Maybank GM Daily - 3 Jul 2014

FX

Global

      US ADP lifted UST yields and the greenback overnight. June saw an addition of 281K of private sector employment, above the 205K expected.  10-year yields surged well above the 2.6%-level before levelling off into Asia. Having risen in tandem, the dollar retained much of its overnight gains too as we write, though still unable to reach the 80-handle.

      Overnight, Fed Chair Yellen noted “pockets of risk taking” due to the low rates. However, she stressed that macroprudential rules should be the main tools to ensure stability instead of monetary policy which she described as a “blunt tool”. Her words did little to stem the sell-off in USTs as focus was largely on the stronger-than-expected ADP numbers. Equity indices ended mostly in mild black with DJI and S&P up +0.1% each by close while NASDAQ finished flat.

      Early Asia starter Nikkei opened flat while Kospi slipped -0.3%.  Expect cautious optimism in the region that should keep most regional currencies in their current range, ahead of the key NFP number tonight. The average forecast for the print is 215K compared to the previous print of 217K. An upside surprise could give the greenback another boost and trigger more selling in the USTs. ECB meets today and expectations for President Draghi to jawbone the currency lower keeps EUR on the backfoot. However, expect focus to quickly shift towards the US NFP for cues to the Fed.

G7 Currencies

       DXY – Upside Risks. The index bounced above the 79.920-resistance and steadied thereabouts, last printed 79.963. 80.050 is the next interim barrier, marked by the 40-SMA on the 4-hourly chart that has guided the index lower for much for much of the past two weeks. A break exposes the next at 80.30. The bounce in the greenback is triggered by firmer ADP numbers and investors are optimistic of the NFP print tonight. Consensus is 215K compared to the previous 217K. An upside surprise could give the dollar bulls greater momentum. Any disappointment on that front might send the dollar towards support at 79.688.

      USD/JPY – Sideways.  USD/JPY, which was initially lifted by strong ADP print and then later by higher UST yields, is still on the uptick this morning. Pair is inching higher around 101.93 currently on a firmer dollar this morning, with risks bias to the upside. Pair is also just a tad off overbought territory, suggesting further upside ahead. Even though our immediate resistance at 101.76 has been broken, sentiments should be cautious ahead of NFP with sideway trades likely today.  We look for moves between 101.50/102.20 today.

      AUD/USD – Bearish. AUD took a drastic bearish turn, smashing through the 0.94-figure and last traded around 0.9390. Investors took profit when RBA Glenn Stevens warned that investors that most “underestimate the probability of a significant fall in the currency” (BBG). Last seen testing the 0.9387-support, the pair has reversed out all the gains accumulated post RBA and is gaining strong bearish momentum. 0.9350 is the next support level in sight. This morning, data was mixed. Retail sales came in weaker at -0.5%m/m for May, a larger contraction compared to the previous -0.1%. Building approvals rebound 9.9%m/m in the same month from the previous decline of -5.8%. AUD remained under pressure.

      EUR/USD – Downside Pressure. EUR/USD fell through the 1.3670-support and waffled around 1.3650 as we write.  Pair is still under bearish pressure and could head further south towards 1.3635. Barrier at 1.3670 is back on the watch but risks are to the downside. This is despite little expectations for the ECB to do anything tonight during their monetary policy meeting. President Draghi could attempt to talk the EUR lower again. Perhaps more importantly, any upside surprise in the US NFP numbers could give bears more steam to run.

Regional FX

      The SGD NEER trades 0.55% above the implied mid-point of 1.2547 with the top end estimated at 1.2297 and the floor at 1.2796.

      USD/SGD – Range-bound. USD/SGD is back on the uptick underpinned by firmer dollar this morning. Pair is trading around 1.2478 this morning with intraday momentum indicators providing little directional clues. We need to see a break at either end of the current trading range for directional cues. Ahead of NFP tonight, we expect the pair to trade range-bound within 1.2451/1.2512 today. PMI came in below expectations, printing 50.5 in June vs. consensus 51.0 and May’s 50.8 (though this print still indicates that manufacturing activities is on the expansion path). This dip could be attributed to a drop in production output and lower new and export orders. Electronics PMI beat market estimates of 50.5, rising 50.7 in Jun from 50.4 in May on new orders from domestic and overseas markets.

