Maybank GM Daily - 18 May 2015

FX

Global

The soft dollar was welcomed by equity markets last week. Tame inflation and tighter job market gave a goldilocks feel to the US economy, boosting stocks.  No surprise that dollar remains on its corrective slide.  Key release this week is FOMC Minutes on Wed night. The Minutes will be scrutinized for another confirmation of a Sep rate hike as opposed to one in Jun. US data out next week include housing starts (Tues, 19 May, Cons 1020K), existing home sales (Thurs, Cons. 0.6% m/m) and CPI M/m (Cons 0.1% m/m).  With oil moving higher it will be harder for USD upside momentum to pick up, even if the US data starts to turn. Also with US economic softness and monetary policy divergence factors being unclear now, we think USD strength could still remain mildly at risk.

      Minutes from RBA and BOE are out this week. Both will also be watched for forward guidance or rather any deviation from their recent quarterly release – that’s SoMP for RBA and QIR for BOE. BOJ meets on Fri but we expect no action. EUR/USD seen consolidating recent gains around 1.1380/1.1415 on the back of better possible repatriation and risk appetite and should retain its momentum. We still expect eventual euro declines towards 1.04 in the next 3-6 months.  Spread between US and Bund near lows and will weigh on asset classes until volatility subsides. Further cyclical moves in the EU and unwinding of Greek risk premium could be supportive of the EUR towards 1.15 levels as the dollar retains muddied outlook.

      In Asia, Thailand will unveil 1Q GDP (Cons. 3.4%y/y). Other data released today includes Singapore’s Apr NODX, China’s property prices. Singapore will release its GDP (Cons. 2.2%y/y) anytime. Tue should see BI static on rate at 7.50%. Wed is PMI-mfg estimates day with China’s HSBC flash PMI-mfg (Cons. 49.4) to start the releases, followed by EU and US. Come Fri, Malaysia Apr CPI is due.

Currencies

      DXY – Bearish. Dollar had another bearish week and the index is on its way towards the 92.509-support (38.2% Fibonacci retracement of the 2014-2015), last seen around 93.280. Daily and Weekly indicators continue to show bearish conditions and 100-DMA at 95.3882 will need to be broken to make way for bulls to run. That may be unlikely to happen unless FOMC Minutes reveal unexpected hawkish details on Wed night. Next Mon will see Fed Evan speak on economic and monetary policy in Stockholm and then again on Wed in Munich. Housing starts and building permits are due on Tue. Minutes of the Apr FOMC meeting is released on Wed; existing home sales, leading index and Kansas City Fed Manf. Activity (Thu) before Fed William speaks on Fri.

      EUR/USD – Fade Relief Rally (if any). Euro retreated from its 14 May high of 1.1445 and hovered around 1.1440 this morning. Daily RSI turning on the chart and MACD also losing bullish momentum. We also detect a bearish divergence on the RSI  and we still prefer to fade the rally.  Support now is seen at 1.1135, near the 200-DMA at 1.1202. There is more to our bearish view than just a technical call on the EUR and that encompasses a combination of macro factors including diverging monetary policies between Europe and the US (ECB QE while Fed is likely to start tighten 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. Next week brings German Zew Survey outcome on Tue and CPI. Preliminary PMI-mfg numbers are due on Thu along with consumer confidence. IFO business survey should round up the week’s data releases.

      GBP/USD – Supported; Beware of Further Upside. GBP/USD was still high on post-election euphoria last week but bullish steam diminished when BOE refused to turn more hawkish in its quarterly inflation report on Wed. Growth was also revised lower for 2015-2017 from their original forecasts. That said, the next move is still up and its tightening cycle makes the BOE one of the rare few to embark on rate normalization. The pair was last seen around 1.5730.  The upmove has been steep and seem to be on a slight correction that has started last Fri. RSI also flags mild bearish divergence though MACD on the daily chart indicates bullish momentum albeit a tad decelerating. Week ahead brings Apr CPI on Tue, BOE Minutes on Wed and retail sales on Thu. Support at 1.5570 could attract demand.

      USD/JPY – Lacking Catalyst The USD/JPY remained trapped within the tight 118.50-120.80 band and is currently hovering near the middle of that band at 119.40. Recent CFTC positioning data indicates that markets have increased short JPY positions. With the BOJ unlikely to move on policy until Oct, the risk reward ratio could favour a short USD/JPY position in the near term before turning long. Daily momentum indicator is lacking clarity but oscillators are still bias to the downside. A break of the 118-figure would expose the next at 117.20, while 120.80 should continue to cap topside. Week ahead brings BOJ Maeda speech and industrial production (Mon); 1Q15G GDP (Wed); and BOJ meeting (Fri) but no action is expected.

