Maybank GM Daily - 26 Mar 2015

FX

Global

US equities declined amid disappointing durable goods orders. USD was mixed overnight, with USD weaker against the JPY, EUR and GBP but firmer against the AUD, NZD and most AXJs including SGD, MYR. Crude oil prices were firmer on supply disruption concerns over situation in Yemen. WTI and Brent at around 49.70, 57.20 levels, respectively.        In overnight Fed speaks, there was a divergence in views within FOMC committee. While Fed’s Lockhart said that it was “quite likely” that the Fed would raise rate by Sep, Fed’s Evans reiterated his view that the Fed should hold off until 2016 on less confidence of a pick-up in inflation. We continue to reiterate our house view for the FFR hike to begin in Sep 2015 at the earliest totaling 50-75bps by end-2015.        Day ahead in Asia brings Philippines BSP and Taiwan CBC monetary policy meeting. We expect both to keep rates on hold. Singapore Ip is also on tap. For Europe, GE Gfk consumer confidence; FR 4Q GDP are due for release. For US, Mar P. services/composite PMI; Mar Kansas City Fed Manufacturing; Fed’s Bullard and Lockhart to speak. Day ahead USD could consolidate further notwithstanding 2-ways moves; USD/AXJs expected to remain supported; and we look to fade AUD and NZD on rallies against the USD.

G7 Currencies

       DXY – Consolidation. USD remained soft on weak durable goods order data. Fed’s Lockhard said “quite likely” to raise rates by Sep while Fed’s Evans reiterated view that Fed should hold off until 2016, noting that he has less confidence in a pick-up in inflation. DXY now at 96.93 levels and could consolidate in 96.50 – 97.50 range with a bearish bias. Daily MACD and slow stochastics remain bearish bias. Remaining week ahead brings 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 Tilt. USD/JPY continues its drift lower. Pair hit an overnight low of 119.24 on the back of weak US durable goods print before recovering to hover around the 119.50-region. The softer dollar tone continues to weigh on the pair and a move possibly towards 119.20 (50DMA) and then to 118.80 (100 DMA) remains. We continue to look to buy on USD dips at these levels. Upticks today should meet resistance at 120.00 and then 120.80. Intraday MACD shows no strong momentum while slow stochastics indicates a mild bearish tilt.

       AUD/USD – Sell on Rallies. AUD rally overnight stalled at 0.7905, making a lower high daily close.  Daily stochastics is now showing tentative signs of falling from overbought areas, and this could suggest some early signs of downside pressure. Pair could consolidate in the range of 0.7750 – 0.7850; which we favor initiate fresh shorts, with a stop-loss placed above the previous high. No data for the week ahead.  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.

       NZD/USD – Consolidate with Bias to Fade Rallies. NZD’s rally since mid-Mar appeared to have stalled at 0.77 levels. Daily MACD and stochastics are now exhibiting tentative signs of bearish bias. Next key support at 0.7577 (23.6% Fibonacci retracement of 0.7192 – 0.7697), which is where it is trading at time of writing. A move lower sees next support at 0.7505 (38.2% Fibonacci retracement) before 0.7465 (50 DMA). We look for intra-day rally towards 0.7640 to fade into; with stop-loss places above 0.7700 targeting a move back towards the 50 DMA.

       EUR/USD –Fade Rallies. EUR/USD attempted another squeeze above 1.10-handle towards 1.1014 high overnight before easing to close 1.0970 levels. This was supported by better than expected German IFO data. Daily MACD and slow stochastics remains mild bullish bias and suggest another run above the 1.10-handle. We favor fading rallies above 1.10 levels, with stop-loss above 1.1060 for a move back towards the mid-1.08 levels. 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 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 – Upside Risk. EUR/SGD managed a close above 1.50 levels (23.6% Fibonacci retracement of 1.6390 – 1.4573) overnight.  MACD and stochastics remain biased for further upside. We previously cautioned that a daily close above 1.50 could see upside risk towards 1.52 levels (50 DMA). The pair now looks to trade with some upside bias. Possible intra-day range of 1.4960 – 1.5090.

