Maybank GM Daily - 10 Jun 2015

FX

Global

      Gains for the EUR were capped as fresh proposals from Greece did not meet its creditors’ expectations, according to a EU official. That said, Vladis Dombrovshkis, Vice President of the European Commission for euro policy, commented that establishing an agreement in the next few days was “possible” with “political will” from Athens.

      Sentiments were mixed in the FX space with CAD outperforming on Tue, lifted by oil prices amid reports of lower US inventory. That explains the appreciation in the MYR as well. Most majors are on the rise against the greenback this morning with NZD in the lead, underpinned by better retail card spending data. Later, we have RBA Glenn Stevens speaking and that could keep AUD on the backfoot.

      Nearer to home, BOT meets for rate decision in the afternoon. Majority expects no change to repo rates. Elsewhere, China should release liquidity numbers anytime from today. In news, MSCI confirmed that China’s A shares are “on track for inclusion” should they resolve “several issues”. That could spark off some volatility in the domestic equity markets. Data-wise, CPI eased to 1.2%y/y from 1.5% in the month prior, allowing the authorities more room for easing.

Currencies

       DXY – Range. USD was marginally softer overnight despite strong NFIB, JOLTS data. DXY traded low of 94.85, before closing around 95.17 levels. Key focus for the week still on US retail sales on Thu. We continue to reiterate that the DXY needs to clear above the 97.37 level (61.8% fibo of 99.98 – 93.13) for a sustained move higher. Still expecting range trading between 94.50 and 95.60 (21 DMA). Week ahead brings MBA mortgage applications (Wed); initial jobless claims, May retail sales; May import price index (Thu); May PPI; Jun Prelim Univ. of Michigan Sentiment (Fri).

       EUR/USD – Choppy Range. EUR traded an overnight high of 1.1345, then turned lower towards 1.1214 before closing the session at 1.1283. There was not much notable data overnight except for 1Q GDP which came in as expected. Latest Greek development saw the Greek reform proposal falling through (again) as reform commitments fell short of what Greek PM Tsipras had initially agreed with creditors. EC VP for euro policy Dombrovski said that reaching an agreement over the coming days was possible but requires Greek political will. 10Y Bund resumed its sell-off overnight with yields soaring to 0.95%. Still favour trading the pair from the long side; buying on dips, especially against ASEANS.  Next resistance for EUR/USD at 1.1350; support at 1.1150. Week ahead brings FR Apr IP, manufacturing production; IT Apr industrial production (Wed); FR May CPI (Thu); EC Apr IP (Fri).

      GBP/USD – Accumulate Dips. GBP firmed overnight on narrowing trade deficit. Pair traded 1.5258 low before closing 1.5385 overnight. Remain better buyers on dips towards targeting first resistance at 1.5450 (50% fibo of 1.5090 – 1.5815) before 1.5540 (38.2% fibo). Support at 1.5220 (50 DMA) remains firm. Daily stochastics are indicating a mild bullish bias. Day ahead sees 1.5250 – 1.5450 range. Week ahead brings Apr industrial production and manufacturing production; GDP estimate (Wed); RICS house price balance (Thu); Apr construction output (Fri).

      USD/JPY – Consolidating Lower. USD/JPY cracked the 124-figure temporary overnight before bouncing back above the 124-handle. Pair remains on the downtick on the back of a softer dollar tone but downside could be limited by JPY selling against the other majors. Still, pair remains bias to the downside as shown by intraday momentum indicators and oscillators. An intraday ichimoku cloud is forming under the pair and further dips could see the pair trapped in the cloud. Look for the pair to consolidate within 123.40-125.00 intraday with a downside bias. Watch BOJ governor Kuroda’s appearance before Parliament today for further clues on BOJ policy direction.

