Maybank GM Daily - 4 Mar 2015

FX

Global

      US equities eased from record highs on profit taking overnight. Uneventful session in FX markets overnight with USD little changed, EUR/USD below 1.12-handle; USD/JPY back to mid-119 levels. Commodity-linked currencies saw support after RBA kept rates on hold overnight. CAD was supported on better-than-expected 4Q GDP; BoC meeting later tonight (markets are tilting towards no move after a 25bps cut at its previous meeting in Jan). Oil prices rose on news that Saudi Arabia increased their prices to Asia and Lbyan supply disruption concerns.

       At the CPPCC meeting which opened yesterday, PBoC Deputy Governor Yi Gang remarked that there is “no urgent need to adjust” the CNY trading band; sees the current trading range is “much more flexible than before”. His comments support our view of no imminent to widen the trading band (as opposed to what other analysts have been calling for). We reiterate that the PBoC has a wide range of tools and the mid-point setting remains an effective tool to guide the USD/CNY. The NPC meeting convenes on 5 Mar. We expect the government to announce changes to growth and policy targets for 2015, including the lowering of GDP target to 7%, from “about 7.5%”; lower CPI target; raise fiscal budget deficit target.

       Day ahead Thailand is out for holidays. For Europe, EC GR, FR, SP, IT service/composite Feb PMI, EC Jan retail sales are due for release. For US  Feb ADP, composite/services PMI, Beige Book, Fed’s Yellen, George, Evans, Fisher to speak. Focus on US ADP numbers as that could set the tone leading into US NFP Fri.  On FX, continue to see USD/AXJs consolidate in recent ranges, with bias to buy USD on dips.

G7 Currencies

      DXY – Buy USD dips. USD was little changed in absence of data/catalyst. Still favour buying USD on any dips. Intra-day range of 95-95.50 levels likely ahead of ADP employment numbers and Fed speaks later, which could set the tone leading up to NFP on Fri. Decisive daily close above 95.50 in required to open way towards 97 levels. Support levels seen at 94-levels, 93.66 (23.6% Fibonacci retracement of 87.627 – 95.527). MACD is showing tentative signs of bullish bias. Week ahead brings Feb ADP, composite/services PMI, Beige Book, Fed’s Yellen, George, Evans, Fisher to speak (Wed); 4Q unit labor cost, Fed’s Williams to speak (Thu); Feb NFP, unemployment rate, Feb average hourly earnings and Jan trade (Fri).

       USD/JPY – Consolidating Lower. After hitting a high of 120.27 not seen since 12 Feb yesterday, the USD/JPY has been consolidating lower within 119-120.50 helped by inflows to Japanese equities. Daily charts are showing a bias to the downside currently; preference still for a buy on dips. The appearance of BOJ governor Kuroda in parliament later this morning will be watched for any jawboning or clues about inflationary pressures in the economy.  Look for consolidation within 119-120.50 to continue today.

       AUD/USD –Sell rallies. AUD/USD reclaimed 0.78-handle after RBA left rates on hold yesterday. AUD/USD continues to find an excuse to rally despite 4Q GDP (released this morning) came in a little weaker than consensus - weakness has been largely expected by markets.   After failing to push lower, the pair could attempt to test the upside; 0.7850, 0.7880 eyed. Break above 0.7910 could test near 0.80. Still remain better sellers on rallies. Intra-day expect 0.7780 – 0.7950 range. Week ahead brings Jan retail sales, trade and RBA deputy governor Lowe speaks (Thu).

       NZD/USD – Range. NZD/USD has continued to trade higher towards 0.7560 levels after hitting a 4-year low of 0.7177 (3 Feb). Day ahead the pair is likely to consolidate, taking cues from AUD/USD. Next resistance levels at 0.7620 (50 DMA and 61.8% Fibonacci retracement of 0.7890 – 0.7177), 0.7720 (100 DMA and 76.4% Fibonacci retracement). Sustained close above those resistance levels could see the pair on track towards 0.7890. Support levels to watch: 0.7530 (50% Fibonacci retracement) and 0.7450 (38.2 Fibonacci retracement). Intra-day see 0.75 – 0.76 range.

       EUR/USD – Fade Rallies.  EUR/USD remains soft; below 1.12-handle awaiting ECB QE details. EC PPI released yesterday further confirmed that the Euro area PPI deflation is nowhere near the end of the tunnel. Intra-day see 1.1150 – 1.1250. Week ahead brings EC GR, FR, SP, IT service/composite Feb PMI, EC Jan retail sales (Wed); GE Jan factory orders; ECB meeting (Thu); EC 4Q GDP, GE, SP Jan IP, FR Jan trade, IT Jan PPI (Fri).

       EUR/SGD – Consolidation. EUR/SGD traded a lacklustre range of 1.5215 – 1.5280 overnight in absence of fresh cues as market awaits ECB QE details tomorrow. Pair is likely to continue trading range-bound between 1.5190 – 1.5280, with MACD not indicating much bias on the daily for now.

