Maybank GM Daily - 24 Mar 2015

FX

Global

US equities closed marginally weaker amid soft US economic data. USD weakness continued for another session amid weak economic data and comments from Fed’s Vice-Chair Stanley Fischer whom said that a rate increase would likely be warranted by end-2015, with the exact timing dependent on economic data. He also added that rate increase won’t be smooth. The DXY tumbled to 97-levels; while most currencies including EUR, AUD, NZD continued to trade higher. Oil prices rebounded after falling initially.        Released this morning, HSBC Flash China Manufacturing PMI unexpectedly fell to 11-month low of 49.2 (contractionary territory) in Mar (vs. 50.7 in Feb). The data suggested a slight deterioration in China’s manufacturing sector in Mar. Breakdown showed that New orders and new export orders indicated a decrease. USD/CNY was largely unchanged at 6.2040; while AUD was slightly softer.        Day ahead focus on EC, GE, FR Mar P. services/ manufacturing/ composite PMIs for Europe. For US, Fed CPI; Mar P Manufacturing PMI; Feb new home sales; Mar Richmond Fed manufacturing index are on tap; Fed’s Mester, Bullard and Williams due to speak. USD weakness may continue; USD/AXJs expected to ease off recent highs.

G7 Currencies

       DXY – Correction Underway. USD weakness continued with DXY closing around 97-levels amid weaker US data and Fed speaks in particular from Fed Vice Chair Fischer. He said that a rate increase would likely be warranted by end-2015, with the exact timing dependent on economic data. He also added that rate increase won’t be smooth. This fuelled the decline in USD.  In the near term the bias is for USD downside as consensus for rate hike is now shifting to later part of the year. We continue to caution for further pullback with a risk to 95.50 levels (before the break-out and 38.2% Fibonacci retracement of 87.62 – 100.39). Daily MACD and slow stochastics are bearish bias. Week ahead brings Fed CPI; Mar P Manufacturing PMI; Feb new home sales; Mar Richmond Fed manufacturing index; Fed’s Mester, Bullard and Williams to speak (today). Feb durable goods orders; Fed’s Evans to speak (Wed); Mar P. services/composite PMI; Mar Kansas City Fed Manufacturing; Fed’s Bullard and Lockhart to speak (Thu); 4Q GDP; core PCE; Mar Univ. of Michigan sentiment and Fed’s Fischer to speak (Fri).

       USD/JPY – Bearish bias; Buy Dips. USD/JPY continued to ease off the interim double-top formation formed at 121.85. Pair could see further downside towards 119.30 levels (50 DMA), 118.80 (100 DMA), which we look to buy USD dips there. Daily MACD and slow stochastics are bearish bias. Week ahead brings Mar manufacturing PMI; Mar small business confidence (Tue); Feb PPI services (Wed); Feb jobless rate; retail sales; overall household spending (Fri).

       AUD/USD – Rebound Underway; Sell on Rallies. AUD continued to trade higher and made a daily close above 50DMA. Daily MACD and stochastics are exhibiting signs of bullish bias. Pair could see further rebound towards 0.7910 (2015 high), 0.8020 levels (23.6% Fibonacci retracement of 0.9505 – 0.7561. Over the medium term 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. We look for better levels towards those resistance levels to fade rallies. Week ahead brings RBA Asst. Governor Eddy participating in panel (Tue); RBA’s financial stability review (Wed).

       EUR/USD –Fade Rallies. EUR jumped higher, closing another big figure higher around 1.0950 levels overnight.  MACD and slow stochastics are both bullish bias and could suggest further rebound towards 1.1050 levels (61.8% Fibonacci retracement of 1.1450 – 1.04558); we favor fading rallies towards 1.1050 levels. Day ahead expect more 2-way trading between 1.0850 – 1.10 range. Over the medium term we continue to maintain our core bearish EUR/USD view amid structural decline in Europe fundamentals and diverging monetary policies. Week ahead sees EC, GE, FR Mar P.services/manufacturing/composite PMIs (Tue); GE Mar IFO; FR Mar Business Confidence (Wed); GE Gfk consumer confidence; FR 4Q GDP (Thu); FR Mar Consumer confidence;  IT Jan Industrial and sales orders; GE, IT retail sales (Fri).