      AUD/USD – Vulnerable. AUD/USD slipped this morning and waffled around 0.7680 as we write. Pair is weighed by the slip in consumer confidence, reflected by the fall in the Westpac survey to 95.3 for Jun from previous 102.4. Market players will also remain on the defensive ahead of the upcoming speech by RBA Glenn Stevens in Brisbane. Daily momentum indicators show little conviction on either side and we expect intra-day trades to remain within 0.7600-0.7740. Support at the lower bound seems formidable. Technically speaking, the pair has broken out of its ascending (bearish) wedge; and is likely to trade with a downside bias over the medium term. For the week, we believe AUD rally (if any) is likely to stay capped at 0.78 levels; Favor fading rally. Week ahead brings Jun CPI inflation expectation and May employment change (Thu).

      USD/CAD – Coming Off. USDCAD slipped into the bearish cloud and last printed 1.2340. CAD is underpinned by firmer oil prices. With that, conditions for the pairing have turned bearish. Next support is seen at 1.2281 at 50-DMA, ahead of the next at 1.2240. Bullish momentum has completely dissipated on the MACD forest and risks have tilted to the downside. Unexpected upticks may meet support-turned-resistance at 1.2388.

      NZD/USD – Sell on Rally. Kiwi held above the 0.71-handle overnight as Kiwi shorts were pared ahead of RBNZ MPC meeting tomorrow morning (5am SGT). Pair rose as high as 0.7180 overnight before closing at 0.7133. Pair is trading around 0.7150 levels this morning. We continue to see further downside pressure on the NZD on a combination of drivers including mounting expectation of RBNZ cutting rates in Jun, weak dairy prices, falling PPI. We expect RBNZ to cut OCR by 25bps to 3.25% (Consensus is tilted towards no cut) at its upcoming MPC meeting on 11 Jun. We remain better sellers on rally towards 0.7170/80 levels for a push towards 0.6950 levels objective. Week ahead brings RBNZ meeting (Thu); May food prices (Fri).

Asia ex Japan Currencies

      The SGD NEER trades 0.08% below the implied mid-point of 1.3511. The top end is estimated at 1.3241 and the floor at 1.3782.

      USD/SGD – Capped. USD/SGD appears to be in consolidative mode, hovering around 1.3520-region (50DMA) at last sight with mild JPY weakness and EUR strength working at cross-purposes this morning. Pair is still bearish bias as indicated by intraday MACD and slow stochastic, again suggesting that any upside could remained capped. In the absence of fresh catalyst, we expect the 1.3480-1.3640 range to hold intraday.

      AUD/SGD – Tilting Higher. AUD/SGD slipped again this morning but was unable to test much lower, last printed at 1.0380. Strong resistance is seen at 1.047, capped by the ichimoku cloud as well as the 50-DMA at 1.0466. Support is still seen at 1.0330. Daily momentum indicators suggest waning bearish momentum and we look for choppy action to continue within 1.0240-1.052 with increasing upside risk. Eye RBA Glenn Stevens’ speech latear at Brisbane.

      SGD/MYR –Uncharted Territories. SGDMYR remains at elevated levels, above the 2.77-handle. Daily stochastics is showing very tentative signs of turning lower from overbought areas; possibly an early hint of the cross easing lower. Near term, pair remains supported as domestic concerns continue to weigh on the Ringgit. Expect 2.75 – 2.78 range intra-day.

      USD/MYR – Easing from Highs. USDMYR eased; traded 3.7387 low this morning helped by gains in oil prices and slightly weaker USD overnight. To recap, BNM Governor commented that current weakness of Ringgit is expected to be temporary and is not reflective of the country’s fundamentals (7 Jun). Looking on the pair is likely to remain supported on concerns at home. Daily MACD is bullish bias but stochastics is at overbought areas. Next support at 3.7350; daily close below could see the pair move back towards 3.69 levels. Week ahead data release: Apr IP and manufacturing production (Thu). Further upmove could target 3.7850 levels.

