Maybank GM Daily - 15 May 2015

FX

Global

      The confluence of weaker dollar, low producer price index and lower initial jobless claims sent equities on a rally with DJI closing near record high at 18289, up 1% in the session. S&P ended at record high while NASDAQ clocked 1.4% of gains. The soft inflation numbers, in particular, pared expectations of a June rate hike by the Fed and dragged the greenback lower. Bond markets also had some respite while oil prices were a tad softer.

      Most of the other majors appreciated against the greenback with the exception of the commodity currencies including the CAD and the AUD. Market players took profit on the latter after a 1.7% gain on Wed. Nearer to home, Asian currencies strengthened with KRW in the lead. There was not much impetus on Thu and regional players took advantage of the soggy dollar. This morning, BOK left 7-day repo rate unchanged at 1.75%. MYR strengthened ahead of the GDP data, due 12pm (SGT), as markets brace for an upside surprise, perhaps nearer to our economists’ view of 6.2% growth for 1Q. Our forecast is above consensus at 5.5%.

      Other data to watch in the region includes Indonesia’s Apr trade numbers, Malaysia’s 1Q current account, Singapore’s retails sales and Philippines’ overseas remittances for Mar. Beyond Asia, Fitch will publish Greece’s sovereign debt rating. US’ data docket is also busy with industrial production and empire manufacturing.

Currencies

      DXY – Buy on Dips. USD remained soggy overnight and tested support at 93.25 overnight before hovering around 93.390 as we write. The 100DMA at 95.30 will continue to cap near-term bounces. Bonds had some respite overnight with UST 10-yr yields lower around 2.23% by Asia morning. More near-term downside cannot be ruled out with minor support seen at 93.250 before the next support seen at 92.509 (38.2% Fibonacci retracement of the 2014-2015 rally).  Initial jobless claims fell by another 1,000 to 264K for the week that ended on 9 May. Produce price index surprised to the downside at -0.4%m/m vs, consensus at 0.1%. Data watched today includes Apr industrial production due, accompanied by May Empire Manufacturing, Apr capacity utilization and May Prelim. Univ of Michigan Sentiment.

      EUR/USD – Fade Relief Rally. EUR inched higher against the USD and was last seen around the 1.14-figure. Price action suggests that the pair may still like to try 1.1450 which we prefer fading into. Support is seen at 1.1135. Near-term uptrend intact with momentum on the daily MACD still slightly bullish. That said, we continue to reiterate our bearish bias on the EUR on a combination of macro factors including diverging monetary policies between Europe and the US (ECB QE while Fed is likely to start tightening Sep 2015), ongoing disinflationary concerns, structural headwinds (labor market slack, high debt, slow reforms, possible fiscal slippages, etc.) and worries over Greece’s ability to meet repayment schedule. Greece sovereign debt rating will be published by Fitch today. Break of the 1.1135 support exposes the next at 1.1070 (61.8% fibo, 1.1450, 1.0458), before 1.0950 (50% fibo); while resistance at 1.1450 (Feb 2015 high) should attract keen offers.

      GBP/USD – Supported. GBP/USD remained a tad supported around 1.5770 this morning. 200DMA at 1.5613 supports. The pair still have some bullish momentum but upside could be a grind at the moment given resistance at 1.5879 (50% Fibonacci retracement of the 2014-2015 sell off). GBP strength continued to be underpinned by a UK recovery story backed by domestic demand and possible one of the central banks to lead the first rate hike. We wish to highlight market pricing of BoE rate hike remains dovish and risk is biased for an earlier adjustment and could further lend support to the GBP. Weekly chart continues to look supportive for GBP strength; beyond 200DMA see next resistance only at 1.5860. Data we watch today includes Mar construction output (Fri).

      USD/JPY – Supported. USD/JPY remained range-bound despite the softer dollar tone overnight, supported by broad JPY selling against the majors. Pair continued to trade near the lower portion of its current 118.50-120.80 trading range. We continue to wait for a trigger that could see a breakout on either side this current trading range. BOJ governor Kuroda speaks today but is unlikely to provide impetus to the pair today. Continue to look for the 118.50-120.80 range to hold today. Intraday MACD and slow sochastics are now showing tentative signs of bearish bias.