      AUD/SGD – Downside Risks.  AUD/SGD plunged to around 1.1712 this morning following RBA’s Steven’s comments that the AUD was overvalued. The cross took out several support levels on its way down. Risks are now tilted to the downside with the cross close to oversold conditions (RSI printing 20.9). Support is now seen around 1.1680 with resistance around 1.1781. SGD/MYR – Familiar Ranges. SGD/MYR is currently trading around the lower half of its 2.5665-2.5771 trading range. Cross is currently sighted around 2.5702. There continues to be little impetus for the cross to break out of its current trading range. Until there is directional clarity, we look for rangy trades with the familiar 2.5665-2.5771 trading range.

      USD/MYR – Heavy. USD/MYR was lifted this morning to around 3.2080, underpinned by overnight dollar gains and surge in UST yields. Pair is losing bearish momentum and may test the barrier at 3.2110. Bids will not head much further beyond this resistance level given the expectations of a rate hike next week. 18-SMA and 40-SMA still flags bearish risks on the 4-hourly chart. 1-month NDF touched a high of 3.2141 this morning and risks are to the upside, underpinned by the rise in UST yields overnight.

      USD/CNY was fixed higher at 6.1581 (+0.0032), vs. previous 6.1549 (+2.0% upper band limit: 6.2838; -2.0% lower band limit: 6.0374). CNY/MYR was fixed at 0.5183 (-0.0002). USD/CNY –Rangy. USD/CNY remained buoyant around 6.2160, guided by the higher fixing. Pair is still losing bearish momentum on the intra-day chart though upsides continue to be capped by the 6.2167-resistance. Risks are tilted to the upside though next barrier could deter bids at 6.2231. China’s PMI-non mfg fell to 55.0 in Jun from the previous 55.5.

      1-Year CNY NDFs – Firmer. NDF rose above the 6.2485-resistance, gaining upside momentum. Last seen within striking distance of the 6.25-figure, we expect the pair to remain in buoyant trade with support seen at 6.24. MACD on the 4-hourly chart also flags upside risks. Bids should be capped by 6.2570.

      USD/CNH – Capped. USD/CNH crept higher though 6.2193 seems to be a barrier for current bids. RSI also flags near overbought conditions and and a decisive move above this level exposes the next at 6.2281. Downticks to meet support at 6.2094 which happens to be around the 18-SMA on the 4-hourly chart. We still hold our short USD/CNH call that we made on 11 Jun, with target seen at 6.1706. CNH trades at a small discount to CNH at the moment.

      USD/IDR – Downside Risks. USD/IDR is inching its way back towards the 12000-level as the presidential elections draw closer. Pair is currently sighted around 119634 with intraday MACD showing waning bearish momentum. However, yesterday’s flows data showed foreign funds still on a buying spree with a net USD23.1mn in equities purchased, which if extended into today could support the IDR, though twin deficits concerns could mitigate. With the pair grinding higher this morning, we look for 12000 to cap upsides with 11750 still limiting downsides. 1-month NDF broke above the 12000-level this morning, hovering around 12023 currently with the four-hourly MACD showing increasing bullish momentum. The JISDOR was fixed lower at 11854 yesterday from Tue’s 11798. BI governor expects inflation to hit the upper end of the central bank’s forecast of 3.5-5.5% in 2014 due to higher food prices, power tariff rates and air travel tariffs.

      USD/PHP – Gradual Grind Higher. USD/PHP is edging higher this morning around 43.655, still trading around the lower half of the 43.528-43.831 range. Yesterday, foreign funds bought a net USD9.2mn in equities with further buying today likely to again cap upside for the pair. Intraday MACD is now showing waning bearish momentum, which suggest that further upside could be gradual. Ahead of NFP tonight and CPI data tomorrow, price action should see upside today capped still by 43.831, while 43.528 continues to limit downside today. The 1-month NDF is waffling this morning, currently sighted higher little changed at 43.680 from yesterday’s close intraday momentum indicators showing upside risks. Jun CPI is on tap tomorrow morning and market is expecting headline inflation to edge up slightly by 4.6% y/y compared to May’s 4.5% and vs. the central bank’s estimates of 4.1-5.0%. The uptick in inflation is likely due to the increase in basic food prices and higher pump prices.

