Maybank GM Daily - 11 Jun 2015

FX

Global

      USD/JPY tanked two yen around noon of Wed after BOJ Kuroda said that the currency’s real effective exchange rate was already very weak, adding that it was hard to see further declines. His comments suggest that there might not be any additional easing measures. The surprise jump in the JPY underpinned the rest of the Asian currencies. The dollar index drifted lower.

      RBNZ lowered overnight cash rate by 25bps, as expected us but the decision apparently took some by surprise. NZD dropped more than 2% this morning. In Europe, the gridlock remains as German Chancellor Merkel considers granting aid to Greece in tranches should one reform on the creditors’ list of demands is met. Any optimism was quickly quashed when Germany said it will only accept proposals made by European Commission, the IMF and ECB.

      Nearer to home, BOT held policy rates. THB gained 0.4% against the USD yesterday, also underpinned by the JPY strength. AUD was dragged lower by NZD this morning and all eyes are on labour report. MYR benefitted from the rise in oil prices, up 0.1% against the USD. JPY weakened this morning, taking THB, KRW and SGD lower with it. More data on focus today with China’s activity data due at mid-day and its liquidity data out anytime from today. Malaysia’s industrial production for Apr is due at noon as well. Hot from the wires, BOK joined the rate cut camp, lowering repo rate by 25bps to 1.50%. Beyond Asia, we have some manufacturing data from Europe but focus is likely to be on US May retail sales. Consensus looks for a strong growth of 1.2%m/m compared to a flat growth in Apr. Any disappointment on that front could send the DXY towards 93.

Currencies

       DXY – Range. USD continues to stay soft overnight despite strong mortgage approval data. DXY traded low of 94.32, before closing around 94.65 levels. Key focus for the week still on US May retail sales tonight (Cons. +1.2% m/m). 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. Failing which, range-trading between 94.00 and 96.00 (100 DMA) is expected. Caution is a daily close below 94 could well suggest further downside pressure on the DXY towards 93.15 levels; watch 50 DMA potentially crossing (down) 100 DMA. Week remaining brings 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 remained well supported overnight amid broad USD weakness and news that Germany is considering offering Greece staggered aid deal; this demonstrates some flexibility from the German policymakers as they look for clear and upfront reform commitment from the Greeks. EUR traded a high of 1.1386 before closing 1.1324 overnight. Still favour trading the pair from the long side; buying on dips.  Next resistance for EUR/USD at 1.1350 before 1.1467; support at 1.1230. Week remaining brings FR May CPI (Thu); EC Apr IP (Fri).

      GBP/USD – Accumulate Dips. GBP continued to push higher overnight on firm industrial production data. Pair traded to a high of 1.5554, above our 1.5540 resistance before closing 1.5530 overnight. Remain better buyers on dips towards targeting next resistance at 1.5640 (23.6% fibo of 1.5090 – 1.5815). Support at 1.5450 (50% fibo), 1.5366 (61.8% fibo) remain firm. Daily stochastics still indicating a mild bullish bias. Day ahead sees 1.5450 – 1.5650 range. Week ahead brings RICS house price balance (Thu); Apr construction output (Fri).

      USD/JPY – Consolidation. After jawboning by BOJ Governor Koruda that sent the USD/JPY plunging 2 yen to 122.78, the pair is now back above the 123-levels this morning. Yesterday, the BOJ governor had surprised the markets in his comments which suggested that further JPY weakness was unlikely given the weak real effective exchange rate (see our report, Maybank FX Flash – “JPY: Pulling The Brakes” dated 10 Jun 2015). The pair had a bounce when Economy Minister Amari said that the governor’s comments might have been distorted. Nevertheless, the governor’s comments are still likely to reverberate in the markets for a while, capping upside to the pair. Intraday MACD is showing bullish momentum and slow stochastics is at oversold levels. Expect the pair to consolidate within a tight range within 122.20-123.40 for now.

      AUD/USD – Vulnerable. AUD/USD was dragged this morning by its fellow antipodean after RBNZ delivered the 25bps cut. Last seen around 0.7720, market players will eye employment data later. Consensus expects a 15K addition to employment and unemployment rate to steady at 6.2%. That will round up the data release for the week. Any disappointment on that front could see AUD test the 0.7680-support ahead of 0.76. Move lower could be unsustainable and the pair may revisit the 0.78. 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.

      USD/CAD – In the Cloud. USDCAD is suspended in the daily ichimoku cloud, last seen at 1.2270. CAD is underpinned by firmer oil prices. Conditions for the pairing turned bearish, as evidenced by the daily MACD. Pair could settle into side way trades for now with support seen around 1.2190. Unexpected upticks may meet support-turned-resistance at 1.2388.