Asia ex Japan Currencies

       The SGD NEER trades around 1.89% below the implied mid-point of 1.3447. We estimate the top end at 1.3173 and the floor at 1.3721.

       USD/SGD – Bullish Bias. USD/SGD firmed overnight towards 1.3714 overnight before easing to hover below the 1.37-levels this morning, weighed by the softer dollar tone. Still the bias is to the upside given that consensus is expecting further easing measures by the MAS in Apr, though we are of the view that MAS will adopt a "wait-and-see" approach as the expansionary 2015 budget should keep the economy supported. Moreover, the weakness in inflation has already been factored in during the inter-meeting move in Jan. Intraday MACD and slow stochastics are showing upside bias, suggesting downside seen this morning could be limited. Immediate barrier remains at 1.3700 ahead of the next at 1.3720, while 1.3590 continues to be supportive.

       AUD/SGD – Bearish Bias. The uptick in the AUD/SGD stalled on the back of AUD weakness and SGD mild strength. Cross is currently hovering around 1.0732 at last sight with both momentum and oscillator indicating bearish bias, suggesting further risk of downside ahead. Look for intraday trades within 1.0700-1.0800 still. A break of the 1.07-levels would expose the next support at 1.0645.

       SGD/MYR - Sideways. The SGD/MYR continues its uptick towards the 2.69, underpinned by SGD strength and MYR weakness. Cross is currently hovering around 2.6847 at last with intraday MACD showing mild bullish momentum, though stochastics continue to fall from overbought levels, suggesting sideway trades could be likely ahead. Immediate resistance is seen around 2.6900 ahead of the 2.70-figure, while support is seen around 2.6720 today.

       USD/MYR – Consolidation in recent range. USD/MYR bounced off 3.6430 low levels (24 Mar) to trade higher around 3.6765 at time of writing this morning. Daily MACD and slow stochastics are mild bearish bias, suggesting further downside. Support levels still at 3.6430 levels (23.6% Fibonacci retracement of 3.3474 – 3.7350), before 3.63 (50 DMA).  Intra-day range of 3.64 – 3.6850 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 remains in consolidative mood and may trade recent ranges of 6.20 - 6.2180. Daily stochastics are now nearing oversold levels and is potentially turning higher, which could suggest a potential pause from recent decline. We favour buying on dips towards 6.20 levels, with a stop-loss placed at 6.18 (below 200 DMA of 6.19). USD/CNY was fixed lower by 35 pips at 6.1375 (vs. 6.1410). CNYMYR was fixed higher by 31 pips at 0.5898 (vs. 0.5867).

       USD/IDR – Upticks. USD/IDR briefly broke above the 13000-handle this morning before easing off to trade a tad below the 13000-handle at 12999 currently. A re-test of the 13000-figure is likely and a firm break of that level would expose the next hurdle at 13100. Dips though could see e support around 12890. Support for the pair could also come from the continued sell-off in Indonesian assets by foreign funds with a net USD30.69mn in equities sold yesterday, and a net IDR0.23tn removed from their outstanding holding of government debt on 24 Mar (latest data available). Intraday MACD is showing mild bullish momentum while slow stochastics are rising from oversold levels. 1-month NDF continues to hover above the 13000-levels with intraday MACD slow stochastics showing an upside bias. JISDOR was again fixed lower at 12932 from yesterday’s 12972 yesterday, though a higher fixing seems likely given the spot’s drift higher this morning.

       USD/PHP – Capped. USD/PHP continues to bounce higher, sighted around 44.825 currently with the pair still playing catch-up with the rest of the region after strengthening for the first two months of the year. Also supporting the pair higher this morning is probably some speculation that the central bank could surprise with a rate move later today though consensus is not expecting any moves. Topside remains guarded by 45.000 today while down moves should be limited by 44.500 still. Intraday MACD and stochastics are indicating a mild bearish bias, suggesting upside moves could be capped. I-month NDF continues its slow grind higher, but remains within its 44.580-45.000 trading range. Intraday MACD shows no strong momentum and slow stochastics is fast approaching overbought levels. Foreign funds bought a net USD23.6mn in equities yesterday, helping to support the PHP.

