Maybank GM Daily - 28 Apr 2014

FX

Global

·         New York stocks fell across the board on Friday, dragged by softer earning reports and Ukraine concerns. DJI was down -0.9%, S&P at -0.8% and NASDAQ at -1.8%. Treasuries were better bid with 10-year yields around 2.66% at the end of the session.

·         Currency markets are expected to be volatile next week particularly in the G3 currencies with some repercussions on the USD/Asians if the dollar strengthens on better than expected NFP, US Factory Orders and US ISM Manufacturing end of next week. 

·         A couple of central bank meetings to note this week. BOJ is expected to stand pat on Wed but if they do surprise with additional monetary easing, the 103-barrier could be at risk. A more likely case of no move could trigger sell offs towards the 100.77. Elsewhere, the Fed should arrive at a decision for FOMC by Thu morning in Asia. No surprise is expected from them given their consistent rhetoric of late. In our view, the key data release of the week is perhaps the Apr inflation from the European bloc due on Wed. ECB speakers have flagged “non-conventional tools” to stem a “prolonged period of low inflation”. Another lower print could force the hand of the central bank to unleash asset purchases programs, not unlike many of its developed peers. That could weigh on the resilient EUR lower and provide a much needed lift to the dollar. Some volatility is expected as a result, followed by NFP on Friday.

·         Concerns over Ukraine have never quite faded into the background. Russia’s refusal to support Geneva process raises regional tension and more threats of sanctions from EU and the US. China releases official PMI-mfg on 1 May. Around half of Asia will be away that day and thus reactions could linger into the weekend. Risk events could keep safe haven supported. Indonesia and Thailand’s CPI due on Fri will also be watched in the region. All in all, risk appetite remains weak, capping regional currencies.

G7 Currencies

·         DXY – Swing. DXY remained stuck within the 79.55-80.00 range throughout the week. The Fed is expected to stick to the script for FOMC though NFP can offer some surprises. There is not much momentum on either side which suggests that sideway gyrations could continue within the 79.55-80.135. Swings could be wider than expected with a break on the upside to expose the next at 80.275. A break of the lower bound could trigger aggressive offers towards the next support at 79.27.

·         USD/JPY – Two-Way Risks. USD/JPY bids were resisted by the 102.68-mark and pair has trended lower to around 102.10 at last sight. Risk events weigh on the pair. For now, intra-day moves could remain within 101.66-103.00, especially with Showa Day tomorrow. A break out could happen as early as Wed. We expect a stand-pat decision to trigger offers towards 100.70. Correspondingly, a surprise easing could see the pair challenge the 103-barrier. Apart from the BOJ meeting, we watch Ukraine-Russia saga, China PMI-mfg (official) as well as US NFP for cues to this pair.

·         AUD/USD – Bearish risks. Pair slipped on softer-than-forecast CPI and pressed on the 0.9256-support in the later part of the week. MACD on the daily chart shows increasing bearish momentum. Next support is seen at 0.9218, a stronger one. RSI shows a slight upward tilt, showing some buying interests at he current levels around 0.9280. A break of the 0.9218 could trigger more aggressive offers. 0.9384 is the barrier.

·         EUR/USD – Range-bound. Pair was gradually inching higher but still within the 1.3790-1.3850 for most part of the week. The daily chart shows flat momentum now. Directional bias is unclear at this point and we expect pair to remain within the 1.3770-1.3890. A lower Apr CPI could bring the pair below the lower bound towards the next support level at 1.3695.

Regional FX

·         The SGD NEER trades 0.52% above the implied mid-point of 1.2621. We estimate the top end at 1.2370 and the floor at 1.2872.   USD/SGD – Momentum still bullish.  The USD/SGD is continuing its bearish tilt that began on Fri, hovering lower at 1.2556 at last sight. Still, momentum remains bullish, suggesting downsides are likely to be limited this week with 1.2540 guarding downside. For bulls to regain control, we need to see a sustained break of 1.2596 (38.2% Fib retracement of the Jan-Apr sell-off) with 1.2641 becoming the next target.    Singapore’s labor chief warned that the labor market will remain tight until 2020 and continue to remain so even into 2030, as the economic restructuring process gathers pace.

·         AUD/SGD – Choppy.  Cross is beginning the week choppy, not dissimilar to last week. The cross is currently wobbling, hovering around 1.1659 at last sight. Still, bearish momentum is gaining on the cross with 1.1620-support at risk. A break of the latter exposes the next at 1.1590. 1.1695 has become resistance level with 1.1740 guarding topside this week.  SGD/MYR – Wobbly.  Cross remains in striking distance of 2.6066-resistance, after jumping higher to 2.6043 this morning. MYR weakness so far has allowed the cross to move higher. MACD is now showing increasing bullish momentum and a move above 2.6066 is required for further extension. Otherwise, expect the cross to slip back within 2.5900-2.6070. Interim support at 2.5948.

·         USD/MYR – Supported. Pair bounced above the neckline at 3.2495 again and traded with an upside bias for the rest of the week, buoyed by a sluggish bond market at home. MACD shows increasing upward momentum though RSI flags overbought conditions. Hence, we expect upward grind to meet resistance at first at 3.2843 ahead of the next at 3.2900. Dips to meet support at 3.2587. The 1-month NDF was on the downtick this morning around 3.2770. This suggests that the pair could be settling at the current 3.2645-3.2835 range. Malaysia PM Najib assured that Malaysia was not coerced into Trans-Pacific Partnership talks and is committed to resolving the outstanding issues. During the stay of US President Obama, the two countries have agreed to “upgrade relationship to comprehensive partnership” (BBG).