      NZD/USD – RBNZ Cuts; Downside Pressure. Kiwi was the big mover overnight, squeezing as high as 0.7232 before taking a 3% plunge towards 0.7016 low early this morning on RBNZ “surprised cut”. The RBNZ cut OCR by 25bps – a move we had expected for this meeting but markets/consensus took it as a surprise (looking for no cut). RBNZ’s accompanying statement mentioned the cut was due to weaker prospects for dairy prices, decline in commodity prices, low inflationary pressures expected weakening in demand – exactly the drivers we cited for the basis of our call. The statement also added NZD remains overvalued despite the weakening in NZD from recent peak in Apr; further significant downward adjustment is justified. To top it  off, “RBNZ expect further easing may be appropriate”.  We continue to reiterate our view for further downside pressure on the NZD on a combination of drivers including further expectation of RBNZ cutting rates again in Jul on weak dairy prices, falling PPI amid weakening demand. We remain better sellers on rally towards 0.7050/70 levels for a push towards 0.6950 levels objective. Week remaining brings food prices (Fri).

Asia ex Japan Currencies

      The SGD NEER trades around the implied mid-point of 1.3468. We estimate the top end at 1.3199 and the floor at 1.3737.

      USD/SGD – Capped. USD/SGD is rebounding slightly after sliding lower towards the 1.34-figure overnight on the back of JPY weakness. Pair is currently hovering around 1.3443 with intraday MACD showing bearish momentum, though slow stochastics remains at oversold levels. This suggested that upside could be capped today with 1.3480 likely to act as barrier today. Any dips are likely to find support around the 1.34-figure.

      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 2.7760-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 continues to ease; low of 3.7220 traded this morning helped by gains in oil prices and weaker USD overnight. To recap BNM Governor comments on 7 Jun,  current weakness of Ringgit is expected to be temporary and is not reflective of the country’s fundamentals. Looking on the pair is likely to remain supported on concerns at home. Focus on Fitch review of the country’s sovereign rating. Daily stochastics is showing tentative signs of falling from overbought areas. Next support at 3.69 levels. Day ahead data release: Apr IP and manufacturing production (Thu).

      USD/CNH – Firmer. USD/CNH steadied this morning, last printed around 6.2100. 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 6 pips lower at 6.1173 (vs. previous 6.1179). CNYMYR was fixed 10 pips lower at 0.6050 (vs. 0.6060). MOF announced another CNY1trn debt quota to support the local government in infrastructure spending. That takes the total size of the local government debt swap program to CNT 2trn. Data-wise, May retail sales, industrial production, urban FAI are due at mid-day. Liquidity numbers could be out anytime. 

      USD/INR – Rangy. USD/INR slipped yesterday, closing a tad lower at 63.843, still well within the 63.50-64.63 range. 1-month NDF edged higher from open this morning around 64.20. Daily momentum indicators not showing much directional bias and we expect rangy moves again. 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. Trade numbers for May, industrial production and CPI are due tomorrow. In news, Apr-May indirect tax collection rose 39.2%y/y to INR961.3bn.

      USD/KRW – BoK Cuts. USDKRW inched lower towards 1107.2 into the close yesterday, dragged lower by the move down in USDJPY (on Kuroda’s comments). This morning, BoK cut rate by 25bps to 1.5% (in line with market expectation). Little reaction in the pair suggests expectation has been priced in. Looking on we continue to see downside pressure in the KRW (medium term) on  concerns over MERS weigh on growth/domestic consumption/ tourism/ foreign investment. Korea is also facing many headwinds – subdued inflation, weak activity data, soft exports, weak JPY undercut Korea’s export competitiveness, against a backdrop of rising household debt (165% of annual household disposable income. That said, in the short term, JPY strength could prevent KRW from depreciating too quickly. Day ahead 1107 – 1115 range expected. Daily stochastics is showing tentative signs of turning from overbought areas.

      USD/IDR – Limited Downside.  USD/IDR gapped lower at the opening this morning to 13250, playing catch up with its regional peers. Pair is currently hovering around 132912 with momentum indicators now showing bearish momentum and slow stochastic bearish bias. Still domestic growth concerns should continue to weigh on the IDR, limiting downsides to the USD/IDR and keep the pair elevated around the 13300-levels. We continue to favour accumulating on dips. Intraday range of 13200-13350 to hold. 1-month NDF is back on the climb above the 13400-levels this morning, even as intraday MACD shows bearish momentum and slow stochastics is tentatively climbing out of oversold levels. The JISDOR was fixed lower at 13329 yesterday after hitting a historic high of 13362 on Tue. Yesterday saw foreign funds sell a net USD37.54mn in equities but added a net IDR2.80tn to their outstanding holding of debt on Tue (latest data available).

