Maybank GM Daily - 2 Jun 2015

FX

Global

      Dollar firmed on the first session of the week while we were away with the DXY index around 97.50 this morning. Investors chose to focus on the positive data with personal income a tad higher to a growth of 0.4%m/m in Apr while that of personal spending was flat.  Construction spending accelerated to 2.2%m/m from 0.5% in the month prior, also revised higher. The strength of the dollar left oil prices lower with Brent priced USD64.79/bbl this morning, still on the decline. OPEC meeting on 5th Jun weighs. Elsewhere, there is still little progress on Greece.

      Growth divergence was all the more apparent with the release of PMI-mfg numbers yesterday.  While US PMI-mfg improved to 54.0 from 53.8, Germany’s PMI-mfg deteriorated to 51.1 from, 51.4 while that of France improved slightly to 49.4 from 49.3, albeit still in contractionary territory. As a result, the data for Eurozone also worsened a little to 52.2. China’s official PMI-mfg improved slightly to 50.2 while the HSBC version (which surveys SMEs) also printed a tad higher at 49.2. Perhaps the worst performer was the NOK (Norwegian Krone) which slid 2.4% against the USD after its PMI-mfg deteriorated to 46.6 from the previous 50.2.

      Antipodeans rebounded this morning with NZD up 0.3% against the USD, followed by AUD at +0.2%. The former is lifted by the improvement in terms of trade for 1Q from the previous -2.3% while AUD players are confident that RBA will not move cash target rate today.

      Nearer to home, onshore markets are closed in Indonesia. South Korea’s CPI firmed to 0.5%y/y from previous 0.4% but the data did not help KRW which was still on the backfoot. RBI will decide on policy rates at lunch time (Cons.: 25bps cut for repo rate). Thailand will release inflation numbers anytime today (Cons.: -1.1%y/y). Singapore will release PMI for May tonight. Beyond Asia, we have core CPI out of Germany and factory orders from the US.

Currencies

       DXY – Consolidation. USD caught on a bid tone overnight on better than expected data – manufacturing ISM, construction spending data despite dovish Fed speaks. Fed’s Fischer says “lift-off” a misnomer, likens rate path to crawling while Rosengren says data makes “compelling” argument for patience. DXY marginally closed around 97.40 levels. Daily momentum remains mild bullish while stochastics is showing very tentative signs of falling from overbought areas. Still favor buying USD on dips. Week ahead brings Apr factory orders; May ISM NY (Tue); MBA mortgage application; May ADP; Apr trade; May services/composite PMI; Fed Beige Book; Fed’s Evans to speak (Wed); Initial jobless claims; continuing claims; 1Q unit labor cost; Fed’s Tarullo to speak (Thu); May NFP, unemployment rate, average hourly earnings; Fed’s Dudley to speak (Fri).

       EUR/USD –Focus on Greece. Ongoing development in Greece continues to drive sentiment. Talks of creditors working on a “united” proposal vs. Greece refuse to budge on austerity measures have continued to create volatility (noises) for the EUR.  Market anxiety is clearly growing with less than 4 days to go before Greece default on its repayment to IMF. EURUSD was 1.0926 this morning. Daily stochastics are showing very tentative signs of turning higher from oversold levels. Next resistance at 1.0990. Securing a deal with the Institutions (IMF, ECB, EU) will bring back some certainty and possibly an EUR relief rally towards 1.1150  (21 DMA) is likely. Support levels remain at 1.0750 (76.4% fibo of Apr trough to May peak), before 1.0650 (trend-line support from Mar – Apr lows).   Next week brings EC, GE, FR, IT May manufacturing PMI; GE May CPI; Juncker, Merkel, Hollande to meet in Berlin (Mon); EC Apr core CPI, PPI; GE unemployment rate (Tue); ECB meeting; EC Apr retail sales, unemployment rate; EC, GE, FR, IT May services/composite PMI (Wed); EC, GE, FR, IT May retail PMI; FR 1Q unemployment rate (Thu); GE Apr factory orders; EC 1Q GDP; FR Apr trade (Fri). G7 summit in Brussels hosted by Germany over the weekend.

      GBP/USD – Range. GBP fell on disappointing UK PMI amid broad USD strength.  Pair was last at 1.52 levels this morning. While we cautioned before that daily momentum and oscillators remains bearish, noting a possible bearish divergence and a possible drift towards 1.5180 (50 and 100 DMAs), tha pair has touched an intra-day low of 1.5171 (1 Jun). Daily momentum remains bearish while daily stochastics are showing very tentative signs of turning higher from oversold levels. Intra-day 1.5090 – 1.5260.