      USD/THB – Still Wobbling. USD/THB current attempts to break lower yesterday were stopped around the 32.355-region. Pair is waffling currently, sighted around 32.374 with intraday MACD still showing little directional cues. Latest data is showing foreign funds buying a net THB627.72mn and THB5.33bn in equities and government debt yesterday, which provided support for the THB. We expect the pair to re-test yesterday’s lows again with 32.355 likely to provide immediate support today. A firm break of this support would expose the next around 32.310. 32.440 continues to be the hurdle to cross today. The military junta has approved in principle a one-year extension to the reduction in tax rates. Personal income tax will stay between 5-35%, corporate income tax at 20% (from 30% originally) and the VAT cut to 7% from 10% until 30 Sep next year.

Rates

Malaysia

      In local government bond market, flow buying into the long end part of the curve continued throughout the day as the 10, 20 and 30-year benchmark MGS dipped 2bps each from yesterday’s close. A fair amount of volume was done on the MGS 7/24 today. The flow into MGS led to buying on Islamic GII on the respective tenors.

      IRS came under pressure again as the MGS curve got bought up, but the excitement seems to be limited currently in bonds. 5-year traded at 4.01%. It is likely that the IRS curve has been propped up by 3M KLIBOR keeps going up 1bp every other day. Today 3M KLIBOR added 1bp to 3.56%.

      In the PDS market, in line with the slight rally on govvies, demand for high grade papers soared. Long end sector was particularly in demand for GGs and AAAs. Plus 2027 and Plus 2033 traded at 4.90% and 5.35% respectively. Danainfra 2021 was taken at 4.37% in decent amount. Locals seem still favouring the long ends and selling the short ends. Bank names and AAAs were offering at close to MTM level.

Singapore

      The SGS curve eased after buying on dips at opening quickly pushed prices back to unchanged levels and higher. The belly up to the 10-year point continued to enjoy strong buying interests, pushing the swap spreads wider by 1-3bps. The IRS curve closed marginally higher whilst SGS yields ended mostly unchanged at the long end and down 1-2bps in the belly.

      In the credit market, the Republic of Indonesia is issuing EURO 7 years at guidance of MS + 225bps and later tightened to MS + 210bps and market close earlier on. Interest for the name has been strong, and upon swap, the paper looks decent compared to its USD issue. Overall, Asian credit is still holding up strong, particularly Korean names that have been trading positively in the quiet week. Korea National Oil Corporation opened its book for a re-tap of 5 and 10 years USD issuances, both guiding at CT5 + 80bps and CT10 + 95bps respectively. We expect the issue to receive broad support from US and Korean onshore investors.

Indonesia

      IDR government bonds closed another higher today after inflation hits slowest pace in a year, coming in at 6.70% for June versus forecast 6.79%. Even though rupiah currency traded higher to 11900level but bonds price managed to trade higher. Price opened firmer 25-30bps in the morning continue to closing time. 5Y traded at 7.7%, 10Y traded from 8.07-8.03%, 15Y traded at 8.51% and 20Y traded at 8.63%. Bidder mostly foreign names meet seller from various names. The yield drop 3-6bps across the curved. Furthermore, yield closed at 7.70/8.03/8.50/8.69% for 5Y/10Y/15Y and 20Y respectively. 

      Indonesia Debt Management Directorate General (DMO) release bond ownership data as of June 30th, 2014. Banks as the largest buyer amounting Rp15.39 tn compared to the end of May. Meanwhile, foreign looks to buy about Rp 6.43 tn compared to the end of May. Foreign ownership stood at Rp403.59 tn (35.66% of total outstanding of government bond).