      AUD/USD – Capped  AUD/USD reversed lower towards the end of the week, sold by real-money investors but not before touching a high of 0.8164. Fall in iron ore prices also softened the pair. The week ahead could provide RBA some opportunities for jawboning with RBA Lowe speaking on Mon, followed by the release of the RBA minutes on Tue. That could cap the AUD to some extent. The Federal Budget, released on 12 May, seems to be focused on balancing the budget rather than economic growth and the burden of the economy is being pushed to the central bank. However, RBA had never been particularly optimistic on help from the government and the latest statement suggests that they are perhaps more focused on what monetary policy can have a bigger impact on. The pair has been supported on dips and we still look for a move up towards the 0.8286-mark (38.2% Fibonacci retracement of the 2014-2015 sell-off). The pair has achieved a daily close above the 0.8008-mark and a weekly close could give us greater conviction. In the near-term, we expect bids to remain capped in the first half of the week before the next upmove. Resistance is seen at 0.8088 while support is seen at the 0.7998 (23.6% fibonoacci retracement of the 2014-2015 sell-off). RBA Minutes is due on Tue and Westpac consumer confidence (May) on Wed.

      NZD/USD – Kiwi Grounded NZDUSD had a choppy week with an initial drop to 0.7333 matched by a rebound to 0.7564. Pair has since softened to levels around 0.7440, dragged by a cut in milk supply forecasts by Fonterra. Looking forward, NZDUSD could retain downside bias 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 labor data (6 May) and declining GDT dairy auction prices. We continue to see further downside pressure on the NZD towards 0.72 levels. Daily momentum is bearish bias and we favor fading on rally (if any). Resistance at 0.7520 (50 DMA) while support lies on the recent low – 0.7320 mark. Week ahead sees little of note on the data docket.

Asia ex Japan Currencies

      The SGD NEER trades around 0.18% above the implied mid-point of 1.3267. We estimate the top end at 1.3002 and the floor at 1.3531.

      USD/SGD - Buy On Dips. USD/SGD came close to testing the 200-DMA at 1.3153 last week to levels around 1.3268. Pair is at a critical juncture and a failure to break the 200-DMA, which happens to coincide with the 50% Fibo retracement (of the 2014-2015 rally) level at 1.3153, could portend the formation of a double-bottom for the pair. For now, range of 1.3150-1.3470 should hold for the week. Apr NODX surprised with a 2.2% y/y increase (cons.: -5.0%) but failed to provide the SGD with a lift.

      AUD/SGD –100-DMA Gives Way. AUD/SGD slipped below the 100-DMA and last printed 1.0600. Price action is likely to remain choppy and further downsides are possible towards next support at 1.0526, the upper bound of the cloud which is also near the 50-DMA at 1.0532. Expect this region to be formidable support. Bears may not dominate for long as we see two-way trade in the week ahead. Topsides to be guarded by 1.0800 region.

      SGD/MYR – Fade Rallies. SGDMYR remains in an ascending wedge and was last seen around 2.6984. Bids are resisted at the major barrier at 2.7126 and there remains a danger of a collapse. In the week ahead however, expect this cross to trade in range. Daily MACD is near zeo, while slow stochastics is falling from overbought levels, suggesting room on both sides.

      USD/MYR – Upside Bias. USD/MYR fell towards the end of the week, weighed by a combination of MYR strength and USD weakness. Support at 3.5083 (38% Fibo retracement of the 3.2535-3.7350 rally) should hold firm. First resistance at 3.6049 before 3.65 levels. Bullish momentum has waned and oscillators are bias to the downside. Week ahead should see range of 3.5850-3.6450. Quiet data week ahead with just Apr CPI in sight.

      USD/CNH – Consolidative. USD/CNH steadies around 6.2022 this morning, still weighed by the bearish dollar and perhaps another lower USD/CNY fixing by PBOC. Pair was last seen around 6.2140 and 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. On 15 May, USD/CNY was fixed 8 pips lower at 6.1085 (vs. previous 6.1093). CNYMYR was fixed 26 pips lower at 0.5749 (vs. 0.574). A State Council document indicated that China wants international cooperation in machinery manufacturing and other key industrials (including metals, railways and steel) to ensure mid-to-high speed economic growth. NBS is scheduled to release property prices for Apr later at 0930 (SGT). Market watchers will be looking for signs of further recovery on the back of recent monetary easing.