EUR/SGD – Consolidation; Bias to Fade Rallies. EUR/SGD consolidated with top side capped at 1.50 levels (23.6% Fibonacci retracement of 1.6390 – 1.4573) overnight.  MACD and stochastics remain biased for further upside. A daily close above 1.50 could see upside risk towards 1.52 levels (50 DMA). Day ahead see 1.49 – 1.5050 range intra-day.

Asia ex Japan Currencies

       The SGD NEER trades around 1.49% below the implied mid-point of 1.3470 with the top end estimated at 1.3196 and the floor at 1.3743.

       USD/SGD – Consolidation; Bearish Bias. USD/SGD traded lower to the bull channel support of 1.3645 overnight before rebounding towards 1.3675 levels this morning. The pair could be biased for further downside as market is caught long USD in anticipation of MAS monetary policy decision in Apr. Consensus is tilted towards a re-centering. We maintain our view of MAS adopting a “wait-and-see” approach at the upcoming meeting as we believe support from the expansionary budget should keep the economy supported. Market consensus argument for MAS to move on weak inflation is not strong as soft inflation has already been factored in during the inter-meeting move in Jan.  Daily MACD and stochastics are bearish bias, suggesting further downside. Next key support at 1.3590 (50 DMA). Day ahead sees 1.3630 – 1.3730 range.

       AUD/SGD – Mild Bullish. AUD/SGD continues to consolidate above 1.07 levels but move higher appeared to be capped under 1.08 (100 DMA). A decisive close above 1.08 (100 DMA) is needed to confirm further upside. While we continue to watch for further development, an intra-day range of 1.07 – 1.0840 could be likely.

       SGD/MYR – Mild Bias to Upside. SGD/MYR continues to consolidate around 2.68 levels. Pair could continue to consolidate; intra-day range of 2.6750 – 2.69 likely. Daily MACD and stochastics are suggesting very mild bullish bias.

       USD/MYR – Consolidation. USD/MYR gapped lower in the open and now trades around 3.6750 levels tracking USD weakness and stronger oil prices. Talks of USD long position adjustment amid USD correction.  Daily MACD and slow stochastics are bearish bias, suggesting further downside. Next support levels at 3.64 levels (23.6% Fibonacci retracement of 3.3474 – 3.7350), before 3.6270 (50 DMA).  Intra-day range of 3.65 – 3.69 expected. Short term USD correction aside, we continue to see persistent 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.

       USD/CNH – Consolidation. The pair’s decline from 6.30 levels in early Mar appeared to have stalled at 6.19 levels. Daily stochastics are now nearing oversold levels and is potentially turning higher, suggesting a potential pause from recent decline. Day ahead pair could consolidate in 6.19 – 6.22 range in absence of fresh leads. Daily MACD remains bearish bias. USD/CNY was fixed lower by 50 pips at 6.1398 (vs. 6.1448). CNYMYR was fixed lower by 53 pips at 0.5881 (vs. 0.5933).

       USD/IDR – Bearish Bias. USD/IDR continues to trade with a bearish bias, driven by a weaker USD.  Pair now trades around 12,980 levels and could possibly see further downside risk towards 12,820 levels. (50DMA). Daily MACD and stochastics are bearish bias. We still see a risk of BI cutting rate by 25bps in its Apr meeting.

       USD/PHP – Consolidate; Bias to Fade Rallies. USD/PHP gapped lower this morning towards 44.70 levels, tracking USD weakness. We highlighted that the Peso has been playing catch up with the rest of AXJs for the past 2-3 weeks. Just to recap for 2015, most AXJs except THB and PHP have been weakening relative to the USD, but since the beginning of Mar, PHP strength has reversed and weakened by about 2% against the USD (YTD PHP is nearly flat vs the USD). Daily MACD and stochastics are indicating early signs of bearish bias; we remain better sellers on rally targeting 44.57 (100 DMA).

       USD/THB – Some Downside Pressure. USD/THB continues to trade with a bearish bias; pair now trades around 32.54 levels. Daily MACD and slow stochastics are mild bearish bias, suggesting some downside pressure. Next support seen at 32.48 (200 DMA) before 32.35 levels. Resistance seen at 32.62 (50 DMA). Intra-day range of 32.48 – 32.65 expected.

