Maybank GM Daily - 4 Jun 2015

FX

Global

      ECB held rates as expected and its assurance that the quantitative easing program will not end so soon lifted equities. This was after President Draghi raised inflation expectations for this year to 0.3% and 1.5% for next year, driving the EUR higher as well as German bund yields. UST 10-year yields also bounced in overnight trades, settling around 2.36% this morning. Sentiments were positive in the NY session with ADP report meeting expectations with a 201K addition to private employment. Trade deficit narrowed in Apr to USD40.9bn and Beige Book revealed an expanding US economy in Apr-May in spite of a stronger USD.

      The DXY index drifted lower, weighed by the EUR but the softer greenback lent little support for oil prices which slipped on whispers that OPEC will agree to maintain output at its meeting on Fri. Brent closed lower at USD63.80/bbl on Wed, inching a tad higher in early morning trade.

      The day ahead could be a quieter one as market players start to position for NFP tomorrow. The decent ADP number could keep AXJs on the backfoot against the USD. South Korea released GDP this morning, meeting expectations with a print of 0.8%q/q for 1Q. KRW weakened along with MYR. The latter was again tracking the oil prices. BOJ Kuroda speaks as we write but apart from noting divergence in monetary policy in US, EU and Japan, not much forward guidance is given. For the rest of the day, Asia has little on the data calendar. Londoners will watch BOE meeting, scheduled today before the US initial jobless claims is released.

Currencies

      DXY – Consolidation. USD weakened to a low of 95.20 overnight amid a mixed bag of data – better than expected trade balance (narrower) and ADP (in line with expectation) were countered by weaker than expected ISM non-manf and services PMI. As said, we expect the USD to remain volatile and choppy within the 94.75 (23.6% fibo; Apr peak to May trough) – 97.40 (61.8% fibo) range for the rest of the week amid the release of key data. Technically, we continue to reiterate that daily stochastics is falling, while MACD is showing tentative signs of bearish bias. Taken together, these could imply some near term downside pressure. Week ahead brings 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 – Tracking Bund Yields. EUR continue to push higher overnight, on a sustained surge in German 10Y yields after ECB Draghi revised its inflation forecasts higher amid more signs of a Greek deal emerging. Latest headlines indicated that Jun 14 is now the deadline as a result of talks between EU and Greek PM Tsipras. EURUSD rose as high as 1.1285 before closing at 1.1275 overnight. Daily MACD and stochastics continue to show mild signs of bullish bias. Next resistance at 1.1310 (76.4% fibo of 1.1467 – 1.0819) before 1.1470 levels (May 2015 high). Support at 1.1150 (50% fibo) before 1.1080 (100 DMA). Week ahead brings 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. On ECB meeting overnight, there was no major surprise. Draghi continued to reiterate ECB’s commitment to let QE run its course; acknowledged that QE has been helpful to raise inflation expectations; took opportunity to revise upwards 2015 inflation forecast to +0.3% from 0.

      GBP/USD – Range-Bound. GBP was choppy; traded 1.5251 – 1.5375 before closing unchanged at 1.5341 overnight. Weaker than expected services PMI pulled GBP lower before losses were pared into NY close. Pair was last at 1.5330 levels this morning. Daily stochastics are showing tentative signs of turning higher from oversold levels. Expect the pair to remain choppy. Next resistance at 1.5370 (61.8% fibo of 1.5090 – 1.5815), before 1.5450 (50% fibo); support at 1.5260 (76.4% fibo) before firmer support at 1.5180 (50, 100 DMAs). Day ahead sees 1.5260 – 1.5450 range. Week ahead brings BoE meeting – not expecting any surprise from policy (Thu); BoE/GfK Inflation 12-month expectations (Fri).

      USD/JPY – Consolidation. USD/JPY appears to be in consolidation after coming off from testing the 125.00-figure on Tue. Pair is currently hovering slightly above the 124.00-levels with intraday MACD showing mild bearish momentum and slow stochastics little directional bias, suggesting rangy trades are likely ahead. Look for pair to hover within its current trading range of 123.40-125.00 for now. BOJ Kuroda is currently speaking at a BOJ seminar where he emphasized that the economy is recovering moderately and that he sees more policy divergence among the G3.

      AUD/USD – Potential Upside Squeeze. AUD/USD drifted lower ahead of retail sales and trade balance data, out at 0930 (SGT). Pair printed 0.7770 as we write as market players position for a resurgent of dollar strength ahead of US NFP tomorrow. 1Q GDP surprised to the upside but AUD trimmed its post GDP gains after investors realized that the details aren’t so great. Still, the headline suggests that RBA will not be in a hurry to lower rates. Intra-day support is seen at 0.7440. Key resistance level at 0.7796 at 50-DMA is eyed. Next support is seen around 0.7683. We have Apr retail sales; trade (Thu).

