Maybank GM Daily - 21 Jan 2015

FX

Global

US/EU equities managed to closed on a positive note overnight, despite IMF cutting its 2015 growth forecast. Broad USD strength across most currencies overnight as market awaits BoJ (today) and ECB (Thu). While it is widely-expected that BoJ is likely to stand pat, there are increased talks of cut to interest on excess reserves (IOER currently at +25bps). USD/JPY rose to 5-day high of 118.87 overnight; EUR, AUD, NZD, CAD were all weaker against the USD. Renewed weakness in oil prices on IMF cut to global growth outlook and Iran suggesting that crude could fall to $25/bbl. Gold up to 4.5-month high of $1,297.        In overnight news, IMF lowered its 2015 global economic growth forecast to 3.5%, from 3.8%.  IMF advised advanced economies to maintain accommodative monetary policies to avoid increasing real interest rates as cheaper oil heightens the risk of deflation. Earlier this morning, NZ 4Q CPI came in weaker than expected (-0.2% q/q vs. 0% Cons.), taking NZZ lower.        Day ahead in Asia focus on BoJ policy statement, BoJ Kuroda speech and Malaysia CPI. For Europe, EC IP; FR, IR CPI; and FR current account as well as UK ILO Employment rate, BoE Minutes are due for release. For US, MBA new mortgage applications, building permits/housing starts data are on tap. US strength likely to stay supported, against most AXJs and majors.

G7 Currencies

DXY – Consolidation. USD bulls took charge overnight as IMF growth forecast favored a strong US growth outlook (lifted 2015 forecast to +3.6% from +3.1%) while cutting global growth outlook. Bearish EUR bets off the back of ECB QE hopes and bearish JPY off the back of IOER cut speculation also supported the greenback. Meanwhile NAHB index of homebuilder sentiment eased slightly, albeit still at multi-year highs.  Day ahead brings MBA new mortgage applications, building permits/housing starts data. USD likely to stay supported ahead of BoJ (today) and ECB (Thu). We have previously indicated a daily close above 92.50-75 levels could see an extended move higher, and this has now taken place.        USD/JPY – Consolidating Still. The USD/JPY is retreating after being on the uptick over the past two sessions, dragged down by global growth concerns and dips in domestic equities. Pair is currently hovering around 118.66 at last sight with intraday MACD and slow stochastics still showing bullish momentum. BOJ policy decision later this morning will be eyed, though no surprises are expected. Post-meeting press conference by the governor could reveal greater insights into any changes to the 2% inflation target and further easing measures. Look for the pair to re-test the 119-figure today. Support is seen around 117.55.        AUD/USD – Range-bound. AUD traded lower towards 0.8160 as IMF cut global growth outlook overnight, erasing earlier gains due to better than expected China data yesterday.  Intra-day range of 0.81 – 0.82 expected ahead of much-awaited ECB meeting tomorrow. 4-hourly momentum is bearish bias; stochastics are falling. Westpac consumer confidence was stronger than expected this morning. No data for release in Australia this week.        EUR/USD – Fade Rallies. The pair traded lower towards 1.1540 lows as market positioning-trade for ECB QE takes hold ahead of ECB meeting (Thu). German ZEW released yesterday surprised to the upside but only to be met with selling pressure. Greece elections (Sun) is also likely to weigh on the EUR as Euroskeptics Syriza party seems to extend its lead in polls ahead of Sun election. Day ahead EC IP; FR, IR CPI; and FR current account. Intra-day range of 1.1450 – 1.16 expected.        EUR/SGD – Range. EUR/SGD traded 1.5440-1.5540 range yesterday as market awaits ECB decision on Thu. Likely to trade within recent ranges with mild upside bias. Daily stochastics is now rising from oversold levels. 1.54 – 1.56 range expected intra-day.

Regional FX

       The SGD NEER trades at 0.77% below the implied mid-point of 1.3284 with the top end estimated at 1.3017 and the floor at 1.3552.

       USD/SGD – Consolidating Higher. The USD/SGD briefly broke above the 1.34-levels yesterday before retreating, but continued to consolidate higher. This morning, the pair is fast approaching the 1.34-level, currently hovering around 1.3997, and break of this level is likely. With momentum still bias to the upside as shown by intraday MACD, a firm break of the 1.34-level would expose immediate barrier around 1.3412 (yesterday’s high) ahead of the stronger barrier around 1.3450. Support is seen around 1.3275 today.

