Maybank GM Daily - 2 Apr 2014

FX

Global

·         European session was subdued ahead of ECB rate meeting and the ADP release. Markit US Manufacturing PMI was unexciting with a print of 55.5, unchanged from the ‘flash’ number. The report revealed that output continued to expand, albeit at a slower pace in Mar. Data buoyed overnight sentiments as DJI finished +0.5% higher, S&P at +0.7% and NASDAQ at +1.6%.

·         Earlier on Tue, China’s Mar HSBC PMI-mfg softened to 48.0, increasing the pressure on the government for growth stimulus. Thailand CPI firmed to 2.11% y/y in Mar from the previous 1.96%. Indonesia also released its Mar inflation. CPI eased to 7.32% from 7.75% in Feb, in line with expectations. Trade balance swung into positive but the surplus was due to a drop in imports in Feb. Exports steadied with a mild growth of 4.61%.

·         The ADP release tonight is the major risk event to watch for. Some apprehension over the number could keep investors on the sidelines. Dollar remains in tight swivels within 79.92-80.30 as players continue to digest Fed Chair Yellen’s dovish words on Mon. The greenback would need strong employment numbers for a lift.

·         Hot from the wires, an 8.0 earthquake hit Chile, setting off tsunami risks in the region.

·         That should not have much impact on Asia however. USD/AXJs could trade on the backfoot, given dollar weakness and mild hopes of China stimulus. Moreover, eyes are on ADP release tonight. Singapore’s PMI numbers are due tonight.

G7 Currencies

·         DXY – Tight Swivels. Overnight trade was uninspiring as the index remained within the narrow 79.92-80.30 band. Momentum indicators suggest that bias is still slightly to the downside. However, we reckon there is little directional clue until the release of the ADP and NFP report. Sideway gyrations to continue within this range.

·         USD/JPY – Supported. Pair rode on the buoyant overnight sentiment, break above the 103.44 and is testing the 103.70-resistance level at the moment. Intra-day chart shows a slight deceleration in bullish momentum. Hence, we cannot rule out a slight detraction from its current uptrend. Support is seen at 103.16 while 103.70 marks the first resistance ahead of the next at 104.36.

·         AUD/USD – Still Supported. Pairing drifted lower on Tue and was seen around 0.9240, as we write. Feb building approvals weighed with a slide of -5.0%m/m compared to 6.9% in the month prior. Pace of growth slowed to 23.2%y/y from the previous 34.6%. RBA left rates unchanged on Tue and did not comment much on the exchange rate. Pair is now at the lower bound of the 0.9218-0.9300 range. Break of the lower bound exposes the next support level at 0.9147.

·         EUR/USD – Resilience. Pair bounced above the 1.38-figure before softening a touch below the level in early Asian trade. Gyrations should continue with an upside bias. First support is seen at 1.3763 while topsides are guarded by 1.3818. Break on either side exposes 1.3725 and 1.3847 respectively. ECB Vice President Vitor Constancio said economic recovery will lift inflation despite the decline in price pressures in Mar. He also stated that the Mar numbers indicate a bottom and growth will spur a rebound.

Regional FX

·         The SGD NEER trades 0.34% above the implied mid-point of 1.2644. We estimate the top end at 1.2392 and the floor at 1.2896.   USD/SGD – Still rangy.  The USD/SGD remains in range-bound trade this morning ahead of the MAS bi-annual policy meeting mid-Apr (date yet to be announced). The pair is currently hovering just above the 1.2600-level with little momentum in either direction as indicated by our 4-hourly chart. Upside should be capped by 1.2615 today, while 1.2560 continues to provide support ahead of 1.2529 (61.8% Fib retracement from the Oct-Jan upswing).  Singapore’s Mar PMI is on tap today and market is expecting overall and electronics PMI to move slightly higher to 51.1 and 51.6 vs. 50.9 and 51.2 in Feb.

·         AUD/SGD – Downside risks.  The cross is currently hovering around 1.1643 (our support yesterday) after rebounding from the morning’s low of 1.1621. Continued weakness in the AUD should weigh on the cross with new support now at 1.1608. 1.1681 should cap upside today.  SGD/MYR – Range-bound.  The cross is retracing some of its losses from yesterday on the back of MYR weakness this morning. Hovering higher around 2.5940 at last sight, there is little directional cues with MACD at the zero line. Range-bound trade between 2.5864/2.5974 is likely, though the cross could trade closer to the upper end of the bound today.

