Maybank GM Daily - 1 Apr 2015

FX

Global

Global equities eased overnight dragged lower by disappointing Chicago PMI, Greek concerns.  USD continue to close broadly higher against most currencies including EUR, AUD, NZD. GBP firmed on upward revision to 4Q GDP and better than expected consumer confidence. Oil prices fell on fears of more supply coming into the market amid conflict subsiding in Libya and hopes of a nuclear deal with Iran.        Released this morning. China Mar NBS PMI rose into expansionary territory (50.1 vs. 49.7 Cons. Vs. 49.9 in Feb). We noted that Mar official PMI has a consistent seasonality in Mar, rising every Mar since the data was first compiled in 2005. We believe the rebound came off the back of seasonality effect and targeted easing measures in recent weeks (interest rate cut in late Feb, 7D repo cuts, easing measures on housing mortgage rules, etc.). Released later afternoon yesterday, China State Council announced deposit insurance scheme to be launched officially on 1 May reinforcing China’s commitment on financial reforms. The scheme will offer a maximum coverage of RMB500k per depositor in each of the banks. We see this move as a step closer towards full interest rate liberalisation – removal of deposit rate ceiling (likely to be the next step sometime in 2H 2015).         Day ahead brings EC, GE, FR, IT Mar Manufacturing PMI for Europe. For US, key focus on Mar ADP employment change; MBA Mar Mortgage applications;ISM Manufacturing; Manufacturing PMI. Fed’s Williams and George are due to speak tonight. Day ahead see USD consolidation with bias to buy USD on dips against G7 currencies. For AXJs, continue to see USD supported against most regional AXJs; except against Renminbi (favor long bias for CNH, CNY).

G7 Currencies

       DXY – Consolidation; Buy on Dips. The DXY rose as high as 98.66 levels before easing to close around 98.35. US data was mixed – with house prices and consumer confidence beating expectation but Chicago PMI disappointed. We continue to see further USD upside; with bias to buy on dips. Stochastics is turning higher from oversold levels. Intra-day range of 97.80 – 98.60 expected. Week ahead brings MBA Mar Mortgage applications; Mar ADP employment change; ISM Manufacturing; Manufacturing PMI, Fed’s Williams and George to speak (Wed); Mar services/composite PMI; Feb trade balance (Thu); Mar NFP, average earnings, unemployment rate (Fri). 

       USD/JPY – Sideways; Buys On Dips. After ending 1Q at 120.13, the USD/JPY has slid back below the 120-levels to start the new quarter on the back of a softer dollar tone. Also weighing on the pair is the underperformance of the 1Q Tankan report out this morning (and a drag on the stock markets), which was largely unchanged for manufacturers but was higher for non-manufacturers. More importantly, the bulk of Japanese companies are poised to pare investment this year. The 1Q Tankan survey result suggested that the economic recovery is likely to be uneven and gradual ahead. and this is dragging the stock markets lower today. Should pair close below our support at 119.90 today, new support is seen at 119.20. Continue to favor buying on USD dips. Any rebound continues to be capped by 120.40 ahead of 120.80. Intraday MACD is showing bullish momentum though slow stochastics is falling from overbought levels, suggesting that sideway trades are likely ahead.

       AUD/USD – Sell on Rallies. AUD/USD continues to close lower at 0.7607 overnight on falling iron ore prices amid USD strength. Our bearish view for the AUD remains unchanged.  MACD is showing early signs of bearish bias while daily stochastics continues to fall from overbought areas suggesting bearish bias. Still favor fading rallies. Intra-day range of 0.7610 – 0.7680. Feb building approvals released earlier fell less than expected. China PMI came in better than expected and could lend some support to the A$ intra-day. 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. Week ahead brings Feb new home sales (Tue); Feb building approvals (Wed); Feb trade data (Thu). 

       NZD/USD – Intra-day Bounce. NZD/USD drifted lower towards a low of 0.7440 this morning, meeting our objective at 0.7465 (off the back of sell NZD/USD towards 0.7640 trade idea initiated last Thu). We see some support at current levels (0.7450 50 DMA), especially after better than estimated China manufacturing PMI this morning which could lend some support to AUD, NZD. Intra-day could see further bounce towards 0.7540 levels. 4-hourly slow stochastics is showing signs of rising from oversold areas. Favor fading rallies.

