Maybank GM Daily - 9 Jun 2015

FX

Global

      EUR rallied yesterday after a few positive German data releases on Mon. Industrial production rebounded to a growth 0.9%y/y from a contraction of -0.4% in the month prior. Trade balance narrowed less than expected to EUR22.1bn from previous EUR23.1bn, underpinned by an unexpected growth in exports accompanied by a shrink in imports for the month. Still, European bonds sold off with 10yr German bund yield a tad firmer at 0.878%. UST yields slipped only a tad with 10year yields still near 2.40%. The recent sell-off in the bond markets weighed on sentiments, dragging the equities into red.

      Oil prices slipped on Mon, reeling from OPEC’s decision to maintain output on Fri. Some recovery was seen this morning and the rebound lifted the MYR against the USD, up 0.4%. KRW is also stronger against the greenback, up 0.4% as well.

      The day ahead has little data of note with only China’s May inflation number under scrutiny. Consensus expects a tick lower for CPI to 1.3%y/y in May from previous 1.5%. PPI could shrink another 4.5% for the same month. Beyond Asia, Eurozone will release its GDP number for 1Q. UK has trade data due.

       DXY – Buy on Dips. USD declined overnight despite officials denying Obama’s comments that USD strength could prove problematic. Some took it as a concern amongst leaders during the G7 meeting held over the weekend. Yesterday we cautioned that while the DXY did rally on NFP data, the eventual move into the Fri close was less strong (given the robust data). We continue to reiterate that the DXY needs to clear above this 97.37 level (61.8% fibo of 99.98 – 93.13) for a sustained move higher. Still expecting range trading between 94.75 (23.6% fibo) and 96.20 (50 DMA). Week ahead brings Apr JOLTS (Tue); 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 rose overnight amid broad USD weakness. High of 1.1307 was traded before closing 1.1291 overnight. 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 1Q German labor cost; EC 1Q GFP (Tue); FR Apr IP, manufacturing production; IT Apr industrial production (Wed); FR May CPI (Thu); EC Apr IP (Fri).

      GBP/USD – Buy Dips. GBP firmed overnight amid broad USD weakness. Pair traded 1.5364 high before closing 1.5349 overnight. We still favour buying on dips towards 1.5220 (50 DMA); firmer support around 1.5180/90 levels (100 DMA). Daily stochastics continue to show mild signs of turning higher from oversold levels. Next resistance at 1.5450 (50% fibo of 1.5090 – 1.5815); support at 1.5260 (76.4% fibo). Day ahead sees 1.5260 – 1.5350 range. Week ahead brings Apr industrial production and manufacturing production; GDP estimate (Wed); RICS house price balance (Thu); Apr construction output (Fri).

      AUD/USD – Vulnerable. AUD/USD was little moved for much of Asia before rebounding above the 0.77-figure, lifted by a pullback in the dollar. Pair has now drifted lower to levels around 0.7680 as early market players take profit. Expect trades to remain choppy. Intra-day action to remain within 0.76-0.78. Support at the lower bound seems formidable. NAB business survey for May will be out later. 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 Westpac Jun consumer confidence; RBA Stevens to speak (Wed); Jun CPI inflation expectation; May employment change (Thu).

      NZD/USD – Fade Strength (if any). Kiwi benefited overnight, rising to 0.7157 high overnight at the expense of USD weakness. Pair is trading around 0.7120 levels this morning. 1Q Manufacturing activity data released this morning was much worse than expected. 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 May house sales (Wed); RBNZ meeting (Thu); May food prices (Fri).

       USD/CAD – Tilting Lower. USDCAD slipped yesterday and managed a close below the 100-DMA at 1.2418. Again, CAD displayed surprising resilience to declines in oil prices. That said, USD/CAD needs a break out of the 1.2350-1.2630 range, last printed 1.2420. The daily ichimoku cloud is thick and provides significant support to the pair with the upper bound around 1.2390. 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 with a growing downside risk.

Asia ex Japan Currencies

      The SGD NEER trades 0.13% below the implied mid-point of 1.3512 with the top end estimated at 1.3242 and the floor at 1.3783.

