Maybank GM Daily - 30 Apr 2015

FX

Global

      The Fed decided to go with the flow after the advanced 1Q GDP surprised with an anaemic growth of 0.2%q/q. Statement focused on softer business sentiments, contraction in exports and “nearly balanced risks to economy and jobs outlooks”. The “winter slowdown” only took partial blame for the GDP print and the rest attributed to dollar strength, lowering expectations for a hike in June. However, the DXY seemed to have found a better foothold after the release of the FOMC statement as the Fed continues to expect a pick-up in growth and inflation over time, leaving the door open for a lift-off in 2H. Nonetheless, the net fall in dollar fuelled upmove in oil prices with brent at USD65.84/bbl.

      Antipodeans slipped against the USD after an initial rise on broad dollar sell off. Focus was on the kiwi which fell from its overnight high of 0.7744 to levels around 0.7620, as we write. RBNZ kept overnight cash rate on hold at 3.5% but the statement was perceived to be dovish with future cut hinging on demand and inflation outlook. The slide in the NZD dragged AUD as well, last seen at 0.80.

      Asian stocks are likely to take the cue from negative overnight session but we still expect USD/AXJs to trade with a downside bias given the broad dollar weakness. USD/THB could be the exception after the surprise cut yesterday which triggered a rally towards 32.90. Pair was still hovering just under this level as we write. The data docket is light today with only BOP trade numbers from Thailand of note. The European session will bring CPI and unemployment numbers and we can expect some focus to shift back towards the weekly jobless claims out of US, volatile as it might be. Most of Asia are out tomorrow but eyes on China’s PMI-mfg for Apr

Currencies

      DXY - Correction; Transitory Adjustment. It was all about the FOMC overnight which was largely perceived as a non-event. Accompanying statement was largely neutral. Fed acknowledged that the economy has slowed in the winter (over 1Q) but noted that it is ‘transitory’; pace of jobs gains has ‘moderated’; unemployment rate ‘had remained steady’. On policy rate, the statement noted “The Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term.”   DXY was soft off the back of weaker than expected 1Q GDP but rebounded marginally post-FOMC.  The move lower met support at 94.80 (100 DMA) Daily momentum remains bearish bias; a decisive daily close below the 100 DMA could expose DXY towards 92.20 (38.2% Fibonacci retracement of the run-up since Jun 2014 to Mar 2015). Remaining of the week brings Apr initial jobless claims, continuing claims; Mar PCE Core; Apr Chicago Purchasing Manager; Fed’s Tarullo speaks (Thu); Apr ISM Manufacturing, manufacturing PMI; Univ. of Michigan sentiment; Mar construction spending (Fri).

      USD/JPY – Range-Bound. The USD/JPY slipped to a low of 118.61 overnight on the back of dollar weakness, but has since given up some of those losses to hover around 118.95 at last sight as the market awaits the BOJ policy decision this morning. Keeping policy pat as market and we expect could the pair trade range-bound within its current trading range of 118.50-119.50 intraday still. Any surprises by the BOJ could see the pair headed back above the 120-levels. Intraday MACD is showing no strong momentum, though slow stochastics are mildly bullish bias.

      AUD/USD – Tight Range. AUD/USD touched a high of 0.8076 overnight before easing towards the 0.80-figure this morning. This pair was dragged by the fall in NZD/USD. Expect light trading and position adjustments ahead of China’s NBS PMI-mfg for Apr, out tomorrow as well as RBA rate decision next Tue. As we have mentioned, the combination of better data at home, soggy dollar, a healthy rebound in iron ore prices, China’s stimulus and lower expectations for RBA to cut rates drove the AUD rally. Bullish divergence have played out but we suspect that this not the end of the rally. On the charts, bulls are still resisted by the 0.8014-level (23.6% Fibonacci retracement of the 2014-2015 downswing). The pair ended with a doji on Wed and there could be some retracement for now. Pair is now supported by the daily ichimoku cloud at 0.7928. Clearance of the 0.8014-mark, perhaps a weekly close is needed for bulls to gain momentum towards the next tactical target at 0.8299.

      NZD/USD – RBNZ Dovish Slant; NZD Strength is Unwelcome. The RBNZ decided to leave the official cash rate unchanged at 3.5% this morning. The tone of the accompanying statement is perceived to be dovish. Future OCR cut (if any) will hinge on demand and inflation outlook. We remain cautious of RBNZ trying to engineer NZD weakness via a series of verbal and FX intervention, in higher frequency. We continue to see RBNZ on hold for longer; maintain mild dovish slant; stopping short of an outright easing bias at this stage. NZD/USD took cues from a dovish-slanted RBNZ and traded a low of 0.7594 before rebounding to 0.7615 at time of writing. 4-hourly momentum and oscillators indicators are suggesting some downside. Intra-day range of 0.7550 – 0.7650 likely.

