Maybank GM Daily - 24 Feb 2015

FX

Global

      Mixed start to the week with US equities easing off its record highs and EU equities closing in positive territories. Oil prices fell on supply glut concerns after US rig count fell less than expected, Libya opened up new pipeline and Oman Increased production. But move lower found some support on market chatters of potential OPEC emergency meeting (possibly to discuss production cuts) being called.  Overnight, Greece has missed the Monday deadline to submit the list of reforms to EU partners; apparently aims to submit on Tue morning in hope of securing the 4month bailout extension. USD was mixed; stronger against EUR and AUD; but weaker against the JPY and GBP. 

      Day ahead, focus on central bank speeches. (1) Fed Yellen’s testimony to Senate Bank Panel in Washington.  Markets are watching for hint of timing of Fed rate hike. Given recent labor market improvement, she could sound hawkish and offer some sensitive insights; (2) ECB President Draghi who is speaking in Frankfurt at the official unveiling of the new 20-Euro bank note. Markets is likely to watch for comments on ECB support/hard stand against Greece; (3) Bank of Canada Governor Poloz is also due to speak (tomorrow 3am SGT). Markets could be watching for signs if BoC will cut benchmark rate again at its 4^th Mar meeting following its 25bps cut on 21 Jan. Separately Bank of Israel became the 19^th central bank (since the start of 2015) to cut rate to historic low of 10bps overnight.

      Some of the key data we are watching today includes Eurozone CPI; German GDP; US Markit US Composite and Services PMIs and  S&P/CS Composite-20 house prices. China markets remain closed today. Day ahead, still favor buying USD on dips.

G7 Currencies

      DXY – Consolidation; Buy USD dips. DXY remains in consolidation amid disappointing existing home sales data overnight. 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). Resistance still seen at 95.50 levels (Jan high).  We continue to caution that a USD pullback could be on the cards taking another leg up. Still favour buying USD dips. Focus this week on Feb PMI, Fed Chair Yellen to testify to senate bank panel (Tue); Jan new home sales, Fed Chair Yellen to testify to house financial services committee (Wed); Jan CPI, durable goods, house price index (Thu); 4Q GDP, Feb Univ. of Michigan Sentiment, Fed’s Mester and Lockhart to speak (Fri).

      USD/JPY – Sideways. The USD/JPY see-sawed yesterday, hitting an intraday low of 118.74, before rebounding later and is now currently hovering around 118.91 this morning, tracking the dollar. Intraday MACD and slow stochastics are showing little bias in either direction this morning, suggesting sideway trades are likely ahead. With fresh impetus lacking and ahead of Fed Chair Yellen’s testimony to Congress, we expect the pair to continue to trade in a tight range within 118.00-120.00 today.

      AUD/USD – Supported. AUD/USD continued to trade a lackluster range of 0.7780 – 0.7850 ahead of Fed Chair Yellen’s semi-annual testimony tonight. Daily MACD is still indicating bullish bias. Day ahead still see 0.7780 – 0.7880. Key data we are watching for the week ahead includes Nov weekly wages and 4Q Capex (Thu). Prefer to look for better levels to sell AUD/USD.

      EUR/USD – Consolidation; Sell Rallies.  EUR/USD traded down to 1.13 levels after German IFO disappointed. Greece has missed the Monday deadline to submit the list of reforms to EU partners; apparently aims to submit on Tue morning in hope of securing the 4month bailout extension. EUR/USD trading continues to be headline-driven. Still favor fading rallies. Day ahead sees 1.1280-1.1400 range. Week ahead brings 4Q GDP, trade, EC Jan CPI (Tue); GE Feb unemployment change (Thu); GE, IT Feb CPI, FR Jan PPI, GE Jan retail sales (Fri).

      EUR/SGD – Consolidation. EUR/SGD traded lower towards 1.5383 overnight before rebounding to trade 1.5415 at time of writing. Pair remains in consolidation; wider range 1.5280-1.5490 continues to hold. Day ahead see 1.5350-1.5450. MACD is exhibiting tentative signs of fading momentum in bullish bias and stochastics are now falling.