      AUD/USD – 2 Steps Forward, 1 Step Back (Indeed!) – AUD reversed lower after its stellar session on Tue and the pair waffled around 0.8050 this morning, weighed by the fall in iron ore prices. As we have noted before, near-term resistance is seen around 0.8183 before our next goal can be reached at 0.8286. Pair is still retaining some bullish momentum but bulls may take breather in the meantime. Expect further reversal to meet support at 0.8008. We still look for a move up towards the 0.8286-mark (38.2% Fibonacci retracement of the 2014-2015 sell-off). The recent close above 0.8008-mark overnight has given us greater conviction.

      NZD/USD – RBNZ Next to Ease? NZD slipped this morning and was last priced at 0.7458. Pair is now supported by 0.7437, underpinned by dollar weakness. The 100-DMA at 0.7544 could slow unexpected rebounds though a break above the level exposes the next at 0.7611. The lack of data cues could mean rangy action for now, albeit with a slight bearish bias. Beyond near-term trades, we continue to reiterate our bearish view for the NZD on a combination of drivers including mounting expectation for RBNZ to cut rates following RBA’s move to cut rate (5 May), weaker than expected 1Q wage inflation data (6 May) and declining GDT dairy auction prices to near 6-year lows (we have released a note on this Monday). Our first objective at 0.7350 has already been achieved; next targets on the downside at 0.72 levels. Remain short and add on rally (if any).

Asia ex Japan Currencies

      The SGD NEER trades around 0.28% above the implied mid-point of 1.3275 with the top end estimated at 1.3010 and the floor at 1.3539.

      USD/SGD - Bullish Tilt. USD/SGD broke our resistance level at 1.3320 yesterday and then tested but failed to take out the next hurdle at 1.3170 on the back of broad dollar weakness. Pair is currently bouncing higher this morning, tracking both the USD/JPY and EUR/USD. Pair looks bid for now with intraday MACD forest showing waning bearish momentum and slow stochastics indicating tentative signs of rising from oversold levels. Further upticks should be capped by 1.3270 while any dips should continue to see support around 1.3170.

      AUD/SGD – Bearish Bias. AUD/SGD is on the slide this morning, weighed by the relative weakness of the AUD. Cross remains bias to the downside with both intraday MACD and slow stochastics showing bearish bias. Further pullbacks today should see support still at 1.0592.1. 0808 (Mar high) should continue to cap upside.

      SGD/MYR – Bearish Bias. SGDMYR is edging lower this morning on the back of MYR strength and SGD weakness but continues to hover around the 2.70-levels. Should Malaysia’s 1Q15 GDP come in as our economists expect, further downsides can be expected. Look for 2.6900 to limit downside, while any rebounds should remain capped by 2.7100.

      USD/MYR – Watch 1Q GDP; Our Economist expect a strong print of +6.2% y/y. The USD/MYR slipped lower this morning to 3.5800 in anticipation of the 1Q15 GDP, which will be released later this afternoon. Our economic team is expecting 1Q GDP growth to come in at +6.2% (above most market estimates; consensus +5.4%). Softer oil prices though could limit the pair’s downside somewhat today. Pair remains bias to the downside with both intraday MACD and slow stochastics showing bearish bias. Look for 3.5600 to limit downside today, while 3.6150 should cap. We remain cautious of Fitch rating review that is due mid-May to Jun; we believe a downgrade may not have as much impact on the MYR given market pricing/expectation; on the contrary a no-move from Fitch might well be seen as a positive for the MYR.

      USD/CNH – Steady. USD/CNH is still on the downmove this morning, anticipating another lower USD/CNY fixing by PBOC. Pair was last seen at the 6.20-figure, still within the broader consolidative 6.1842-6.2292 range. A breakout is needed for more directional cues at this point. 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. USD/CNY was fixed 8 pips lower at 6.1085 (vs. previous 6.1093). CNYMYR was fixed 26 pips lower at 0.5749 (vs. 0.5775). At home, moral suasion abound with financial institutions  advised by PBOC to keep deposit rates under the new ceiling which came into effect on 11 May.

