Maybank GM Daily - 17 Apr 2015

FX

Global

      US equities gained overnight driven by better than expected earnings from JPM, Intel despite disappointing US Industrial Production, Empire state manufacturing data. Of the 36 companies in the S&P500 that have reported earnings, more than 80% exceeded expectations. EU equities continued its upside momentum, fuelled by ECB’s commitment to QE. In FX, USD pullback continued amid weak US data. Most high-beta currencies including EUR, GBP, AUD, NZD, CAD benefitted. Oil continues to firm on EIA crude inventory rising less than expected, reduced output from Yemen and US-Iran talks deadlock.

      Key events overnight were centred on ECB and BoC. There was no surprise at the ECB as Draghi reaffirmed commitment to QE; clarified that concerns over bond scarcity is exaggerated. BoC kept rates steady at 75bps overnight; comments were slightly hawkish – Canada GDP growth to rebound in 2Q; impact of crude oil crash more front-ended but not deeper than expected; lower CAD expected to offset the negative impact of oil on growth and inflation. USD/CAD took a plunge to 1.22 levels.

      Day ahead for US, focus on housing data - Mar housing starts; building permits and Apr Philly Fed Business Outlook data. Fed speaks throughout the day includes Lockhart, Mester, Rosengren, Fischer. For Europe, IT Feb trade data on tap. Intra-day USD likely to consolidate in recent ranges with mild bias to the downside; we remain better buyers of USD on dips.  

Currencies

      DXY – Bias Downside; Buy on Dips. USD continued to backpedal on disappointing housing starts and initial claims data overnight. DXY has fallen for 3 consecutive sessions; overnight closed at 97.40 levels. Day ahead may continue to see consolidation with a downside bias; intra-day range of 96.30 – 98.00. Daily stochastics is falling from overbought territories; momentum is bearish bias. On technicals, the setup remains bearish with double-top formation formed near 100 levels; support at 96.90 levels (50DMA) is key to watch. Day ahead brings Mar CPI which is of top focus for indication of sustained USD weakness in the short term. Consensus is looking for +0.3% m/m. A weaker reading should see USD weakness continues. Other data of interest is Apr Univ of Michigan sentiment. Over the medium term we remained convicted to our USD bullish bias; reiterate our house-view for the first rate hike to begin in Sep 2015, totaling 50-75bps for year ending 2015 and continue to favor buying USD on dips.

      USD/JPY – Consolidation. USD/JPY is in consolidation mode around the 119-region after dipping lower yesterday.  Helping to support the JPY today was news that large Japanese companies have agreed to increase monthly wages by an average 2.59% in FY2015, sparking some life back into Abenomics. Intraday MACD continues to point to bullish momentum though slow stochastics is indicating little bias in either direction, suggesting that further downside could be limited. Double-top formation at 121.85 continues to act as resistance in the short term, though in the interim, intraday trades within 118.30 – 119.50 should continue to hold.

      AUD/USD – Bullish Divergence. AUD/USD ended Thu with a strong bullish session, breaking into the bearish ichimoku cloud and hovering a tad under the 0.78-handle. Asian players book profit this morning after the bullish session yesterday. With the 0.7740-resistsance broken, we continue to expect a corrective bounce in the AUD/USD pairing as indicated by the bullish divergence on the MACD. For intra-day trades, expect pairing to remain in smaller range trades in the absence of signals. Base of the cloud at 0.7720 marks the first support while 0.7880 caps bids. Yesterday, Australia ABS reported a 37.7K addition to employment for Mar with 31.5K full time hires. Participation rate also rose to 64.8%. Jobless rate dropped to 6.1%, beating markets expectations at 6.3%.

      NZD/USD – Double Top Formation in the Making? NZD gains were capped near 0.77 levels (previous high in mid-Mar); pair traded a low of 0.7750 this morning before catching a bid tone.  Still expect NZD to continue to take cues from AUD and possibly drift higher. An interim double top could be in the works should the pair fail to make a weekly close above 0.77 level. Remain better sellers on rallies towards 0.77 intra-day.

      EUR/USD – Fade Rallies. EUR/USD continued to push higher towards 1.0818 overnight high on USD weakness despite mounting concerns over Greek’s ability to meet repayment schedule. Pair trades around 1.0780 levels this morning and looks to test higher. Intra-day in Asia could see 1.0730 – 1.0850 range; watch out for US CPI numbers tonight which could see if USD managed to sustain its near term weakness. We continue to maintain our bearish EUR/USD view amid structural decline in Europe fundamentals, concerns over Greece ability to meet repayment schedules, and diverging monetary policies between US and EU. Day ahead sees EC Mar CPI; ECB Feb current account ECB officials will attend the IMF Spring meetings in Washington (Fri – Sun).

