Maybank GM Daily - 27 May 2015

FX

Global

       Dollar bulls extended their run after the US and UK started the week. Trigger came from the US durable goods order which came in firmer than expected. Durables ex transportation printed 0.5%m/m compared to the consensus at +0.3%. The Mar number was also revised higher from -0.2% to 0.6%. Other data also added to the dollar sails including the new home sales at 517K, more than 484K in Mar. Consumer confidence also rose 95.4 from 94.3. The DXY index broke above the 50-DMA and hovered around 97.30 this morning. USD/JPY also made a key breakout at noon yesterday and dollar bulls led the pair above the key barrier at 123.

       Also in the session, Fed Fischer spoke again and commented that policy tightening will only start on sufficient US economic expansion but the Fed may ease off the accommodation pedal more slowly if foreign growth is weaker than expected. His words could probably put a lid on dollar bulls.

       AUD and NZD were also part of the casualties of the overnight session but were on the uptick this morning as early Asian traders took profit on their short positions. AUD awaits CAPEX tomorrow while NZD players will watch Fonterra’s announcement of its opening milk price for 2015-2016 season. Nearer to home, the bag is mixed for the Asians with KRW and MYR on the backfoot while SGD, JPY and CNH clock small gains. Risk appetite is weak overnight as the dollar strength is once again a concern for US dollar recovery. Oil price slipped as well, dragging the MYR this morning.

       It is a data light day with only China’s industrial profits due. That is normally hardly market moving. Europe will release consumer confidence data later in the afternoon. At the moment, we await the speech by RBA Deputy Governor Philip Lowe.

Currencies

      DXY – Breakaway. USD rose to 1-month high on better than expected US data – core durable/capex orders, new home sales, home prices and Richmond Fed manufacturing data. Fed’s Vice Chair Fischer said that policy tightening will only begin when US expansion has advanced far enough and also mentioned that if foreign growth is weaker than anticipated the consequences for the US economy could lead the Fed to remove accommodation more slowly than otherwise. This seems to suggest that Fed does look at the influence external economies may have on the US (explicitly expressing it).  DXY has broken 50, 100 DMAs and is now at 97.24 at time of writing. Daily momentum remains bullish. Still favor playing from the long side; intra-day range of 96.50 – 98.00 expected. Next resistance at 97.37 (61.8% fibo of mid Apr peak – mid May trough) before 98.37 (76.4% fib). Data/event for week remaining brings Fed’s Lacker speaks (Wed); May initial jobless claims; Apr pending home sales; Fed’s Williams and Kocherlakota speaks (Thu); 1Q GDP; May Chicago Purchasing Manager; May Univ. of Michigan Sentiment (Fri).

       EUR/USD – Driven by Political Noise. EURUSD took a dump below 1.09 as political concerns across Spain, Portugal, Poland, Greece weighed on sentiment.  We highlighted yesterday there were other political noises that were being attributed to softer Euro including elections (last weekend) in Portugal and Spain showing their objection for austerity measures. There was not much to mention with regards to Greek development as progress remains slow. EUR was last at 1.0882 this morning. Daily momentum remains bearish while stochastics are showing very tentative signs of turning from oversold levels. Intra-day support at 1.0750 (76.4% fibo of 1.0532 – 1.1467). Resistance at 1.0990 should cap rally intra-day. Week ahead data some of the data we are watching includes GE Jun GfK consumer confidence; FR May consumer confidence (Wed); EC May economic, consumer confidence (Thu); EC Apr M3; FR, IT Apr PPI; IT 1Q GDP (Fri).

       GBP/USD – Bearish Bias. GBP slipped amid broad USD strength overnight. But the decline was less than its G7 counterparts (vs. the greenback) as CBI reported sales came in much better than expected. Pair was last seen at 1.5390 this morning. We continue to stick with our caution (since last week) that daily momentum and oscillators remains bearish, noting a possible bearish divergence. Day ahead GBP could face further downside pressure if the daily makes a close below 1.5465 (21 DMA); next support at 1.5180 (50 and 100 DMAs). Week ahead data flow is light; key focus on 1Q GDP; May GfK Consumer confidence (Thu).

