Maybank GM Daily - 9 Apr 2014

FX

Global

·         Overnight sentiments were mildly buoyant, albeit little inspired by data. Dollar remained heavy around 79.80 as we write, weighed by the USD/JPY sell-off on Tue. GBP took advantage of the dollar weakness and was propelled to highs of 1.6750, still trading thereabouts as we write this morning.

·         The GBP/USD spike lifted the pair 150 pips higher, following the release of industrial and manufacturing production data. Industrial production rose 0.9% m/m while manufacturing production rose 1.0% m/m, both coming in higher than market expectations.

·         Earlier in Asia, BOJ maintained its monetary base target of JPY270tn and did not expand its quantity easing program as some had expected. In his press conference, the governor Kuroda reiterated that there was no need to ease at this point in time but was ready to increase stimulus should action be required. He did not elaborate on what the measures would entailed, stating that it was inappropriate to speculate on the measures though there was room for various options.

·         In the day ahead, USD/AXJs are expected to trade with a downside bias as dollar weakness continues to weigh. Optimism in Asia is not likely to help USD/AXJs either. Mar FOMC Minutes is due tonight and is the major event of the day.

G7 Currencies

·         DXY – Settling Lower. The index was dragged by JPY strength when BOJ Kuroda signaled little need for further easing. He was too vague for potential easing measures and some started to cover their short JPY positions. DXY seem to have found tentative base around 79.600 and is back on the uptick. Further bids to meet resistance at 79.920.

·         USD/JPY – Downticks. USD/JPY slipped to a low of 101.55 before a modest rebound to trade around 102.00-level as we write. Strong bearish momentum is indicated by the MACD on the intra-day chart. Price actions for the past few hours suggest that bears may take a breather today. Pair is likely to remain heavy within the 101.55-102.47 today.

·         AUD/USD – Supported. Pair surged on the soggy dollar and steadied around 0.9340. Business confidence deteriorated to a print of 4 in Mar from 7 previously while business conditions improved a tad from 0 to 1. Feb home loans are due today. MACD still shows stronger bullish momentum. Pair needs to get past the 0.9387-resistance for further upsides. Otherwise, expect intra0day action to remain confined within 0.9295-0.9387.

·         EUR/USD – Capped. Pair bounced to a high of 1.3812 before softening under the 1.38-figure as we write in early Asia morning. Prices are now in an area of congestion within 1.3770-1.3818. Momentum indicators still suggest bullish bias and break of the 1.3818-hurdle exposes the next barrier at 1.3847.

Regional FX

·         The SGD NEER trades 0.49% above the implied mid-point of 1.2573. The top end is estimated at 1.2323 and the floor at 1.2823.   USD/SGD – Downside bias still. The USD/SGD is edging higher around 1.2518 this morning after sliding lower yesterday. Risks remain bias to the downside with the pair just off oversold conditions. Moreover, the crossing of the 18-SMA below the 40-SMA suggested further downside ahead with a test below the 1.2500-level likely. Nearby support is at 1.2497 with stronger support at 1.2457 (76.4% Fibo retracement of the Oct-Jan upswing). 1.2560 should curb topside today.

·         AUD/SGD – Downside moves.  The cross is edging lower this morning after yesterday’s bullish spurt. The cross is hovering around 1.1693 currently on the back of AUD weakness. 4-hourly chart is showing bullish momentum dissipating with MACD now at the zero line. Price action could see the cross trade at closer to the lower bound of the 1.1643/1.1732 trading range today.  SGD/MYR – Downside risks.  The cross is once again on the downtick after clawing back higher yesterday to 2.5904. Last sighted at 2.5811, risks are still to the downside with RSI hovering round 30. We expect the cross to trade between 2.5782/2 today.

·         USD/MYR – Downside Momentum. Pair waffled around 3.2290 as we write in Asia morning and we e expect the pair to retain a downside bias. MACD shows increasing bearish momentum. Downtrend established and next bearish target is seen at 3.2200.

·         USD/CNY was fixed lower at 6.1490 (-0.0037), vs. previous 6.1527 (+2.0% upper band limit: 6.2745; -2.0% lower band limit: 6.0284). CNY/MYR was fixed at 0.5241 (-0.0048).

·         USD/CNY – Downside bias. The slump in late Asian trade brought the pairing towards the 6.1930-support. MACD shows increasing bearish momentum and the lower fixing indicates that this support level is likely to be challenged. Next support lies at 6.1737 (25-Mar low). Break of this level establishes downtrend.

·         1-Year CNY NDFs – Heavy. The 1Y NDF remained heavy, weighed by the fixing and was last seen around 6.2190. Momentum indicator shows increasing bearish momentum and next technical support at 6.2165 is at risk. Unexpected upticks to meet barrier at 6.2228. The next 6.2125-support should not be tested.

·         USD/CNH – Heavy. Pair is drifting towards the lower end of the range held since the second half of Mar and was seen around 6.1880. Support for the pair is penciled in at 6.1805 while topsides are guarded at 6.2000. We think trades are likely to lean south given the bearish momentum.

·         USD/IDR – Onshore markets are closed today as Indonesian heads to the polls to elect a new parliament. The 1-month NDF is currently hovering higher at 11305 this morning from 11260 yesterday in thin trading as a result. The JISDOR was set higher at 11309 yesterday from 11282 on Mon Indonesia’s central bank kept its reference, deposit (FASBI) and lending facility rates steady at 7.50%, 5.75% and 7.50% respectively at its meeting yesterday.

