Maybank GM Daily - 16 Mar 2015

FX

Global

       US Equities slipped into Fri NY close on disappointing University of Michigan confidence and 4th straight month of US PPI contraction (-0.5% m/m in Feb). EU equities continued to close in positive territories as weaker Euro support rising profit expectation. For FX, weaker EUR/USD remains the dominant theme, with the pair trading down to 12-year lows of below 1.05-handle. Broad USD buying was seen across the board, with GBP, AUD, NZD declining to recent lows on Fri before seeing some rebound this morning. Oil price weakness remains with WTI falling below $45/bbl and Brent below $54/bbl on supply glur concerns. IEA warned that there is a risk of running out of storage space as the oil stockpiling in the US is large. Some oil companies are using the record oil stockpiling as an excuse to ask the US to lift the oil export ban. If this scenario materializes, oil price is likely to fall further while WTI-Brent spread will narrow further.

       Focus this week is on whether the data-dependent FOMC will signal a rate hike bias or if more patience is needed. Looking at recent Fed speaks and economic data (apart from some distortion due to bad winter last month), they seem to support a mid-year liftoff in rates and that means there is a strong likelihood of Fed potentially removing the word “patient” in the upcoming meeting and taking the press conference to clarify on the tone and manage expectation, leading to possible wild gyration in the USD next week.  We continue to hold to our house view with a move more likely delayed to 4Q 2015 rather than earlier which suggests some room for further USD volatility until Sep 2015 or so. We remain constructive of USD strength and continue to buy USD on dips.

       Day ahead, little data to focus on till late evening in US where Feb IP, Capacity Utilisation; Mar NAHB Housing market index; Mar Empire Manufacturing data are due for release. Remain better buyers of USD on dips.

G7 Currencies

DXY – Consolidate with Bullish Bias. USD bulls continue to rally; closing above 100-levels for the first time in more than a decade despite disappointing consumer sentiment and PPI data. We remain convicted to our USD bullish bias and continue to favor buying USD on dips, targeting 102-levels. Daily MACD remains bullish bias. We are slight cautious of pullback on profit-taking; slow stochastics is showing tentative signs of falling from overbought levels. Interim support now at 98-levels (before the breakout).  This week brings Feb IP, Capacity Utilisation; Mar NAHB Housing market index; Mar Empire Manufacturing (Mon); Feb Housing starts and building permits (Tue); MBA Mar Mortgage application (Wed); FOMC meeting; 4Q current account (Thu); Fed’s Lockhart and Evans to speak on monetary policy (Fri).        USD/JPY – Consolidation; Buy On Dips. USD/JPY drifted higher to 122.03 (10 Mar) before easing towards the 121.50-levels. 121.85 remains key resistance and a daily close above that key resistance level is needed for further bullish extension. Otherwise, a double-top formation could be formed in the interim and a move lower towards 119-levels cannot be ruled out. Daily MACD is showing little conviction while slow stochastics is still in overbought territory. Range this week of 119-121.85 is expected. Week ahead brings BoJ meeting followed by Kuroda presser on Tue; Feb trade (Wed); BoJ meeting minutes (Fri).        AUD/USD – Sell on Rallies. AUD/USD’s decline last Fri continued off the back of broad USD strength and commodity price weakening. We still see further weakening in the pair on a combination of factors including soft domestic economic growth, falling inflation and further intensification of USD strength. Pair now trades 0.7630 at time of writing; still favor fading rallies towards 0.77 for a move back 0.75-psychological level. This week brings RBA meeting minutes (Tue); Feb Westpac Leading Index (Wed); RBA Governor Stevens to speak (Fri).        NZD/USD – Range-bound. NZD traded to the softer side, tracking moves in its AUD counterpart, weak commodity prices and broad USD strength.  Pair now trades around 0.7340; intra-day range of 0.7300 – 0.7400 expected. This week focus on 4Q current account (Wed) and 4Q GDP (Thu). Favor fading AUD/NZD towards 1.0490 on widening policy divergence (RBA minutes expected on Tue and RBA Steens speak on Fri) should a rally in the pair materialises, looking for a move below 1.03-handle.        EUR/USD – Fade Rallies. EUR/USD tumbled below 1.05-handle into the week’s close on broad USD strength and German Finance Minister comments that “couldn’t rule out a  Grexident”.  We maintain our core short EUR/USD view amid structural decline in Europe fundamentals; but caution for possible consolidation ahead of FOMC meeting next week. Daily MACD remains bearish bias but slow stochastics indicate tentative signs of rising from oversold levels. This could suggest possible rebound. Resistance at 1.0860 (38.2% Fibonacci retracement of 1.1450 – 1.0495) should cap rebound.  Still favor trading from the short side. This week sees EU foreign minister meeting; EU Juncker speaking (Mon); EC Feb CPI inflation; Mar ZEW expectation; ECB Draghi, Lautenschlaeger, Praet speak (Tue); EC, IT Jan trade; EC Jan Construction output; ECB Coeure speaks (Wed); EC 4Q labor cost (Thu); GE Feb PPI; FR 4Q wages growth; EC Jan Current account (Fri). 2-days EU Leaders summit over Thu-Fri.        EUR/SGD – Fade Rallies. EUR/SGD continues to trade with a heavy bias, tracking moves in Euro weakness. Daily MACD remains bearish bias while slow stochastics are at oversold levels. Intra-day range of 1.4580 – 1.47 likely for the day.