      USD/CNH – Firmer. USD/CNH firmed this morning, drifting a little higher in the cloud and lasts printed around 6.2120. Pair continues to find support at 6.2067 (50% Fibonacci retracement of the 2014-2015 rally). That still leaves the pair in rangy trades. We expect lower USD/CNY fixing later and we 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 9 Jun, USD/CNY was fixed 26 pips lower at 6.1179 (vs. previous 6.1205). CNYMYR was fixed 33 pips higher at 0.6060 (vs. 0.6027). MSCI confirmed that it will include China’s A shares on conditions that regulators resolved several issues including the quota allocation process, capital mobility restrictions and beneficial ownership of investments. Expect some volatility in the onshore markets after this announcement. In related news, an official has been cited by Shanghai Securities News saying that Shanghai has drafted a fresh series of reforms to achieve yuan convertibility as well as to develop capital markets.

      USD/INR – Rangy. USD/INR was little moved for much of the day, closing a tad lower at 63.925, still well within the 63.50-64.63 range. 1-month NDF steadied this morning around 64.40. Daily momentum indicators not showing much directional bias. For spot prices, expect a steady open followed by more rangy action within 63.50-64.630. The overnight dollar slip could provide downside bias. Week ahead brings Trade numbers for May, industrial production and CPI (Fri).

      USD/KRW – Risk of Rate Cut Rising. USDKRW inched higher in the open this morning towards 1122 (vs. spot close at 1118) as concerns over MERS weigh on growth/domestic consumption/ tourism/ foreign investment. Market consensus is expecting the BoK to cut rate by 25bps to 1.50 at its MPC meeting tomorrow. It remains a close call on whether the BoK will cut rate as Korea is facing many headwinds – subdued inflation, weak activity data, soft exports, weak JPY undercut Korea’s export competitiveness, MERS development (8^th death as of last night) which indeed does justify a rate cut to support growth and businesses. However we are sticking to our initial view that the BoK will adopt a wait-and-see approach (keep rate on hold at 1.75% at this meeting) to allow for the structure of interest rate and the economy to adjust, against a backdrop of rising household debt (165% of annual household disposable income; a cut in interest rates could fuel a larger debt). Day ahead 1118 – 1123 range expected. Daily momentum remains mild bullish while stochastics is at overbought areas.

      USD/IDR – Range-Bound.  USD/IDR is inching higher this morning, hovering around 13326 at last sight despite the continued softer dollar tone overnight. Pair remains pressured on the downside yesterday on the back of domestic growth concerns. Still, dollar weakness should cap upside today and keep the pair range-bound. Look for intraday range of 13250-13400 to hold today. 1-month NDF has eased off from the 13500-levels to hover around 13435 currently with intraday MACD and slow stochastics showing bearish bias. The JISDOR saw a new historic high yesterday when it was fixed at 13362 vs. Mon’s 13360. Foreign funds sold off a net USD76.60mn in equities and removed a net IDR3.16tn from their outstanding holding of debt on Mon (latest data available).

      USD/PHP – Two-Way Trades. USD/PHP is on the slide this morning, tracking the dollar moves overnight. Pair appears to also ignore the 4.1% y/y drop in exports in Apr that was worst-than-the market’s expectations for an 8% gain. Still, this could limit the pair’s downside today. Pair is currently hovering around the 45-handle with intraday MACD is still showing waning bullish momentum and slow stochastics still falling from overbought levels. Expect two-way trades to continue within the 44.715-45.200 range intraday. The 1-month NDF is inching lower this morning to hover around 45.250 currently with both intraday MACD and slow stochastic still bearish bias. Foreign funds sold a net USD27.50mn in equities yesterday and further selling weigh on the PHP.

      USD/THB – Consolidating Lower.  USD/THB is again waffling in the Asian session after testing an intraday low of 33.660 overnight. Intraday MACD and slow stochastics are bearish bias, suggesting downside pressure on the pair is still likely ahead. Ahead of BoT meeting later today, which our economic team and consensus expects the central bank to stand pat, look for cautious trades ahead with the pair likely to remain in consolidative mode within 33.615-33.810. Yesterday, foreign funds added a net THB1.71bn of government debt, but sold a net THB0.05bn of equities.