      USD/SGD – Two-Way Trades. USD/SGD came off overnight towards 1.3525 but is now back on the climb, hovering around 1.3545 at last sight. Pair has lost most of its bullish momentum, and slow stochastic is bearish bias, suggesting that upside could be capped today. We reckon that pair should see two-way trades today within 1.3480-1.3640 amid the lack of fresh catalyst.

      AUD/SGD – Choppy Sideway Trades. AUD/SGD rallied along with the AUD strength but the cross is still capped by the ichimoku cloud at 1.0470 and then at 1.0525. The cross was last priced at the 1.04-figure. Support is seen at 1.0330. Daily momentum indicators suggest waning bearish momentum and we look for choppy action to remain within 1.0240-1.0525 in the medium term.

      SGD/MYR –Uncharted Territories. SGDMYR maintained its upward push into uncharted territories on ringgit weakness and a largely resilient SGD. We had earlier cautioned for a bullish divergence forming (near term) and that implies upside pressure. Cross was last at 2.77. Still see a weak Ringgit keeping the cross supported.

      USD/MYR – Easing. USDMYR eased; traded 3.7470 low this morning; closed at 3.7720 while 1s NDF traded as high as 3.7900 overnight. BNM Governor commented that current weakness of Ringgit is expected to be temporary and is not reflective of the country’s fundamentals. 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 – Tracking The Onshore to Nowhere. USD/CNH retreated on Mon but bears seem to have found support at 6.2067 (50% Fibonacci retracement of the 2014-2015 rally). That just leaves the pair in rangy trades, last seen around 6.2100. 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 8 Jun, USD/CNY was fixed 24 pips higher at 6.1205 (vs. previous 6.1181). CNYMYR was fixed 52 pips higher at 0.6027 (vs. 0.5975). China released trade data yesterday which was not as bad as feared. Exports fell -2.5%y/y compared to -6.4%, accompanied by -17.6% fall in imports. Trade surplus widened to USD59.5bn from previous USD34.1bn. That does not bode well for domestic demand. Inflation numbers are out next with May CPI expected to tick lower to 1.3%y/y from previous 1.5%. PPI to shrink another -4.5%, similar to -4.6% seen in Mar.

      USD/INR – Rangy. USD/INR gapped up yesterday but remained little changed for the rest of the day, closing only a tad higher at 64.0875. 1-month NDF steadied this morning around 64.37. 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 slide could provide downside bias. Week ahead brings Trade numbers for May (Wed), followed by industrial production and CPI (Fri).

      USD/KRW – Range. USDKRW inched lower in the open this morning below the 1120-handle (vs. spot close at 1123) amid USD weakness. It remains a close call on whether the BoK will cut rate at the upcoming MPC meeting on 11 Jun as Korea is facing many headwinds – subdued inflation, weak activity data, soft exports, weak JPY undercut Korea’s export competitiveness, MERS development (which is expected to hit consumption spending), we believe the BoK is expected to adopt a wait-and-see approach (keep rate on hold at 1.75%) 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 1115 – 1123 range expected. Daily momentum remains mild bullish while stochastics is at overbought areas.

      USD/IDR – Limited Downside.  USD/IDR slid lower at the opening to 133354, tracking its regional peers. Intraday MACD continues to show bullish momentum and slow stochastics is at overbought levels. Downside though should be limited given that domestic growth concerns have once again reared its ugly head following the FM disclosure that the 5.7% growth target for 2015 was difficult to achieve, while the BI governor expects growth of 5.0-5.4% in 2015. Intraday range of 13250-13400 is likely today. 1-month NDF remained elevated above the 13500-levels though there could be some relief ahead given that the pair has lost most of its bullish momentum and slow stochastics continues to fall from overbought levels. The JISDOR was fixed at a new historic high of 13360 yesterday from Fri’s 13288. Yesterday saw foreign funds selling off a net USD21.37mn in equities but added a net IDR0.37tn to their outstanding holding of debt on 5 Jun (latest data available).

      USD/PHP – Two-Way Trades. The USD/PHP is retreating back below the 45.00-figure this morning, tracking the dollar retreat. Intraday MACD is showing waning bullish momentum, though slow stochastics remains at overbought levels. Look for pair to hover within 44.715-45.200 intraday as two-way trades are likely in the wake of the BSP governor’s comments. The BSP governor stated that monetary policy will not go against fundamental trend, but only to smoothen excessive volatility in FX movements. The 1-month NDF is on the slide towards the 45-figure this morning with both intraday MACD and slow stochastic bearish bias. Foreign funds sold a net USD11.77mn in equities yesterday and further selling should be supportive of the pair.

