Maybank GM Daily - 5 Jan 2015

FX

Global

Happy 2015! The 3D environment is in play – Dollarisation, Divergence, and Disinflation. We expect higher volatility to continue against a backdrop of softer global growth, wider policy divergence and expectation of rate hike intensifying. In particular towards end-Jan, we see heightened volatility on key event risks that include first ECB meeting on 22 Jan which markets are looking for hints/action of ECB easing, SNB will also impose a  negative deposit rate on that date, China GDP is also due for release in the early part of that week. US FOMC meeting will take place the following week over 28-29 Jan 2015.        Dollar strength in 2014 continued into the new year as DXY hit a 9-year high of 91.55 this morning; USD/JPY stayed comfortably above 120-handle while EUR/USD sank to its weakest level at around 1.1864 since Mar 2006, AUD/USD at 5.5-year low of 0.8053. For AXJs, MYR was the worst performing currency in 2014, falling by about 6.2% against the greenback on rapid declining oil prices. SGD is at its weakest levels against the USD since Sep 2010 at around 1.3350s.        For the week key data releases we are watching include German CPI (+0.3% Cons.), Singapore PMI (51.8 prior) on Mon; HSBC China PMI (51.1 prior) on Tue; EMU HICP (Cons.), Malaysia and US Nov trade data, US FOMC minutes from the Dec meeting on Wed; China trade data, UK BoE MPC meeting on Thu; and China CPI, PPI, Malaysia, German and UK IP as well as US NFP (Cons.) on Fri. China trade data is due for release on Sat.

G7 Currencies

DXY – Uptrend remains intact. USD started the year on a strong note, pushing to levels not seen since Dec 2005 of 91.55 early this morning. Bullish momentum remains intact but stochastics are showing tentative signs of falling from overbought levels which could suggest some pullback throughout the day. Hard to go against the USD bull trend; favor buying USD dips. Fed’s Kocherlakota and William are due to speak at separate event later today. No key data for release.        USD/JPY – Rangy. The USD/JPY continues to hover around the 120-figure for the past two weeks, currently sighted around 120-figure. Pair is feeling the heat from euro weakness, which is offsetting pull of the dollar resurgence. Daily MACD forest is showing only mild bearish momentum for the week ahead, while stochastics are still indicating overbought conditions. Still, dollar strength ahead as well as possibility of further measures by the BOJ to meet its 2% inflation goal around FY2015 is likely to keep downswings in check. We could continue to expect the pair to trade range-bound within the confines of 117.30-122.20 for the week ahead.        AUD/USD – Fade Rallies. AUD/USD remained under pressure, trade to a low of 0.8053 this morning tracking the large decline in EUR. Key data on tap this week include trade data, building approvals and retail sales. Fade rallies remain the name of the game but possible short-term bounce towards 0.8120 intra-day looks likely. Hourly momentum and stochastics are pointing to some near term upside. Support seen around 0.80 psychological level.        EUR/USD –Fade Rallies if Any. EUR/USD opened the new year at about 1.21 levels last Fri and continue to trade heavily towards low of 1.1864 this morning. Momentum continues to be bearish but the sharp sell-off could find some interim support around 1.1860 levels (Mar 2006 low). Slow stochastics are showing tentative signs of turning higher from oversold levels.  Day ahead brings German CPI. We continue to hold a core bearish view of EUR/USD, but caution for a potential rebound towards 1.20, which presents opportunity to fade into. Taking stock of some key data and ECB talk recently, Italy and France PMI released last week continued to be weak and ECB’s Draghi had also commented that he can’t rule out deflation in the area and the ECB is in technical preparations to alter the size, speed and composition of their measures at the beginning of 2015, should they become necessary to react to long period of low inflation.

       EUR/SGD – Fade Rallies. EURSGD traded a low of 1.5794 this morning on the EUR collapse to 1.1864. Bearish momentum as indicated on the MACD. But near term, oscillators are indicating tentative signs of an upturn, from oversold levels. Bounce is likely to re-visit 1.6020 levels which could be a good level to fade into. Downside support seen around 1.5830. Day ahead brings SG PMI and German CPI.

Regional FX

       The SGD NEER trades at 0.70% below the implied mid-point of 1.3233. The top end is estimated at 1.2967 and the floor at 1.3500.

       USD/SGD – Overbought. The USD/SGD rally continues after the pair broke above the 1.33-level on Fri following weak flash 4Q14 GDP print (1.5% y/y vs. 3Q: 2.8%) and continued dollar strength. Pair was last sighted around 1.3326 with stochastics showing overbought conditions. Continued dollar strength amid weakness in the euro should keep the pair elevated in the week ahead with further upticks likely to meet resistance around 1.3390, while downticks are likely to be guarded by 1.3255.