                         

Regional FX

      The SGD NEER trades around 1.701% below the implied mid-point of 1.3363. We estimate the top end at 1.3091 and the floor at 1.3635.

      USD/SGD – Sideways. The USD/SGD retreated towards 1.3580 during the NY session but has since rebounded slightly back above the 1.3600-levels. CPI fell for the third straight month in Jan, while the FY2015 budget is expected to see a deficit equivalent to 1.7% of GDP, but as expected, both had little impact on the pair. Instead, eyed will be the impending testimony of the Fed Chair to Congress tonight. Until then, expect the pair trade near the middle of the current trading range of 1.3570-1.3640. Preference is still to buy the SGD on dips.

      AUD/SGD – Capped. The AUD/SGD continues on its slow tick higher, currently hovering around 1.0612, lifted by the mild AUD strength this morning. Intraday charts though are signalling a bearish bias ahead, including MACD, suggesting that upticks could be capped today. Look for trades within 1.0500-1.0700 to hold today.

      SGD/MYR – Bearish Bias. The SGD/MYR continues its slide lower, dragged down by the strength of the MYR this morning, despite the climb-down in oil prices overnight. Cross has lost most of its bullish momentum with slow stochastics showing a bias to the downside. Topside is likely to meet resistance at 2.6770 ahead of 2.6850, while dips should see support around 2.6600.

      USD/MYR – Buy on Dips. USD/MYR eased towards 3.6255 this morning after trading 2015-high of 3.6450 yesterday. We continue to see persistent weakness in the Ringgit on contingent liability exposure which could put pressure on credit rating. Malaysia also saw its inflation growing at its slowest pace in 5 years, largely due to decline in transport sector inflation. Market chatters of potential emergency OPEC meeting (possibly to discuss production cuts) being called could lend some support to oil prices and the Ringgit. Stochastics are showing tentative signs of falling from overbought levels and this could suggest some near-term retracement towards 3.59 levels before 3.5700 (23.6% Fibonacci retracement of 3.3478 – 3.6375). Next resistance at 3.65-psychological level before 3.70. Still favour buying USD dips.

      USD/CNH – Range. No fixing today as China market remains closed and will return from Chinese New Year holidays tomorrow. USD/CNH was stuck in narrow range of 6.2730 – 6.2805.  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. Expect 6.2670 – 6.2760 range intra-day; remain better buyers on dip.

      USD/IDR – Gapped Higher. The USD/IDR gapped slightly higher at the opening to 12866 from yesterday’s close of 12836, lifted by the firmer dollar tone overnight. Expectations of a hawkish Yellen later tonight are supporting the pair higher today, though BI intervention could slow the upticks. Expect immediate resistance around 12900 ahead of the next at 12940, while support is seen around 12800 today. Intraday charts are showing tentative signs of a bearish bias ahead. Foreign funds remained sanguine about the economy, buying a net USD55.13mn in equities yesterday, and added a net IDR0.38tn to their outstanding holding of debt last Fri. The 1-month NDF gapped lower to 12987 at the opening from yesterday’s close of 13026 and is currently sighted around 12991. Both intraday MACD and slow stochastics are signalling tentative bearish bias ahead. The JISDOR was fixed lower at 12813 on Mon from 12849 on Fri and should be fixed higher today given the spot’s climb higher this morning.

      USD/PHP – Rangy. The USD/PHP is currently inching slightly higher to 44.313. The trade deficit came in narrower than expected at USD68m in Dec, and is weighing slightly on the PHP. Trapped within an intraday ichimoku cloud currently, range-bound trading is likely ahead within 44.230-44.370 today. Both intraday MACD and slow stochastics are signalling a bias to the upside today. Portfolio flows continues to be supportive of the PHP with foreign funds purchasing a net USD14.13mn in equities yesterday. The 1-month NDF is up slightly at 44.360 with intraday MACD showing bullish momentum ahead.

