Maybank GM Daily - 9 Jan 2015

FX

Global

Equities staged a comeback overnight as US equities swung higher to erase YTD losses, on improved risk appetite off the back of ECB QE expectation, stabilizing oil prices around the US$50/bbl, and strong US data. VIX continues to ease to 17 levels. Gold continued to ease for a second day towards 1210 levels. USD continued to charge higher, rising broadly against EUR, GBP and JPY; but stayed marginally weak against AUD and NZD.        In overnight data, BoE left its monetary policy unchanged, as expected. ECB Draghi’s letter to European Parliament fuelled market expectations that an imminent ECB QE is on the cards. Specifically he mentioned “… may entail the purchase of a variety of assets one of which could be sovereign bonds”. Out this morning, China CPI inflation remained subdued (Dec CPI at +1.5% as expected); while PPI remains in outright deflation (Dec PPI -3.3% y/y). Taken together this reflects sluggish domestic demand.        Day ahead in Europe focus on GE, UK and FR’s IPs and trade data. All eyes still on US NFP tonight where expectations are running high and looking for +240k print (+321k prior). Just playing the devil’s advocate - there could be significant downside risk for the USD should NFP number failed expectation given that strong USD trend appears to be a no-brainer play and everyone is jumping in the bandwagon to buy USDs on every dip.

G7 Currencies

DXY – Consolidation.  USD continued to charge higher (92.50s) overnight, on weaker than expected US initial jobless claims which is signaling further signs of improvement in the labour market. Key focus for the day – US NFP, and markets are expecting a strong showing of +240k especially after strong ADP payrolls recently. On the technicals, while daily momentum still looks bullish, but consolidation expected ahead of NFP risk. Next support at 90.50; resistance at 92.50.        USD/JPY – Range-Bound. The USD/JPY is in a holding pattern currently ahead of the US NFP later tonight, capped by the 120-figure. Pair is currently edging higher at 119.82, helped by gains in equities and rise in UST 10Y overnight. Still, intraday MACD is only showing mild bullish momentum, which may cap upside today. Look for continued range-bound trades today within 119.15-120.00.        AUD/USD – Range. AUD fell briefly this morning on weaker than expected retail sales data. Range trading likely between 0.8030 – 0.8150 intra-day ahead of US NFP data later.        EUR/USD – Range intra-day; core bearish view. Remains soft overnight as the pair ventured south on weak German Industrial orders data to notch a fresh 9-year low of 1.1754. We continue to hold a core bearish view of the EUR/USD, on expectations of ECB QE sometime soon. Day ahead sees GE and FR IP and trade data. Range of 1.1750 – 1.1850 expected ahead of US NFP tonight.        EUR/SGD – Range. Same old story as EURSGD continues to trade lower off the back of weaker Euro. Likely to consolidate around 1.5730 – 1.5830 levels intra-day ahead of US NFP data. While momentum indicator continues to suggest bearish momentum, the pair is now at a critical support level of 1.5760 (76.4% Fibonacci retracement of 1.5173 – 1.7672). Prefer to stay sideline for now and look for bounces to re-establish shorts.

Regional FX

       The SGD NEER trades at 0.74% below the implied mid-point of 1.3262. The top end is estimated at 1.2995 and the floor at 1.3530.

       USD/SGD – Sideways. The USD/SGD is on slide this morning following a slight retracement in the dollar this morning. Pair is spotted around 1.3351 with intraday momentum indicators still showing little momentum in either direction today. With US NFP in focus, look for cautious trades today with support still around 1.3300, while immediate resistance is around 1.3390 ahead of the next at 1.3420.

       AUD/SGD – Rangy. The AUD/SGD is waffling this morning, pulled in either direction by AUD and SGD strength. Cross currently hovering around 1.0862 with intraday MACD showing bullish momentum.  With market focus on the US NFP later tonight, we expect cautious trade to remain and for the pair to hover range-bound within 1.0825-1.0920 today.

       SGD/MYR – Bearish Bias. The SGD/MYR continues its slide, helped by the recovery in the MYR. Cross is sighted around 2.6618 with intraday MACD now showing little directional clarity with RSI indicating ample room in either direction. Given the downward moves of the MYR, pressure is on the downside for the cross today with support at 2.6440 and resistance around 2.6770. 

       USD/MYR – Range. We have been going against consensus to highlight that the pace of MYR depreciation has decelerated. Indeed Ringgit has clawed back most of its losses for the past 2 days and has temporary become an outperformer amongst ASEAN currencies. Pair now trades around 3.5530 levels. 1s NDF continued to trade lower this morning towards 3.5650 levels. Range of 3.53 – 3.58 in spot likely intra-day. Stochastics are showing tentative signs of falling from overbought levels.

       USD/CNY was fixed at 6.1296 (0.000), vs. Previous 6.1302 (+2.0% upper band limit: 6.2547; -2.0% lower band limit: 6.0094). CNY/MYR was fixed at 0.5762 (-0.0020). USD/CNY – Downside bias. USD/CNY traded lower towards 6.2110 levels, tracking the lower USD/CNY setting. Just released - China Dec CPI was at +1.5% y/y, as expected. PPI continued to be in disinflation (-3.3%), Focus on trade data next week. Expect the pair to remain in recent range of 6.20 – 6.23, with bias to the downside.

       USD/CNH – Downside bias. Pair testing 6.21 levels (38.2% Fibonacci retracement from 6.1113 – 6.2397); break below could see the pair at 6.1900. Momentum and stochastics are supportive for further downside.

