October 21, 2014 Global Markets Research Daily Market Highlights Key Takeaways Overnight Economic Data Eurozone Japan Amid lack of market-moving data, markets turned their heads on 3Q corporate earnings with IBM’s below consensus performance under the spotlight. Fed Fischer said the US economy could fully recover with full employment and 2% inflation as early as next year. Calendar was light and dataflow failed to excite overnight but this is set to change today as China is due to release 3Q GDP and other crucial economic data which will likely confirm growth is slowly but surely inching towards the 7% handle. RBA minutes will also be watched but we doubt there will be any new insights. Hong Kong Government Bond Yield Dollar index gyrated lower through the whole session and closed lower at 84.95, amid lingering growth concerns that raised bets the Fed will be more careful and less aggressive in its policy move. USDMYR closed marginally stronger at 3.2722 after a day of tight rangetrading within 3.2657 and 3.2750. MYR may still be supported today by correction in the USD but we caution risks from weaker than expected China data and sell-off ahead of tomorrow’s Deepavali holiday. MYR Trading volume turned out thinner amid a shorter trading week in conjunction with upcoming Deepavali celebration. Amount traded in MYR govvies was over RM1.6b versus last Friday’s RM5.4b. Mild profit taking seen on selected stocks following the recent strong rally in local govvies sending yields to inch 1 to 2 bps higher. Interestingly, we noticed that MGS 7/24 and MGS 9/21 appears to be trading near parity with only a tight 1-2 bps difference in yields taking cue from the recent strong rally in MGS 7/24. A significant kink has UST 3-year 3.48 5-year 3.63 7-year 3.77 10-year 3.78 15-year 4.16 20-year 4.25 30-year 4.58 2-year 0.37 5-year 1.42 10-year 2.19 30-year 2.97 emerged on the 7-year MGS 9/21 which could appeal to investors from a tactical play. With the Ringgit rebounding stronger this morning, prospects of fresh leads may potentially flow into the MYR space albeit on thinner trading volume ahead of upcoming public holiday. What’s Coming Up Next Major Data US existing home sales UK public finance Daily Supports - Resistances S2 S1 Indicative R1 R2 EURUSD 1.2707 1.2748 1.2797 1.2800 1.2860 USDJPY 106.45 106.75 106.82 107.00 107.30 GBPUSD 1.6105 1.6135 1.6164 1.6200 1.6250 AUDUSD 0.8735 0.8770 0.8791 0.8800 0.8846 EURGBP 0.7890 0.7906 0.7916 0.7925 0.7950 Japan all industry activity index & supermarket sales China 3Q GDP, retail sales, industrial output & fixed asset investment USDMYR 3.2520 3.2565 3.2585 3.2620 3.2690 Hong Kong CPI EURMYR 4.1600 4.1665 4.1712 4.1870 4.2035 Major Events RBA minutes Japan Cabinet Office monthly economic report Bond Tender Nil JPYMYR 3.0365 3.0460 3.0507 3.0536 3.0626 GBPMYR 5.2545 5.2605 5.2648 5.2660 5.2780 SGDMYR 2.5630 2.5644 2.5675 2.5700 2.5740 AUDMYR 2.8556 2.8605 2.8630 2.8727 2.8800 NZDMYR 2.5900 2.5930 2.5983 2.6026 2.6115 = above 0.1% gain = above 0.1% loss Name Last Price KLCI Dow Jones Ind. DoD % YTD % Name 1803.1 0.8 -3.4 CRB Index 16399.7 0.1 -1.1 WTI oil ($/bbl) Brent oil ($/bbl) Outlook = less than 0.1% gain / loss Last Price DoD % YTD % 271.1 -0.6 -3.2 82.7 -0.1 -16.0 S&P 500 1904.0 0.9 3.0 85.4 -0.9 -23.2 FTSE 100 6267.1 -0.7 -7.1 Gold (S/oz) 1246.9 0.7 3.4 Shanghai Hang Seng STI Source: Bloomberg 1 2356.7 0.7 11.4 CPO (RM/tonne) 2155.0 1.2 -16.2 23070.3 0.2 -1.0 Copper ($/tonne) 6560.0 -1.2 -10.9 3181.1 0.4 0.4 Rubber (sen/kg) 385.0 1.3 -28.5 Macroeconomics Economic Data EU current account JP leading index JP nationwide dept store sales JP convenience store sales HK jobless rate For Actual Last Survey Aug Aug F €18.9b 104.4 €21.6b 104.0 --- Sept Sept Sept -0.7% -1.3% 3.3% -0.3% -2.4% 3.3% --3.3% Source: Bloomberg • Calendar was light and dataflow failed to excite. In the Eurozone, seasonally adjusted current account surplus narrowed to €18.9bn in August, from an upwardly revised surplus of €21.6bn in July. Smaller surplus in the services account offset higher surpluses in the goods and income accounts. • Japan data added to signs growth will remain anaemic although the final print of leading index signaled growth is expected to moderate at a lesser than initially estimated pace going forward. The final print of August leading index moderated to 104.4, from 105.5 in July, but better than the initial print of 104.0. • Nationwide departmental store and convenience store sales extended their declines, falling 0.7% and 1.3% YOY respectively in September. Both readings fell for the 6th straight month, as dimmer growth outlook dampened sales of household goods and food. • Hong Kong jobless rate held steady at 3.3% for the three months to September, a level unchanged since July, as steady economic expansion continued to support the job market. • Today, China 3Q GDP will take center stage to confirm that growth is moderating towards the 7% handle. Other key data namely retail sales, industrial production and fixed asset investment are on the deck too. On top of this, look out for RBA minutes and US existing home sales. Economic Calendar Release Date Country Date Event Reporting Period US 10/21 Existing home sales Sept 10/22 MBA mortgage applications Oct 17 UK Japan Revised -- -- 5.6% -- Sept 0.0% -0.2% -- PSNCR Sept -- 1.6b -- 10/22 BOE minutes 10/21 -- All industry activity index Aug -0.4% -0.2% -- Supermarket sales Sept -- -0.1% -- Cabinet Office Monthly Economic Report Oct Trade balance Sept -¥780.0b -¥949.7b -- -- Fixed asset investment rural YTD Sept 16.3% 16.5% -- Retail sales Sept 11.7% 11.9% -- Industrial production Sept 7.5% 6.9% -- GDP 3Q 7.2% 7.5% -- Sept 6.2% 3.9% -- 3Q 0.4% 0.5% -- HK 10/21 CPI AU 10/21 RBA minutes 10/22 CPI QOQ 2 -1.8% CPI MOM 10/22 Source: Bloomberg Prior 1.0% 10/21 10/21 China Survey Forex MYR FX Table Nam e • MYR that was mostly sideways through Asian session advanced 0.06% to Last Price DoD % High Low YTD % EURUSD 1.2800 0.31 1.2817 1.2731 -6.9 USDJPY 106.95 0.07 107.39 106.78 1.5 GBPUSD 1.6165 0.45 1.6179 1.6080 -2.4 • MYR may retain some bullish bias amid a weaker overnight USD but selling 0.46 3.2722 at closing following USD softness as European trading opened. Renewed MYR buying interest led by firmer Asian markets led MYR higher against 9 G10s. AUDUSD 0.8784 0.8802 0.8745 -1.6 pressure ahead of tomorrow’s closure of Malaysian market is likely to keep EURGBP 0.7919 -0.12 0.79305 0.7904 -4.6 gains limited. USDMYR 3.2722 -0.06 3.2657 -0.4 USD 3.275 EURMYR 4.1743 -0.61 4.1785 4.1649 -7.5 • USD started the week weaker against 7 G10s, grinding lower amid an absence JPYMYR 3.0599 -0.10 3.0641 3.0458 -1.9 of data and firmer US equities market. The dollar Index erased all gains in