·         USD/PHP – Onshore markets are closed for a public holiday. The 1-month NDF is currently little changed at from yesterday’s close of 44.620 with momentum still to the downside and the 1-month just off oversold territory.

·         USD/THB – Limited downside. The USD/THB took out several support levels on its way down to 32.270 yesterday. The pair had a boost from foreign buying with a net THB1.4bn and THB1.5bn of equities and bonds purchased yesterday. Currently, the pair is crawling lower as well at 32.264, though a resurgent dollar currently is likely to limit downside today. As well, rising political temperatures could also keep the THB supported. With our 4-hourly chart still pointing to the downside and with the pair in oversold territory currently, 32.215 should mark the new support ahead of 32.176 while 32.400 acts as barrier today.   Thailand’s NESDB cut its 2014 growth to 3-4% from 4-5% previously after the lack of recovery momentum in Jan and Feb because of the prolonged political impasse. Our economic team is also looking to revised lower their current forecast of 3.25% to 3.00% or below a quick resolution to the current political deadlock by end-1H14 seems unlikely and with the economy still fragile following the Constitutional Court ruling against the THB2t borrowing bill.

Rates

Malaysia

·         Local bond market rallied in response to stronger MYR which strengthened to 3.2400 while steady UST performance during Asian trading hours provided some comfort to the buying mood. Buyers were seen comfortable buying MGS/GII yielding 4.00% and above. At market close, 5, 7, 10 and 15-year benchmark MGS slipped by between 2-3bps to close at 3.58%, 3.99%, 4.09% and 4.47% respectively in an actively traded market.

·         In the rates market, 3 to 10-year tenors dropped ~3bps amidst buying interest in MGS bonds. Right after London hours opened, USDMYR also dropped like a rock. Lower rates were more of recognition of a shift in favor of emerging markets. However, onshore rates were more keen on paying here. We believe this could be players trying to narrow the offshore/onshore spread. 5-year dealt at 3.96% and 3.97% while 4-year dealt at 3.85%.

·         Short papers continued to be in demand. Decent volumes changed hands for 6-month CPs e.g. OLAM and Kapar Energy. Demand is strong for short high grades generally, like Sime Darby 2014 and 2016, Prasarana 2016, Danga 2015 and Rantau 2015. IJM is issued today, with 5-year at 4.60%, 6-year at 4.73% and 7-year at 4.85%; first day of it being issued, the 7-year was traded lower to 4.82%. We believe the rally is short-lived and client should sell into the rally and stay light until there is a clearer direction.

Indonesia

·         RDG meeting decided to maintain its reference rate at 7.50%, lending facility rate and deposit facility rate at 7.50% and 5.75%. The decision is considered consistent with BI’s inflation target of 4.5±1% in 2014. The decision was in line with our economist forecast. Our economist expects that central bank would maintain its current level of BI rate for the rest of the year.

·         Indonesian government held a series of auctions yesterday and received a total of Rp3,576 bn bids versus its target issuance of Rp1.5 tn or oversubscribed by 2.38x. However, only Rp1,560 bn bids were accepted for its 5-mo SPN-S was sold at a weighted average yield of 6.14062%, 7-yr PBS006 at 8.01970%, 13-yr PBS003 at 8.45739% while 30-yr PBS005 was sold at 8.88063%. Incoming bid at yesterday’s auction was slightly higher compared to March 25^th, 2014 sukuk auction amounting Rp3,362 bn and were mostly clustered at 5-mo tenor bill. The. Bid-to-cover ratios on today’s auction came in at 1.15X - 4.41X. No bids were rejected during the sukuk bond auction today. Indonesian government has raised approx. Rp11.46 tn worth of debt through bond auction in 2Q 14 which represents 17.36% of the 2Q 2014 year target of Rp66 tn. On total, Indonesian government has raised approx. Rp188.9 tn worth of debt through domestic and global issuance which represent 51.06% of this year target of Rp370.0 tn.

·         Indonesia bond market extended its gain on the bet that today’s legislative election would be carried out smoothly and quick count result would meet investors’ expectation. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield slightly shifted down to 7.636% (2.2bps), 7.852% (0.5bps), 8.235% (0.1bps) and 8.406% (1.9bps) while 2-yr yield shifted up to 7.335% (1.4bps). Trading volume at secondary market was quite heavy as trading volume amounted Rp13,342 bn (vs average per day trading volume of Rp7,602 bn). SR006 (3-yr) and FR0070 (10-yr benchmark series) was the most tradable bond during the day. SR006 total trading volume amounting Rp3,532 bn with 1,461x transaction frequency and closed at 101.750 yielding 8.071%.while FR0070 total trading volume amounted Rp1,789 bn with 44x transaction frequency and closed at 103.550 yielding 7.852%.

·         On the corporate bond segment, trading volume was seen heavy amounting Rp686 bn on yesterday’s trading (vs average per day trading volume of Rp750 bn). STTP01BCN1 (Shelf registration I Siantar Top Phase I Year 2014; B serial bond; Maturity date: 8 Apr 2017; Rating: idA) was the top actively traded corporate bond yesterday with total trading volume amounting Rp192 bn and was last traded at par yielding 11.4004%.

Rgds,

Maybank FX Research

Global Markets

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