Maybank GM Daily - 19 May 2015

FX

Global

Greek concerns returned to the fore, pushing EUR lower to levels around 1.1320. Athens told the press that a deal has to be made with its creditors by the end of the month or face possible bankruptcy. Unsurprisingly, the default risk triggered sell-off in Greek bonds. That said, bonds in other parts of the world were also sold overnight with UST 10-year yields back around the 2.2250% in Asia morning. The DXY index rose and was last seen at the 94-figure, also buoyed by lower oil prices as whispers of more market share competition amongst producers overshadowed news of more violence in Yemen.        GBP and AUD were the resilient ones on Monday, against the USD, each clocking the least depreciation of -0.5% against the greenback. Earlier on Mon, RBA Deputy Governor Lowe spoke of more room for rate cut even as he urged caution against spurring a debt-fueled spending boom”. That did not seem to give AUD much direction. Minutes of the May meeting will be released today and markets will watch this report for any cues missed in the SoMP or the post-decision statement.

       Nearer to home, Thailand’s 1Q GDP came in below consensus at 3.0%y/y, albeit quickened from the quarter prior. However, it was the announcement by BOT Deputy Governor Pongpen that “the central bank does not try to weaken the baht” that made the currency the only in the region that strengthened on Mon. USD/THB prints 33.35 at last seen. Elsewhere, few Chinese cities registered a fall in home prices in Apr, a sign of recovery in China’s property sector. Bank Indonesia meets today and market expects no change the central bank. Singapore’s 1Q GDP could be out anytime this week (Cons.:2.2%y/y)..

Currencies

      DXY – Are We Done With Dollar Correction? Dollar bounced off near-4 month lows of 93.13 ahead of FOMC minutes on Thu; last seen at 94.25 levels. Fed’s Evans said that rate hikes could commence as soon as Jun if data warrants (although he noted that it is not his base view). Daily stochastics is showing tentative signs of rising from oversold levels. Day ahead sees 93.60 – 95.00 range; big support level still seen at 92.20 (38.2% fibo retracement of 78.91 - 100.39). Continue to cautious downside risk (21DMA crossed 100DMA) but biased to buy on down-moves.  Week ahead sees housing starts, building permits (Tue); Minutes of the Apr FOMC meeting is released on Thu (Asia 2am); existing home sales, leading index and Kansas City Fed Manf. Activity; initial claims (Thu) before Fed William speaks on Fri.

       EUR/USD – Nearer to 1.20 or 1.10? Euro took a dump after rejecting its 1.1450 resistance against a backdrop of Greece running out of time to reach a deal with creditors.  ECB Mersch comments further weighed on sentiment – ECB’s QE must run its full course or until there are clear signs that inflation is back on track – dampening ideas and fantasies that ECB may end QE before its stipulated Sep 2016 date. Day ahead sees 1.1230 – 1.14 range. 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 (crunch time now in Jun and likely a resolution then – if Greece defaults or compromise to reach a deal). Week ahead 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 – Election Euphoria Waning. GBP eased towards 1.5660 levels this morning amid broad USD strength overnight. Momentum appears to be running into fatigue post-elections amid dovish BoE inflation report last week. Daily stochastics is also showing tentative signs of falling from overbought territories. Next support at 1.5596; break below sees 1.5520; topside around 1.5720 may attract some offers. 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 – Still Awaiting Catalyst. The USD/JPY is retreating after breaching the 120-figure overnight on the back of a rebound in the dollar and UST 10-year yield. Pair still remains within striking distance of the 120-figure and could re-test that figure should 1Q15 GDP disappoint. Intraday momentum indicators and oscillators are showing bullish bias. A firm break of the 120-figure could see the pair head towards the next barrier at 121.85. Dips today should be limited by 118.50 still.