      EUR/SGD – Consolidate in Recent Range. EUR/SGD traded a 1.44 – 1.46 range before closing around 1.4525 levels overnight. Pair continues to pivot around 1.45 levels awaiting for fresh cues. Day ahead could continue to see the pair consolidate in recent range of 1.44 – 1.46.  

Asia ex Japan Currencies

      The SGD NEER trades around 0.74% below the implied mid-point of 1.3392 with the top end estimated at 1.3122 and the floor at 1.3662.

      USD/SGD – Bearish, Accumulate On Dips. The USD/SGD bears remained at the forefront, dragging the pair back below the 1.35-levels, weighed first by softer dollar and then by NODX outperformance in Mar. Mar NODX surprised on the upside, rebounding by 18.5% y/y from Feb’s -9.7% vs. expectations of -1.1%, helped by a bounce in electronics and pharmaceutical shipments (+10.4% and 65.9% y/y respectively). Pair is currently hovering around 1.3495 with intraday MACD still showing bearish momentum, though slow stochastics are now at oversold levels, suggesting a rebound ahead is possible. Strong support remains at 1.3470-levels and should hold in the near term. Our preference remains accumulating on dips. Any rebounds should be capped around 1.3530.

      AUD/SGD – Bulls Taking A Breather. AUD/SGD slipped to trade around 1.0520 this morning from its overnight high of 1.0564 as Asian players booked profits ahead of the weekend. Pair is likely to see mild correction from its recent upswing in the absence of fresh impetus and offers to meet support at 1.0459 (38.2% Fibonacci retracement of the Mar-Apr downswing). Intra-day bids to meet first resistance at 1.0592.

      SGD/MYR – Gap Down. SGDMYR gapped down this morning as oil prices gave MYR bulls interim wings. However, support at 2.6880 is slowing the cross’ descent this morning and a clean break here (preferably a daily close) exposes the next support at 2.6710 and breaks the uptrend in this pair. We reckon there are interests to buy SGDMYR on dips and to close up the overnight gap. Hence, expect pullbacks to be shallow. Topside capped by 2.7010.

      USD/MYR – Patiently Waiting to Buy on Dips. USD/MYR gapped lower this morning and currently trades around 3.6325 at time of writing, tracking USD weakness, SGD strength and firmer oil prices overnight (Brent at fresh 2015 high). Pair could continue to drift lower taking cues from USD/SGD amid no data release for the week to drive currency. Previous low of 3.62 (formed in early Apr) remains in focus; next support sees 3.5950 (100 DMA). In We continue to reiterate our view for Ringgit weakness off the back of soft oil prices, risk of rating downgrade amid contingent liability exposure, lower fiscal revenue and narrowing current account surplus remain unchanged. Remain better buyers on USD dips towards 3.60 – 3.62 levels.

      USD/CNH – Bearish. Pair remains on its downmove this morning, following the dollar retreat and in anticipation of another lower USD/CNY fixing. Prices, last seen around 6.1880, have broken the 200-DMA at 6.1900 and expose the next key support at 6.1560(76.4% Fibonacci retracement of Oct-Mar rally). Intra-day support is seen around 6.1841 (Oct 2014 high) which coincides with the 61.8% Fibonacci retracement of the Oct-Mar rally at 6.1842. USD/CNY was fixed 38 pips lower at 6.1267 (vs. 6.1305). CNYMYR was fixed 61 pips lower at 0.5846 (vs. 0.5907). China’s Mar property prices are due for release tomorrow. In news, foreign nations can invest in Silk Road plan according to National Development and Reform Commission (Xinhua).

      USD/IDR – Consolidative Trades. The USD/IDR is in consolidation after sliding lower yesterday. Pair is now hovering around the 12850-levels with both 4-hourly MACD and slow stochastics showing bearish bias. The pair could be pressured lower for the time being on the back of positive sentiments emanating from the expected improvement in the current account deficit (CAD) in 1Q15. The central bank expects 1Q15 current account deficit to come in at 1.6% of GDP in 1Q15, a level not seen since 2012, helped by IDR depreciation. Still, this could be short-lived as weak exports could weigh on GDP growth ahead. Look for 12810 to remain supportive intraday with rebounds met by resistance at 13000. Foreign funds continued to sell-off with a net USD12.39mn in equities sold yesterday, and a net IDR0.03tn removed from their outstanding holding of debt on 15 Apr (latest data available). 1-month NDF continued to hover below the 13000-figure this morning at around 12950 with intraday MACD showing bearish momentum and slow stochastics in oversold territory. As expected, the JISDOR was fixed lower at 12838 yesterday from Wed’s 12976 and could be fixed higher given the current level of the spot this morning.