·         USD/MYR – Rebound. Pair rebounded this morning and was within striking distance of the 3.27-figure. The 3.2725-resistance marks the interim barrier for bullish resurgence while 3.2590 slows offers. Bids are likely to meet less resistance today with next barrier seen at 3.2830. Momentum indicators show less bearish pressure. 1-month NDF was also on the upmove this morning, extending its climb from Tue. The pair was last sighted at round 3.2752. signaling more upmove for spot prices. MACD shows increasing bullish momentum.

·         USD/CNY was fixed lower at 6.1493 (-0.0010), vs. previous 6.1503 (+2.0% upper band limit: 6.2748; -2.0% lower band limit: 6.0287). CNY/MYR was fixed at 0.5288 (+0.0014).

·         USD/CNY – Turning Bearish. Spot slipped along with the lower fixing and was last seen around 6.2050. Pair is rather resilient to the rather dismal HSBC PMI-mfg number for Mar. We expect the pair to remain in sideway gyrations, with upsides well guarded by 6.2110/6.2340. Intra-day offers could be slowed by 6.1902. China’s Local press reported possible expansion of QFII and RQFII quotas (CSJ). This would not come as a surprise to many as Beijing presses on CNY internationalization. Expanding QFII and RQFII quotas are considered one of the lower hanging grapes in the quest to loosen capital controls.

·         1-Year CNY NDFs – Tilting Lower. The 1Y NDF is on the downtick to around 6.2225. Pair is near the next support level seen around 6.2200. MACD shows increasing bearish momentum and risks heading towards the next technical support at 6.2030.

·         USD/CNH – Bearish Tone. Pair also made strong pullback under the 6.20, in line with onshore peers. Bearish tone dominates now and could bring the pair towards next support at 6.1928.

·         USD/IDR – Bearish tilt. The USD/IDR failed to close below the 11300-level yesterday amid concerns about exports. This morning the pair wobbling around 11313 with risks still to the downside but waning. There could also be some volatility ahead of parliamentary elections on 9 Apr. We need to see a sustained break of the 11300-level to expose the next support at 11275. 11340 continues to act as immediate barrier before 11400. The 1-month NDF closed below the 11300-level at 11280 yesterday but is back above the 11300-level at 11330 this morning.  MACD has flipped and is now showing mild bullish momentum. The JISDOR was fixed lower on Tue at 11271 following Mon’s public holiday.   Indonesia’s Mar CPI moderated to 7.32% y/y vs. Feb’s 7.35%, helped by slower food price increases. Core inflation however continued to accelerate, rising 4.61% y/y in Mar from 4.57% in Feb. Feb trade data was mixed with exports dipping 3.0% y/y and imports a steeper 10.0% y/y, even as the trade balance returned to a surplus of USD785mn vs. the USD443.9mn deficit in Jan.

·         USD/PHP – Rangy with upward bias.  The USD/PHP closed below our 44.700-support level yesterday but back on the uptick this morning. The pair is currently sighted at 44.760 with little directional clarity as indicated by MACD forest. We expect the pair to trade range-bound as a result within the confines of 44.600/44.916 with bias tilted to the upside. However, the PHP could find some support from foreign funds purchases, who bought a net USD6.2mn in equities yesterday. The 1-month NDF is inching higher this morning at 44.790 from yesterday’s close of 44.740 with momentum starting to tilt to the upside.

·         USD/THB – Range-bound. The USD/THB was pushed lower yesterday below our barrier at 32.400 on the back of improving risk appetite. Foreign funds purchased a net THB1.1bn and THB7.5bn in equities and bonds yesterday. Since then, the pair has been range-bound between 32.308/32.400 and should continue for the rest of the day. The pair is currently hovering higher around 32.362 at last sight, though risks remain to the downside. The protracted political crisis continues to keep the pair supported.  Thailand’s CPI continued to accelerate to 2.2% y/y in Mar from 1.96% in Feb, underpinned by higher food and fuel prices. Our economic team believes that there are upside to their 2.0% inflation forecast for 2014 because of constraints on the caretaker government to extend price controls and subsidies, weakness in the THB and possible food prices as a result of adverse weather.