       AUD/SGD – Sideways. The AUD/SGD is back on the uptick after retreating from yesterday’s high of 1.0995, lifted by the relative weakness in the SGD.  Cross is currently sighted around 1.0936 with intraday momentum indicators showing little directional clarity. Look for the cross to trade sideways within 1.0780-1.1060 today.

       SGD/MYR – Upside Bias. The SGD/MYR gapped higher this morning to 2.7009 from yesterday’s close of 2.6973 on the back of MYR weakness. The cross continues to edge higher to hit a new multi-year high this morning of 2.7050. With USD/MYR expected to edge even higher today, look for further upmoves in the cross with new hurdle likely around 2.7065. Dips today are likely to see support around 2.6850. Watch for possible intervention to cap SGD/MYR upside. 

       USD/MYR – Upside bias. Pair was lifted above 3.60 as market digests PM Najib’s statement and BNM Zeti’s comments yesterday. Fitch comments on “more likely than not” to downgrade Malaysia rating, and falling oil prices also weigh on the Ringgit. While budget deficit forecast for 2015 was revised to 3.2% to GDP from 3%; fears that fiscal consolidation efforts being shelved, resolution to 1MDB; soft oil prices and repercussions as well as rating downgrade will continue to weigh on the ringgit. We have highlighted in our note on 14 Jan that we expect USD/MYR to trade higher towards 3.70 for 1Q on those above-mentioned concerns.  Expect the pair to remain supported on those reasons amid ECB QE (weak EUR) and strong USD trend. Spot traded 3.6245; 1s NDF nearly traded 3.6400 this morning. Intraday spot range 3.6050 – 3.64 expected. MACD and Stoch are also supportive for upside. Malaysia CPI on tap today.

       USD/CNY was fixed at 6.1268 (+0.0042) vs. previous 6.1226 (+2.0% upper band limit: 6.2518; -2.0% lower band limit: 6.0067). CNY/MYR was fixed at 0.5872 (+0.0071). USD/CNH – Range. USD/CNH traded a touch lower towards 6.2160 on better than expected data yesterday, but broad USD strength took the pair back above 6.2200 levels this morning. There were talks of PBoC injecting liquidity via Medium Term Lending Facility for 3 months yesterday. Expect possible tightening of liquidity (seasonal) as Chinese New Year approaches. This could even fan speculation of imminent rate cut. Competitive global monetary easing, china rate cut expectations, ongoing growth concerns will continue to drive mild CNY weakness in the near term. Expect 6.21 – 6.24 intra-day range.

       USD/IDR – Gapped Lower. The USD/IDR gapped lower this morning to 12549 from yesterday’s close of 12576, but has rebounded slightly to around 12560 currently, helped by improving sentiments on BI’s expectations of lower inflation (3-5%) in 2015 as well as the instatement of direct local elections by parliament. With intraday MACD and slow stockhastics now bias to the downside, further downmoves is likely today. Trades within 12480-12650 are likely today. Foreign funds sold a net USD26.72mn in equities yesterday and removed a net IDR0.12tn from their outstanding holding of debt yesterday. The 1-month NDF slid to 12620 this morning with intraday MACD now showing bearish momentum. The JISDOR was fixed higher at 12659 on Tue from Mon’s 12612 and could be fixed lower today given the spot’s drift lower this morning.

       USD/PHP – Supported. The USD/PHP is on the slid this morning, hovering around 44.559 at last, helped by a softer dollar tone.  On the intraday chart, pair has lost most of its bearish momentum, suggesting further dips could be limited today. Price action today should see the pair supported on the downside by 44.500 still and upticks capped by 44.750. The 1-month NDF slipped to 44.620 this morning with intraday MACD still showing bearish momentum.

       USD/THB – Upside Bias.  The USD/THB continues on its slow grind higher this morning underpinned again by a firmer dollar. Sighted around 32.740, intraday chart is showing the bias still to the upside. With our resistance level at 32.720 taken out yesterday, new barrier is now seen around 32.810 ahead of 32.965. Key risk remains the impeachment vote against former PM Yingluck on Fri with the breakout of protests over the verdict could see the pair head towards 32.965. Foreign funds in Thai assets were mixed yesterday with a net THB819.39mn in equities sold but a net THB549.82mn in debt purchased.