       AUD/SGD – Range-Bound. After drifting lower since mid-Nov 2014, the AUD/SGD has seen some relief recently and is bouncing higher on the back of a slight uptick in the AUD and weakness in the SGD. Cross is currently sighted around 1.0786 with daily MACD forest showing little directional momentum in either direction, suggesting rangy trades ahead. Further upmoves could see topside curbed by 1.098, while dips are likely to see support around 1.062 (17 Dec 2014 low).

       SGD/MYR – Still Consolidating. Since hitting a recent high of 2.6802 on 17 Dec 2014, the SGD/MYR has been in consolidative trades within 2.6345-2.6600. Sighted lower currently around 2.6453, momentum indicators are showing little directional impetus ahead. Look for the cross to remain in consolidative trades in the week ahead, though the bias remains to the upside given the continued weakness in the USD/MYR. 

       USD/MYR – Slow Grind Higher. USD/MYR maintained its bid tone on USD strength and soft oil prices. Ringgit weakness could continue to persist in the medium to longer term as weak drivers (vulnerable to foreign fund outflows, macroeconomic challenges) remain intact. Last week, there were talks of a Circular that the government has directed all government-owned companies, statutory bodies and subsidiaries to stop buying foreign assets. This can be seen as an attempt to stem fund outflows. This morning spot traded high of 3.5280. 1s NDF traded around 3.5420 levels this morning. USD/MYR could stay within range 3.51 – 3.54 intra-day.

       USD/CNY was fixed at 6.1248 (+0.0058), vs. previous 6.1190 (+2.0% upper band limit: 6.2498; -2.0% lower band limit: 6.0047). CNY/MYR was fixed at 0.5710 (+0.0037). USD/CNY – Upside bias. In the past week or so, USD/CNY had traded a high of 6.1530 on 30 Dec, before easing to 6.20 levels, on regulatory changes to FX NOP. SAFE Notice 53 was announced on 30 Dec that FX NOP will be delinked from FX LDR ratios. This is to allow for more flexibility around how banks manage their foreign currency lending books. A slew of China data is scattered throughout the week with focus on HSBC PMI on Tue, CPI and PPI on Fri and trade data on Sat. Intra-day see greater swings; still expect upside bias and likely to trade within 6.21 – 6.24 range.

       1-Year CNY NDFs – Range. 1-yr NDF eased from 6.37 (30 Dec) towards 6.3380 this morning.. MACD suggests mild bearishness and stochastics are falling, suggesting some downside bias. 6.32 – 6.35 range likely to be in play intra-day.  

       USD/IDR – Edging Higher. The USD/IDR has been on the rise after CPI released on Fri showed headline inflation rising 8.36% y/y in Dec, up from 6.23% in Nov. Furthermore, the announcement of changes to the fuel price subsidies, while positive for the budget deficit and infrastructure spending, could lift inflation even higher in the near term (fuel subsidies for gasoline scrapped while those for diesel fixed at IDR1000 per litre effective 1 Jan). Moreover, weak exports in Nov (-14.57% y/y) did not helped. Pair is currently sighted around 12585 with daily MACD showing waning bearish momentum. Immediate resistance is seen around 12650 ahead of the stronger barrier at 12700 while support is around 12425 this week. Last week, foreign funds sold a net USD3.57bn in equities, but bought a net IDR1.25tn between 29-31 Dec. Soft risk appetite this week could see mixed purchases of Indonesian assets again, which could the pair elevated ahead. The 1-month NDF edged closer to the 12700-levels this morning, sighted currently at 12690 with daily MACD forest showing waning bearish momentum though stochastics are showing oversold conditions. The JISDOR was fixed higher at 12474 on Fri to end the week, up from 12434 at the start of that week. A higher fixing is likely today given the spot’s move higher this morning.

       USD/PHP – Upside Bias. The USD/PHP is edging closer to the 45-figure on the back of dollar strength. Pair is currently seen around 44.943 with MACD showing bullish momentum though the pair is overstretched. Continued dollar strength should keep the bias to the upside this week. Further upticks this week is likely to meet resistance around 44.050, while downside moves are likely to be capped by 44.700. Foreign funds sold a net USD4.6mn in equities last week, and the selling could continue this week given mixed risk sentiments, which could help lift the pair. The 1-month NDF is edging higher this morning, currently sighted around 45.070, with daily MACD showing bullish momentum though it is currently overstretched. CPI data for Dec is due on 6 Dec and market is expecting headline inflation to ease to 2.8% y/y vs. 3.7% in Nov.

       USD/THB – Sideways.  The USD/THB continues to test the 33-figure, currently sighted just a tad off that level at 32.990. There does not seem to be much momentum to push the pair in either direction in the week ahead as indicated by our daily charts, suggesting that range-bound trading is likely for the week ahead. Still continued dollar strength ahead could see the pair re-test the 33-figure, though the pair is likely to trade well-within its current trading range of 32.720-33.150 for now. The last trading day of 2015 saw foreign funds sell a net THB.15bn in equities, but bought a net THB0.17bn in debt. Weak risks sentiments ahead could see mixed results for Thai assets in the week ahead, providing little directional momentum for the pair. CPI data for Dec is due later today and our economic team is looking for inflation to ease to 1.0% y/y while market is expecting 1.10% y/y in Dec compared to 1.26% in Nov.

