Maybank GM Daily - 25 Feb 2015

FX

Global

      US and EU equities finished in positive territories overnight, helped by EU acceptance of Greek reform proposal, upside surprise to US data (services PMI, home prices) and Yellen’s semi-annual testimony to manage rate hike expectation.  US treasuries rallied, with UST10Y yield falling to 1.99%. USD bulls were tamed; AUD, NZD, CAD, GBP were stronger; EUR was largely unchanged despite EU acceptance of Greek reform proposal; German parliament now needs to approve Greek deal. Oil prices were yo-yoing, before ending the session lower despite supply disruption in Libya (WTI below $50/bbl; Brent below $60/bbl).

      It was all about Yellen’s semi-annual testimony overnight as patience continues to tame USD bulls.  Yellen's language and tone was broadly similar to that used in the January FOMC statement and meeting minutes, while the discussion of exit strategy stuck close to the already-published exit principles.  But it suggests a two-step move by the FOMC, that once a forward guidance change is made, it could signal imminent rate hike and could lead to some adjustments in the rates and FX markets. That said, USD moves could see some near-term pullback for now, in line with our caution for a USD pullback.

      Some of the key data we are watching today includes US  Jan new home sales, Fed Chair Yellen to testify to house financial services committee. Chinese markets returned today from week long holidays; China Feb preliminary HSBC PMI manufacturing PMI surprised to the upside (50.1 vs. 49.5) but flash PMI new export orders fell to least since Jun 2013.

G7 Currencies

      DXY – Consolidation; Buy USD dips. USD bulls were tamed by Yellen’s semi-annual testimony overnight. She highlighted that the “FOMC's assessment that it can be patient in beginning to normalize policy means that the committee considers it unlikely that economic conditions will warrant an increase in the target range for the federal funds rate for at least the next couple of FOMC meetings”. She also indicated that the FOMC would change its forward guidance before raising rates. To be clear Yellen's language and tone was broadly similar to that used in the January FOMC statement and meeting minutes, while the discussion of exit strategy stuck close to the already-published exit principles.  But it suggests a two step move by the FOMC, that once a forward guidance change is made, it could signal imminent rate hike and could lead to some adjustments in the rates and FX markets. That said, USD moves could see some near-term pullback for now, in line with our caution for a USD pullback. 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).  Still favour buying USD on pullbacks. Focus for the rest of the week on 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 – Consolidating Lower. The USD/JPY briefly spiked to 119.84 overnight before retracing back towards the 118-handle on the back of a softer dollar. Pair is currently hovering around 118.74 with intraday MACD and slow stochastics now signaling a bearish bias. Unless Yellen turns more hawkish at her House testimony later today, expect the pair then to consolidate with a downside bias within the familiar 118.00-120.00 range today.

      AUD/USD – Supported. AUD/USD rebounded from 0.7740s towards 0.7860 this morning as Yellen’s semi-annual testimony overnight tamed USD bulls. Daily MACD and stochastics are still indicating a bullish bias. Week ahead AUD/USD could continue to see some support; range of 0.7780 – 0.7980 could hold; need to break above 0.7880-0.7910 for another leg higher. 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 was largely flat despite EU accepting Greece’s plan and Fed Yellen taming USD bulls. Day ahead sees 1.1280-1.1400 range. Week ahead brings GE Feb unemployment change (Thu); GE, IT Feb CPI, FR Jan PPI, GE Jan retail sales (Fri).

      EUR/SGD – Consolidation. EUR/SGD was little changed at 1.5390. 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. Favour playing the pair from the short side.

                         

Regional FX

      The SGD NEER trades around 1.59% below the implied mid-point of 1.3350 and the top end is estimated at 1.3079 and the floor at 1.3622.

      USD/SGD – Bearish Tilt. The USD/SGD retreated towards 1.3550-levels this morning on the back of broad dollar weakness, though it has rebounded to hover around 1.3570 currently. Intraday charts are now showing a bias to the downside, suggesting further dips are possible. Broad dollar weakness today should weigh on the pair today and 1.3545-1.3640 range should hold today. We still favour buying the SGD on dips.

      AUD/SGD – Bullish. The AUD/SGD is on the climb higher this morning, lifted by AUD strength. Last sighted around 1.0658, cross has lost most of its bearish momentum with slow stockhastics on the climb higher. With the bias to the upside still, helped by a strong China HSBC mfg PMI, look for 1.0730 to cap upside today with 1.0520 supportive.

      SGD/MYR – Tilted Lower. The SGD/MYR is consolidating lower within the 2.6600-2.6770 range, helped by the relative strength of the MYR today. Cross is hovering around 2.6718 at last sight, having lost most of its bullish momentum. Expect the cross to remain in consolidative mode within 2.6600-2.6770 today with the bias tilted to the downside today.

      USD/MYR – Buy on Dips. 1s NDF traded a high of 3.6600 levels overnight but Fed Yellen’s USD bull tamer talks saw the pair eased lower towards 3.6340 this morning. Spot USD/MYR eased towards 3.6255 this morning after closing at 3.6400 levels yesterday. We continue to see persistent weakness in the Ringgit on contingent liability exposure which could put pressure on credit rating. Stochastics are showing tentative signs of falling from overbought levels and this could suggest some near-term retracement towards 3.59 levels before taking another leg higher 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 – Buy on Dips. China market returned from Chinese New Year holidays today. USD/CNH traded to a low of 6.2625 levels overnight on Yellen-USD bull tamer speech, but got lifted back to 6.27 tracking higher USD/CNY fix this morning. 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. Remain better buyers on USD dips. Expect 6.2600 – 6.2750 range intra-day. HSBC China manufacturing PMI surprised to the upside (50.1 vs. 49.5) but flash PMI new export orders fell to least since Jun 2013. USD/CNY was fixed higher by +54pips at 6.1384 (vs. 6.1330). CNYMYR was fixed higher by +37pips at 0.5727 (vs. 0.5690).