       USD/IDR – Downticks. The USD/IDR remains below the 12700-handle this morning, hovering around 12644 at last sight, helped by the softer dollar tone. This pair has lost most of its bullish momentum, suggesting further downside is possible. Further dips are likely to see support around 12590 while any rebound should meet barrier around 12750 todayThe 1-month NDF continues to drift lower, spotted around 12702 this morning with intraday MACD is showing increasing bearish momentum. The JISDOR was fixed just a tad lower at 12731 yesterday from 12732 on Wed and could be fixed lower given downtick in the spot currently. Foreign funds continued to sell-off equities with a net USD10.67mn sold yesterday.

       USD/PHP – Bearish Bias. The USD/PHP is retracing this morning after climbing to 45.077 yesterday, helped by a softer dollar as well as the export outperformance in Nov. Pair was last sighted around 44.960, having lost most of its bullish momentum. Bias remains on the downside today with support nearby seen around 44.915 still before 44.860 today, though US NFP later tonight could limit further downsides today. Resistance is seen around 45.150 today. Foreign funds sold a net USD12.4mn in equities, but improved risk sentiments could see buying activities today, which could provide support for the PHP today. The 1-month NDF is inched higher this morning to around 45.010 with intraday MACD now showing bearish momentum.

       USD/THB – Sideways.  The USD/THB on the downtick on the back of a softer dollar tone, sighted around 32.867. Dips though are likely to be short-lived given the impeachment proceedings against former PM Yingluck today could reignite political tensions. Intraday momentum indicators are showing little momentum in either direction this morning, suggesting sideway trades remain likely. For now, we continue to expect rangy trades within 32.810-33.00 today, especially with US NFP just round the corner. Unlike previous sessions, foreign funds sold off a net THB3.64bn in debt yesterday but bought a net THB1.22bn of equities, which weighed on the THB.

Rates

Malaysia

      Local government bond market saw buying on the 7y MGS 9/21 and the 15y MGS 4/30 at the start of the morning yesterday. The bonds ended the day 7bps and 5bps lower from previous close, respectively. We noticed foreign and offshore names buying especially during the afternoon trade session. Malaysia’s foreign reserves data was released yesterday evening and saw a decline of USD4.7b to USD116b end-Dec 2014 likely due to foreign outflows of debt and equity during the period.

       IRS rates headed lower again, with the 5y trading at 3.99%. Meanwhile, short end basis (1-3y) continued to tighten (less negative) due to MYR funding squeeze. 3M KLIBOR unchanged at 3.86%.

       The local PDS market saw trading activity limited to bonds at the very short end of the curve (under 1y) and across the belly. Names such as Gamuda, Danga, Malakoff and Ranhill with papers maturing in the next few months were snapped up by investors, totalling roughly MYR85m traded volume. Better buying was also seen on higher grade names such as Prasa 24 and Aman 24 as credit spreads widened slightly due to the benchmark MGS 7/24 trading 8bps lower. Prasa 24 traded at 4.55%, a spread of 36bps, while Aman 24 traded at 4.72%, a spread of 53bps. We still think these spreads are too tight for our liking, and current spreads would continue to affect liquidity in the market.

Singapore

      SGS were little changed, with some selling seen on the front end to the belly of curve as yields were up by 1-2bps while yield on bonds beyond the 15y point stayed the same. This largely traced the movement in Treasuries which saw a pause in the rally ahead of US labour data release.

       Asian credits overall traded firmer yesterday. We saw more buying on the back of a slight rebound in oil prices, though oil & gas names mostly remain unchanged. Indonesia (Indon) is issuing 10y and 30y USD bonds with guidance at 4.50% and 5.50% respectively. With Indon 24 and Indon 44 currently trading around 4.15% and 5.15% levels, the papers look rather attractive if they are priced above the 4.25% and 5.30% area. Indons traded lower after the announcement on the new issuance. Besides that, Huarong Finance (rated BBB+) opened its book for 3y, 5y, and 10y USD bonds at initial price guidance of T3+280bps, T5+320bps, and T10+370bps respectively.

Indonesia

      Bond prices continue its climb supported by foreign inflows on the second session of the day. Several positive new such as moody’s comment which sees that fuel subsidy reforms gave a credit positive on Indonesia sovereign and huge incoming bids during Yankee bond building yesterday have made bond prices to escalate on the confidence of Indonesia assets. Domestic sentiments were minimal yesterday. Bond yield bull flattened with 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 7.523%, 7.717%, 8.085% and 8.233% while 2-yr yield shifts down to 7.455%. Government bond traded heavy at secondary market amounting Rp12,078 bn with FR0070 (10-yr benchmark series) as the most tradable bond. FR0070 total trading volume amounting Rp3,211 bn with 108x transaction frequency and closed at 104.251 yielding 7.717%.

       Indonesia central bank published December 2014 FX reserve which reached US$111.9 bn from US$111.1 bn in November 2014. Further, Bank Indonesia explained that the increase in FX reserves were mainly due to receipts of Governments oil and gas export proceeds, government foreign loan disbursement and other government revenue in the form of foreign currency that exceed the needs of government external debt payments and demand for foreign exchange for intervention in order to stabilize Rupiah exchange rate. Current official reserve assets can adequately cover 6.7mo of imports or 6.5mo of imports and servicing of government external debt repayment.

       Corporate bond trading was seen heavy amounting Rp831 bn. BNGA01SB (Bank CIMB Niaga subordinated bond I Year 2010; Rating: AA(idn)) was the top actively traded corporate bond with total trading volume amounted Rp219 bn yielding 10.928%.