       USD/THB –Consolidating Mildly Higher. USD/THB is waffling this morning with the pair currently hovering around the 32.500-region, pulled in one direction by the softer dollar tone and the other by the weak domestic economy. We have customs trade data for Feb due this afternoon and unless the data surprises, we do not expect the data to significantly impact the pair. Already there have been a press report that the Commerce Minister has said that Feb exports declined by 6.1% y/y, worse than the -3.2% expected by market. Pair should remain in consolidation within 32.430-32.65 today with a slight bias to the upside today. Intraday MACD is showing mild bullish momentum and slow stochastics are indicating a bullish bias still. Foreign funds continued their selling of equities with a net THB1.31bn sold yesterday but this was offset by their buying of a net THB4.93bn of government debt.

Rates

Malaysia

Local government bond market overall was on a biddish tone after the US inflation data came out below the Fed’s long term target. Prices, however, were capped at previous day levels as some took the opportunity to take profit. Buying interest was seen in the belly of the curve ahead of the new 7.5y MGS 9/22 auction which we expect to be announced today with an issue size of MYR4b.        IRS saw heavy receiving interest from foreign parties again. The 4y and 5y rates traded at 3.71% and 3.77% respectively. Globally, rates were also lower. We still suggest paying at current rates and as it grinds lower as cost of negative carry is minimal and we do not expect a rate cut from BNM this year. 3M KLIBOR fell another 1bp to 3.73%.        Local PDS market saw strong bidding interest again for longer dated AAA papers. AAA names were also generally being quoted 2bps lower on the offer side. Danga 30s tightened 3bps at 4.72% and Aman 29s tightened 4bps. Trading volume, however, was heavier in the GG space. GG names at the belly to the long end traded 2bps lower in line with the flatter GG curve. We think AA names may follow the same trend and tighten over the coming days as investors chase for better yields. So far, the flows have been focused on GGs and AAAs.

Singapore

Local government bond market overall was on a biddish tone after the US inflation data came out below the Fed’s long term target. Prices, however, were capped at previous day levels as some took the opportunity to take profit. Buying interest was seen in the belly of the curve ahead of the new 7.5y MGS 9/22 auction which we expect to be announced today with an issue size of MYR4b.        IRS saw heavy receiving interest from foreign parties again. The 4y and 5y rates traded at 3.71% and 3.77% respectively. Globally, rates were also lower. We still suggest paying at current rates and as it grinds lower as cost of negative carry is minimal and we do not expect a rate cut from BNM this year. 3M KLIBOR fell another 1bp to 3.73%.        Local PDS market saw strong bidding interest again for longer dated AAA papers. AAA names were also generally being quoted 2bps lower on the offer side. Danga 30s tightened 3bps at 4.72% and Aman 29s tightened 4bps. Trading volume, however, was heavier in the GG space. GG names at the belly to the long end traded 2bps lower in line with the flatter GG curve. We think AA names may follow the same trend and tighten over the coming days as investors chase for better yields. So far, the flows have been focused on GGs and AAAs.

Indonesia

A slight correction occurred in the bond market yesterday still supported by minimum market sentiment which may have confused the investor in entering or existing the bond market. Some buying by foreigners were seen not only the mid to long end tenor but front end tenors as well (such as SPN and SPN-S). Bank Indonesia sold its 3 mo bills worth of Rp260 bn at WAY of 6.24865% and sold its 6 mo bills worth of Rp480 bn at 6.49789%. Bank Indonesia gave several announcements in regard to inflation and 1Q GDP expectation where they see that March inflation would come in at 0.27% mom or 6.3% - 6.4% yoy. 1Q GDP is expected to grow 5% - 5.1% yoy. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 7.026%, 7.204%, 7.365% and 7.571% while 2y yield shifts up to 6.816%. Trading volume at secondary market was seen heavy at government segments amounting Rp11,463 bn with FR0070 (10y benchmark series) as the most tradable bond. FR0070 total trading volume amounting Rp1,781 bn with 38x transaction frequency and closed at 107.638 yielding 7.204%.

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