         

Regional FX

      The SGD NEER trades around 1.74% below the implied mid-point of 1.3386. The top end is estimated at 1.3114 and the floor at 1.3659.

       USD/SGD - Bearish Tilt. After hitting multi-year highs of 1.3663 yesterday, the USD/SGD has eased towards the 1.3620-levels currently, helped by a softer dollar tone overnight and continued selling pressures in the USD/JPY. Weak domestic PMI data overnight did not dent the pair's bearish moves. Both intraday MACD and slow stochastics are indicating bearish bias. Continue to favour adding on dips.  Support is seen around 1.3600 today while rebounds should meet resistance around 1.3650.

       AUD/SGD - Bullish Bias. The AUD/SGD is drifting higher this morning, but short of yesterday's intraday high of 1.0700. We still need to see a close above the 1.0700-levels for bullish extension. Intraday MACD and slow stochastics are showing bullish bias, suggesting further upticks are possible. Look for the 1.0400-1.0700 range to hold today.

       SGD/MYR - Consolidation. The SGD/MYR gapped slightly higher at the opening to 2.6625 from yesterday's close of 2.6607. Cross has eased off slightly but continues to remain in consolidation within the 2.6430-2.6770 range. Cross has lost most of its bearish momentum, suggesting further consolidation is likely. In the absence of fresh catalysts ahead, consolidative moves within 2.6430-2.6770 is likely today.

       USD/MYR – Buy on Dips. USD/MYR traded 3.6150 – 3.64 range yesterday in absence of fresh cues. Focus on BNM meeting tomorrow; overnight policy rate is expected to be on hold. MACD and stochs showing no strong conviction. Intra-day 3.61 – 3.64 range expected. Looking out ringgit weakness is expected to persist on a combination of factors including strong USD trend, soft oil prices for an extended period, vulnerability to foreign fund outflow and heightened risk of rating downgrade following contingent liability exposure, lower fiscal revenue. Last Fri, Petronas Group posted its 1^st quarterly loss and mentioned in a statement that the Group is taking steps to reduce its planned capital investments (by 10% for 2015 and 15% for 2016) and operating expenditure (by 30%) in order to mitigate the potential adverse effect on its profitability and cash flow.

       USD/CNH – Buy on Dips. USD/CNH traded lower towards 6.2790, tracking lower USD/CNY fix this morning. Pair could trade lower towards 6.27 levels intra-day in absence of fresh cues. We remain better buyers on dips as we continue to see USD/CNH higher on a combination of drivers including further intensification of USD strength, ongoing domestic growth, debt, capital, fx outflow concerns and possibility of another 50bps RRR rate cut. The CPPCC meeting opened yesterday, while NPC meeting convenes on 5 Mar. Both meetings known as the 两会 or “liang hui” are expected to last till 15 Mar. The government is expected to announce changes to growth and policy targets for 2015, including the lowering of GDP target to 7%, from “about 7.5%”; lower CPI target; raise fiscal budget deficit target. PBoC Deputy Governor Yi Gang yesterday remarked that there is no need to change the CNY trading band, sees the current range is much more flexible than before.  USD/CNY was fixed lower by -18 pips at 6.1525 (vs. 6.1543). CNYMYR was fixed higher by -6 pips at 0.5761 (vs. 0.5767).

       USD/IDR – Choppy. The USD/IDR edged close to but failed to test the 13000-handle yesterday before easing off. Pair continues on the slide this morning with intraday momentum indicators still pointing to a bullish tile ahead. Continue to watch for BI moves to guard against too much volatility in the exchange rate. Intraday moves within 12800-13000 are likely today. Foreign funds bought a net USD22.25mn in equities yesterday and added a net IDR1.65tn to their outstanding holding of debt on Mon (latest data available). The 1-month NDF continued to trade above the 13000-figure, currently around 13085, with intraday MACD and slow stochastics showing a downside bias today. After Mon's fixing at a historic high of 12993, the JISDOR was fixed lower at 12962 yesterday on Fri, with the possibility of another lower fixing should the spot's drift lower be maintained this morning.

       USD/PHP - Sideways. The USD/PHP remains in choppy trade within 44.000-44.200. Both intraday MACD and slow stochastics are showing no strong momentum, suggesting sideway trades are likely ahead. In the absence of fresh catalysts, expect sideway gyrations within 44.000-44.230 to continue today. For the second straight session, foreign funds sold off equities with a net USD3.86mn sold, which weighed on the PHP. The 1-month NDF remains in consolidative trade within 44.000-44.300 with intraday MACD is showing no strong momentum, though slow stochastics is still indicating a downside bias. This week sees Feb CPI and Dec budget balance (Thu) and Feb foreign reserves (Fri).