      USD/PHP – Wobbly. USD/PHP is wobbling this morning, playing catch-up with its regional peers. Pair continues to hover around the 45-region with intraday MACD showing no strong momentum and slow stochastic bearish bias, suggesting that upside could be capped. In the absence of fresh catalyst, pair should track dollar moves ahead with the 44.715-45.200 range still holding intraday. The 1-month NDF is inching higher to around 45.250 currently with intraday MACD showing bearish momentum, though slow stochastic is tentatively bullish bias. Foreign funds sold a net USD20.16mn in equities yesterday and further selling should keep the pair supported.

      USD/THB – Rebounding.  USD/THB is inching higher back above the 33.600-levels this morning after slipping lower on the back of the JPY slide yesterday. The JPY’s move yesterday pushed aside the BoT’s decision to stand pat on policy (as expected). Pair is currently sighted around 33.650 with intraday MACD still showing bearish momentum, and slow stochastics tentatively climbing out of oversold levels. A firmer dollar this morning should keep the pair supported. Intraday range of 33.500-33.700 to hold. Yesterday, foreign funds added a net THB0.32bn of government debt, but more than offset this with the sale a net THB1.19bn of equities, and a further sell-off could keep the pair supported.

Rates

Malaysia

      Government bonds were surprisingly well bid at open, but reversed during London hours as bonds were sold back, tracking the UST and Bund movements. The curve closed 2-4bps higher from the front end to the belly. Given that no announcement was made on the 7y MGS 9/22 reopening, the auction would likely be held next week. The 7y benchmark rose 4bps from previous day close.

      IRS market was affected by the Bund movement. Some local MYR dealers panicked and lifted 5y IRS after the 10y Bund crossed above the 1% mark. The 5y traded a few times at 4.00%. That said, market is likely to remain volatile. 3M KLIBOR remain at 3.69%.

      Local PDS market saw slightly more trades but most were crosses. Trades done were mainly on papers in the 3y-5y bucket. PASB 18s traded at 3.81% with MYR50m done. Better buying was seen in the 6y-7y AA space and we saw FRL 2021s traded at 4.57%. Some buying interest was also seen for very short dated papers such as Imtiaz 15, Spower 16 and PKNS 16, with Imtiaz 15s tightening 1bp.

Singapore

      SGS yields higher by 2-5bps from the 5y and beyond with the 10y SGS closing at 2.77%. Slight panic in the PD community due to movements in the Bunds and UST futures. Calls made were probably reactive in nature and not much real demand.

      The Asian credit market was unsurprisingly sidelined given the overnight spike in UST yields. 10y UST broke the 2.40% resistance level, prompting market to stay cautious. Ahead of retail sales data on Thursday, we saw some bottom fishers on IG and HY names, with most widening 3-5bps. However, better sellers were seen on INDON sovereign and quasi names and PHILLIP names also underperformed. Shansui Cement papers were sold down after news of one its main shareholder being placed into receivership. SHASHU 20 fell 12pts but eventually retraced 6pts.

Indonesia

      Indonesia closed with a mixed tone yesterday’s with several investors might have start to realize their profits. However, continuation of increasing bond yield of DM markets have somewhat added the pressure during yesterday’s trading. There were minimal market sentiments during the trading day as well. DMO issued government bond ownership (as of 9 June) which surprisingly showed that the culprit for bond prices decline during Monday trading (post U.S. NFP data release) were local banks while foreigner added Rp2.8tn to their portfolio. We see that Indonesia bond market would move within a tight range and sideways today. 5-yr, 15-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 8.368%, 8.576%, 8.740% and 8.714% while 2y yield shifts up to 8.021%. Trading volume at secondary market was seen heavy at government segments amounting Rp16,973bn with FR0071 (15y benchmark series) as the most tradable bond. FR0071 total trading volume amounting Rp5,819tn with 151x transaction frequency and closed at 102.033 yielding 8.740%.

      Corporate bond trading traded thin amounting Rp482 bn. BEXI01BCN2 (Shelf registration I Indonesia Eximbank phase II Year 2012; B serial bond; Rating: idAAA) was the top actively traded corporate bond with total trading volume amounted Rp100bn yielding 8.066%.