       AUD/USD – Capped.  AUD/USD steadied around 0.7990 this morning, still weighed by the dominant USD. RBA Lowe did not give much cue for AUD players when he gave a speech that reiterated the central bank’s room to ease but he also said that RBA may choose not to spur a consumption boom that is fuelled by higher leverage. We think the dominant USD may cap AUD this week and the Minutes of the May meeting, due later, is likely to be a non-event. 100-DMA at 0.7853 could support further bearish moves. In the near-term, we expect bids to remain capped in the first half of the week before the next upmove. We still look for a move up towards the 0.8286-mark (38.2% Fibonacci retracement of the 2014-2015 sell-off). Resistance is seen at 0.8088.

       NZD/USD – Sell on Rally. NZD remains soft amid worse than expected PPI; last at 0.7378. Looking forward, NZDUSD is expected to retain a 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 (21, 50, 100 DMAs) while first support lies on the recent low – 0.7320 mark before 0.7220. Week ahead brings Apr credit card spending (Thu).

Asia ex Japan Currencies

      The SGD NEER trades around 0.06% above the implied mid-point of 1.3305. The top end is estimated at 1.3039 and the floor at 1.3570.

       USD/SGD - Supported. USD/SGD is on the dip this morning as the dollar softened after climbing to a high of 1.3291 overnight. Pair is currently sighted around 1.3273 with both intraday MACD and slow stochastics showing bullish bias, suggesting that dips could be limited.  Support is seen around 1.3235 today. Any rebound should be capped by 1.3320. Favour accumulating USD/SGD on dips still.

       AUD/SGD – 100-DMA Gives Way. AUD/SGD had a mild rebound yesterday and was still sticky around the 100-DMA, hugging the 1.06-figure. 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 2.6990. Daily stochastics has fallen from oversold levels while bullish momentum is weak. As cautioned previously, the break below 2.69 (50 DMA) sees 2.6770 (100 DMA) before 2.63 levels.

       USD/MYR – Mild Upside Bias. USD/MYR drifted higher off the back of firmer USD and weaker oil prices; pair last traded 3.5830 at time of writing. Resistance seen at 3.5950 before 3.6120 (100 DMA). Support at 3.5650. Week ahead focus on Apr CPI inflation (Fri).

       USD/CNH – Firmer in Range. USD/CNH steadies around 6.2070 this morning, buoyed by the resurgent dollar and perhaps a higher USD/CNY fixing by PBOC. Pair is 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 18 May, USD/CNY was fixed 6 pips lower at 6.1079 (vs. previous 6.1085). CNYMYR was fixed 5 pips higher at 0.5754 (vs. 0.5749).

       USD/IDR – Rangy. USD/IDR is climbing higher, plaings catch-up with the dollar moves overnight.  We have BI meeting today but no action is expected and could weigh on the pair. Unless BI surprises today, we continue to expect the pair to trade range-bound within 12950-13200 intraday. The 1-month NDF is retreating this morning after failing to firmly break the 12300-figure overnight, last sighted around 13255, with intraday MACD showing bullish momentum and slow stochastics at overbought levels. Foreign funds sold a net USD76.52mn sold, but debt fared better with a net USD34.45mn in equities yesterday, but added a net IDR0.16tn to their outstanding holding of debt on 15 May (latest data available). The JISDOR was fixed higher at 13116 yesterday from Fri’s 13090.

       USD/PHP – Two-Way Trades. The USD/PHP is climbing higher this morning, playing catch up with its regional peers. But the softer dollar tone this morning should cap upside. Intraday MACD is still showing bearish momentum though slow stochastics is showing tentative signs of climbing out of oversold levels, suggesting two-way trades are possible ahead. Look for the pair to trade within the 44.400-44.700 range intraday. The 1-month NDF slipped below 44.500 this morning to 44.470 currently, tracking the dollar moves, with intraday MACD and slow stochastics showing no strong directional bias this morning. Foreign funds sold a net USD7.07mn in equities and a continuation could keep USD/PHP supported.