       USD/JPY – Consolidation After Breakout. USD/JPY took out several of our barriers on its way up yesterday, closing above the 123-figure. Pair is currently in consolidation mode this morning after yesterday’s run up with some profit-taking activities in play. Pair though remained poised for further upside given the breakout of the bullish triangle formation and could be headed towards 126 over time. We remain better buyers on dip with a rebound meeting resistance around 123.70 (9 Jun 2007 high) and pullback today if any could see support around 122.20. Intraday MACD continues to show bullish momentum and slow stochastics are in overbought levels.

       AUD/USD – Bearish Risk.  Bearish risks played out overnight as firm US durable goods pressed the AUD towards the 0.7750-level against the USD. The pair is still hovering thereabouts, on the uptick. There is a general lack of catalyst today and we expect bears to take a breather after clearing the 50-DMA yesterday. Expect the pair to waffle within 0.7650-0.7800. Daily momentum indicators still bearish and we expect intra-day bounces to be capped by 0.7800. The recovery in iron ore prices in the past few sessions could lend some support to the Aussie on dips. We watch the CAPEX numbers on Thu and we expect business investment to remain on a decline in 2015/2016. Mining investment to taper off from its peak and non-mining investment to remain flat.

       NZD/USD – Beware of Upside Squeeze, Short Term. NZD continues to trade softer to a low of 0.7226 this morning before rebounding towards 0.7242 at time of writing. The decline came off the back of broad USD strength. We continue to see further downside in the NZD on a combination of drivers including mounting expectation of RBNZ cutting rates in Jun, weak dairy prices, falling PPI, risk of CPI slipping in deflation. Daily momentum remains bearish bias, but stochastics is at oversold levels, which could suggest some near-term bounce. We noted the move lower has came close to our initial objective of 0.7220. While we still see downside pressure, we are cautious of the pair nearing the lower end of its range. Favor selling rallies towards 0.7280/90 intra-day. Week ahead brings Apr building permits; May ANZ business confidence (Fri). Focus for the NZD over the next 24 hours or so is likely to be on Fonterra’s announcement of its opening milk price for the 2015-16 period will be a focus for NZD (likely to be announced within the next 24 hours or so). Given that Fonterra has previously cut its milk payout forecasts to $4.50/kg (from $4.70) on 30^th Apr, a lower opening price is expected to add further downside pressure.

       USD/CAD – Bullish Momentum. USDCAD was lifted overnight by the strong USD and steadied around 1.2430 this morning. Soft oil prices underpin this pair. Bids have managed to inch above the 50-DMA. We look for the pair to settle at a higher 1.2350-1.2780 range. Bank of Canada meets today and they are expected to keep overnight lending rate to 0.75%. Governor Poloz had commented last week that the economy is on track to return to full capacity by the end of the next year with the interest rate cut offsetting the impact of lower oil prices (BBG). 1Q GDP is the focus of the week, due on Fri together with the US’ release and consensus is a 0.2%q/q growth from a flat growth in the quarter prior.

Asia ex Japan Currencies

      The SGD NEER trades around 0.25% below the implied mid-point of 1.3476. We estimate the top end at 1.3206 and the floor at 1.3746..

       USD/SGD – Consolidation. USD/SGD is coming off this morning after climbing pass the 50DMA at 1.3480 yesterday, likely on the back of profit-taking, though it remains in consolidation. Pair has shaken off yesterday’s weak Apr IPI print (-8.7% y/y vs. cons.: -3.6%) to give up some of its gains from yesterday. Dips are likely to be short-lived given the recent dollar resurgence and we reckon a move towards the 1.35-figure remains achievable. Intraday MACD continues to show bullish momentum and slow stochastics remain at overbought levels. We continue to favour accumulating on dips; any rebound could meet resistance around 1.3520. 1.3430 should be supportive today.

