Maybank GM Daily - 18 Feb 2015

We would like to extend to all of you our best wishes for the Lunar New Year.  Gong Xi Fa Cai!!!!

There will be no GM Daily tomorrow and Fri and publication will resume on Mon 23 Feb.

FX

Global

      Modest gains in global equities overnight on Greece preparing a 6-months bailout extension request. Safe haven plays such as JPY, CHF, gold fell while EUR benefited. Commodity-linked currencies such as CAD, AUD, and NZD were higher off the back of steadily higher oil prices.

      Focus for today and the week ahead on central banks. BoJ meets today, followed by BoJ Gov. Kuroda’s press conference. We do not expect any changes but watch for any potential comments on adding or decreasing QE. Unsourced news quote from Bloomberg last week mentioned that some BoJ members are opposed to additional QE as it is counterproductive. BoE Minutes is out later in the day as market is looking for clarity as last week’s inflation report downgraded inflation forecast but Gov. Carney mentioned that the next central bank move will likely be a hike. Tomorrow sees Fed’s Minutes and market continues to look for hints on when Fed may hike rates.

      On the data front for EU brings EC Dec current account and FR Jan CPI (Thu). GE Jan PPI; EC, GE, FR Feb PMI (Fri) are due for release later part of the week. For US, Jan housing starts, building permits, PPI, IP (Wed). Fed’s Plosser is also due to speak on Wed. On Thu Fed’s Powell due to speak in NY; Jan Manufacturing PMI (Fri). Technicals suggest a potential and meaningful retracement in the DXY is on cards this week; still favour buying USD dips.

G7 Currencies

      DXY – Downside bias; Favour buying USD dips. DXY stayed soft, closed around 94.06 levels; this morning at around to 94.10 levels. USD weakness came off the back of disappointing US data – Fed Mfg and NAHB home builder sentiment as well as EUR strength due to hopes of Greek resolution. Momentum and oscillators are bearish bias; next support level at 93.66 (23.6% Fibonacci retracement of 87.627 – 95.527) before 92.50 (50 DMA and 38.2% Fibonacci retracement). We have cautioned in our tech weekly last Fri that we do not rule out any potential and meaningful retracement before DXY takes another leg up. Still favour buying USD dips. Key data/Fed speak to watch out for include Jan housing starts, building permits, PPI, IP (Wed). Fed’s Plosser is also due to speak on Wed. On Thu Fed’s Minutes is due for release, Fed’s Powell due to speak in NY; Jan Manufacturing PMI (Fri).

      USD/JPY – Buy On Dips. The USD/JPY rebounded to an intraday high of 119.42 overnight as risk sentiments improved but has slipped slightly this morning on the back of a softer dollar tone.  Pair is currently sighted around 119.16 with intraday charts showing bullish momentum. Still cautious trades are likely ahead of the BOJ policy meeting/Kuroda presser later this morning. We do not expect any new moves by the BOJ though we are watching for guidance on the BOJ’s inflation target of 2%, which does not appear to be in reach for now.  We continue favor adding USD longs on dips. With our resistance at the 119-handle taken out overnight, new hurdle is now seen around the 120-figure. Dips should find support around 118 today.

      AUD/USD – Supported. AUD/USD rose overnight and reclaimed the 0.78-handle on RBA minutes yesterday. Minutes seem to suggest that the rate cut in Feb did not come with a sense of urgency as the timing of the rate cut was initially deliberated whether it should come in Feb or Mar. That said, there is little clarity on whether RBA may follow up with another rate cut again in Mar or wait a little longer to assess the situation. No data for the week ahead. Day ahead sees 0.7780 – 0.7880 with further upside risk towards 0.7980s into later part of the week amid thin liquidity conditions and if risk appetite improves further. Daily MACD and stochastics are indicating bullish bias. 

      EUR/USD – Consolidation.  The pair stayed supported on ZEW expectations survey amid Greek stalemate. Discussions are ongoing today, possibly closed doors. Recent talks suggest a 6-month loan extension remains the most probable outcome but situation remains fluid. Greek PM Tsipras said he would not subject his country to ‚blackmail‛ in order to secure an extension of the full international bailout program. Day ahead sees 1.1350-1.1450 range. Focus on Greek negotiation and on the data front, EC Dec current account and FR Jan CPI (Thu). GE Jan PPI; EC, GE, FR Feb PMI (Fri) are due for release later part of the week.