      USD/THB – Consolidating Lower.  USD/THB is wobbly this morning after retreating from the recent high of 33.948 on Fri, and is currently hovering back at the levels before the US NFP. Intraday MACD and slow stochastics are bearish bias, suggesting downside pressure on the pair is likely today.  Support nearby remains at 33.700 with a firm break exposing the next support at 33.615. Rebounds today should be capped by 33.810. Yesterday, foreign funds sold a net THB0.92bn of government debt, but bought a net THB0.05bn of equities.

Rates

Malaysia

      Local government bond yields rose further as UST yields jumped and MYR weakened against the USD after the strong NFP last Friday. Local government bonds sold off from the belly to the back end of the curve with yields up by 4-16bps. Buyers were present but extremely defensive as players continue to cut positions ahead of the next 7y MGS9/22 reopening auction which we estimate a size of MYR3.0b.

      IRS rates quoted higher after the NFP, but nothing traded as foreign players were not around. Rates did not seem affected by MGS which yields are still below IRS. 3M KLIBOR stayed at 3.69%.

      PDS market was generally quiet as govvies slid. Although total traded volume was MYR1.4b, we note some large volumes were crosses. Buyers were interested in longer dated GGs and AAAs and shorter dated AAs with most trades either done at MTM levels or 1-2bps wider. Danga 30 was volatile, trading from 4.65% to as high as 4.70%, and closed at 4.65%. At this level, we think the paper offers relatively good value with a strong credit. 9y KLCC paper traded at 4.40%, on par with levels seen before the MGS selloff.

Singapore

      SGS market was panicky as PDs were selling across the curve early in the morning but short covering interest slowly crept in. Yields closed 1-7bps higher, with SGD IRS ending around there as well. 10y bond swap spread ended at -12.5bps.

      Asian credit space opened to a muted tone after the surprisingly good NFP print last Friday. Most IG and AMC spreads were unchanged with low trading volume. Market saw some light selling likely to make room for new issuances which include: 1) Zhongrong Intl Trust issuing 3y USD bonds at guidance of 6.00% and 2) Korea Hydro & Nuclear Power issuing 10y USD bonds at T+110bps. We like Korea Hydro at the initial guidance based on fair value at around T+90bps, we estimate. Agile announced a consent solicitation for its 2017 paper.

Indonesia

      Indonesia bond market slumped on yesterday trading in response to better May U.S. NFP data. We believe that 10y yield running above the 8.75% level would be a decent purchase start hence we are suggesting an accumulation level of 8.75% - 9.30% for the 10y benchmark series with an expectation of 8.30% within several months ahead. 5-yr, 15-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 8.430%, 8.648%, 8.900% and 8.872% while 2y yield shifts up to 7.892%. Trading volume at secondary market was seen moderate at government segments amounting Rp11,265bn with FR0070 (10y benchmark series) as the most tradable bond. FR0070 total trading volume amounting Rp3,155tn with 89x transaction frequency and closed at 98.324 yielding 8.648%.

      DMO will conduct their conventional auction this week with four series to be auctioned which are SPN03150910 (Coupon: discounted; Maturity: 10 Sep 2015), SPN12160610 (Coupon: discounted; Maturity: 10 Jun 2016), FR0053 (Coupon: 8.250%; Maturity: 15 Jul 2021) and FR0071 (Coupon: 9.000%; Maturity: 15 Mar 2029). We believe that the auction will be oversubscribe by 1.2x – 2.2x from its indicative target issuance while our view on the indicative yield are as follows SPN03150910 (range: 5.950% – 6.050%), SPN12160610 (range: 7.900% – 8.000%), FR0053 (range: 8.550% – 8.650%) and FR0071 (range: 8.950% – 9.050%).

      Corporate bond trading traded heavy amounting Rp1,103bn. SISMRA01CN3 (Shelf registration sukuk ijarah I Summarecon Agung Phase III Year 2015; Rating: idA+(sy)) was the top actively traded corporate bond with total trading volume amounted Rp260bn.