      USD/IDR – Capped. Onshore markets re-opened today and the USD/IDR is edging higher towards 13100, playing catch up with the rest of the region. But both four-hourly MACD and slow stochastics are showing bearish bias, suggesting upside could be capped. Apr Trade data out later today should be supportive of the IDR as the central bank is expecting a surplus. However, concerns about domestic growth and possible rate cut next week should continue to weigh on the IDR. Look for range-bound trade within 13950-13200 to hold intraday. 1-month NDF spiked to an intraday high of 13257 this morning before coming off to hover around 13171 at last sight with intraday MACD forest showing waning bearish momentum and slow stochastic rising from oversold levels. Intraday MACD is still showing bearish momentum, though slow stochastics is indicating tentative signs of bullish bias.

      USD/PHP – Bearish Bias. The USD/PHP continues its retreat towards below 44.500-levels following the central bank’s decision to stand pat on monetary policy yesterday as expected. Rising overseas remittances in Mar, to be released later today, should also be supportive of the PHP. With our support level at 44.590 taken out, new support is now seen at 44.400. Any rebounds should remain capped around 44.715. 1-month NDF is rebounding towards 44.600 after slipping to 44.440 overnight. Foreign funds continue to sell down equities with a net USD13.63mn sold yesterday, and a further sell-off could keep the pair supported.

      USD/THB – Two-Way Trades.  USD/THB tested 33.320 briefly yesterday before bouncing back to hovering around the 33.450-region. Pair continues its climb higher, sighted around 33.520 currently with intraday MACD showing mild bearish momentum but slow stochastics indicating bullish bias, suggesting two-way trades are likely ahead. Upticks today should meet resistance around 33.640 still, while dips should meet resistance at 33.450 before the next at 33.250.  Yesterday, foreign funds sold a net THB753.52mn and THB2.71bn in equities and debt, and continued selling could support the pair today.

Rates

Malaysia

§  Government bond market saw a very strong auction on the 3y GII 5/18 with a bid/cover of 2.6x. There was some short covering post auction and the issue ended 6bps lower from previous day’s done. In the afternoon, 5y GII 8/20s rally back down 2bps as players deemed the spread against its MGS peer attractive. All eyes are on today’s 1Q GDP data scheduled to release at noon time.

§  In the IRS market, still some fairly good paying interest at current rates, possibly due to elevated offshore levels. 5y IRS was traded at 3.91%. We still think it is a good idea to put on received positions given that the 5y is above 3.90%. 3M KLIBOR unchanged at 3.70%.

§  Liquidity in the PDS market remain thin due to the volatility in global bond markets and ahead of Malaysia’s 1Q GDP data release. Longer dated Aman and Plus papers were well bidded but there were no offers. Aman 26s tightened 1bp. We saw MYR115m of very short dated Cagamas 15s being traded at 3.42%. We also saw some buying interest for YTL Power 18s with MYR35m traded volume, a relatively good size for AA name in current market conditions. Other trades were mostly crosses, we think.

Singapore

§  SGS market saw strong buying at the front end and the belly of the curve as funding cheapened due to the sharp fall in USDSGD. The SGS yield curve steepened greatly as the long end underperformed. Yields from the front end up to the 10y point fell 3-10bps and rose by 1-3bps beyond that. Bond swap spreads widened 3-5bps at the belly but narrowed at the long end.

§  For Asian credits, IGs remain supported with continued buying on the cheaper bonds due to the UST movement. Recent issuances HUAWEI and CHGDNU traded 3-5bps tighter in spreads. Tencent’s 1Q earnings beat estimates. We expect tech names to continue to perform in the near term. INDON spreads widened after the slight sell off in UST overnight. PHILIPs also traded down, especially the long ends. Hong Kong government will start a roadshow next week, potentially for a new USD sukuk underway. Agricultural Bank of China is issuing 3y and 5y USD deals at guidance of T3+135bps and T5+150bps respectively. China Minsheng Bank is issuing a 3y USD issuance with T3+165bps guidance.

Indonesia

§  Please note that there is no write-up on Indonesian Fixed Income as onshore markets were closed on 14 May (Thu) to observe Ascension Day.