      USD/THB – Range-Bound.  The USD/THB remains in choppy trade but still hovering within familiar ranges. Aside from global risks concerns, anxiety over domestic growth and household debt have reined in the support the pair has received from foreign inflows. Yesterday, foreign funds bought a net THB0.83bn in debt, though they also sold a net THB0.04bn in equities. The opposing forces as well as the upcoming Fed Chair’s testimony to Congress are likely to keep the pair range-bound within 32.500-32.610 today. Intraday charts are showing little momentum in either direction today.

Rates

Malaysia

      Local government bond market had a slow start to the week as most players are still away on break. Quiet day with mixed trading amidst low volume. We did not see signs of selling despite the weak MYR against the greenback at open but instead noticed better buyers on dips. All eyes would be on the next issuance which is a 5.5y new GII issuance.

      IRS market had a very quiet day with nothing dealt. 3M KLIBOR remained at 3.79%. We still prefer to receive close to 3.90% and pay around 3.80% for 5y IRS range trades.

      The local PDS market was also very quiet. Market was well bidded across the AAA and GG spaces but offers were hard to come by and the few offers seen were too wide from bids. The most notable trade was Dana 44s which saw MYR70m of volume done in a single trade at MTM levels of 5.06%. This represented a spread of about 41bps over the govvy benchmark which we deem is fair.

Singapore

      SGS softened again but at a lesser extent than the previous close. Yields were up by 1-3bps across the curve. We maintain that the softness would persist until this Wednesday’s 30y SGS auction.

      In the Asian credit space, trading volume was still light despite most markets being back from the Chinese New Year break. Players are still overweight on Indon sovereign bonds after Bank Indonesia’s unexpected rate cut. Meanwhile, Philippines was a little more mixed, trading pretty much unchanged with two way flows. Although China and Taiwan were out yesterday, Chinese IGs were still very much in demand with buying interest continuing for names like Baidu, Tencent, Beijing Infra, and Sinope. We expect trading interest to pick up midweek, especially when China comes back. This heavy data week should provide a clearer direction of the market.

Indonesia

      Indonesia bond market on the first day of this week opened with a full enthusiasm till the first half of the trading session. Notting much happened on the second session though. Market is believed to wait for upcoming Fed Yellen speech at the senate and house this week. Domestic sentiments would be marginal this week, as a result, volatility of Indonesia bond market this week will be relying on in or out flow from the market as well as global sentiments. Indonesia plans to issue samurai bond in 2Q15 and have hired Mizuho, Nomura and SMBC Nikko to issue the bond. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 6.750%, 7.010%, 7.189% and 7.435% while 2y yield shifts down to 6.608%. Heavy volume at secondary market remains to be traded heavy at government segments amounting Rp10,784 bn with FR0071 (15y benchmark series) as the most tradable bond. FR0071 total trading volume amounting Rp1,513 bn with 94x transaction frequency and closed at 115.852 yielding 7.189%.

      DMO will conduct their sukuk auction this week with four series to be auctioned which are SPN-S11082015 (Coupon: discounted; Maturity: 11 Aug 2015), PBS006 (Coupon: 8.250%; Maturity: 15 Sept 2020), PBS007 (Coupon: 9.000%; Maturity: 15 Sept 2040) and PBS008 (Coupon: 7.000%; Maturity: 15 Jun 2016). We believe that the auction will be oversubscribe by 2.0x – 3.0x from its indicative target issuance while our view on the indicative yield are as follows SPN-S11082015 (range: 5.840% – 5.940%), PBS006 (range: 7.260% – 7.360%), PBS007 (range: 8.090% – 8.190%) and PBS008 (range: 6.820% – 7.150%).

      Corporate bond trading traded heavy amounting Rp1,445 bn. NISP01ACN2 (Shelf registration I OCBC NISP Phase II Year 2015; A serial bond; Rating: _idAAA) was the top actively traded corporate bond with total trading volume amounted Rp517 bn yielding 8.997%.