       EUR/USD –Fade Rallies. EUR/USD continues to trade lower on Greece; closed around 1.0730 levels overnight. EU rejected Greece’s list of reforms as just ideas rather than actionable proposals. We continue to maintain our bearish-bias EUR/USD view amid structural decline in Europe fundamentals and diverging monetary policies - 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. Stochastics indicators are falling from overbought areas. We remain better sellers on rallies. Intra-day see 1.07 – 1.0850 range. Week ahead brings EC, GE, FR, IT Mar Manufacturing PMI (Wed); IT budget balance (Thu).

       EUR/SGD – Range-bound. EUR/SGD declined towards 1.4730 levels overnight tracking the fall in EUR. Slow stochastics is falling from overbought levels – indicating a bearish bias. Intra-day range of 1.4700 – 1.4800 expected.

Asia ex Japan Currencies

       The SGD NEER trades around 1.50% below the implied mid-point of 1.3485. The top end is estimated at 1.3211 and the floor at 1.3759.

       USD/SGD – Bearish Tilt; Buy On Dips. USD/SGD slipped below the 1.37-levels following the better-than-expected China PMI data release this morning. Pair is currently hovering around 1.3687 with intraday MACD showing tentative signs of bearish momentum and slow stochastics still falling from overbought levels. With the bias tilted to the downside today, pair looks like it is headed towards 1.3570. In the interim, support remains capped by 1.3775.

       AUD/SGD – Consolidation.  AUD/SGD hovered close to 1.04 this morning before jumping back towards 1.05 underpinned by the relative strength of the AUD. Further upside though could be capped given that both intraday MACD and slow stochastics are showing little bias in either direction ahead. Instead expect the pair to remain in consolidative mode intraday within 1.0400-1.0520.

       SGD/MYR – Capped. After sliding lower towards 2.69 yesterday, the SGD/MYR is back on the climb towards the 2.70-levels this morning. Pair was last sighted around 2.6978 with intraday MACD showing bullish momentum though slow stochastics showing si showing little bias in either direction, suggesting that further upside today could be capped. Further moves higher today should meet resistance around 2.7064 (30 Mar high) while dips should see support around 2.6820.

       USD/MYR –Supported. USD/MYR traded softer towards 3.69 levels this morning, tracking the rest of USD/AXJs lower after China manufacturing PMI surprised to the upside. We continue to reiterate that the trend-line support at 3.66 levels should provide strong support in the interim. Intra-day range of 3.6850 – 3.7100 expected. Trade data on tap on Fri.  There are a few reasons for keeping a weak-bias for MYR. We maintain our view for oil prices to remain soft and this could weigh on the ringgit further. While lower oil prices are expected to benefit oil import countries (smaller import bills, leading to widening trade balance/current account), Malaysia is a net oil exporter and do not benefit as much relative to its regional peers. On medium term fundamentals, 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.

       USD/CNH – Downside Bias. The pair traded to the soft side after China policymakers announced housing cooling measures. Pair trades around 6.20 levels this morning and could continue to trade with downside bias on sentiment boost to easing measures on housing market. China State Council yesterday also announced deposit insurance scheme to be launched officially on 1 May reinforcing China’s commitment on financial reforms. The scheme will offer a maximum coverage of RMB500k per depositor in each of the banks. We see this move as a step closer towards full interest rate liberalisation – removal of deposit rate ceiling (likely to be the next step sometime in 2H 2015).  Weekly MACD and stochastics are mild bearish bias; a down trend remains in play. We remain better sellers on rallies towards 6.2200 levels (100 DMA) to fade into, playing the China financial reform/CNY potentially gaining reserve currency status story/positive sentiment arising out of easing measures on housing mortgage rules. We continue to expect a 50bps cut in RRR and targeted monetary easing to align its policy with fundamentals. We reiterate our view that the objective of policymakers is to lower the cost of funding to support SMEs. It is also not our base case scenario for the PBoC to widen its trading band at this stage as we see little incentive to do so now. Widening the trading band will have a tendency to see one-way bets and throw the currency stability objective off-course. USD/CNY was fixed higher by 12 pips at 6.1434 (vs. 6.1422). CNYMYR was fixed lower by 11 pips at 0.5924 (vs. 0.5935).

