Maybank GM Daily - 4 Feb 2015

FX

Global

      US equities closed higher overnight, with energy sector outperforming. Oil prices continued its rally, +20% since 30 Jan. Commodity-linked currencies (CAD, AUD, NZD) found support; USD was broadly weaker with DXY at 93.80 levels. EUR/USD managed to squeeze higher above 1.15 levels overnight,  as Greek fears subsided after Greece’s proposal for restructured debt instead of the feared debt write-off. VIX closed down 2.10 to 17.3 levels.

      USD/MYR opened lower this morning towards 3.5650 levels (from 3.6295 close 30 Jan), tracking the rally in oil prices. Since 30 Jan, oil prices have rallied nearly 20%. We previously noted that 10% move in oil prices is associated with MYR moving 1.5%.  Stable oil prices could further support the ringgit. Next big level 3.55 before 3.52 (50 DMA).

      Day ahead brings a host of Composite and Services PMI releases from EC, GE, FR, SP, IT. For US, ADP employment change, services and composite PMI on tap.  Fed’s Mester is due to speak later. Despite popular trades such as short EUR, short AUD getting squeezed higher, our core view of USD strength remains unchanged, and we still favor fading this rally.

G7 Currencies

      DXY – Buy dips. USD finally gave way and traded lower towards 93.80 levels on disappointing US factory orders amid risk-on sentiment. We have mentioned for awhile that long USD trade is increasingly looking too comfortable and very much one-way, and could be due for a short term pullback towards 93-levels. A further extension of the pullback could see the DXY at 92.50-75 levels (before the break-out). We still favor buying USD on dips. Day ahead ADP, ISM non-mfg data on tap. Fed’s Mester is due to speak later.

      USD/JPY – Rangy With An Upside Bias. The USD/JPY had a choppy session yesterday, weighed by the AUD/JPY dip after RBA’s cut. Pair is now settling around the 117.60-70 levels this morning, lifted by dollar weakness and equity gains. Intraday momentum indicators are all showing a bias to the upside today. Ahead of US ADP tonight, expect the pair to trade range-bound within 116.80-118.00 still with an upside tilt today. Any surprises could see the pair trade in a wider range within 115.50-119.00. Watch for Kuroda’s Q&A in parliament later this morning.

      AUD/USD – Bearish bias. AUD/USD tanked to fresh multi-year lows of 0.7626 as RBA surprised markets with a 25bps rate cut yesterday, on growth and labor market concerns and soft commodity prices. But the move lower was short-lived as AUD losses was reversed into NY close, as risk sentiment improved. Pair currently trades 0.7785 levels. Still favor playing from the short end, but look for better levels towards 0.7860s. Tech supports the view with 4-hourly MACD and stochs suggest some near term upside. No data due for release today. AUD/NZD likely to remain pressured on widening interest rate differential. Yesterday we called for AUD/NZD to break 1.06, enroute to 1.04.

      EUR/USD – Fade Relief Rally.  EUR/USD rallied hard towards 1.1530s as Greek fears subsided after Greece’s proposal for restructured debt instead of the feared debt write-off. Deflation risk in Euro-area remains with EC PPI and IT CPI down. Fade rallies remain the name of the game; daily MACD and stoch are still bullish bias; suggesting further upside. We look for better levels towards 1.15 to enter shorts.

      EUR/SGD – Range. EUR/SGD remained supported, trading higher towards 1.5510 levels overnight on EUR strength. Pair is likely to remain supported intra-day, 1.5490 sees 38.2% Fibonacci retracement level of 1.6389 – 1.4936. Expect 1.54 – 1.5550 range intra-day.

Regional FX

      The SGD NEER trades around 1.37% below the implied mid-point of 1.3275. We estimate the top end at 1.3006 and the floor at 1.3545.

      USD/SGD – Bearish. The USD/SGD broke below the 1.35-levels overnight and is testing our support at 1.3460, helped by improved risk sentiments over Greece. Pair is hovering around 1.3460, though this could be temporary given the dollar’s resurgence currently. Upticks today should meet resistance around 1.3555. Still, a firm break below the 1.3460 support level could see the pair head towards next support at 1.3420. Intraday momentum indicators are all showing a bias to the downside ahead.

      AUD/SGD – Potential Short-Term Bounce. The AUD/SGD hit a low not seen since 2009 at 1.0324 yesterday on the back of RBA’s rate cut before rebounding to hover around 1.0490 at last sight. Intraday MACD is showing little momentum in either direction ahead, suggesting range-bound trades seem likely. After yesterday’s swing, cross is likely to consolidate today around current levels. Expect 1.0324-1.0620 range to hold today.

      SGD/MYR – Consolidation Lower. The SGD/MYR plunge this morning to the 2.65-region following the resurgence in the MYR on the back of a recovery in oil prices and improve risk sentiments. After the massive downward move today, expect the cross to consolidate within 2.6340-2.6850 today. Intraday momentum indicators are showing a bias to the downside ahead.  