EUR/SGD – Fade Rallies. EUR/SGD continues to trade with a heavy bias, tracking moves in Euro weakness. Daily MACD remains bearish bias while slow stochastics are at oversold levels. Intra-day range of 1.4580 – 1.47 likely for the day.

Asia ex Japan Currencies

       The SGD NEER trades around 1.75% below the implied mid-point of 1.3671 with the top end estimated at 1.3398 and the floor at 1.3950.

       USD/SGD - Still On An Uptrend. The USD/SGD drifted higher towards 1.3941 (13 Mar) before easing. We still some support in the USD/SGD especially headed towards FOMC meeting on Thu, but given SGD NEER policy band constraints, upside could be capped at 1.3950.  Remain wary of leaning against the wind activity. Interim support still seen at 1.3740. Daily momentum indicators remain on a bullish bias. Remains better buyers on USD dips. We have Feb NODX due on Tue but is unlikely to have a significant impact on the pair barring surprises.

       AUD/SGD - Fade Rallies. AUD/SGD traded 1.0490-1.0700 for the past week, capped by 50DMA. Daily momentum and oscillators lack conviction. Failure to close above the 1.0700 levels has seen the resumption of the downtrend towards 1.03/1.04 levels. Expect a potential drift towards 1.08; favour fading rallies.

       SGD/MYR – Consolidating Mildly Lower. SGD/MYR remains in consolidative mode, hovering around the 2.6520-2.6820 range for the past week in the absence of fresh catalyst. Both daily MACD and slow stochastics are showing early signs of a bearish bias. Expect range of 2.6350-2.6800 to remain in focus.

       USD/MYR – Supported. USD/MYR opened 3.6855 but drifted higher towards 3.7060 before trading to the softer side below 3.70. We continue to see further upside in the pair on a combination of domestic worries including vulnerability to foreign fund outflow and heightened risk of rating downgrade following contingent liability exposure, lower fiscal revenue. MIDF says foreign investors intensified selling pressure with net outflow of MYR1.2bn last week; net outflows YTD at MYR4.6bn vs MYR6.9bn in whole of 2014.   We remain cautious of leaning against the wind activity. Day ahead still see 3.6850 – 3.72 range; with bias to buy USD on dips.

       USD/CNH – Buy on Dips. Last Friday late evening rally in USD/CNH by nearly +200pips towards 6.29 levels was triggered by rumors of CNY band widening over the weekend (which did not materialise). The pair has now eased towards 6.2760 levels this morning despite higher USD/CNY fix. The “local debt swap” program and commitment to interest rate liberalisation timeline are seen as major positives for the economy and CNY in the medium term. However in the near term, we continue to stress that the economy still face economic headwinds in particular to growth, debt, fx/capital outflow pressures and is likely policymakers may need to do more. We continue to see a 50bps cut to RRR sometime now till Apr; and a weaker Renminbi. Day ahead, technicals suggest some mild downward pressure possibly towards 6.27 levels in the USD/CNH. MACD and stochastics are mild bearish bias. USD/CNY was fixed higher by +27 pips at 6.1615 (vs. 6.1588). CNYMYR was fixed unchanged at 0.5843 (vs. 0.5843).

       USD/IDR – Consolidating Higher. USD/IDR continues in consolidative mode after gapping to a high of 13245 (11 Mar).  Pair remains under upside pressure ahead of BI policy meeting tomorrow (consensus and our economic team are expecting no changes) and FOMC meeting on Thu. Daily MACD continues to show bullish momentum, while slow stochastics remains in overbought territory. Range of 13100-13285 continues to be in focus this week.1-month NDF climbed to a high of 13443 (11 Mar) but has since eased towards the 13300-levels with daily MACD still showing bullish momentum and slow stochastics in overbought levels. The JISDOR ended the week with a new historic high of 13191 on Fri and a new high is in the making today given the spot’s drift higher today. Foreign funds sold a net USD179.6mn in equities last week and removed a net IDR7.6tn from their outstanding holding of debt between 9-11 Mar (latest data available). Feb trade data is out later today.

       USD/PHP – Range-Bound With Bullish Bias. The USD/PHP gapped higher at the opening to 44.400 from Fri’s close of 44.290, playing catch-up with the dollar. Pair has since eased back below the 44.400-handle. Daily MAC and slow stochastics are showing a bias to the upside still. Ahead of FOMC meeting on Thu, pair is likely to consolidate higher within 44.200-44.500 this week. BSP governor has reiterated that the monetary stimulus was unnecessary given robust domestic demand and ample liquidity, putting to rest for now speculation that the BSP could join the rate cutting club. 1-month NDF remains in consolidation, hovering around the 44.100-44.500 range still with daily MACD still showing bullish momentum and slow stochastics in overbought territory.  Week ahead has Jan overseas remittances (Mon) and Feb BoP (Thu).