      USD/PHP – Bearish Tilt. The USD/PHP gapped lower at the opening for the second straight session to 44.385 from yesterday’s close of 44.433, fuelled by renewed expectations of a Fed fund rate hike delay. Pair remains on heavy for now with both momentum indicators and oscillators showing a bearish tilt. Bias to the downside today, look for support around 44.300 still, while upticks should be capped by 44.500. 1-month NDF continues to hover around the lower bounds of its 44.400-44.850 range at 44.450 currently with 4-hourly MACD should bearish momentum, though slow stochastics remain at oversold levels. Foreign funds sold off a net USD42.53mn in equities yesterday as risk sentiments deteriorated.

      USD/THB – Consolidation With Downside Bias.  After slipping lower over the past few sessions on the back of a dollar correction, the USD/THB could enter into consolidation mode ahead. Different forces are likely to pull at the pair ahead, including the pressure piled on the BoT to cut rates by the government and the possible flare-up in political tension over the draft constitution, even though it signalled that polls could be on its way soon. Look for the pair to consolidate with a downside bias within 32.350-32.520 intraday. Four-hourly MACD is still showing bearish momentum with slow stochastics now at oversold levels, suggesting a rebound could be in the offering. Yesterday, Thai assets saw mixed interest from foreign funds with a net THB5.09bn of equities purchased but a net THB3.39bn in debt was sold-off.

Rates

Malaysia

      Local government bonds traded sideways despite USDMYR gapping lower. Overall volumes were rather low with most trades done on the new 5.5y MGS 10/20s. All eyes would be on the next auction which is a retap on the 7y SPK. We estimate an open auction and a private placement size of MYR1.5b each.

      IRS levels closed 1-5bps higher with some paying activity seen. The 5y IRS was dealt several times at 3.80% led by foreign players. 3M KLIBOR remained at 3.73%.

      Local PDS space had a muted trading session. 9y Telekom papers traded higher by 1bp, MACB 2022s tightened 3bps while Gamuda 20s widened 1bp. Other trades were crosses. We think that there could be value in the 7-8y AAA names as the curve has not flattened as much as the 9-10y bonds, which had rallied significantly following Putrajaya’s new issuance the previous day.

Singapore

      SGS yields opened lower but traded up during the day and closed 5-9bps higher. There was a massive profit taking by a foreign name around SGS 6/19 which led to selling of other bonds in that region. The 10y benchmark bond swap spread ended at -13.7. We suggest looking to stay neutral around here and wait for tighter bond swap spreads to put back on positions.

      The Asian credit space saw Government of Malaysia print 5y and 10y USD sukuks at T5+115bps and T30(old)+170bps respectively. Both papers traded 3-8bps tighter, rumored to be due to Middle Eastern clients buying. In line with MALAYs, PETRONAS papers also rallied 3-8bps. INDON and PHILLIP traded mostly unchanged as US Treasuries hardly moved from previous day’s Asian close. Market continued to focus on the new deals. China Cinda is issuing 5y and 10y USD bonds with guidance at T5+215bps and T10+265bps respectively. Based on the current Cinda curve, the spread looks decent but the 10y appears just fair as HRAM 2025 is currently trading around 263/259. Industrial Bank of Korea is issuing 5y USD paper at the guidance of T5+90bps. We think the fair level should be around T5+70-75bps given its scarcity value. The new Formosa and China Communications traded almost unchanged from previous close.

Indonesia

      Indonesia bond market closed negative amid minimum market sentiments and appreciating Rupiah currency. Rebalancing was seen during the day where long end tenors were seen replace by purchase of front end tenors. Bond prices may move sideways today post several days decline. Market would also wait for upcoming U.S. March inflation data release which will only be published post Indonesia market close today. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 7.273%, 7.415%, 7.550% and 7.725% while 2y yield shifts up to 7.037%. Trading volume at secondary market remains heavy at government segments amounting Rp11,106 bn with FR0070 (10y benchmark series) as the most tradable bond. FR0070 total trading volume amounting Rp2,831 bn with 162x transaction frequency and closed at 106.173 yielding 7.415%.

      Corporate bond trading traded thin amounting Rp456 bn. BNII01SB (Subordinated I Bank BII Year 2011; Rating: _idAA+) was the top actively traded corporate bond with total trading volume amounted Rp149 bn yielding 9.797%.