Maybank GM Daily - 20 Mar 2015

FX

Global

       Equities partially reversed some of gains post-FOMC overnight. USD decline was also partially reversed with the DXY now at 99-levels. EUR, GBP, AUD and NZD resumed its weakness vs. the greenback. In AXJ, the Renminbi continues to gain post-NPC/CPPCC meeting ignoring the strong USD trend. Oil prices resume its decline, following a rebound in the USD and ongoing supply glut. There were comments overnight that OPEC members will continue to produce in an oversupplied market. 

       Despite the dovish signaling by the FOMC, we wish to reiterate our core view for mild bullish trajectory in the DXY and for FFR hike to begin Sep 2015 at the earliest totaling 50-75bps by end-2015.  we believe Fed wants to be sure that growth is entrenched to further tighten the job market that will in turn drive up inflation towards its longer term objective of 2%, hence the cautious and gradual monetary policy normalization.  This suggests the US Fed Funds and LIBOR at end-2015 to be between 0.75% and 1.00% before rising to around 2.50% to 3.00% by end-2016.

       Day ahead GE Feb PPI; FR 4Q wages growth; EC Jan Current account for EU. For US, Fed’s Lockhart and Evans to speak on monetary policy tonight. Day ahead USD/AXJs may consolidate with mild upside bias. We remain better buyers of USD on dips.

G7 Currencies

       DXY – Quietly Patient. USD pullback post-FOMC has been partially restored as markets digest FOMC thinking, with DXY at 99-levels this morning. In the near term we do not rule out range trading with some bias to the downside. We also caution for some likelihood of a pullback to 95.50. Slow stochastics is now falling from overbought levels. But over a medium term we continue to reiterate our core view for mild bullish trajectory in the DXY and for FFR hike to begin Sep 2015 at the earliest totaling 50-75bps by end-2015. We continue to favor buying USD on dips. Day ahead Fed’s Lockhart and Evans to speak on monetary policy.

       USD/JPY – Consolidation. USD/JPY rebounded towards 120.80 levels, tracking USD strength. Pair is likely to consolidate in 119.30 (50 DMA) – 121.80 (previous high in Dec 2014) in absence of fresh catalyst to inspire any break-out moves. 

       AUD/USD – Sell on Rallies. AUD rally above 0.78-handle post-FOMC was short-lived as the pair reversed back into 0.7660 levels. Eyes on RBA Governor Stevens speech in Melbourne later. Day ahead see 0.76 – 0.7710 range.  Still favor fading rallies targeting a break of 0.7560 (previous low in Mar 2015). Key resistance now seen at 0.7850(50 DMA). We continue to see further weakening in the A$ on a combination of factors including soft domestic economic growth, falling inflation and further intensification of USD strength. We still see at least another rate cut to come possibly in Apr or May meeting.

       EUR/USD –Fade Rallies. EUR rally post-FOMC was brief as the pair has retraced most of its moves lower towards 1.0660 levels this morning. While Fed projection may seem more dovish than expected, the Fed is still expected to be on a tightening bias as compared to its Euro-counterparts whom have just began QE amid ongoing unresolved Greek issues. We continue to maintain our core bearish EUR/USD view amid structural decline in Europe fundamentals and favor fading rallies. Range of 1.0450 – 1.0850 likely to dominate. Day ahead brings GE Feb PPI; FR 4Q wages growth; EC Jan Current account (Fri). 2-days EU Leaders summit currently taking place over Thu-Fri.

       EUR/SGD – Range; Bias to Fade Rallies. EUR/SGD rebound post-FOMC was partially reversed as the pair trades at 1.48 levels at time of writing. Pair may consolidate between 1.47 – 1.49 range as market continues to digest FOMC thinking and anticipate MAS policy meeting in Apr. We remain better sellers of EUR on rallies on structural headwinds in the Euro-area remain unresolved and ECB QE.

Asia ex Japan Currencies

       The SGD NEER trades around 1.80% below the implied mid-point of 1.3623 with the top end estimated at 1.3350 and the floor at 1.3895.