early GBPMYR 5.2728 0.03 5.2761 5.2604 -2.7 European trading before slipping lower to close at 84.95. SGDMYR 2.5697 -0.13 2.5716 2.5674 -0.8 • We maintain our view of a softening USD, dampened by retreating bets as AUDMYR 2.8656 -0.43 2.8728 2.8619 -2.0 economic and higher interest rate outlook of the US dims. Solid US NZDMYR 2.6006 -0.14 2.6026 2.5937 -3.4 Source: Bloomberg existing home sales will likely arrest losses. EUR • EUR advanced 0.31% to recapture the 1.2800 level against a sliding USD but broader recovery remains tepid, falling against 5 G10s as bets continue to MYR vs Major Counterparts (% DOD) shy away amid gloomy Eurozone economic outlook. EUR -0.61 MYR CHF Depreciated -0.55 -0.13 MYR Appreciated -0.10 -0.06 GBP SGD JPY • GBP climbed 0.45% to an 8-day high of 1.6165 against a softer USD on USD sustained inflow as European equities slipped. GBP strengthened against 8 G10s. -0.05 HKD • We continue to expect subdued European economic sentiments and -0.03 CNY GBP -0.60 doubtful that recovery can sustain approaching 1.29 level. AUD -0.43 -0.80 • EUR advance is likely to extend on the back of a softer USD but we remain -0.40 -0.20 0.00 market weakness to firm up GBP that is supported by a comparatively 0.03 more hawkish outlook. 0.20 JPY • JPY fell against 8 G10s and weakened 0.07% against a soft USD to close at 106.95 as support from haven demand gave way to firmer risk appetite in the US market. • Continued rebound in market sentiments as well as signs of extended weakness in the Japanese economy will keep JPY pressured against USD. AUD • AUD strengthened 0.46% to 0.8784 against a soft USD and climbed against 9 G10s, led higher by firmer risk taking activities in the markets as well as buoyed by speculation of liquidity injection into major Chinese banks. • AUDUSD remains vulnerable to declines below 0.88 handle; RBA minutes and a set of Chinese data will provide downside risks to trigger renewed bearishness. SGD • SGD was also led higher by returning risk appetite, rising against 8 G10s and advanced 0.42% against a soft USD to close at 1.2697, its strongest level in nearly 4 weeks. • Markets are likely to extend the rebound, but upside strength remains fragile in our view, thus we expect SGD gains to be limited. 3 Fixed Income US T T e nure C lo s ing ( %) C hg ( bps ) 2-yr UST 0.35 -2 5-yr UST 1.41 -1 10-yr UST 2.19 0 30-yr UST 2.97 0 M GS US Treasuries UST ended steady with short to mid ends easing 1-2 bps from last Friday’s closing levels. Demand for safe haven garnered traction amid declining US stocks after shares price of IBM G II* T e nure C lo s ing ( %) C hg ( bps ) C lo s ing ( %) C hg ( bps ) 3-yr 3.48 2 3.64 5-yr 3.63 0 3.78 0 7-yr 3.77 -1 3.98 -1 10-yr 3.78 1 4.11 1 15-yr 4.16 0 4.39 0 20-yr 4.25 1 4.59 0 30-yr 4.58 0 0 * M arket indicative levels C lo s ing ( %) 1-yr 3.73 Expect players to be tracking closely tonight’s release of existing home sales ahead of CPI data prints scheduled on Wednesday. With Eurozone yet to be out of the woods coupled with lingering global growth concerns, UST are expected to range-trade with supports emerging amid the allure of safe haven UST. MGS M Y R IR S Le v e ls IR S plunged the most in over four years after it abandoned 2015 earnings forecast. C hg ( bps ) Trading saw thinner trading volume amid a shorter trading week in conjunction with upcoming Deepavali