Maybank GM Daily - 17 Mar 2015

FX

Global

US and EU equities gained overnight as weaker US data release sparked hopes that Fed may not signal an imminent rate hike at its upcoming FOMC meeting (Wed/Thu). USD-long saw some profit-taking on recent gains as DXY slipped below 100-levels to about 99.50 levels overnight. EUR, AUD, NZD managed a breather from recent decline. Oil price decline continued with WTI and Brent below $44/bbl and $55/bbl, respectively on ongoing supply glut concerns.        RBA minutes of its Mar policy meeting released this morning noted that further easing over the period ahead may be appropriate to foster sustainable growth; and continues to emphasize that while the AUD/USD has depreciated, it remains above most estimates of its fundamental value given the significant declines in key commodity prices. This underscores our view for a weaker AUD on a combination of factors including soft domestic economic growth, falling inflation and further intensification of USD strength.        Day ahead brings EC Feb CPI inflation; Mar ZEW expectation; ECB Draghi, Lautenschlaeger, Praet speak for EU. For US, Feb Housing starts and building permits are on tap. In Asia, Bank Indonesia meets today. We expect no change to policy rate. Day ahead could sxee further profit-taking on USD gains ahead of FOMC meeting (Wed/Thu). We remain better buyers of USD on dips.

G7 Currencies

Profit-taking on USD longs. USD-longs saw some profit-taking on recent gains above 100-levels ahead of FOMC Wed/Thu. We have cautioned on possible USD pullback on profit-taking in the near term. . Slow stochastics continues to exhibit tentative signs of falling from overbought levels. Interim support now at 98-levels (before the breakout). Over the medium term we remain convicted to our USD bullish bias and continue to favor buying USD on dips, targeting 102-levels. Daily MACD remains bullish bias This week brings 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. USD/JPY remained in consolidation within familiar ranges, hovering around the 121.40-levels currently. Intraday MACD is showing bearish momentum, while slow stochastics is still indicating downside bias, suggesting that a retracement could be in the making. A move towards 119-levels cannot be ruled out as such. Key resistance remains at 121.85. Unless there are surprises from BOJ policy decision and presser by Kuroda later this morning (consensus is expecting no changes), expect the pair to remain in consolidation within 119.00-121.85 today.        AUD/USD – Sell on Rallies. AUD continued to be weighed by RBA minutes this morning. RBA said another rate cut would be needed to support an economy that is expanding at below-average pace. We continue to 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 0.7620 at time of writing; still favor fading rallies towards 0.7650 for a move back 0.75-psychological level. This week brings Feb Westpac Leading Index (Wed); RBA Governor Stevens to speak (Fri).        NZD/USD – Range-bound. NZD/USD traded range-bound 0.7318 – 0.7409 yesterday ahead of GlobalDairyTrade auction due tomorrow morning (Wed NZ time).  Pair now trades around 0.7371; intra-day range of 0.7320 – 0.7420 expected. This week focus on GlobalDairyTrade auction; 4Q current account (Wed) and 4Q GDP (Thu).        EUR/USD – Fade Rallies. EUR/USD enjoyed a brief rally on USD-long profit taking ahead of FOMC meeting on Wed/Thu. Bank of Italy Governor comments that the EUR/USD has fallen further than the ECB has anticipated also supported the pair.  We maintain our core short EUR/USD view amid structural decline in Europe fundamentals; and continue to 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 suggests 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 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 – Consolidation. EUR/SGD traded well within 1.4570 – 1.4745 range yesterday. Pair is likely to consolidate ahead of FOMC meeting Wed/Thu. Daily slow stochastics are at oversold levels and is showing tentative signs of rising, suggesting possible rebound. Intra-day range of 1.4610 – 1.4750 likely for the day.