       USD/SGD – Bearish Bias. The USD/SGD continues to drift higher towards 1.3870 following the brief dip to 1.3730 yesterday on dovish FOMC projection. For the day ahead the pair is likely to consolidate 1.3810 – 1.3920 range, as market digests FOMC meeting and in anticipation of MAS policy meeting in Apr. Consensus is tilted towards a re-centering while we maintain our view of MAS adopting a “wait-and-see” approach. We do not rule out another inter-meeting policy move should conditions deteriorate and warrant a shift in monetary policy stance.

       AUD/SGD – Bullish. AUD/SGD rally towards 1.0794 post-FOMC was short-lived as the pair reversed the up-move to trade lower towards 1.0625 levels this morning. Pair remains in the middle of the range (1.04 – 1.08) we been calling for and we continue to favour selling on rallies. MACD and stochastics are neutral for now.

       SGD/MYR – Mild Bullishness. SGD/MYR drifted a touch higher towards 2.6790 amid renewed Ringgit weakness on declining oil prices and heightened risk of credit rating downgrade. Day ahead pair could trade 2.6690 (50 DMA) – 2.6850 range with mild bias to the upside on MYR weakness..

       USD/MYR – Consolidation. USD/MYR’s decline towards 3.6530 levels post-FOMC proved very short-lived as markets were reminded of the fact that little had improved for MYR overnight. USD/MYR now trades around 3.7130 levels and seems poised for further upside. Key resistance at 3.7190 (previous high in Mar) before 3.73 levels. We have been highlighting that we continue to see further weakness in the Ringgit on a combination of domestic worries including risk of smaller net foreign fund inflows and heightened risk of sovereign rating downgrade amid contingent liability exposure, lower fiscal revenue and declining current account surplus. Fitch ratings have recently highlighted that Malaysia’s rating sits “more naturally” in BBB range. Fitch is currently reviewing Malaysia’s rating and is expected to make a decision in mid-May/June. As of now Malaysia’s credit rating stand at A-. Apart from domestic worries, there are also external concerns at play. We are expecting persistent oil weakness for the next 2 quarters on supply glut issues and this is expected to weigh on the Ringgit. In light of the above, we raise our USD/MYR forecast for 2Q, 3Q, 4Q 2015 to 3.75, 3.75, 3.60, respectively.

       USD/CNH – Downward pressure. The pair continues to ease below 6.20 to trade 6.1970 levels this morning despite higher USD/CNY fix and a stronger USD. There could be further downside pressure towards 6.1850 levels (200 DMA) amid long USD/CNH position unwinding and major positive news on “local debt swap” program and commitment to interest rate liberalisation timeline. The debt swap program will partially ease some market concerns over local government debt. Day ahead, see 6.1850 (200 DMA) – 6.2080 (100 DMA) for USD/CNH. MACD and stochastics are bearish bias. That said, we continue to caution 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 higher by 36 pips at 6.1496 (vs. 6.1460). CNYMYR was fixed higher by 28 pips at 0.5931 (vs. 0.5902).

       USD/IDR – Consolidation. USD/IDR eased from multi-year highs following FOMC yesterday. Pair now trades around 13,070 levels and could consolidate.  We still see a risk of BI cutting rate by 25bps in its Apr meeting. Day ahead 13,030 – 13,135 range in absence of fresh catalyst. On technicals, the MACD and stochastics are mild bearish bias.

       USD/PHP – Buy on Dips. The USD/PHP continues to trade higher towards 44.80 levels this morning. Yesterday we highlighted in a note that Philippines USD-denominated borrowing (in terms of active bonds and loans) to FX reserves are high (second in the region after Indonesia). This suggests vulnerability to USD strength and US interest rate hike in the foreseeable future. Over the past few sessions, there were also equity outflows and in the recent overseas remittances, Philippines registered a significant drop. In terms of technical analysis, we also cautioned for an interim double bottom at 44-levels and the pair has moved one-way higher towards current levels. Interim support now at 44.55 (100 DMA) while next resistance seen at 45.10 levels. MACD and stochastics are bullish bias. We continue to favour buying the pair on dips.