      USD/JPY – Buy On Dips. USD/JPY hit a new multi-year high of 124.92 and appears poise to test the 125-figure. This break out could be attributed partially to ongoing monetary policy divergence, IMF call for bolder measures to reinforce the 3 Arrows of Abenomics and relatively less-stretched positioning. We remain bullish bias, looking for further upside towards the 126-levels. First target is 125.00; next at 125.69. We remain better buyers on dip. This week sees Apr cash earning (Tue); BOJ Shirai speaks (Wed); and BOJ Kuroda speaks (Thu).

      AUD/USD – Potential Upside Squeeze. AUD/USD slipped below the 0.76-figure before recovering to levels around 0.7630 this morning. AUD players are fairly confident that RBA will keep cash target rate unchanged at 2.00%. As for forward guidance, with an easing bias already priced in, expect risks at this point to be tilted to the upside.  Weekly momentum indicators are bearish bias. Next support at 0.7530 (previous low in Mar-Apr 2015); break below could see the pair ease further towards 0.7420. The pair has broken out of its ascending wedge; and is likely to trade with a downside bias over the medium term. For the week, we caution for a potential squeeze higher and this could see the pair re-visit 0.7830 levels (100 DMA). Favor fading this squeeze. Week ahead brings 1Q current account (Tue); 1Q GDP (Wed); Apr retail sales; trade (Thu).

      NZD/USD – Sell on Rallies. NZD continue to trade to a fresh 2015-low of 0.7072 yesterday. This morning 1Q terms of trade came in weaker than expected (+1.5% vs. +1.7% Cons.). Given that NZD is near the lower end of its range, we caution the potential risk of NZD short squeeze higher cannot be ruled out. Remain better sellers on rallies towards 0.7230. 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. NZDUSD has traded with a bearish bias ever since it broke out of its ascending wedge formation and has met objective at 0.72. Bearish momentum remains intact but daily stochastics are showing very tentative signs of turning from oversold levels.

      USD/CAD – Supported. USDCAD bounced above the daily ichimoku cloud, tracking the dollar and was last seen around 1.2530. The pair was also underpinned by softer oil prices ahead of the OPEC meeting on 5 Jun. 1Q GDP underperformed with a contraction of -0.6% vs. the consensus at +0.3%.  100-DMA is more or less established as a support level at the1.24-figure. This level also coincides with the upper bound of the ichimoku cloud that should continue to support price action in the week ahead. Weekly momentum indicators have lost further bearish momentum and prices are likely to remain supported. Bids to meet resistance at 1.2629 ahead of the next at 1.2784.

Asia ex Japan Currencies

      The SGD NEER trades 0.23% below the implied mid-point of 1.3525 with the top end estimated at 1.3253 and the floor at 1.3796.

      USD/SGD – Upside Bias. USD/SGD is in retreat this morning, hovering around the 1.3550-region, after climbing yesterday from below the 1.35-level. Pair is still showing bullish momentum, though slow stochastics is at overbought levels, suggesting that rally maybe running into fatigue. Still with barrier at 1.3550 taken out, a move towards 1.3640 (61.8% Fibo retracement of the 1.3931-1.3151 upswing) appears likely. Support this week is seen around 1.3470. Aside from May PMI today, week is data-quiet.

      AUD/SGD – Upside Bias. AUD/SGD edged higher this morning as players are confident that RBA will keep cash target rate unchanged at 2.00%. With an easing bias already priced in, expect risks at this point to be tilted to the upside. Support is seen at 1.0243. This cross is on it way to test the 1.0376-resistance marked by the 23.6% Fibonacci retracement of the Apr-May upswing.

      SGD/MYR – Bullish Divergence. SGDMYR remains well-bid, pushing above 2.7250 on ringgit weakness. While the medium term set-up continues to call for a downside, we are cautious near-term bullish bias. Bullish divergence appears to be forming. Topside could challenge the previous high at 2.73 and even push further towards 2.75 as OPEC talks loom this week. We expect some volatility/wild swings in oil prices to influence the MYR.

      USD/MYR – Bullish Bias. USDMYR continued to trade with an upside bias amid USD strength. This morning the pair traded 3.6967. Expect further volatility ahead of OPEC meeting and US NFP on Fri. Technically, the pair appeared to have broken above its strong resistance at 3.66 (61.8% Fibonacci retracement of 3.7350 – 3.5388). Daily momentum and stochastics are bullish bias. Expect range of 3.67 – 3.70 intra- day.