Asia ex Japan Currencies

The SGD NEER trades around 1.8% below the implied mid-point of 1.3583. The top end is estimated at 1.3311 and the floor at 1.3854.        USD/SGD - Sideways. The USD/SGD is back above the 1.39-handle this morning as the dollar regains its footing and as Feb NODX declined by 9.7% y/y, more than expected. Upside remains capped at 1.3950 due to SGD NEER policy band constraints. Support nearby is seen around 1.3850. Intraday MACD is showing no strong momentum, but slow stochastics is indicating some downside bias ahead, suggesting sideway trades seem possible today. Remains better buyers on USD dips.        AUD/SGD - Bearish. AUD/SGD is on the slide again this morning on the back of the relative weakness in the AUD, hovering around the 1.06-levels. Lacking fresh catalyst, look for the pair to trade range-bound within the 1.0700-1.0520 range today. Both intraday momentum and oscillators are showing tentative signs of turning lower.        SGD/MYR – Mildly Bearish. SGD/MYR is on the slide this morning underpinned by the relative strength of the MYR. Pair continues to trade within the 2.6520-2.6820 range in the absence of fresh catalyst. Intraday MACD continues to show bearish momentum. Expect range of 2.6520-2.6770 to hold today.        USD/MYR – Supported. USD/MYR remains in consolidation mood, trading 3.6855 – 3.71 range yesterday. 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. 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.          USD/CNH – Downward pressure. The pair continues to ease towards 6.2650 levels this morning tracking lower USD/CNY fix and a slightly weaker USD. Day ahead, technicals suggest some mild downward pressure possibly towards 6.2580 levels (50 DMA). MACD and stochastics are mild bearish bias. We mentioned that 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. News of debt swap program will partially ease some market concerns over local government debt. That said, 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. USD/CNY was fixed lower by -30 pips at 6.1585 (vs. 6.1615). CNYMYR was fixed higher by +64 pips at 0.5907 (vs. 0.5843).        USD/IDR – Consolidating Lower. USD/IDR is on the retreat below the 13200-levels this morning, despite the dollar rebounding this morning. Pair remains in consolidative mode ahead of BI policy meeting later today (consensus and our economic team are expecting no changes). Intraday MACD is showing mild bearish momentum, while slow stochastics is falling from overbought levels. Continue to expect intraday range of 13100-13285 to hold today. 1-month NDF continued to be elevated around the 13300-levels with both momentum and oscillators showing bearish bias. As expected, the JISDOR was fixed at a new historic high of 13237 from Fri’s 13191 but a lower fixing could be possible should the spot’s drift lower be sustained. Foreign funds continued to sell Indonesian assets with a net USD57.7mn in equities sold yesterday and a net IDR1.3tn removed from their outstanding holding of debt on 12 Mar (latest data available).        USD/PHP – Sideways. The USD/PHP is in consolidative mode after gapping higher yesterday. Intraday MACD and slow stochastics are still showing a bias to the upside, suggesting downside could be limited. In the absence of fresh catalyst, pair is likely to remain in consolidation today within a tighter range of 44.300-44.500. 1-month NDF continues to hover within familiar ranges of 44.100-44.500 range with intraday MACD showing no strong momentum and slow stochastics still in overbought territory.

       USD/THB – Consolidating Lower.  USD/THB continues in consolidative mode, trading within the 32.770-33.090. Pair has so far been unable to firmly break above the key resistance at the 33-figure. We need to see a firm break of this key level for further upside. Intraday MACD and slow stochastics are both showing a bias to the downside ahead. 32.770 should be supportive ahead. Foreign funds bought a net THB0.7bn in equities yesterday, which could not offset the selling of a net THB1.3bn in debt, which continued to provide support for the pair..

Rates

Malaysia

§  Local government bonds had a slow start to the week with more interest seen in the belly of the curve. The 7y and 10y benchmarks ended 1-2bps lower. Players will look to the language in the upcoming FOMC meet for the next catalyst on yield movement, while locally we have Feb CPI and foreign reserves data release this Friday. The new 15.5y GII 9/30s is also expected to be announced this week and we anticipate an issuance size of MYR2.5b.

