, trading volume was seen rather thin amounting Rp392 bn on Friday’s trading (vs average per day trading volume of Rp750 bn). MYOR04 (Obligasi IV Mayora Indah Tahun 2012; Maturity date: 9 May 2019; Rating: idAA-) was the top actively traded corporate bond yesterday with total trading volume amounting Rp100 bn and was last traded at 91.825 yielding 10.606%.

Rgds,

Maybank FX Research

Global Markets

Maybank