      EUR/SGD – Range. EUR/SGD continues to trade within recently established range of 1.5283 – 1.5490 in absence of fresh catalyst. Still see recently established range of 1.5250 – 1.54 to hold amid thin liquidity due to market closures in Asia.  Momentum and oscillators are mild bullish bias; breach above 1.5490 could see 1.5660 next resistance in play.

                         

Regional FX

      The SGD NEER trades around 1.68% below the implied mid-point of 1.3342 with the top end estimated at 1.3071 and the floor at 1.3614.

       USD/SGD – Sideways. The USD/SGD remains in range-bound trades ahead of the Chinese New Year long week-end starting tomorrow. With onshore markets back only on Mon, quiet trades are expecting today. There could be some feedback from yesterday’s surprise Indonesian rate cut given the weight of the IDR in the SGD NEER basket, adding some upside pressure on the pair. Pair is currently sighted inching higher around 1.3571 with intraday MACD and slow stochastics showing little momentum bias ahead. Look for the pair to trade sideways within the familiar 1.3520-1.3600 range today.

       AUD/SGD – Bullish Bias. The AUD/SGD continues on its uptick on the back of AUD strength but remains well-within its current trading range of 1.0455-1.0640. Intraday MACD continues to show bullish momentum though slow stochastics is signalling overbought conditions. Resistance remains at 1.0640 and for bullish extension to continue we need to see a firm break of the 1.0640 level for a move towards 1.0730. 1.0445 remains supportive.

       SGD/MYR – Within Range. The SGD/MYR is bouncing higher this morning on the back of the relative weakness in the MYR. Cross is sighted around 2.65-region with intraday MACD and slow stochastics showing a slight bullish bias ahead. With onshore markets in both Malaysia and Singapore out from tomorrow and back only on Mon, trades are likely to be quiet. Look for sideway moves today with the 2.6270-2.6520 likely to hold today.

      USD/MYR – Bias to buy USD dips. USD/MYR traded higher tracking USD/SGD, USD/CNH, USD/IDR despite higher oil prices. FX technicals are suggesting tentative bullish bias; support at 3.5700 (23.6% Fibonacci retracement of 3.3478 – 3.6375) and 3.5550 (50 DMA) likely to hold. Favour to buy USD dips. Day ahead see 3.58 – 3.60 range. Malaysia market is closed for Chinese New Year holidays on Thu n Fri.

       USD/CNH – Range. No fixing today as China market is closed for Chinese New Year from 18 -24 Feb. USD/CNH continues to trade higher towards 6.2858 yesterday. The pair eased off highs trading around 6.2780 at time of writing. We remain convicted to our 3m-4m view for USD/CNH to be higher on a combination of drivers including further intensification of USD strength, ongoing domestic growth, debt, capital, fx outflow and liquidity concerns. Expect 6.27 – 6.30 range intra-day; remain better buyers on dip.

       USD/IDR – Bullish Bias. The USD/IDR climbed above the 12800-levels this morning in the wake of BI’s surprise 25bp rate cut yesterday.  Pair is currently hovering around 12804, slightly off the morning’s high of 12816. A move towards the 12900 levels cannot be ruled out, though the grind higher could be tempered by BI intervention. Both intraday MACD and slow stochastics are showing tentative signs of bullish bias. Onshore markets out tomorrow for the Lunar New Year and back on Fri. The rate cut, coupled with expectations of a higher current account deficit in 2015 and still conflicted by on-going domestic political concerns, is likely to keep pressure on the pair to the upside today. Topside today is likely to be capped by 12900. Foreign funds bought a net USD12.81mn in equities yesterday but had removed a net IDR0.21tn in debt from their outstanding holdings on 16 Feb. After spiking to a high of 12927 this morning, the 1-month NDF has retreated slightly to hover around 12914. Intraday MACD and slow stochastics continue to show a bias to the upside ahead. The JISDOR was fixed higher at 12757 on Tue compared to Mon’s 12742, but is likely to be fixed higher today given the spot’s jump higher this morning.