celebration. Amount traded 1 3-yr 3.78 0 5-yr 3.85 -1 7-yr 4.00 1 10-yr 4.08 0 in MYR govvies was over RM1.6b versus last Friday’s RM5.4b. Mild profit taking seen on selected stocks following the recent strong rally in local govvies sending yields to inch 1 to 2 bps higher. Noticed heavy volume dealt on off the run MGS 10/15 with RM966m changing hands. So urce : B lo omberg Daily Trades Government Bonds Securities MGS MGS MGS MGS MGS MGS MGS MGS MGS MGS MGS MGS MGS MGS MGS MGS MGS MGS MGS GII GII SPK Closing Vol YTM (RM mil) 2/15 9/15 10/15 7/16 9/16 2/17 3/17 9/17 10/17 3/18 9/18 10/19 11/19 7/20 9/21 3/23 7/24 4/32 4/33 3/21 5/24 2/24 3.341 3.515 3.350 3.410 3.507 3.467 3.476 3.553 3.596 3.578 3.552 3.625 3.662 3.723 3.767 3.816 3.778 4.274 4.245 3.981 4.106 4.260 Source: BPAM 4 30 7 966 18 24 25 23 16 13 67 49 62 18 70 33 0 12 3 5 22 121 20 1604 Previous YTM 3.361 3.373 4.383 3.380 3.364 3.474 3.470 3.488 3.524 3.571 3.533 3.632 3.668 3.718 3.760 3.831 3.772 4.297 4.241 3.981 4.109 4.260 Previous Trade Date (dd/mm/yyyy) 17/10/2014 10/10/2014 17/10/2014 16/10/2014 17/10/2014 15/10/2014 17/10/2014 17/10/2014 15/10/2014 17/10/2014 17/10/2014 17/10/2014 17/10/2014 17/10/2014 17/10/2014 17/10/2014 17/10/2014 16/10/2014 17/10/2014 17/10/2014 17/10/2014 17/10/2014 Chg (bp) -2 14 21 3 14 -1 1 6 7 1 2 -1 -1 0 1 -2 1 -2 0 0 0 0 Interestingly, we noticed that MGS 7/24 and MGS 9/21 appears to be trading near parity with only a tight 1-2 bps difference in yields taking cue from the recent strong rally in MGS 7/24. Hence a significant kink has emerged on the 7-year MGS 9/21 which could appeal to investors from a tactical play. Meanwhile GII 5/24 was again traded with RM121m dealt, with levels settling at 4.11%. With the Ringgit rebounding stronger this morning, prospects of fresh leads may potentially flow into the MYR space albeit on thinner trading volume ahead of upcoming public holiday. PDS/Sukuk In the credit trading space, trading volume was over RM248m transacted, tracking the thinner volumes seen in MYR govvies. Amongst GG bonds/sukuks, we saw heavy volume of RM65m traded for BPMB ’29 with levels done 3 bps tighter to close at 4.68%. Meanwhile HSBC Amanah ‘10/19 traded at 4.17% with RM30m changing hands. A slew of Aman Sukuk maturing ‘2/21 and ‘5/21 traded ending at 4.32% and 4.33% respectively. Meanwhile BGSM ‘6/24 traded 1 bps inside to end at 5.19% with RM30 done. Daily Trades: PDS / Sukuk Securities Khazanah Nasional Berhad 3/20 Syarikat Prasarana Negara Berhad 8/21 Perbadanan Tabung Pendidikan Tinggi Nasional 3/24 Bank Pembangunan Malaysia Berhad 9/29 Pengurusan Air SPV Berhad 11/14 Sime Darby Berhad 11/14 Putrajaya Holdings Sdn Berhad 4/15 HSBC Amanah Malaysia Berhad 10/19 Malaysia Airports Capital Berhad 8/20 Aman Sukuk Berhad 2/21 Aman Sukuk Berhad 5/21 Telekom Malaysia Berhad 6/21 Projek Lebuhraya Usahasama Berhad 1/24 Ranhill Powertron Sdn Berhad 6/15 Sabah Development Bank Berhad 7/15 Sabah Development Bank Berhad 9/15 Sabah Development Bank Berhad 7/16 Public Bank Berhad 8/17 Etiqa Takaful Berhad 5/19 CIMB Islamic Bank Berhad 9/19 Bright Focus Berhad 1/16 First Resources Limited 7/17 CIMB Group Holdings Berhad 4/15 Besraya (M) Sdn Berhad 7/18 BGSM Management Sdn Berhad 12/20 Edaran SWM Sdn Berhad 10/22 BGSM Management Sdn Berhad 6/24 Malakoff Power Berhad 12/16 WCT Holdings Berhad 8/20 Bank Muamalat Malaysia Berhad 