       USD/IDR – Sideways. USD/IDR is edging lower this morning following the better-than-expected China PMI data release. Pair though remains trapped within an intraday ichimoku cloud and we need to see it break out of the cloud from below to confirm diownward trend. Intraday MACD is still showing mild bullish momentum, though slow stochastics is beginning to fall from overbought levels, suggesting sideway trades are likely ahead. Today we have Mar CPI due in the afternoon with consensus expecting inflation to edge higher to 6.39% from 6.29% in Feb. Unless CPI surprises in either direction, we continue to expect the pair to trade sideways within 13000-13150 intraday. Foreign funds returned to Indonesian assets yesterday, buying a net USD67.33mn in equities, and added a net IDR1.55tn to their outstanding holding of government debt on 27 Mar (latest data available). 1-month NDF slipped below the 13200-levels to 13168 this morning with intraday MACD showing mild bearish momentum and slow stochastics still falling from overbought levels. JISDOR was fixed slightly lower yesterday at 13084 after Mon’s fixing of 13086 with a lower fixing expected given the spot’s drift lower this morning.

       USD/PHP – Consolidating Lower. USD/PHP gapped lower at the opening to 44.640 this morning from yesterday’s close of 44.700 following the upgrade of the IMF’s growth forecast for 2015 (new 6.7% vs. previous 6.6%). The better-than-expected China PMI has also helped to keep the PHP supported this morning. Intraday MACD and slow stochastics are showing downside bias, suggesting a room for further retracement ahead. In the absence of fresh catalyst, expect pair to remain in consolidative mode within the familiar 44.500-45.000 range with a downside bias today. 1-month NDF remains in consolidative mode within 44.400-45.230 this morning with daily MACD showing bearish momentum and slow stochastics rising from oversold levels. Foreign funds bought a net USD39.39mn in equities yesterday, weighing on the USD/PHP.

       USD/THB – Consolidating Lower. USD/THB is inching lower this morning around the 32.500-region on the back of softer dollar tone and better-than-expected China PMI, near the mid-point of its current trading range of 32.430-32.650. Though exports remained in the doldrums (down 6.0% y/y in Feb), the trade balance and the current account remained in surplus of USD2.6bn and USD3.5bn respectively in Feb and this has kept the THB supported. Expect pair to remain in consolidative trades within 32.430-32.650 intraday with the bias tilted to the downside today. We have Mar CPI ahead today and continued disinflation (cons: -0.4%) is expected and which is unlikely to shake the pair out of its current trading range. Intraday MACD is showing tentative signs of turning bearish while slow stochastics remains bias to the downside.

Rates

Malaysia

       Local government bonds opened range bound in the morning but saw big foreign flow buying into the late afternoon. Activity centred on the newly issued 7.5y MGS 9/22 which ended 4bps down from previous close. Of note, the 20y MGS 4/33s closed 6bps lower. Islamic GIIs also saw active trading and the curve ended 1-7bps lower across on the back of strong foreign interest.

       IRS rates were unchanged with no trades yesterday. Only few IRS receivers despite month end buying in govvies lowered yields. Payers also remained patient. Amidst all the swings, basis levels have been rather stable. 3M KLIBOR was steady at 3.73%.

       Local PDS market had a slight pickup in activity with 9-12y AAA names tightening 1-2bps from previous close. Aman 24s and Suria 24s dealt at 4.49% compared to 4.50%-4.51% previously. As such, other AAA names with better credit such as Telekom and Plus should tighten from offer quotes of 4.48% currently. In the AA curve, we saw Sarawak Energy being traded again with its 9y bond down by 2bps. Kesturi 31s traded 7bps lower than last traded level at 5.23% but this bond is fairly illiquid. We see AA names tightening and catching up with the AAA curve as investors tolerate higher risk for better yields. For GGs, buying was seen at the belly of the curve with names such as Prasa and Dana widening 1-2bps.