       USD/PHP – Rangy. The USD/PHP wobbling this morning, currently hovering around 44.240, but is still well-within its current trading range of 44.110-44.460. Pair remains trapped within an intraday ichimoku cloud, suggesting range-bound trades are still likely ahead. With most of Asia out on Lunar New Year holidays from tomorrow, trades are likely to be quiet. Look for 44.110-44.460 to hold today. Yesterday, foreign funds purchased a net USD5.85mn in equities. The 1-month NDF continued to trade range-bound within 44.20-44.40, hovering around 44.280 this morning, with intraday momentum indicators showing little directional clarity.

       USD/THB – Range-Bound.  The USD/THB remained in choppy trades, and is currently sighted lower around 32.580 this morning following reported comments by the BoT that put paid to expectations of an imminent rate cut in the wake of easing policy by first Singapore and now Indonesia. Pair has lost most of its bearish momentum with slow stochastics showing a slight tilt to the downside. With most of the Asian markets out on holiday tomorrow, cautious trades are likely ahead. Look for the 32.500-32.670 range to hold today. Yesterday, foreign funds purchased a net THB2.2bn in equities.

Rates

Malaysia

§  In the local government bond market yesterday, we saw some rollover of the MYR11b MGS 2/15s into the 3y and 5y benchmarks. Selected off-the-run stocks also received buying interest but in small amounts. Market overall was quiet ahead of the festive period.

§  Barely had any quotes in the IRS market and there were no trades again. 3y-6y IRS were down 1-2bps. 3M KLIBOR remained at 3.79%.

§  Local PDS market remains biddish on GG and AAA names with the popular names being Telekom, PTPTN and Prasarana. At this point in time, we think GG level is a tad tight and would prefer to take profit and swap them into AAA papers, which carry 15-20bps over GGs of the same maturity.

Singapore

§  SGS market traded weak due to the larger than expected reopening size for 30y SGS. The rally in US Treasuries (UST) overnight was largely ignored and selling ensued soon after market open. The selling was concentrated at the long end of the curve and coupled with thin liquidity ahead of the CNY holidays, yields at the very long end were driven higher by about 8bps. At close, the SGS yield curve bear steepened and is likely to remain so going into next week's auction. SGD IRS market saw a flurry of paying in the 10y, which is the furthest point along the curve where liquidity is still reasonably decent. The SGD IRS curve ended higher by 2-6bps.

§  Quiet day in the Asian credit space with most players on the side lines in view of the long Chinese New Year holiday. Indon and Phillip sovereigns traded slightly higher on the back of UST movement. We heard a heavy pipeline is underway which includes Indonesia's planned global sukuk issuance in 1H15 as well as Malaysia government’s and Export Import Bank of Malaysia’s USD sukuk issuances in the near future. We are following the Greek news to determine market’s direction.

Indonesia

§  Indonesia bond market moved higher within the day supported by foreign flows to the market. This all happened amid expectation of BI rate remaining unchanged at 7.75%. Post market closes; Bank Indonesia released their statement with an unexpected decision by lowering its reference rate and Deposit Facility by 25 bps to 7.50% and 5.50% respectively. According to Bank Indonesia, the decision was taken as they believe the new reference rate could keep inflation maintained at 4±1% in 2015 and is still in line with their effort in controlling current account deficit in the future.

§  We see that bond prices would move in a positive tone today with 10y bond yield would be reaching as low as 6.75% - 6.85% and would trigger profit taking after reaching this level. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 6.995%, 7.077%, 7.271% and 7.476% while 2y yield shifts down to 6.889%. Heavy volume at secondary market remains to be traded heavy at government segments amounting Rp23,361 bn with FR0068 (20y benchmark series) as the most tradable bond. FR0068 total trading volume amounting Rp9,350 bn with 264x transaction frequency and closed at 109.050 yielding 7.476%.

§  Corporate bond trading traded heavy amounting Rp577 bn. BTPN02B (Bank BTPN II Year 2010; B serial bond; Rating: AA(idn)) was the top actively traded corporate bond with total trading volume amounted Rp110 bn yielding 10.594%.