6/16 Rating Closing YTM Vol (RM mil) Previous YTM GG GG GG GG AAA AAA AAA AAA AAA AAA AAA AAA AAA AA1 AA1 AA1 AA1 AA1 AA1 AA+ AA2 AA2 AA3 AA3 AA3 AA3 AA3 AAAAA3 4.141 4.163 4.408 4.675 3.357 3.334 3.508 4.171 4.299 4.32 4.331 4.37 4.508 3.767 4.156 4.086 4.396 4.278 4.408 5.28 4.27 4.355 4.388 4.277 4.838 5.37 5.199 4.435 4.853 4.389 10 1 5 65 7 3 10 30 5 5 5 5 10 8 1 0 6 0 1 1 2 1 1 1 10 10 30 2 10 3 248 4.278 4.198 4.411 4.701 3.552 3.382 3.501 4.168 4.259 4.496 4.324 4.381 4.504 3.777 4.191 4.215 4.415 4.206 4.402 4.75 4.298 4.453 3.931 4.083 4.86 5.482 5.209 4.446 5.056 4.392 Previous Trade Date (dd/mm/yyyy) 23/04/2014 22/08/2014 17/10/2014 14/10/2014 05/09/2014 22/09/2014 26/09/2012 17/10/2014 21/08/2014 24/04/2014 17/10/2014 09/10/2014 14/10/2014 18/08/2014 03/10/2014 14/10/2014 30/09/2014 08/10/2014 23/09/2014 15/10/2014 18/09/2014 04/07/2014 22/07/2014 08/08/2012 26/09/2014 08/09/2014 23/09/2014 29/08/2014 26/03/2014 08/10/2014 Chg (bp) -14 -4 0 -3 -20 -5 1 0 4 -18 1 -1 0 -1 -4 -13 -2 7 1 53 -3 -10 46 19 -2 -11 -1 -1 -20 0 Spread Against IRS** 30 17 33 36 -37 -39 -22 33 37 40 34 38 43 4 43 36 67 50 57 144 55 58 66 46 91 135 112 71 93 66 ** spread against nearest indicative tenured IRS Source : BPAM Market/Corporate News: What’s Brewing The Land Public Transport Commission (SPAD) is proposing to the Government that the upcoming Mass Rapid Transit line 2 (MRT2) would need a spur line between Sungai Buloh and Selayang. Last week, StarBiz highlighted the alignment issue of the MRT2 that has caused confusion among the officials and industry executives in the construction and transportation sector. Responding to this matter, SPAD chief executive officer Mohd Nur Kamal told StarBiz that the commission was putting forward to the Government that a spur line would be needed to connect Sungai Buloh and Selayang. It was announced that the MRT2 project, costing an estimated RM23bil, would be from Selayang to Putrajaya and work will start next year. But according to the master plan, it was supposed to start in Sungai Buloh, where the MRT depot is being built, and end in Putrajaya. The Sungai Buloh depot is regarded as possibly the largest in South-East Asia and designed at a cost to have the capacity and support the convergence of two MRT lines. The Sungai Buloh depot is being constructed at a cost of RM459.9mil on 65ha at the Rubber Research Institute site. The contract, which was awarded to Trans Resources Corp Sdn Bhd (TRC) in May 2012, is expected to be completed by first quarter of 2016. (Source : The Star) Rating Actions Issuer PDS Description Rating/Outlook Action Tan Chong Motor Holdings Berhad ADCB Finance (Cayman) Limited RM1.5 billion Medium-Term Notes Programme (2014/2034) and RM1.5 billion Commercial Papers Programme (2014/2021) RM3.5 billion MTN Programme (2010/2030) (funding conduit for Abu Dhabi Commercial Bank PJSC) AA2/P1 (Stable) Assigned AAA/P1 (Stable) Reaffirmed Source: MARC, RAM 5 Hong Leong Bank Berhad Fixed Income & Economic Research, Global Markets Level 6, Wisma Hong Leong 18, Jalan Perak 50450 Kuala Lumpur Tel: 603-2773 0469 Fax: 603-2164 9305 Email: [email protected] DISCLAIMER This report is for information purposes only and does not take into account the investment objectives, financial situation or particular needs of any particular recipient. 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