      NZD/USD – Upside Squeeze Short Term. NZD traded with a heavy bias as low GlobalDairyTrade auction prices (6-year low) and falling commodity prices (-4.7% m/m in May) continue to weigh on NZD. While 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 caution for potential near term upside squeeze. Daily stochastics are showing tentative signs of turning from oversold areas. A daily close above 0.7190 could see the pair squeeze towards 0.73 ahead of RBNZ meeting next Thu. We remain better sellers on rally towards 0.73 levels.

      USD/CAD – Supported on Dips. USDCAD remained supported on dips, underpinned by fall in oil prices. Pair was last seen around 1.2450, still supported by the 100-DMA. The pair was also underpinned by the daily ichimoku cloud. Expect dips to remain supported by next support at 1.2301 at 50-DMA. Daily momentum indicators have lost further bullish momentum and we see sideway trades for the rest of the week. Bids to meet resistance at 1.2629 ahead of the next at 1.2784.

Asia ex Japan Currencies

      The SGD NEER trades 0.09% below the implied mid-point of 1.3452 with the top end estimated at 1.3183 and the floor at 1.3720.

      USD/SGD – Tight Range. USD/SGD is bouncing higher after easing off towards the 1.3406 figure overnight. Pair is currently sighted around 1.3440 with both momentum indicators and oscillators bearish bias. Pair is also currently trapped within an intraday ichimoku cloud, signalling that rangy trades are likely ahead. With our support level at 1.3430 taken out last night, new support is at the 1.34-figure while resistance is around 1.3480.

      AUD/SGD – Upside Bias. AUD/SGD was unable to break through the ichimoku cloud and hovered around 1.0450 this morning.  This cross continues to be capped by the ichimoku cloud. Support is seen at 1.0376. Daily momentum indicators do not reveal much directional bias today and we look for price action to remain within 1.0400-1.0525 today.

      SGD/MYR – Bullish Divergence. SGDMYR pushed towards all-time high of 2.7476 this morning on ringgit weakness and a largely resilient SGD. We had earlier cautioned for a bullish divergence forming (near term) and that implies upside pressure. Topside already took out the previous high and we cautioned for a push towards 2.75 as OPEC talks loom this week. We expect some volatility/wild swings in oil prices to influence the MYR.

      USD/MYR – Volatile. USDMYR opened and traded higher towards 3.6910 on oil weakness overnight. We continue to reiterate our expectation for further volatility ahead of OPEC meeting and US NFP on Fri. Daily momentum is bullish bias but stochastics is showing early signs of turning lower from overbought areas. This could suggest possible downside pressure. Expect range of 3.68 – 3.70 intra- day.

      USD/CNH – Tracking The Onshore to Nowhere. USD/CNH last printed 6.1990, weighed by the dollar slide. We expect USD/CNY fixing to be lower 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 3 Jun, USD/CNY was fixed 49 pips lower at 6.1176 (vs. previous 6.1225). CNYMYR was fixed 4 pips higher at 0.5947 (vs. 0.5943). PBOC will allow overseas branch of its biggest banks and some foreign lenders to borrow yuan in repurchase operations at home for use abroad, facilitating cross-border investment.

      USDKRW – Sell on Rally. USDKRW continued to ease towards 1106 levels this morning, after trading a high of 1117.58 (2 Jun). 1Q final GDP released this morning was in line with expectation (+0.8% q/q). Daily stochastics is turning lower from overbought areas and could suggest some near term downside bias. Day ahead 1100 – 1110 range expected; bias to fade rallies intra-day.

      USD/IDR – Range-Bound.  USD/IDR remains in consolidative trades at the upper end of its current trading range of 13150-13250. Intraday MACD and slow stochastics are showing little directional bias. The lack of fresh catalyst should see the pair remain in sideway trades ahead with those ranges. 1-month NDF is edging back towards the 13300-levels after climbing to 13330 with intraday MACD still showing mild bearish momentum and slow stochastics is bearish bias. The JISDOR was fixed lower at 13196 after onshore markets re-opened yesterday vs. Mon’s 13230. Yesterday, foreign funds sold a net USD39.53mn in equities, and added a net IDR0.58tn to their outstanding holding of debt on Mon (latest data available).

      USD/PHP – Limited Downside. The USD/PHP is trading lower this morning around 44.785, playing catch-up with its regional peers, after climbing to 44.807 yesterday. Comments by BSP governor that there is no compelling reason to shift monetary policy and his still sanguine outlook for the economy could provide the PHP with a lift. Still, momentum indicators and oscillators are bullish bias, suggesting possible limited downside. Look for choppy trades to continue with topside capped by 44.885 and downside seeing support around 44.530. The 1-month NDF is inching lower towards the 44.800 region after edging higher to 44.900 yesterday with intraday MACD showing mild bullish momentum and slow stochastics tentative signs of bearish bias. Foreign appetite for Philippines asset remain weak with funds selling a net UD23.89mn in equities yesterday and further selling should be supportive of the pair.