Rates

Malaysia

      Local government bond market had a choppy start to the new year last Friday as bonds remained volatile on USDMYR reaching new highs. Yields on the 7y MGS 9/21 and 10y MGS 7/24 rose 3bps and 5bps respectively, while the 15y MGS 4/30 gapped 9bps lower on thin trades.

       IRS market saw paying interest emerge as spot weakened further. 7y IRS traded at 4.14%. A foreign bank appears to have a paying flow in the 7y tenor. There is still uncertainty in the market, but with 3M KLIBOR still elevated (unchanged at 3.86%), the spreads between IRS and 3M KLIBOR still look tight. 

       Local PDS market also had a very quiet first trading session of the year. Overall, very few offers and bids were seen despite the slight pick-up in MGS trading activity. In the AAA space, however, we saw Aman 5/19 initially offered at 4.05% before being traded around at its MTM levels at 4.19% with trading volume at MYR55m. This represents a 37bps spread from the benchmark MGS which is too tight for our liking at the moment. We also saw some potential crosses, while no GGs were traded. We hope that liquidity will return this week, but there is a risk that investors would remain on the sidelines due to tight spreads.

Singapore

      SGS market opened the year with some buying interest in the shorter end of the curve, but selling interest eventually dominated the rest of the day. Last Friday ended with SGS underperforming, closing about 2-5bps weaker than previous close, and SGD IRS up 2bps. SGD funding rate continued to tighten in the longer end of the curve which is somewhat causing SGS to remain soft. Rates are threatening to go up as the market looks for more indication on whether it will be near term (1-3 months) or later. We are looking to start the year by remaining slightly more neutral.

       Asian credits started off the new year on a quiet tone as most investors were still on holiday. Last Friday’s highlight was the high yield (HY) Kaisa when it defaulted on its HKD400m HSBC loan, with news reporting it was due to the chairman’s resignation, resulting in the company having to assess any potential cross-defaults. This led to a free fall of the stocks across the board with its curve down 25-30pts. The rest of the HY Chinese property names were also dragged lower with quotes down about 1pt. We saw some buying on investment grades, especially names like CHIOLI and DALWAN as they open new books for the year. We expect to see more activity this week with the market likely back in full force.

Indonesia

      Indonesia bond market closed with a positive tone on the first trading day of 2015 amid weakening IDR and unfavourable economic data. During the opening of the day, local banks were seen aggressively buying the 10y benchmark series IGS. As a result, 10y IGS yield was seen touching the 7.68%. New fuel scheme announced by Indonesia government has been the motivation behind the aggressive purchase during morning opening. The newly adopted fuel scheme has made gasoline price to reach Rp7,600 per litre (previous: Rp8,500 per litre) and diesel price to reach Rp7,250 per litre (previous: Rp7,500 per litre). At current point, Indonesia government sets fixed fuel scheme of Rp1,000 per litre for diesel prices while leaving gasoline prices fluctuate accordance to market price. However, post economic data release by Indonesia statistic, bond prices started to decline as December inflation and November trade balance were higher compared to economist consensus. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 7.687% (-2.8bps), 7.808% (+0.5bps), 8.127% (-4.4bps) and 8.281% (-1.4bps) while 2-yr yield shifts down to 7.478% (-1.5bps). Government bond traded thin at secondary market amounting Rp5,098 bn with FR0070 (10-yr benchmark series) as the most tradable bond. FR0070 total trading volume amounting Rp1,945 bn with 25x transaction frequency and closed at 103.648 yielding 7.808%.

       December inflation reached 8.36% yoy or 2.46% mom. This is the highest figure within 2014. The high inflation number occurred as Indonesia government increased subsidized fuel price in the month of November. However, deflation may occur this month as Indonesia government applied a new fuel scheme at the end of last year. Administered prices, transportation cost including gasoline and public transportation tariff and electricity hike contributed the most towards the December headline inflation. December core inflation reached 4.93% yoy.

       November trade balance came in deficit of US$426 mn compared to a small surplus of US$23 mn in a month earlier. The deficit occurred as oil and gas deficit widens to US$1.4 bn along with declining non oil and gas trade surplus to US$0.9 bn. Overall, imports value fell by 8.39% mom while exports value decline by 11.29% mom.

       Corporate bond trading was thin amounting Rp200 bn. BLTA04B (Berlian Laju Tanker IV Year 2009; B serial bond; Rating: _idD) was the top actively traded corporate bond with total trading volume amounted Rp24 bn