Rates

Malaysia

§  Local government bonds rallied firmly in the morning session on the back of a dovish FOMC statement, with buyers seen in the belly of the curve. Auction of the new 15.5y GII 9/30s averaged a yield of 4.245% with the highest and lowest bids being 4.254% and 4.231% respectively. The auction garnered a very strong bid-to-cover of 3.433x partly due to its small issuance size. In the afternoon, profit taking activity came in and the MGS curve ended 2-6bps lower with most trades done on 10y bonds. Fitch’s comments on a likelihood of a downgrade also added to players scaling down positions.

§  IRS rates shifted lower as FOMC is in no rush to hike the FFR albeit having removed the word “patient”. The Fed also lowered its median forecast of FFR increase. IRS has moved down by as much as 8bps WoW. 3y, 4y and 7y IRS traded at 3.68%, 3.77% and 3.95% respectively. 3M KLIBOR fell 1bp to 3.76%.

§  Trading in the local PDS market was focused on GG and AAA bonds but total volume decreased. GGs tightened another 1bp from the previous session. Danainfra recorded about MYR70m traded volume. In the AAA curve, we saw further tightening of 1-2bps for names such as Suria KLCC and Telekom. At the moment, we still prefer AAA bonds with maturities of 7-10y due to the attractive spreads and relatively better demand in the market. In the AA curve, Malakoff 29s tightened 7bps from MTM levels probably due to the positive news of its IPO. Malakoff bonds were actively sought after the entire week but market is short of offers which led to the premium paid on trades.

Singapore

§  SGS saw selling upon opening and sentiment remained bearish throughout the trading session. Dealers were defensive on bids as the IRS curve and short dated FWDs shifted higher due to a bullish USD. The front end and the belly of the SGS curve underperformed and swap spreads in that region narrowed 2-3bps. Longer dated bonds saw their spread against SGD IRS worsened by about 1bp. SGS yield curve closed unchanged at the front end and lower by 3-4bps from the 10y and beyond. The SGD IRS curve ended lower by 2-4bps, grossly underperforming its US counterpart.

§  Asian credit space opened on a much firmer tone post the FOMC. Profit takers took advantage of the rally in US Treasuries (UST), though spreads mostly remain unchanged. The new PETRONAS bonds outperformed, rallying almost 2pts at the longest end. Indon sovereigns also traded up 2.5-3pts on the back of the UST movement. Indon and Phillips were big gainers. The Chinese IG space saw good two way flows with names like BABA, HTISEC, TENCENT being traded actively. Tencent posted strong 2014 results due to its online gaming business. Mizuho opened books for its new 3y, 5y, and 10y bonds and following which, MUFG 2020 traded slightly lower at T5+84bps. We see value in the 5y and 10y for roughly 20bps pickup over its initial guidance. We heard some heavy issuances are in the pipeline with Korean names Shinhan Bank and Korea Resources leading the way. Indonesian PT Astra Sedaya Finance is going on a roadshow for their USD issuance next week.

Indonesia

§  Indonesia bond market closed higher supported by dovish view by the Fed which might increase its FFR in end of Q3 15 or Q4. This has not only made the LCY bond market to well perform but also has made the currency appreciate to the USD. We see that the strengthening of Indonesia bond market would continue today and we look that the 10y benchmark series yield might move nearing 7% today and may move below 7% next week. From the beginning of this month till 19 Mar, foreigner have recorded net sell of Rp10.83 tn in Indonesia bond market. We see that Indonesia bond market this week will close positive mainly post FOMC meeting result which was seen rather dovish. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 7.077%, 7.255%, 7.456% and 7.644% while 2y yield shifts down to 6.867%. Trading volume at secondary market was seen heavy traded at government segments amounting Rp13,210 bn with FR0069 (5y benchmark series) as the most tradable bond. FR0069 total trading volume amounting Rp3,955 bn with 64x transaction frequency and closed at 102.774 yielding 7.077%.

§  Corporate bond trading traded thin amounting Rp458 bn. BFIN02ACN2 (Shelf registration II BFI Finance Indonesia Phase II Year 2015; A serial bond; Rating: A+_(idn)) was the top actively traded corporate bond with total trading volume amounted Rp96 bn yielding 9.875%.