       AUD/SGD – Bears Reassert. AUD/SGD reversed its Tue gains and was back at the 1.0450-level this morning, testing the support around 1.0440 ahead of the next major one at 1.0376. Topsides now guarded by the 50-DMA at 1.0523 ahead of the next resistance at 1.0600. Bias is still to the downside. Watch the CAPEX number due tomorrow.

       SGD/MYR – Ascending Wedge (Bearish); Watch out for the Decline. SGDMYR traded around 2.6920 this morning; low of 2.6866 was traded yesterday. The pair remains on the verge of a technical breakdown, with an ascending wedge (bearish bias) in the making and a top formed at 2.7150 levels. Daily momentum and oscillators are bearish bias. A daily close below 2.69 (50 DMA) sees 2.6820 (100 DMA) before 2.6320 (200 DMA) levels. Remain better sellers on rally.

       USD/MYR – Range-Bound. USDMYR drifted higher towards 3.6330 this morning (at time of writing), tracking a firmer USD, softer oil prices and weaker SGD overnight. No key data for release this week. Interim support at 3.5950 levels (21 DMA). Intra-day range of 3.62 – 3.6450 likely.

       USD/CNH – Rangebound. USD/CNH last printed 6.2074, supported by dollar strength but is on the downtick today. We expect USD/CNY fixing to be higher later and noticed reluctance by PBOC to fix the pair much higher against the dollar, underscoring our view that the central bank wants to ensure a steady yuan. 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 6.1924. On 26 May, USD/CNY was fixed 7 pips higher at 6.1172 (vs. previous 6.1165). CNYMYR was fixed 22 pips higher at 0.5830 (vs. 0.5808). In news, IMF has affirmed that yuan is no longer undervalued, increasing the likelihood that the currency will be included in the SDR basket. That was after a two week informal review in May by IMF’s mission. The staff team also added that “China should aim to achieve an effectively floating exchange rate within 2-3 years”. In other news, China may start price reform for “participating” insurance policies in 2H, according to Shanghai Securities News.

       USD/IDR – Slow Grind Higher. USD/IDR gapped slightly higher at the opening this morning to 13230, playing catch up with its regional peers. Pair is currently sighted around 13231 with intraday MACD forest showing increasing bullish momentum and slow stochastics at overbought levels. In the absence of fresh catalyst, pair continues to take its cue from dollar moves with intraday range of 12950-13250 likely to hold. 1-month NDF appears to be in consolidation around the 13300-levels this morning with momentum still bullish though slow stochastic remains at overbought territory. Foreign funds bought net USD10.05mn of equities yesterday and removed a net IDR0.29tn from their outstanding holding of debt on 22 May (latest data available) with further selling likely to keep the pair supported. The JISDOR was again fixed higher at 13192 yesterday from Mon’s 13186 and another higher fixing is likely given the spot’s climb this morning.

       USD/PHP – Bullish. The USD/PHP climbed higher this morning, playing catch-up with the rest of its regional peers. Pair is currently sighted around 44.770 with intraday MACD forest showing increasing bullish momentum and slow stochastic bullish bias. With our resistance level at 44.715 taken out yesterday, new barrier is now seen around the 45-figure. Any pullbacks could see support around 44.715. The 1-month NDF is slightly bid this morning, sighted around 44.840, with intraday MACD showing bullish momentum and slow stochastic fast approaching overbought levels. Yesterday saw foreign funds selling a net USD12.86mn in equities with further selling likely to keep the USD/PHP supported.

       USD/THB – Consolidating.  USD/THB is consolidating slightly higher after climbing higher yesterday, helped by the softer dollar tone this morning. Uptick yesterday though was capped by foreign interest in Thai assets, which saw foreign funds buying a net THB1.11bn and THB0.58bn in equities and government debt yesterday. Continued asset purchases today could again cap the pair’s upside. As well, improving export outlook after the release of Apr’s custom export print showed a more moderate decline of 1.7% y/y weighed on the pair yesterday. With our resistance level at 33.670 taken out yesterday, new barrier is now at 33.810. We remain better buyers on dips; any pullback could see support at 33.620.