Rates

Malaysia

       Local Local government bonds traded range bound with continued interest seen on the front end of the curve. Players look to the next auction of the new 7.5y MGS 9/22. We think the auction will be announced this Thursday and anticipate a size of MYR4b for this issuance.

       Very quiet day in the IRS market with rates mostly lower likely in line with the lower KLIBOR. 3M KLIBOR was down 1bp to 3.75%. We suggest accumulating 5y IRS which is now below 3.80% (last quoted 3.80%-3.78).

       Trading in the PDS market slowed down significantly after the active week last week. We heard buying interest for AAA bonds but bids and offers were rather similar to levels seen last week. In the AAA curve, we saw Manjung 26s and Suria KLCC 24s tightened 3bps and 2bps respectively. Dana 29s tightened 2bps as investors sought higher yield for longer dated GGs. For AAs, we heard UEM Sunrise widened by 1bp with MYR50m traded, the highest volume seen in the space yesterday.

Singapore

       The SGS market opened with continued selling, especially on short dated bonds. Sentiment somewhat improved in the later session after USDSGD declined and buying was seen at the long end before eventually trickling to the rest of the curve. However, that was short lived as the decline in UST futures brought sellers back. SGS yield curve ended slightly flatter as the front end rose roughly 3bps while the belly to the back end was down 1-2bps. SGD IRS closed 1-3bps lower, while short dated SGD FWDs remained firm, and bond swap spreads narrowed.

       Asian credits were relatively calmer but firmer after a volatile session last week. IG spreads tightened as buyers absorbed any offers. INDON sovereigns outperformed with cash up around 0.25-0.75pts, especially on the longer ends. Buyers appear to be looking at SOE related names and longer duration bonds. Primary pipeline will see few books opening soon namely: 1) BOC Aviation (S&P A-) 5y USD with initial guidance at T+190bps (fair value estimated around +170bps which translates to a 20bps concession if it does not tighten), 2) Hyundai Capital (S&P A- /Fitch BBB+) 5y USD with initial guidance at T+145bps (slightly tight though typical for Korean issues) and 3) Beijing Capital Group is doing a roadshow for a USD deal. We are expecting more primary deals to emerge in April after most corporates have announced their financial results.

Indonesia

       Indonesia bond market closed with a gain amid minimal domestic market sentiments. Volatility of the LCY bond market this week would highly depend on global sentiments along with in/out flows of as well as the volatility of Rupiah currency. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 7.097%, 7.283%, 7.464% and 7.654% while 2y yield shifts down to 6.850%. Trading volume at secondary market was seen thin at government segments amounting Rp9,516 bn with FR0070 (10y benchmark series) as the most tradable bond. FR0070 total trading volume amounting Rp2,154 bn with 55x transaction frequency and closed at 107.100 yielding 7.283%.

       DMO will conduct their sukuk auction today with four series to be auctioned which are SPN-S11092015 (Coupon: discounted; Maturity: 11 Sep 2015), PBS006 (Coupon: 8.250%; Maturity: 15 Sep 2020), PBS007 (Coupon: 9.000%; Maturity: 15 Sep 2040) and PBS008 (Coupon: 7.000%; Maturity: 15 Jun 2016). We believe that the auction will be oversubscribe by 2.0x – 3.0x from its indicative target issuance while our view on the indicative yield are as follows SPN-S11092015 (range: 5.675% – 5.775%), PBS006 (range: 7.155% – 7.250%), PBS007 (range: 8.055% – 8.155%) and PBS008 (range: 5.700% – 5.800%). Till last week, Indonesian government has raised approx. Rp90.1 tn worth of debt through bond auction in 1Q 15 which represents 114.8% of the 1Q 2015 target of Rp78.5 tn. On total, Indonesia government has raised approx. Rp165.5 tn worth of debt through domestic and global issuance which represent 36.6% of this year target of Rp451.8 tn.

       Corporate bond trading traded moderate amounting Rp498 bn. BACA01SB (Subordinated Bank Capital I Year 2014; Rating: idBBB-) was the top actively traded corporate bond with total trading volume amounted Rp100 bn yielding 12.003%