      USD/MYR – Downside Bias. Spot USD/MYR smashed down to 3.5670 as local markets returned after a 2-day break. 1s NDF lower to 3.5770. Big move came off the back of improvement in oil prices (+20% since end-Jan). We had previous noted that a 20% move in oil prices see a ~3% move in MYR. Stable oil prices could further support the ringgit. Next big level 3.55 before 3.52 (50 DMA). Intra-day 3.55 – 3.5750 range expected. Daily; Hourly momentum are biased for mild downside.

      USD/CNY was fixed at 6.1318 (-0.0051) vs. Previous 6.1369 (+2.0% upper band limit: 6.2569; -2.0% lower band limit: 6.0116). CNY/MYR was fixed at 0.5716 (-0.0131). USD/CNH – Downside bias. USD/CNH eased towards 6.2540 levels, on lower USD/CNY setting, weaker USD. 6.2450 – 6.2720 intra-day range likely, with mild bias to downside on broad USD weakness. Slow stochastics are also sho falling from overbought areas. Daily MACD and stoch are bias for downside, short term.

      USD/IDR – Bearish Tilt. The USD/IDR is on the slide this morning, dragged lower by improved risk sentiments over Greece as well as Jokowi’s pledge to proceed with reforming the economy and settle the dispute between the policy and the anti-corruption agency. Pair has lost most of its bullish sentiments and slow stochastic is showing tentative signs of dipping, suggesting the potential for a retreat ahead. Downside today should be limited by 12480, while any rebound should be capped by 12700. Yesterday, foreign funds bought a net USD26.46mn in equities, and removed a net IDR1.1tn from their outstanding holdings of debt on Mon. The 1-month NDF continues on its slide since hitting the year’s high so far at 12878 (7 Jan) and is currently hovering around 12657 with intraday MACD and slow stochastics showing a downside bias. The JISDOR was fixed lower at 12643 on Tue from Mon’s 12700 and should again be fixed lower should the spot’s drift lower hold.

      USD/PHP – Gapped Lower. The USD/PHP gapped slightly lower to 44.035 at the opening from yesterday’s close of 44.048, helped by the improvement in global risk sentiments and continued equity inflows. So far, the 44-figure has been key support for the pair and for bears to extend control, a firm break of this level is needed. Next support is seen around 43.810. Resistance remains at 44.280. Intraday MACD is showing little momentum in either direction though slow stochastic is showing tentative signs of a downturn.  Equity flows continue to be supportive of the PHP with a net USD167.42mn flowing into the PSEi yesterday. The 1-month NDF is on the uptick this morning, sighted around 44.05 with slow stochastics on the dip.

      USD/THB – Range-Bound.  The USD/THB tested both our support/resistance levels at 32.500 and 32.650 but failed to make headways in either direction. Pair has settled back near the middle of its current trading range of 32.500-32.650, helped by dollar weakness overnight. Both the intraday MACD and slow stochastic have flatlined suggesting range-bound trades are likely ahead. Look for the pair stay range-bound within 32.500-32.650 today. Equity flows yesterday of a net THB2.27bn helped support the THB, though this was slightly mitigated by the outflow of a net THB0.32bn in debt.

Rates

Indonesia

      Indonesia Bond prices incline on the opening of the day as well as post auction. Positive sentiment from Monday economic data release remains supporting the rally of bond prices. Aside from that, there were minimum sentiments. There were mixed participant in the market yesterday with both local and offshore banks on the offer side. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 6.724%, 6.845%, 7.003% and 7.141% while 2y yield shifts down to 6.592%. Heavy volume at secondary market remains to be traded at government segments amounting Rp25,336 bn with FR0069 (5y benchmark series) as the most tradable bond. FR0069 total trading volume amounting Rp10,008 bn with 126x transaction frequency and closed at 104.133 yielding 6.724%.

      Indonesian government conducted their weekly auctions and received incoming bids of Rp40.23 tn bids versus its target issuance of Rp12.00 tn or oversubscribed by 3.4x. Despite Incoming bids were lower by 26.6% compared to 20 Jan conventional auction, hence in our view, incoming bids remains heavy. However, DMO only awarded Rp16.00 tn bids for its 3mo which was sold at a weighted average yield of 5.64200%, 1y SPN at 6.20538%, 5y FR0069 at 6.70931% while 15y FR0071 was sold at 6.96176%. Incoming bids were mostly clustered at the long end tenor specifically FR0071 (15y benchmark series). Bid-to-cover ratio during the auction came in at 1.23X – 6.82X. No bids were rejected during the auction. WAY awarded during the auction was lower compared to yesterday closing yields. Incoming bids by foreigner during the auction was seen approx. Rp14.83 tn or 36.87% of total incoming bids with awarded bids worth of Rp8.44 tn. Hence, we might need to wait for some while to get the real sense on how much did foreigner purchased during the auction through local main dealers. What was different between yesterday’s auction compared to last conventional auction was the jump of WAY which were not as larger and wide as last auction. FR0069 and FR0071 WAY came in within our indicative WAY range. Till the date of this report, Indonesian government has raised approx. Rp54.37 tn worth of debt through bond auction in 1Q 15 which represents 69.3% of the 1Q 15 target of Rp78.50 tn.

      Corporate bond trading traded heavy amounting Rp1,226 bn. BBTN15 (Bank BTN XV Year 2011; Rating: idAA) was the top actively traded corporate bond with total trading volume amounted Rp490 bn yielding 9.373%.