       USD/THB – Bearish.  USD/THB continues its slide lower below the 33.400-levels as the dollar softened this morning. Also helping was yesterday’s 1Q15 GDP print, which showed a nascent recovery as well as comments by the central bank yesterday that it did not “try to weaken” the THB. This dovish comment should continue to weigh on the pair ahead with a breach of the 33.300-support level exposing the next at the 33-figure. Intraday MACD is showing bearish momentum, and slow stochastics is indicating bearish bias. Foreign funds continued to sell-down Thai assets but not as much as in previous sessions with just a net THB0.40bn and THB0.91bn in equities and debt were sold, which lessened upside to the pair.

Rates

Malaysia

      Local government bonds recovered last week’s losses as the curve ended 1bp lower. This week, players would look to the new 20y MGS auction with an expected size of MYR2.5b. The longer end of the curve has been cheapening ahead of this auction for the past couple of weeks.

      IRS market had a very quiet day as and we saw the 5y dealt at 3.89%. Lower bond yields did not seem to have much of an impact. 3M KLIBOR remained at 3.70%.

      In the PDS market, selling continued at MTM or 1-2bps wider. Quotes were mostly one sided as players were on the sidelines. We like 8y-9y AAA papers as we think yields above 4.40% have not fully rolled down the curve, especially given that the new 10y AAA papers were priced around 4.40%. Oddly, Aman 23s traded at 4.34% while MACB 22s traded at 4.36%, hence the latter may tighten and trade within the 8y curve.

Singapore

      SGS market saw some switching interest, selling the front end and buying the back end of the curve which reduced steepener positions. The front end of the yield curve ended 1bp higher while the back end was down 1-3bps. SGD IRS curve flattened out slightly, ending 2-4bps lower.

      Asian credit space mostly traded firmer on the back of UST movement. INDON sovereign and quasis recovered about 1pt higher. Chinese IG spreads were mostly unchanged. Most players were on the sidelines awaiting clearer direction. A couple of new issuances opened book yesterday. Beijing State Owned Asset Management, which is wholly owned by Beijing SASAC, has proposed 5y and 10y USD issuances at +185 and +230 respectively. ICBC Dubai announced 5y USD issuance at guidance of T+145bps. Garuda is going on a roadshow for a USD sukuk issuance potentially next week.

Indonesia

      Indonesia bond market closed slightly lower on the first trading day of the week due to minimum market sentiments. Bond investors continue to wait for results from Bank Indonesia Board of Governors meeting. Economist consensus believes that Bank Indonesia will maintain its reference rate at 7.50%. However, recent statement by Bank Indonesia of a potential rate cut based on data should be taken into account. We see that LCY bond yields may slightly hike today but may significantly slump if Bank Indonesia cuts its reference rate. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 7.572%, 7.970%, 8.159% and 8.254% while 2y yield shifts down to 7.446%. Trading volume at secondary market was seen heavy at government segments amounting Rp11,449 bn with FR0069 (5y benchmark series) as the most tradable bond. FR0069 total trading volume amounting Rp2,241 tn with 65x transaction frequency and closed at 101.000 yielding 7.572%.

      DMO will conduct their sukuk auction today with four series to be auctioned which are SPN-S06112015 (Coupon: discounted; Maturity: 6 Nov 2015), PBS006 (Coupon: 8.250%; Maturity: 15 Sep 2020), PBS007 (Coupon: 9.000%; Maturity: 15 Sep 2040) and PBS008 (Coupon: 7.000%; Maturity: 15 Jun 2016). We believe that the auction will be oversubscribe by 1.5x – 2.5x from its indicative target issuance while our view on the indicative yield are as follows SPN-S06112015 (range: 5.850% – 5.950%), PBS006 (range: 7.760% – 7.860%), PBS007 (range: 8.370% – 8.470%) and PBS008 (range: 7.320% – 7.420%).

      Corporate bond trading traded thin amounting Rp313 bn. BEXI02ACN5 (Shelf registration II Eximbank Phase V Year 2015; A serial bond; Rating: idAAA) was the top actively traded corporate bond with total trading volume amounted Rp120 bn yielding 8.185%.