       USD/THB – Bullish.  USD/THB hit a two-month high of 33.040 this morning before easing back towards the 32.900-levels as the lingering effect of the 11 Mar rate cut continues to weigh on the THB. The 33-figure remains key resistance and we need to see a firm break of this level before seeing further upside. Failing which we could see the pair headed back lower towards the 33.700-levels this week. Daily MACD is showing bullish momentum, though RSI is indicating overbought levels. Look for 33.720-33.090 (5 Jan high) range to hold this week. Last week saw foreign funds selling a net THB0.3bn and THB28.3bn in equities and debt, providing support for the pair. Foreign reserves for week of 13 Mar (Fri) will be eyed this week.

Rates

Malaysia

       Local government bond curve ended 1-3bps lower. The newly issued 10.5y MGS 9/25s closed 1bp lower from previous day amidst good trade volumes. GIIs were unchanged as players await the next auction of the new 15.5y GII 9/30 which is expected to be announced this week with an issue size MYR2.5b.

       IRS traded very lightly last Friday with better receivers seen on the shorter end of the curve. Only one trade was reported which was on the 2y IRS and the curve ended unchanged. 3M KLIBOR remained at 3.77%.

       PDS market saw significant pickup in activity. Trading was focused on high grade papers at the belly to the long end of the curve, with keen interest seen for 9y AAA papers. Plus 24s tightened 1bp while Telekom 24s recorded MYR65m traded volume at MTM levels. Most actively traded were long dated Plus bonds with MYR215m in traded volume and the three tranches generally tightened by 1bp. In the GG space, Govco 21s tightened 1bp before closing flat at MTM levels with over MYR150m traded volume. The 9y GG curve appears too tight at the moment, as such we prefer AAA names with stronger credit. For new issues, Cagamas issued 1y MYR60m at 3.75% and 3y MYR440m at 3.95%.Singapore

Singapore

§  The SGS market was extremely quiet and the yield curve ended 2-6bps higher, whilst the SGD IRS moved up by about 2bps. Bond swap spreads tightened by roughly 3bps. This could be attributed to the recovery in the USDSGD Spot which drove FWD terms to the right. Focus for the week will be the FOMC meeting, which would partly set the direction for the rest of the month.

§  Asian credit market saw fairly light volume but new deals that were priced overnight rallied and performed rather well. New issues include 1) ICBC Financial Leasing’s 3y USD400m at CT3+175bps and 5y USD600m at CT5+190bps, 2) Beijing Infrastructure Investment’s 3y EUR500m at MS+95bps, and 3) Hutchison Port’s 3y USD500m at CT3+127.5bps and 5y USD500m at CT5+140bps. In the afternoon, most of the bonds widened 2-3bps on the back of the US Treasury movement. At day end, ICBCAS traded extraordinarily well and rallied 20bps from reoffer. We think the fair value for ICBCAS 5y is around the 170 level. Hutchison Port on the other hand tightened 5-7bps while PETRONAS continued to trade around the reoffer level. Aside from new issues, Kaisa curve traded higher on the back of retail buying, Indon sovereigns were up slightly and Indian names saw mix flows. Players are likely to be on the sidelines this week ahead of the FOMC meeting.

Indonesia

§  Indonesia bond market continues its incline still supported by foreign flow during the second session of trading day. Between beginning of the month till 12 Mar, foreigners have booked net sell worth of Rp11.2 tn in Indonesia bond market. Today, Indonesia statistic will publish Feb trade balance where economist consensus sees that the number might come in a surplus of US$0.52 bn or lower than Jan trade balance data of US$0.71 bn. Bond market today may move sideways with the 10y yield to move between 7.15% - 7.45% as investors might wait for the result of central bank RDG meeting tomorrow. As a comparison, recently, Reserve Bank of India and Bank of Korea has cut their rates by 25bps. However, economist consensus still believes that Indonesia central bank would halt its reference rate at 7.50%. We also recommend investors to be cautious pre Fed meeting knowing data in the US labour market was seen quite well yet offset by declining month of month growth of US retail sales. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 7.176%, 7.337%, 7.616% and 7.681% while 2y yield shifts up sto 6.982%. Trading volume at secondary market was seen moderate traded at government segments amounting Rp11,906 bn with FR0068 (20y benchmark series) as the most tradable bond. FR0068 total trading volume amounting Rp3,018 bn with 92x transaction frequency and closed at 106.875 yielding 7.681%.

§  Corporate bond trading traded heavy amounting Rp858 bn. ISAT01BCN1 (Shelf registration I Indosat Phase I Year 2014; B serial bond; Rating: _idAAA) was the top actively traded corporate bond with total trading volume amounted Rp205 bn yielding 9.662%.