      USD/CNH – Tracking The Onshore to Nowhere. USD/CNH last printed 6.2037, not inspired by the dollar upmove. We expect USD/CNY fixing to be only a tad firmer 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 1 Jun, USD/CNY was fixed 11 pips higher at 6.1207 (vs. previous 6.1196). CNYMYR was fixed 39 pips higher at 0.5898 (vs. 0.5859). China released both PMI-mfg data on Mon with the official data at 50.2 for May vs. previous 50.1. The HSBC version which surveys more SMEs also showed slight improvement to 49.2, in line with expectations. The Shanghai Comp rose 4.7%. In other news, PBOC was reported to have offered at least CNY1trn of pledged supplementary lending to China Development Bank. According to local press, PBOC will strive to improve credit information collection in rural areas. That could improve  financial intermediation in the region, allowing better fund channelling to the real economy. China may also double the CNY1trb local debt swap program.

      USD/IDR – Consolidation.  Onshore markets are closed today for a public holiday and re-opens tomorrow. USD/IDR should continue to consolidate within 13150-13300 range this week, in the absence of fresh catalyst. Yesterday’s release of May CPI showed headline inflation rising by 7.15% y/y, the highest since Dec 2014, which suggest limited room for the central bank to cut rates to spur the economy. 1-month NDF is on the uptick this morning, now hovering at 13300, with daily MACD showing no strong momentum and slow stochastics bullish bias. The JISDOR was fixed slightly higher at 13230 on Mon from Fri’s 13211. Foreign funds sold a net USD33.55mn of equities last week and added a net IDR53.20tn to their outstanding holding of.

      USD/PHP – Range. The USD/PHP has been on a roller-coaster ride for the past few weeks and is back on the uptick this morning, sighted around 44.675. Both MACD and slow stochastics are showing little directional bias ahead, suggesting range trading is possible. Expect pair to bounce within 44.420-44.820 this week. The 1-month NDF is on the uptick this morning at 44.740 with daily MACD and slow stochastics showing little directional bias. Foreign funds sold a net UD63.44mn of equities last week with further selling could support the pair higher.

      USD/THB – Two-Way Trades.  USD/THB tested a new multiyear high of 33.920 last week and has since eased to hover around the 33.700-levels currently. Pair has lost most of its bullish momentum and slow stochastics is showing little directional bias, suggesting two-ways trades are likely ahead. Continue to expect topside to be capped by 33.899 (full Fibo retracement of Apr-May upswing). A firm break of this barrier exposes the key psychological hurdle at 34.00. Any dips ahead should see support around 33.525. Last week, foreign funds bought a net THB0.51bn and THB2.14bn in equities and government debt and further assets purchases could be cap the pair’s upside this week. CPI for May is due later today and consensus is expecting consumer prices to drop to 1.10% y/y vs. Apr’s -1.04%.

Rates

Malaysia

      It was another lacklustre trading session for local government bonds as most trades were done direct. Buying interest was still seen on short-end part of the curve. Notable trade of the day is one ticket of just over MYR186m of the 3y MGS benchmark 10/17s at 3.29%, 1bp lower from previous close. Other MGS benchmarks remained unchanged or not traded for the day.

      No IRS trade was reported. 3M KLIBOR stay unchanged at 3.69%.

      The PDS market was muted with barely MYR181m volume similar to the quiet MGS market. We saw Plus 23s being taken 1bp wider at 4.31% compared to Plus 24s which was quoted at 4.33% on the offer side. Plus 32s and Suria KLCC 24s traded 1bp tighter. The sole GG trade was BPMB 21s which traded 1bp wider while we saw better buying in shorter-dated AA names which traded 1-4bps tighter.

Singapore

      Singapore market was close for public holiday on Monday.

      Asian credit space was quiet with Singapore out today on Vesak Day. Volumes were thin but better buying was seen in the Indons. Philips was mostly unchanged. The new PKFOUN 18 continued to trade higher in price, last seen at around 101.00/101.25. Short-end CNH papers were sought after especially on IG names. New issuers in the pipeline include Woori Bank for their Basel lll AT1, China Anhui and Three Gorges. Longyuan was upgraded by Moody's to Baa1/stable.

      Indonesia

      Indonesia Government bond was relative sideways before Tuesday holiday. The 10Y Government Bonds were traded around 8.18% or near level on the last Friday. There are no significant movement although Indonesia Statistics Agency announced the inflation rose to 0.50% m-o-m in May 2015 from 0.36% m-o-m in previous month (very closed with our expectation (0.51% m-o-m)). Yearly inflation also increased to 7.15% y-o-y from 6.79% y-o-y in a month earlier.

      Higher inflation in May 2015 provides a negative sentiment to further Indonesia’s bond markets. Furthermore, the weakening rupiah, economic slowdown, and continuing inflationary pressures in the months ahead due to seasonal factors (Ramadan, Eid, and the new school year) adds pressure to the Indonesian bond market. Overall, we see the Indonesian bond market tends to be depressed in the near future.