§  IRS levels shifted lower on the back of recent rate cuts in the region as well as on expectations of a lower CPI reading next week. 5y IRS was dealt at 3.85% and 7y IRS at 4.00% and 4.03%. Ahead of the FOMC outcome, MYR rates would be better to receive on upticks as there is no catalyst for a rate hike or higher KLIBOR. 3M KLIBOR unchanged at 3.77% but the average is declining.

§  Local PDS market had a muted trading session. AAA bonds traded at MTM levels. Although Telekom 24s were seen trading 1bp wider than last week's levels, buying interest for the issuer’s bonds remains robust across its 4 tranches. We also saw keen interest for other 9y dated bonds such as Tenaga Northern Energy, KLCC and Plus. In the GG space, Danainfra 22s and 44s widened 1-2bps. We noted there has been better interest in the AAA space compared to the GG space and think that the spread for GGs at the belly of the curve appear slightly tight at the moment. YTL Corp 23s also widened by 2bps while liquidity for other AA bonds was thin.

Singapore

§  SGS got sold down with yields rising as high as 13bps before some taking interest came in, especially on the 8y and 10y benchmarks, and PDs buying back after the USDSGD broke below 1.39 in the late afternoon. SGS yields ended 3-7bps higher across the curve. SGD IRS also rose about 3-4bps from previous close, while bond swap spreads tightened about 2bps. The SGS market remains very dependent on SGD funding conditions and should funding carry on tightening, SGS will continue to underperform.

§  Asian credits overall traded on a weaker tone. Chinese HYs took a hit after news of another Chinese developer under graft allegations. Names like Shanshui and Hongqiao all traded lower. Meanwhile, Chinese IGs had mixed response. We saw some profit taking on names like HRAM, Shengy, and HAISEC. Indon sovereigns traded on a very soft tone due to the weak IDR. The new PETRONAS bonds continued to trade wider by 5-8bps – spread for PETMK 2045 traded down to 202 while PETMK 2025 traded around the 160 level.

Indonesia

§  Indonesia bond market weakened amid better Feb trade balance data. In our view, the slide in prices during Monday trading occurred as (1) DMO will conduct its bond auction today, (2) awaiting of RDG BI meeting results today, (3) FOMC meeting result this week and (4) continuation of Rupiah depreciation. Indonesia central bank was seen buying government bond at the market yesterday hence they were not that aggressiveness. Feb trade balance came in surplus of US$0.74 bn supported by a surplus in oil and gas and non oil and gas sector. Economist consensus sees that Bank Indonesia would halt its reference rate at 7.50% during RDG BI meeting today. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 7.214%, 7.354%, 7.571% and 7.736% while 2y yield shifts down to 6.938%. Trading volume at secondary market was seen heavy traded at government segments amounting Rp12,907 bn with FR0070 (10y benchmark series) as the most tradable bond. FR0070 total trading volume amounting Rp3,242 bn with 49x transaction frequency and closed at 106.633 yielding 7.354%.

§  DMO will conduct their conventional auction today with four series to be auctioned which are SPN12160304 (Coupon: discounted; Maturity: 4 Mar 2016), FR0069 (Coupon: 7,875%; Maturity: 15 Apr 2019), FR0071 (Coupon: 9.000%; Maturity: 15 Mar 2029) and FR0067 (Coupon: 8.750%; Maturity: 15 Feb 2044). We believe that the auction will be oversubscribe by 2.0x – 3.0x from its indicative target issuance of Rp10 tn while our view on the indicative yield are as follows SPN12160304 (range: 5.900% – 6.00%), FR0069 (range: 7.200% – 7.300%), FR0071 (range: 7.580% – 7.680%) and FR0067 (range: 7.950% – 8.050%).

§  Corporate bond trading traded heavy amounting Rp1,231 bn. BEXI02CCN5 (Shelf registration II Indonesia Eximbank Phase V Year 2015; C serial bond; Rating: _idAAA) was the top actively traded corporate bond with total trading volume amounted Rp390 bn yielding 9.500%.