·         USD/CNY was fixed lower at 6.1565 (-0.0011), vs. previous 6.1576 (+2.0% upper band limit: 6.2821; -2.0% lower band limit: 6.0358). CNY/MYR was fixed at 0.5272 (-0.0008).

·         USD/CNY – Bullish. USD/CNY ended Friday at 6.2527, despite the lower fixing. Fears of outflow and economic slowdown continued to weigh on the pairing. The 6.2305-mark is still the support to reckon for the pair. Bullish moves to dominate with risk of breaking the next barrier at 6.2566 and then the next at 6.2787. China’s former PBOC adviser Li observed material local debt restructuring and expects yuan to appreciate in 2H of 2014. The politburo also urged the acceleration of rail projects in the West.  1-Year CNY NDFs – Rangy. Bids remained resisted by the 6.2725-barrier and likely settling into 6.2640-6.2750 range for the most part of this week.

·         USD/CNH – Bullish tilt. USD/CNH was still on the upmove, gaining more bullish momentum compared to its peers. 6.2636 (25-Apr high) is the interim barrier.  A break of this exposes the pair to the next resistance at 6.2750. CNH is trading at a wider discount to CNY than before.

·         USD/IDR – Bullish risks. The USD/IDR is inching slightly higher to around 11573 currently this morning. Concerns about political stability and the likely re-widening of the current account deficit in 1Q have kept the pair elevated. Still, foreign portfolio inflows have helped to mitigate upside pressures with a net USD155.9mn of equities purchased last week, while IDR1.8tn of government bonds were added to their outstanding holdings between 21-22 Apr. For further bullish extension, we need to see a break of 11658 to expose the stronger barrier at 11703. 11584 continue to be supportive before 11500. The 1-month NDF remained elevated at above the 11600-level at 11608 currently, though this was down from last Fri’s close of 11615. Momentum though continues to bullish. The JISDOR was fixed lower but remained above the 11600-level at 11601 to end the week on Fri, though this was still higher than the 11430 fixing at the start of the week. Apr CPI and Mar trade data are eyed this week.

·         USD/PHP – Two-way forces. The USD/PHP gapped lower at the opening to 44.600 from last Fri’s close of 44.645 and is easing further to 44.560 currently. MACD is showing slightly bullish momentum and pair would need to take out 44.651 for further upside towards the next barrier at 44.780. Interim support is at 44.492 before the next at 44.421. 1-month NDF is edging lower to start the week around 44.550, down from last Fri’s close of 44.660 though risks remain to the upside. 

·         USD/THB – Lacking fresh impetus.  The USD/THB is wobbling to start the week, hovering around 32.260, a slight rebound from last Fri’s dip. Risks are still to the upside, though MACD forest is pointing to waning bullish momentum ahead, suggesting little momentum in either direction this week. The protracted political crisis continues to hamper any meaningful downside, while portfolio flows could mitigate any upside pressures. Last week, foreign funds bought a net THB5.39bn and THB5.3 of equities and government bonds. Trade, Manufacturing and CPI data are due this week, but we do not expect them to provide any impetus to the pair this week. With a short week ahead, we reckon the pair could trade range-bound for the week within the 32.137-32.480 range.

Rates

Malaysia

·         Yields on local government bonds ended a tad lower despite a weaker MYR which touched 3.2760 from 3.2675-95 at previous close. Prices opened unchanged with many on the sidelines Meanwhile, BNM announced a new 5-year benchmark MGS with an issue size of MYR4b. WI was quoted at 3.70%-3.68% but with muted response. At market close, 3 and 10-year benchmark MGS ended a tad lower at 3.40% and 4.08% respectively in a subdued and lackluster market.

·         The MYR IRS market was pretty quiet despite a higher 3M KLIBOR by 1bp. There was no trade reported with the curve ended almost unchanged.

·         The PDS market's buying interest continued with mid-curve papers being bought up at near MTM levels. Gamuda 2018 traded at 4.49 and 4.50% levels for decent size. We see buying interest also on UEM 18 and UEM 17. We think it is a good chance to lighten up portfolio. Imtiaz 19 looked decent for AA2 at 4.58% given its 90bps spread over MGS for a 5-year tenor.

Indonesia

·         Indonesia bond market closed higher at the end of last week after a four day decline with increasing foreign buying appetite. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield closed at 7.611% (-2.4bps), 7.960% (-10.0bps), 8.373% (-5.0bps) and 8.497% (-4.1bps) while 2-yr yield shifted up to 7.415% (+3.4bps). Trading volume at secondary market remains heavy amounted Rp9,451 bn (vs average per day trading volume of Rp7,602 bn). FR0070 (10-yr benchmark series) and SR006 (3-yr) was the most tradable bond during the day. FR0070 total trading volume amounting Rp2,461 bn with 98x transaction frequency and closed at 102.790 yielding 7.960% while SR006 total trading volume was recorded amounted Rp1,276 bn with 115x transaction frequency and closed at 101.891 yielding 8.006%.

·         Indonesia Debt Management Directorate General (DMO) release bond ownership data as of April 22nd, 2014. Foreigners were the largest buyer amounting Rp1,840 bn between 16 – 17 April. Foreign ownership stood at Rp372.89 tn (34.25% of total outstanding of government bond). Banks on the other hand were the largest seller amounting Rp1,670 bn within the same period.

·         On the corporate bond segment, trading volume was noted heavy amounting Rp997 bn (vs average per day trading volume of Rp750 bn). ASDF02BCN2 (Shelf registration II Astra Sedaya Finance Phase II Year 2013; B serial bond; Maturity date: 26 Nov 2016; Rating: idAA+) was the top actively traded corporate bond yesterday with total trading volume amounting Rp671 bn and was last traded at 100.45 yielding 9.29951%..

Rgds,

Maybank FX Research

Global Markets

Maybank