      USD/THB – Sideways.  USD/THB is currently on the mild uptick after edging lower towards the 33.600-levels yesterday, but failing to break below our support level at 33.600. Pair is likely to remain in sideway trades though as it is currently trapped within an intraday ichimoku cloud. Intraday momentum indicator is showing is flattish while oscillators are still falling. Some support for the THB could come from the World Bank’s outlook for Thailand, released yesterday, which sees growth coming in at 3.5% in 2015 with export possibly growing by 0.5%. Continued range-bound trades within 33.600-33.810 intraday are likely. Foreign funds sold a net THB0.85bn of equities yesterday but this was more than offset by their purchase of a net THB0.99bn of government debt and further assets purchases could be cap the pair’s upswing today.

Rates

Malaysia

      In the local government bond market, BNM announced the issue size for the reopening of 10y MGS benchmark 9/25s. Although the MYR3b size is expected, new supply aggravates the weak sentiment. WI traded once at 3.95%, 4bps higher than yesterday's close. Other than that there wasn’t much going on in the benchmark space as trades still focused on the front ends, i.e. 16s and 17s.

      In the IRS market no trade was reported. IRS levels treaded higher in reaction to large sell-off in Bunds. THB rates also propelled 10bps in the belly after the finance minister reportedly said no further rate cuts needed. Interest seems to be more on basis as 3y basis traded level at -70. 3M KLIBOR was unchanged at 3.69%.

      The PDS market was quiet. Plus 28s changed hands at 4.56% while Plus 21s were quoted on the bid side. Better buying interest was seen in longer-dated AAA names e.g. Plus, Danga and Aman but bids were wide hence nothing much was done. AA names in the belly traded at last done levels while GG bids were lacklustre.

Singapore

      The SGS market was generally soft in line with the weak UST tone. SGS from the 5y point onward traded higher in yield by about 7-8bps. Bond-swap spread was stable. Market players may reduce risk as we draw closer to the release of US jobs data this Friday.

      Asian credit space was positive on new issues. China Three Gorges (Aa3) is issuing 10y USD T10+165bps and 7y EUR at MS +110bps. Beijing Construction Engineering (Unrated) came out with USD 3y issuance guiding at 4% level. Another interesting name to note is Lenovo, issuing CNH 5y at guidance of 5.00% +/- 5bps. This unrated issue garnered an order book of over CNH20b. Overall Chinese IGs traded tighter in spreads on the back of higher UST yields. Sovereigns traded lower in prices due to selloff in UST. Market will likely continue to focus on new issuances this week and shorten portfolio duration.

Indonesia

      Indonesia bond market close merely unchanged to Monday closing due to minimum sentiments. Incoming bids during the auction yesterday came in lower compared to previous sukuk auction indicating that drying of demand remains available. We believe that Indonesia bond market till the end of this week would move sideways and remain under pressure. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 7.949%, 8.170%, 8.332% and 8.399% while 2y yield shifts up to 7.672%. Trading volume at secondary market was seen thin at government segments amounting Rp8,492 bn with FR0070 (10y benchmark series) as the most tradable bond. FR0070 total trading volume amounting Rp1,999 tn with 47x transaction frequency and closed at 101.244 yielding 8.170%.

      Indonesian government conducted their sukuk auctions yesterday and received incoming bids of Rp4.84 tn bids versus its target issuance of Rp2.00 tn or oversubscribed by 2.4x. However, DMO only awarded Rp1.69 tn bids for its 5mo, 1y and 5y bonds. Incoming bids were mostly clustered on the front end tenors. 5mo SPN-S was sold at a weighted average yield (WAY) of 6.07422%, 1y PBS008 at 7.69848% while 5y PBS006 was sold at 8.18516%. PBS007 bid was rejected during the auction. Bid-to-cover ratio during the auction came in at 2.13X – 5.21X. Till the date of this report, Indonesian government has raised approx. Rp43.33 tn worth of debt through bond auction which represents 51.9% of the 2Q 15 target of Rp83.50 tn. On total, Indonesian government has raised approx. Rp249.9 tn worth of debt through domestic and global issuance which represent 55.3% of this year target of Rp451.8 tn.

      Corporate bond trading traded thin amounting Rp360 bn. BACA01SB (Subordinated I Bank Capital year 2014; Rating: idBBB-) was the top actively traded corporate bond with total trading volume amounted Rp90 bn yielding 11.987%.