Rates

Malaysia

·         Local government bond yields ended almost unchanged from previous close. MYR strengthened to 3.2570 from 3.2640/70 at previous close might have boosted mild buying but price gain was capped by profit taking activity ahead of US nonfarm payroll this Friday. In addition, the upcoming supply of 15-year GII, 5.5-year MGS and 7-year SPK may have somewhat weighed on the market. At market close, 15-year benchmark MGS eased 1bp to 4.49% while other benchmarks ended unchanged.

·         The IRS curve quoted 1bp lower today without any action. We still advocate receive IRS as 5-year closes to 4% and stay received even through nonfarm payroll. We think a push beyond this level would likely be shortlived unless there is significant MGS selloff significantly or an imminent rate hike of more than 25bp.

·         The PDS market’s focus remains on the short-end papers, with the same names being transacted like Cagamas and Putrajaya. IJM closed its book today with 5-year at 4.60%, 6-year at 4.73%, and 7-year at 4.85%.

Indonesia

·         Indonesia bureau of statistics published several key economic data which came out to be better than market consensus. Indonesia’s export slightly inclines by 0.68% m-o-m in February 2014 to US$14.57 bn backed by an increase of Oil and Gas segment which recorded US$2.66 bn in export. On the other hand, Indonesia import slumped by 7.58% m-o-m in February 2014 to US$13.79 bn contributed mostly by a decline in oil and gas segment as oil and gas import value decline to US$3.46 bn. Indonesia trade balance recorded surplus of US$785 mn in February 2014 as a result of sharper import value slump compared to the decline in export value particularly by a sharp surplus in the non oil and gas balance. March 2014 headline CPI came in at 7.32% y-o-y or 0.08% m-o-m was mainly derived by adequate supply following harvest season in April, reflected by declining volatile foods inflation. Core CPI slightly rose to 4.61% y-o-y from 4.57% y-o-y in the previous month due to soaring motor vehicles and electronic devices prices’ as an impact of rupiah depreciation in 2013.

·         DMO to conduct conventional bond today with total indicative auctioned amounting Rp8 tn. Five series to be auctioned this week are SPN03140703 (Coupon: discounted; Maturity: 3 July 2014), SPN12150403 (Coupon: discounted; Maturity: 3 Apr 2015), FR0069 (Coupon: 7.875%; Maturity: 15 April 2019), FR0070 (Coupon: 8.375%; Maturity: 15 March 2024) and FR0068 (Coupon: 8.375%; Maturity: 15 March 2034). Our indicative yield for certain series are as follows FR0069 (range: 7.600% – 7.750%), FR0070 (range: 7.800% – 7.950%) and FR0068 (range: 8.350% – 8.500%).

·         Indonesia bond market rallied on the note of better March CPI and February trade balance result. Yield curve bull flattening as 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield shifted down to 7.664% (4.4bps), 7.864% (18.1bps), 8.244% (21.6bps) and 8.440% (12.5bps) while 2-yr yield shifted down to 7.307% (4.8bps). Trading volume at secondary market remains heavy amounting Rp17,072 bn (vs average per day trading volume of Rp7,602 bn). FR0070 (10-yr benchmark series) and FR0069 (5-yr benchmark series) was the most tradable bond during the day. FR0070 total trading volume amounting Rp4,359 bn with 117x transaction frequency and closed at 103.475 yielding 7.864% while FR0069 total trading volume amounting Rp2,788 bn with 58x transaction frequency and closed at 100.865 yielding 7.664%.

·         On the corporate bond segment, trading volume was seen heavy with total trading volume amounting Rp1,198 bn (vs average per day trading volume of Rp750 bn). PPLN11B (PLN XI Year 2010; B serial bond; Maturity date: 12 Jan 20; Rating: idAAA) was the top actively traded corporate bond yesterday with total trading volume amounting Rp330 bn.

Rgds,

Maybank FX Research

Global Markets

Maybank