Rates

Malaysia

       Local government bond market had another lacklustre day with mixed trading amid low volumes. Issue size for the 7y GII 7/22 reopening was announced at an expected MYR3.0b with the auction to be held this Thursday. The GII traded once at 3.90% in WI session. We anticipate participation from onshore Islamic real money accounts ahead of huge GII maturities in Jul and Sep.

       The IRS market did not see any trades done yesterday. Front end rates were down by about 1bp as 3M KLIBOR was lower by 1bp to 3.69%.

       PDS market saw a pickup in activity in contrast with the muted govvy market. Long dated Plus and 9y Telekom papers were the most actively traded, with MYR75m of Telekom 2024 papers trading 1-2bps tighter. GGs and AAAs at the belly of the curve mostly traded at MTM levels, except for PASB 20s which tightened by 2bps. In the AA space, higher rated names were well bid such as 7y SEB which tightened 2bps.

Singapore

       Another fairly quiet day in the SGS market. The yield curve flattened with the front end up by 1bp while the long end was down by 2-3bps. SGD IRS ended flat to higher by 4bps. SGD Forwards stayed offered despite the slightly better bid USDSGD. Today will see the auction of SGD2.6b 10y SGS. We estimate the levels to be around 2.44/2.41% based on an average swap spread of 17bps.

       Asian credit market remained fairly muted despite most having been back from the holidays. Two way flows were seen on Chinese IGs and HYs. With the slight UST rally in the afternoon, we saw better bidding for INDONs and PHILIPs. Korean financials are still being sought after, particularly those in the 3y-5y bucket. Societe Generale is issuing Basel lll Tier 2 10NC5 CNH bonds (rated Baa3) at guidance of 5.20%. We find the deal attractive relative to similar issuances by ANZ and BNP. GMR Group acquired another 10% stake in Delhi Airport from Malaysia Airports for USD80m. DIALIN 2022 traded up 0.75pts.

Indonesia

       Indonesia bond market closed lower as a response to higher awarded WAY compared to previous day closing. Drying incoming bids during yesterday auction occurred amid S&P raises Indonesia credit rating to positive outlook from stable and successful global sukuk issuance recently. We see if FR0070 price close below 101.018 at any time this week, we won’t be surprise to see this asset price to reach its par. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 7.861%, 8.146%, 8.284% and 8.333% while 2y yield shifts up to 7.559%. Trading volume at secondary market was seen heavy at government segments amounting Rp15,547 bn with FR0070 (10y benchmark series) as the most tradable bond. FR0070 total trading volume amounting Rp6,144 tn with 140x transaction frequency and closed at 101.400 yielding 8.146%.

       Indonesian government conducted their conventional auctions yesterday and received incoming bids of Rp11.59 tn bids versus its target issuance of Rp10.00 tn or oversubscribed by 1.1x. However, DMO only awarded Rp7.20 tn bids for its 8mo, 9y and 19y bonds. Incoming bids were mostly clustered on the FR0070 (10y benchmark series). 8mo SPN was sold at a weighted average yield (WAY) of 6.60059%, 9y FR0070 at 8.19942% while 20y FR0068 was sold at 8.40755%. No bids were rejected during the auction. Bid-to-cover ratio during the auction came in at 1.27X – 1.81X. Incoming bids during the auction came in lower compared to previous conventional auction. Till the date of this report, Indonesian government has raised approx. Rp41.64 tn worth of debt through bond auction which represents 49.9% of the 2Q 15 target of Rp83.50 tn. Assuming that if Indonesia government issues Rp2.00 tn during every sukuk auction in 2Q 15 then the Government needs to issue Rp17.93 tn per conventional auction (2 upcoming conventional auction in 2Q 15) to meet their target of Rp83.50 tn.

       Corporate bond trading traded heavy amounting Rp300 bn. WOMF01BCN3 (Shelf registration I WOM Finance Phase III Year 2015; B serial bond; Rating: AA(idn)) was the top actively traded corporate bond with total trading volume amounted Rp63 bn yielding 10.222%.