      EUR/USD – Sustained Bounce. EUR/USD continue to push as high as 1.1187 overnight on headlines that Greece will present a draft legislation to the Euro-group as early as next Wed. The daily close above 1.1071 (61.8% Fibonacci retracement of 1.1450 - 1.0458) could see an extended up-move towards 1.12 levels (76.4% Fibonacci retracement) before 1.1450. Daily and weekly momentum indicators are bullish bias. Daily stochastics is showing tentative signs of turning from overbought levels which could suggest possible fatigue ahead. Remaining week ahead brings EC, IT Apr CPI; FR, IT Mar PPI; EC, GE, IT Mar unemployment rate (Thu).

      EUR/SGD – Drifting Higher. EUR/SGD broke out of its muted range of 1.4420 – 1.457, tracking the EUR higher overnight. Cross trades at 1.4680 at time of writing and could be poised to make further headway. Next resistance at 1.4820 (50 DMA) before 1.50 levels. Daily MACD is mild bullish bias.

Asia ex Japan Currencies

      The SGD NEER trades around 0.30% above the implied mid-point of 1.3259. We estimate the top end at 1.2995 and the floor at 1.3523.

      USD/SGD – Consolidation. The USD/SGD continues to take a breather, hovering around the 1.32-region this morning, after moving lower since the 14 Apr MAS meeting. The pair attempted but failed to close below our support at 1.3170. This support level should continue to hold intraday, barring surprises, with next support still at 1.3115. Topside should continue to be capped around the 1.3230-levels for now ahead of the next at 1.3270. Intraday MACD is showing no strong momentum and slow stochastics is gradually rising out of oversold levels. -

      AUD/SGD – Capped. AUD/SGD was still on the rise this morning, shrugging off the tentative AUD weakness. This cross was last seen at 1.0575 and daily tools suggest that current momentum is tilted to the upside. That said, upmove seemed to be capped by the bearish ichimoku cloud at around 1.0659 in the near-term.

      SGD/MYR – Range Bound. The double-top formation around 2.71 levels continued to cap the pair. Cross traded 2.6840 levels this morning. Intra-day range of 2.67 – 2.70 is expected to hold while we continue to caution that a decisive close below the 100DMA at 2.67 level could see the pair ease towards 2.6350 (23.8% Fibonacci retracement of 2013 low to 2015 high).  Daily momentum is mild bearish bias while stochastics are entering oversold areas.

      USD/MYR – Still Bearish. The decline in USDMYR continues; pair last traded 3.5420 at time of writing. Looking out on the technicals, weekly and daily momentum and oscillator indicators remain bearish bias; pair could trade lower towards 3.5080 (38.2% Fibonacci retracement of the run-up from Sep 2014 to Mar2015), especially with oil prices maintaining a bid tone.

      USD/CNH – Tilting Lower. USD/CNH ended with another bearish session on Wed and hovered around 6.1990 as we write. We still see more room for downsides. Expect USD/CNY fixing to be lower from the fixing at 6.1169 yesterday. Support is still seen at 6.1840.We still await the completion of the head and shoulders pattern and the clearance of the neckline around the 6.19-figure, which is near to the 200-DMA at 6.1896. On 29 Apr, USD/CNY was fixed 40 pips lower at 6.1169 (vs. previous 6.1209). CNYMYR was fixed 1 pips higher at 0.5710 (vs. 0.5710). CASS researcher Yi Xianrong urged China to avoid another round of excessive credit expansion.

      USD/IDR – Rangy. In the wake of the softer dollar tone overnight, the USD/IDR is playing catch-up with its regional peers and tracking the dollar lower towards 12900. But lacklustre economic growth in 2015 as well as negative sentiments surrounding the President’s fight against corruption and possible backlash from the high profile executions could still support the pair higher. Look for the pair to remain range-bound within 12900-13000 intraday until new catalyst appears. Intraday MACD and slow stochastics are mildly bearish bias. Foreign funds again sold off equities with a net USD0.13bn sold yesterday. 1-month NDF continues to trade choppily within its current trading range of 13000-13150 with intraday MACD showing bearish momentum and slow stochastics approaching oversold levels. The JISDOR was fixed lower at 12964 yesterday Tue’s 12978.