      USD/IDR – Range-Bound. USD/IDR ended at 13084 on Fri from its week’s high of 13221. Pair is likely to take its cue from the 1-month NDF and see the pair bounce higher. Look for 13200 to continue to cap upticks, while dips should be supported around 12950. We have BI meeting on Tue but we do not expect any moves (cons.: no change). So unless BI surprises, we continue to expect the pair to trade range-bound in the week ahead. The 1-month NDF is back on the uptick, sighted around 13200 currently, though it has lost most of its bullish momentum and slow stochastics is still falling. Last week, the sell-off in equities continued with a net USD76.52mn sold, but debt fared better with a net IDR0.337tn added to their outstanding holding of debt on 11-13 May (latest data available). The JISDOR was fixed lower at 13090 to end the week from 13188 on Wed.

      USD/PHP – Rangy. The USD/PHP ended the week at 44.465 from the week’s high of 44.885. Overseas remittances for Mar rose by 11.3% y/y and should be supportive of the PHP ahead. Spot prices should track the 1-month NDF, which climb slightly higher to around 44.470 this morning. Look for 44.300-44.700 to hold this week. Last week, foreign funds sold a net USD73.00mn in equities and a continuation could keep USD/PHP elevated. Mar exports surprised with a 2.1%y/y growth, a rebound from the -3.1%y/y contraction in the month prior.

USD/THB – Capped.  USD/THB is bouncing higher to start the week after coming off from last week’s high of 33.899. Pair was last priced at 33.526 with 33.900 likely to cap upticks.  The BoT’s deliberate policy of weakening the THB via capital outflow measures though is likely to be supportive of the THB ahead. 33.150 should provide support for the week ahead. Pair has lost most of its bullish momentum and slow stochastics is falling from overbought levels.  Last week, foreign funds sold a net THB0.81bn and THB14.93bn in equities and debt, and a continuation should keep the pair supported.

Rates

Malaysia

§  Government bonds saw better buying at the belly of the curve, while the very long dated 30y MGS cheapened ahead of the upcoming 20y MGS auction and ended 1bp higher. Trading volume was higher as real money stepped in to buy before the release of 1Q GDP which printed 5.6%. This week, players will look to the 20y MGS auction which we anticipate a size of MYR2.5b.

§  IRS rates fell by 1-3bps possibly on the back of lower global rates. The 5y IRS traded 3.89%. We reiterate to initiate received positions above 3.90%. 3M KLIBOR remained at 3.70%.

§  Local PDS market saw slight return of activity following the release of 1Q GDP data which beat consensus slightly. Demand for AAA names gradually returned after a quiet week. We saw good demand for long dated Plus papers and some interest for Telekom papers. Aman papers were also well bidded at the belly of the curve. We expect to see increased liquidity in the market this week with govvies leading the way.

Singapore

§  The SGS market started with little trading, but buying quickly emerged at the belly and the 10y point. But there were not many offers and banks may have been loading up on SGS. Yields were down by 5-10bps with the 10y outperforming. The SGD IRS curve largely tracked the movement in SGS, closing lower by 3-7bps. With cheap short term funding rates, bond swap spreads improved further with the 10y benchmark widening to 27bps.

§  Asian credit space traded tighter in spreads, particularly for Chinese property and financial names. Buyers were biased towards Dalwan and Cogard. Dalwan was in demand after news of its strategic cooperation announcement with Vanke. Meanwhile, Sunac was suspended from trading in Hong Kong due to the proposed acquisition of Kaisa Group Holdings. In the IG space, the favorites were tech and financial names. The new China Minsheng Bank and Agricultural Bank of China were sought after and both issues rallied 10-15bps. Elsewhere, INDON sovereigns rebounded slightly on the back of UST movement and ASRIIJ saw some movement after news of its rights issue.

Indonesia

§  Indonesia bond market closed positive as April trade balance came in surplus US$454 mn while 1Q 15 Current Accounts deficits narrow to US$3,848 mn or 1.81% of GDP. On the note of April trade balance, both import and export continue booking negative growth by 22.31% and 8.46% respectively. LCY bond market reacted positively to these data yet significant strengthening of the prices did not occur due to ong holiday and Bank Indonesia Board of Governors meeting which will be held today. Amid rumours of another 25bps of reference rate, market consensus continue to expect a maintain reference rate at 7.50%. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 7.6692%, 7.958%, 8.116% and 8.233% while 2y yield shifts down to 7.646%. Trading volume at secondary market was seen heavy at government segments amounting Rp12,624 bn with FR0070 (10y benchmark series) as the most tradable bond. FR0070 total trading volume amounting Rp3,191 tn with 60x transaction frequency and closed at 102.591 yielding 7.958%.

§  Corporate bond trading traded thin amounting Rp465 bn. LTLS01CN1 (Shelf registration I Lautan Luas Phase I Year 2013; Rating: _idA-) was the top actively traded corporate bond with total trading volume amounted Rp110 bn yielding 12.159%.