Rates

Malaysia

      Government bonds saw a relief rally in line with others in the region, erasing some of the previous day’s decline. The curve ended 1-7bps lower with trades mostly concentrated on the 7y and 10y benchmarks. Today may see the announcement of the 7y MGS 9/22 reopening auction size which we anticipate to be MYR3.0b.

      Local IRS market was quiet with nothing dealt. There may be some players wanting to receive the 4y and 5y if there is another upturn. Basis widened slightly by -2 to -5bps which typically happens when there is uncertainty. However, most are still looking to lend USD and borrow MYR. 3M KLIBOR unchanged at 3.69%.

      PDS market still quiet with bid-offers 10-15bps wide and not as well offered as players wait for the govvy curve to stabilize. Better buying was seen on 9y-10y GG papers with Dana and JKSB trading at 4.38% and 4.42% respectively. Buyers were also interested in shorter dated AA names such as FRL and Sports Toto. TBEI papers were active due to higher spreads offering some cushion against higher govvy yields. With govvies having moved higher yesterday, local PDS could see more buying interest today.

Singapore

      SGS market was rather jittery with frantic buying and selling in reaction to the UST futures movement and little catalyst to drive either direction. Yields recovered slightly by 2-5bps, albeit some offer interest towards the end of the day from PDs. 10y bond swap spread closed at -12bps.

      Asian credits continue to trade thinly and market sentiment remains weak. The new Zhongrong Int was trading underwater, last seen around 99.55/99.80. On the other hand, Korea Hydro which was priced at T+95bps traded to a low of 92/90 level and last seen given at +94bps. Overall, most IGs traded 3-5bps wider, with some demand seen still on AMC and tech names. For sovereigns, INDONs continue to see better sellers, trading 0.50-1pt weaker, and PHILLIP traded about 3bps wider. We believe players will stay on the sidelines and look to the US retail sales data on Thursday for more direction.

Indonesia

      Indonesia bond market opened weaker during the first half of yesterday following a significant slump of prices on Monday. However, an unexpected heavy demand of Indonesia bonds during bond auction have made the trading course turn dramatically to positive. We suspect an aggressive buy might have occurred at the secondary market by investor or bidder that fails to win during the auction. However, we might see a profit taking occurring during today’s trading noting down that world bond yield continue to incline. 5-yr, 15-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 8.418%, 8.554%, 8.771% and 8.769% while 2y yield shifts up to 7.999%. Trading volume at secondary market was seen heavy at government segments amounting Rp30,507bn with FR0071 (15y benchmark series) as the most tradable bond. FR0071 total trading volume amounting Rp16,701tn with 164x transaction frequency and closed at 101.790 yielding 8.771%.

      Indonesian government conducted their conventional auctions yesterday and received incoming bids of Rp25.28tn bids versus its target issuance of Rp10.00tn or oversubscribed by 2.5x. However, DMO only awarded Rp15.00tn bids for its 3mo SPN was sold at a weighted average yield (WAY) of 6.31820%, 1y SPN at 6.93000%, 5y FR0053 at 8.59083% while 15y FR0071 was sold at 8.87774%. Incoming bids were mostly clustered on the long end tenors (FR0053 and FR0071). No bids were rejected during the auction. Bid-to-cover ratio during the auction came in at 1.43X – 2.19X. Foreign incoming bids during the auction were noted Rp8.43tn or 33.3% of total incoming bids. However, only Rp5.26tn bid (33.3% of total awarded bids) were awarded to foreign investors. This means that two third of the bids came from local bidders. Till the date of this report, Indonesian government has raised approx. Rp58.33tn worth of debt through bond auction which represents 69.9% of the 2Q 15 target of Rp83.50 tn.

      Corporate bond trading traded heavy amounting Rp677 bn. ISAT01BCN2 (Shelf registration I Indosat Phase II Year 2015; B serial bond; Rating: idAAA) was the top actively traded corporate bond with total trading volume amounted Rp161bn yielding 9.249%.