      USD/IDR – Rangy. The USD/IDR has eased back below the 1200-levels after climbing to a high not seen since 16 Dec 2014 yesterday on the back of a softer dollar tone. Pair is currently sighted around 12885 with intraday charts showing little momentum in either direction. We remain watchful for BI intervention to guard against IDR volatility as warned by senior deputy BI governor Adityaswara yesterday. 12945 should guard topside today while 12800 continues to provide support. Foreign funds bought a net USD32.63mn in equities yesterday, and added another net IDR3.87tn to their outstanding holding of debt on Mon. The 1-month NDF climbed back above the 13000-level today, currently at 13042, with slow stochastics showing signs of a tentative bearish bias ahead. The JISDOR was fixed at the highest level since 16 Dec 2014 at 12866 yesterday on Mon from 12849 on Fri but could be fixed even higher given the current level of the spot this morning.

      USD/PHP – Bearish Bias. The USD/PHP gapped slightly lower this morning to 44.253 at the opening from yesterday’s close of 44.290, helped by the softer dollar tone overnight. Pair continues to edge lower below the 44.200-levels with the pair having lost most of its bullish momentum while slow stochastics is showing tentative signs of a tilt to the downside. With the bias tilted to the downside, support is now seen around 44.110 before the next at the 44-figure, while upside should be capped by 44.370 still. Foreign funds bought a net USD12.05mn in equities yesterday, helping to keep the  PHP supported. The 1-month NDF is bouncing higher this morning to 44.230 with intraday MACD and slow stochastics showing bearish momentum ahead.

      USD/THB – Choppy Within Range.  The USD/THB tested the key support at 32.500 briefly before rebounding to around 32.550 currently, likely due to renewed expectations that the BoT could cut rate at its next policy meeting. Intraday MACD is showing a slightly bearish momentum while slow stochastics is signalling a bearish bias, so the rebound is likely to be short-lived. Yesterday, foreign funds bought a net THB2.04bn in debt that offset the selling of a net THB0.55bn in equities. Look for continued choppy trades within 32.500-32.610 again.

Rates

Malaysia

      Local government bond yields ended 1-5bps lower with most trades done on the belly to the front end bonds. Both local and foreign names were seen buying in the 5y point and below on the back of foreign real money buying. The issuance size for the new 5.5y GII GJ08/20s was announced at MYR4b and this did not deter buying as WI trades were bought up from the 3.84% to 3.81% levels.

      IRS were continuously taken despite KLIBOR’s average dipping 0.5bps yesterday. The 2y IRS traded at 3.69% and 3.70% while 3y and 4y IRS were dealt at 3.72% and 3.81% respectively. Paying/squaring activities may be due to players’ belief that KLIBOR would not fall significantly. 3M KLIBOR nevertheless stayed at 3.79%.

      Local PDS market saw activity return slightly, especially at the longer end of the curve. We heard Aman 5/2024 traded 1bp tighter from MTM levels, while longer dated Plus, PTPTN and Putrajaya bonds traded at MTM levels. At the belly of the curve, we saw PASB 2/2019 tighten by 1bp. We still like AAA papers in the 10y maturity bracket as we think that current levels could lead to some spread compression. We hold a similar view for some GG notes but it is difficult to find good offers at the moment.

Singapore

      SGS unexpectedly rallied on the dip in 6M SGD Fwds. In addition, it appears that the PD community felt the selling in SGS has been overdone and some took the opportunity to cover shorts in the longer end of the curve ahead of the 30y auction. The curve flattened with the 2y yield up by 5bps while 10y and 15y yields were down 5-6bps. SGD IRS curve similarly flattened and was lower than previous day. At the close, the 30y mid yield was 2.88% and should a long tail occur, we may see 2.95% or closer to 3.0%, but bear in mind of Yellen’s speech to the Senate Banking Committee.

      Asian credit market was very supported even though China was not back from the holidays. We saw Malaysian bonds trading slightly tighter after Bank Negara Governor Tan Sri Dato' Sri Dr. Zeti commented that the MYR is presently undervalued and would return to its fundamentals over time. PETMK 2022 tightened 3-4bps. In the Chinese space, Tencent continued to be lifted and we saw more buying on property names. On the Indon front, sovereigns and quasi-sovereigns are still being sought after with Indon and names like Pertamina actively traded in the market. Players are focused on Federal Reserve Chair Janet Yellen‘s testimony to Congress for more market direction.

Indonesia

      IDR Government bond markets were going nowhere yesterday. Market traded at narrow range as market curious after spot traded at 12.900 level. The 10Y traded at range 7.01% – 7.02% and 20Y at 7.40% - 7.43%. Yesterday, Ministry of Finance held a Sukuk auction. Total incoming bid was Rp9.663 trillion or 4.8x from the initial target. Total bid awarded was Rp 2.570 trillion where mostly for PBS 6.