Rates

Malaysia

Local government bond market had a volatile trading session. The national budget revision delivered during the morning trade session left bond levels unchanged as players felt the revision was not as bad as expected. However, Fitch released negatively biased comments on the sovereign rating in the late afternoon which resulted in bond prices falling as players sold on panic, especially on the 7y GII 7/22.        IRS at the 2y and 5y points traded at 3.78% and 3.89% respectively. In general, onshore dealers preferred to receive IRS. Although offshore levels traded higher, onshore payers were reluctant to pay higher. 3M KLIBOR remained at 3.86%.        In the local PDS space, buying interest increased after the Prime Minister reassured the market not to panic on the revised fiscal deficit. Buying was mostly focused on GG and AAA names in the 7-10y bucket. Plus 2024 and Telekom 2024 traded in the 4.60%-4.65% range. Near day-end, Fitch commented that they are "more likely than not" to downgrade Malaysia’s rating. We might see a pause in buying interest and investors would likely adopt a wait-and-see approach for the coming days.

Singapore

      SGS yields from the front end to the belly of the curve rose at a slightly faster rate of 5-7bps compared to 4-5bps at the longer end. SGS appears to be giving back gains from last week’s rally.

       For Asian credits, State Grid Europe Development (guaranteed by State Grid International Development Ltd with a keepwell agreement from State Grid Corporation of China) issued 7y and 12y EUR bonds at MS+110bps and MS+170bps respectively. The market traded better, especially after China posted better-than-estimate GDP data. Investment grades and high yields traded tighter, with new issues like Huarong and Shenghua trading almost 5bps tighter. Phillip and Indon sovereign continued to trade well. We also saw investors buying up Malaysian name like RHB and AmBank.

Indonesia

      Bond prices rallied again. This time, surprising massive incoming during the auction along with low WAY awarded have made flows which were rejected during auction might have entered through secondary market with an aggressive move. Incoming bids during auction posted the highest record of all time (highest since 26 Jan 2012 with incoming bids worth of Rp50.13 tn), WAY were lower by approx. 50 bps while awarded nominal won was higher by 44.2% compared to previous conventional auction (Jan 6th, 2015). What happened and how to explain such huge demand? In our view, we see that India reference rate cut to 7.75% along with high yield among its region peers (excl. India) has made IGS look very attractive. Active bank traders and investment managers post new year holiday have also supported the massive demand during the auction. Global investor might also avoid entering bond market of oil exporter countries due to lower oil prices. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 7.487%, 7.645%, 7.992% and 8.089% while 2y yield shifts down to 7.320%. Government bond traded with a heavy volume at secondary market amounting Rp24,910 bn with FR0068 (20y benchmark series) as the most tradable bond. FR0068 total trading volume amounting Rp9,267 bn with 239x transaction frequency and closed at 102.745 yielding 8.089%.

       Indonesian government conducted their weekly auctions yesterday and received unpredictable incoming bids of Rp54.79 tn bids versus its target issuance of Rp12.00 tn or oversubscribed by 4.6x. However, only Rp17.30 tn bids were accepted for its 1y SPN was sold at a weighted average yield of 6.44242%, 10y FR0070 at 7.47718% while 20y FR0068 was sold at 7.92764%. Incoming bids were distributed evenly among the auctioned assets. Bid-to-cover ratio during auction came in at 2.45X – 5.83X. No bids were rejected during the auction. Till the date of this report, Indonesian government has raised approx. Rp36.17 tn worth of debt through bond auction in 1Q 15 which represents 46.1% of the 1Q 15 target of Rp78.50 tn. On total, Indonesian government has raised approx. Rp89.73 tn worth of debt through domestic and global issuance which represent 19.5% of this year target of Rp460 tn. Assuming that if Indonesia government issues Rp2.00 tn during every sukuk auction in 1Q 15 then the Government needs to issue Rp6.47 tn per conventional auction (5 upcoming conventional auction in 1Q 15) to meet their target of Rp78.50 tn.

       Corporate bond trading traded moderate amounting Rp624 bn. BSLT05 (Bank Sulut V Year 2014; Rating: A(idn)) was the top actively traded corporate bond with total trading volume amounted Rp66 bn yielding 10.617%..