       USD/THB - Still Consolidating.  The USD/THB remains in consolidation after last Thu's move lower, supported by foreign funds inflows still. Foreign funds bought a net THB186bn and THB3.48bn in equities and debt yesterday, and should continue to support the pair ahead. Intraday MACD is showing increasing bullish momentum while slow stochastics is rising on the intraday chart, suggesting that downside could be limited. Intraday could see pair consolidate within 32.290-32.500.

Rates

Malaysia

      Local government bond yields at the belly of the curve rose 2-5bps amidst thin trades on the back of higher 10y US Treasuries (UST) yesterday. All eyes are on the MPC on Thursday with most expecting no change in the OPR. Flows were still seen tilted towards buy on dips with GIIs in the 5y-10y tenors being favoured.

       IRS curve was slightly lower yesterday as levels across the curve fell by roughly 1bp. The 2y and 3y IRS were dealt at 3.72% and 3.75% respectively. Both receivers and payers share fair hands at this level. The market appears to have become less sensitive to other securities. 3M KLIBOR stayed at 3.79%.

       The local PDS market bucked the trend from previous weeks as we saw active trading in the AA space yesterday, notably on YTL papers which recorded over MYR60m in traded volume. We saw YTL Corp 19s trading at MTM prices and YTL Power 18s tightening 7bps. With the news surrounding 1MDB, investors have been actively seeking out alternative papers, with keen buying interest seen for notes by Malakoff, YTL and SEB. SEB 24s tightened by 1bp. Apart from the power sector, construction giant Gamuda also tightened by 3bps. In the AAA and high grade space, we saw buying interest at the short end and the belly of the curve. Cagamas papers recorded about MYR50m in traded volume. Other trades were likely portfolio reallocation by funds and buy side houses.

Singapore

      SGS yields across the curve ended higher yesterday, tracking the overnight rise in UST yields on the back of better economic data and new bond supply from corporates in the US. Yields at the belly of the SGS curve rose by as much as 6bps while yields at the front and back end were up by 4-5bps.

       Asian credit space traded mostly firmer in spreads. Prices of Indon sovereigns were slightly lower due to the UST movement. There were profit taking in some Chinese IG names but papers were well absorbed. Buying interest remained strong for the same few names such as TENCNT, CHALUM and HRAM. For Malaysian names, prices ended mostly unchanged with spreads tightening around 5bps. New issuance DIALEA’s spread traded around 103/100 (priced at 105). Although Kaisa opened slightly weaker, it did not deter active trading of Chinese HYs. New HY Times Property was priced at 11.625% overnight.

Indonesia

      Indonesia bond markets continue moved slightly lower with awarded WAY during auction came in lower compared to previous day closing. There were minimum market sentiments in the domestic market. Foreigners were seen selling post auction. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 6.724%, 6.930%, 7.106% and 7.336% while 2y yield shifts down to 6.583%. Heavy volume at secondary market remains to be traded heavy at government segments amounting Rp11,662 bn with FR0070 (10y benchmark series) as the most tradable bond. FR0070 total trading volume amounting Rp3,892 bn with 142x transaction frequency and closed at 109.577 yielding 6.930%.

       Indonesian government conducted their weekly auctions and received incoming bids of Rp22.84 tn bids versus its target issuance of Rp10.00 tn or oversubscribed by 2.2x. Incoming bids significantly decline by 37% compared to 16 Feb conventional auction. However, DMO only awarded Rp10.00 tn bids for its 3mo SPN which was sold at a weighted average yield (WAY) of 5.31500%, 1y SPN at 5.89000%, 10y FR0070 at 6.93270% while 20y FR0068 was sold at 7.33941%. Incoming bids were relatively well distributed among the offered asset series. No bids were rejected during the auction. Bid-to-cover ratio on today’s auction came in at 1.30X – 5.67X.

       Incoming bids came mostly from local main dealer as foreign main dealer incoming bids were recorded on Rp3.13 tn or 13.7% of total incoming bids. Hence, only Rp1.02 tn or 10.2% were awarded to foreign main dealer. Foreign main dealer bid were mainly at the 10y and 20y benchmark series. Till the date of this report, Indonesian government has raised approx. Rp81.25 tn worth of debt through bond auction in 1Q 15 which represents 103.5% of the 1Q 15 target of Rp78.50 tn. On total, Indonesian government has raised approx. Rp134.62 tn worth of debt through domestic and global issuance which represent 29.8% of this year target of Rp451.8 tn. At current point, bond issuance through auction in 1Q 15 have exceed its initial target. With upcoming issuance of SR007, samurai bond and Global Sukuk, we see DMO would be successful to meet its front loading strategy by issuing at least 58% in the first half of 2015.

       Corporate bond trading traded thin amounting Rp408 bn. BNGA02SB (Subrodinated Bank CIMB Niaga II Year 2010 bond; Rating: AAA(idn)) was the top actively traded corporate bond with total trading volume amounted Rp90 bn yielding 8.170%.