      USD/PHP – Bullish. The USD/PHP gapped higher at the opening this morning to 44.410 on possible speculation that the BSP could be next to cut rates at its policy meeting on 14 May. Pair remains on the uptick towards the 44.50-levels, though upside could be capped by dollar weakness. Look for topside to be capped around 44.500 intraday with support seen around 44.370. Intraday MACD is still showing bullish momentum though slow stochastics fast approaching overbought levels. 1-month NDF climbed higher this morning, breaking out of its trading range of 44.200-44.400, heading above 44.500 with intraday MACD showing bullish momentum and slow stochastics fast approaching overbought levels. Yesterday, foreign funds sold a net USD16.4mn in equities.

      USD/THB – Bullish.  The USD/THB continues to bounce higher above the 32.850-levels in the aftermath of the BoT’s second surprise 25bp cut to its policy rate to 1.50% yesterday. Given sluggish export and economic growth expected, further rate cut cannot be ruled out for now, though this is not our economic team’s base case. We have revised our USD/THB forecast higher as a result (see our report attached in the email), expecting the pair to end 2Q at 33.00 and the year at 33.10. Still the grind higher could be mitigated slightly by the softer dollar tone, capping the pair around 32.900. A firm break of the 32.900-resistance level could see the pair headed back towards the 33.00-region ahead. Both momentum and oscillator are bullish bias. Intraday MACD is showing bullish momentum and slow stochastics are fast approaching overbought levels. Foreign funds sold off Thai assets yesterday with a net THB2.91bn and THB10.50bn in equities and debt sold-off.

Rates

Malaysia

      Local government bonds traded sideways amidst thin liquidity throughout the day. In the morning, there were sellers on the 10y benchmark MGS 9/25s but was quickly met by bargain hunters. The bond rose 1bp from previous close. At day end, the belly of the curve was 1bp higher while the front end was unchanged.

      In a relatively quiet market, IRS saw good offers on the back of the surprise BoT rate cut decision. The curve bull steepened with only some trades reported on the 5y IRS. 3M KLIBOR remained at 3.72%.

      PDS market was muted as players awaited the FOMC statement. AAA names from the belly to the long end of the curve, such as Plus 17-28, traded 1-2bps tighter. Danga 30 tightened another 1bp to 4.63%. This bond has tightened by an impressive 12bps over the last one month and we still see good demand for Danga as it is a good carry and a reflection of Khazanah’s strong credit. GG names traded roughly 1bp around MTM levels. PTPTN 26 was the most actively traded with MYR105m trading volume.

Singapore

      SGS prices fell across the curve with yields rising by 3-5bps from the 5y onwards. The SGD IRS also rose 3-5bps. Bond swap spreads tightened as the selling interest brought yields higher. Market turn their attention to the FOMC statement.

      The Asian credit space was rather quiet in the morning as Japan was out on holiday. In the afternoon, we saw buying frenzy on the back of UST movement. MALAYs outperformed with MALAY 25 and 45 being lifted at +105 and +153 respectively. INDON sovereigns initially traded softer but later saw some bargain hunters and the papers traded up slightly by 0.25-0.50pts. CNOOC priced its 5y, 10y and 30y issuances overnight at T5+128bps, T10+160bps and T30+150bps respectively. Binhai Investment printed a small issuance of USD200m at T3+245 which rallied 20-25bps. Bank of India issued USD750m of 5y bonds at T+185bps which traded down slightly from its reoffer and appears to be holding up well. Market remains focused on new issuances. Bharat Petroleum (Baa3) is coming out with 10y USD issuances guiding at CT10+210bps. The deal garnered almost USD2.3b orders for an issue size capped at USD500m. Beijing Enterprise is printing 5y EUR issuance with initial price guidance at MS+135bps. We expect the market to continue to focus on the newly issued bonds and will remain on the sidelines for the short week. 

Indonesia

      Positive statement passed by several government officials during yesterday have made the bond market to slightly rejoice after a two day’s significant drop. Finance ministry told the press that Indonesia would maintain its target issuance of government bond worth of Rp451.8tn while he also expects a better key indicator assumptions in 2016. Bank Indonesia on the other hand believes that Indonesia economy growth for FY2015 would come in within the range of 5.4% - 5.6%. Looking from technical view, we believe the support of the 10y benchmark series is when its yield reaches 7.75% - 7.80%. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 7.595%, 7.707%, 7.901% and 8.042% while 2y yield shifts down to 7.301%. Trading volume at secondary market was seen heavy at government segments amounting Rp14569bn with FR0070 (10y benchmark series) as the most tradable bond. FR0070 total trading volume amounting Rp2455tn with 86x transaction frequency and closed at 104.226 yielding 7.937%.

      Corporate bond trading traded heavy amounting Rp963 bn. BBMISMSB1CN2 (Shelf Registration Subordinated Sukuk Mudharabah I Bank Muamalat Phase II Year 2013; Rating: idA(sy)) was the top actively traded corporate bond with total trading volume amounted Rp145 bn yielding 11.097%.