Maybank GM Daily - 26 May 2014

FX

Global

       Dollar is poised for further gains amid more data releases including durable goods order, consumer confidence (Tue) and second estimate of 1Q GDP (Thu). Antipodeans slumped towards the end of last week and could remain heavy this week. AUD in particular has 1Q CAPEX numbers due on Thu which could add to its bearishness and force a break of the 0.92-support. In the Eurozone, parliamentary elections are the focus. Germany’s IFO prints were softer than expected, spurring more EUR offers in late Asia on Fri. The current momentum could mean an inevitable break of the 1.3625-support that we eye.

      Nearer to home, Japan has a string of data releases coming up. We watch inflation prints and industrial production on Fri for FX cues but we don’t expect USD/JPY to break out of familiar range. BOJ Minutes on Mon is likely to be received with muted reaction.

      In the region, the military coup in Thailand hogs the limelight. USD/THB is on a gradual upward grind. Increasing political uncertainty could possibly coax the pairing higher, lending some support to the rest of the USD/AXJs. China’s official PMI-mfg is due on Sun. We expect more subdue trades as the release draws near. China’s Apr indicators have been in line with expectations and investors eye a better number to signal stabilization in the manufacturing scene. On the side, Philippines’ growth number (6.4%y/y) is on the tap.

G7 Currencies

       DXY – Firmer in Range. The index has been gaining at the expense of EUR, buoyed as well by recent gains in UST yields.  Last seen at 80.37, the index has taken out the barrier at 80.30.  Upside momentum is steadily gaining, though RSI flags near overbought conditions. Next barrier at 80.599. 200-DMA has been capping topsides for the greenback. A break here could be critical but there seems to be a lack of impetus. Hence we see sideway trades more likely with an upward tilt. Interim support now seen at 80.275.

      USD/JPY – Range-bound. USD/JPY continues to bounce near the middle of the 101.30-102.68 range – a range that the pair has been confined to since Feb. The warning by BOJ chief Kuroda that the JPY was not likely to appreciate even if the 2% inflation target is achieved as a weaker JPY is a result of monetary policy and not the target could provide some support for pair to move to the upper part of the range this week. Currently edging higher around the 102-level, momentum is now bullish. Still, we expect the pair to remain rangy within 101.30-102.68 this week.

       AUD/USD – Lower Range-Trading. AUD/USD slumped towards the 0.92-figure and waffled thereabouts in the latter part of the week. To be sure, little has changed in RBA Minutes. Risks are still on both side for the economy, RBA does not intend to do anything to the AUD. FOMC committed little in its Apr minutes as well. Ahead of 1Q CAPEX due next week, pair is already under downside pressure. We think the break of 0.92-support is more likely than ever and next support is seen at 0.9154.

      EUR/USD – Pressured. Pair has arrived at the 1.3625-support by the end of the week, weighed by expectations of more monetary easing by the ECB in June. Downside pressure not waning and we see next support is seen at 1.3573. This weekend we have parliamentary elections and with that as the main event of the week, the data calendar is relatively lighter. 1.3730 guards topsides.

Regional FX

      The SGD NEER trades 0.35% above the implied mid-point of 1.2576. The top end is estimated at 1.2325 and the floor at 1.2827.

      USD/SGD – Upside Pressure. USD/SGD continues to be drawn towards the 1.2540-barrier (23.6% Fib retracement of the Jan-Apr downswing). Pair is currently hovering around 1.2537 with momentum increasingly bullish with RSI showing more scope for bids. We look for a sustained break of the 1.2540-barrier to expose the next resistance at 1.2570. Support for the week is seen at 1.2483 (14 May low).  Singapore’s industrial production index for Apr is on tap today with market expecting industrial output to rise by 4.7% y/y, a steep moderation from Mar’s 12.1%. 

      AUD/SGD – Rangy.  Cross is on the uptick to start the week, underpinned by AUD strength. Pair is currently hovering around 1.1577 at last sight. However, MACD is hinting of accelerating bearish momentum though RSI flagged potential upsides. Mixed momentum signal suggest that support at 1.1507 should remain intact for the week. 1.1590 should slow bids ahead of 1.1683. SGD/MYR – Heavy. Cross continues on its downward spiral to low of 2.5600 this morning. Pressure is still to the downside according to MACD but some consolidation could be in store. RSI is currently indicating oversold conditions. We expect prices to remain heavy within 2.5564/2.5721.  

      USD/MYR – Supported on Dips. USD/MYR has been on the downtrend since the start of Feb and was last seen threatening the 3.20-figure. Next support is seen at 3.1983.  Momentum is still tilted to the downside as shown by all the momentum indicators but we are wary of aggressive shorts. With every low (sighted in Feb, Apr and more recently, May), the dips in MACD has not been much deeper, signalling bullish divergence for the pair. 1-month NDF was also on the downtick this morning, pressing on the 3.21-figure. Pair is likely to remain heavy.

      USD/CNY was fixed higher at 6.1699 (+0.0018), vs. previous 6.1681 (+2.0% upper band limit: 6.2958; -2.0% lower band limit: 6.0489). CNY/MYR was fixed at 0.5149 (-0.0031). USD/CNY –Range-bound. USD/CNY hovered around 6.2370 still, almost static in spite of the the higher fixing. Pair is still losing downside momentum. We see side-way gyrations to continue within the 6.2260-6.2466 range. China’s Premier Li Keqiang said China will fine-tune policy when needed, to solve problems such as tight funds for the real economy especially for small companies. His words came amid expectations of a RRR cut in the second half of the year. Director of Ministry of Finance’s fiscal-science research institute, Jia Kang urged quicker property tax legislation to “squeeze the bubble in the property market”. a

      1-Year CNY NDFs –Upside pressure. The 1Y NDF steadied around 6.2465 this morning, underpinned by firm dollar tone. Nearby barrier at 6.2485 is at risk, ahead of 6.2725. 6.2358 to support.

      USD/CNH – Sideways. Pair last printed 6.2347, on the uptick along with 1-year NDF. MACD shows paring momentum at this point on thedaily chart. CNH has been closing at a premium to CNY which continues to signify a period of stability for both the pairing. Two-way action seen to continue within 6.2243-6.2400.

      USD/IDR – Slow Grind Higher. USD/IDR remains elevated as concerns about the outcome of the presidential election continues to underpin. Pair is last sighted hovering around 11623 with momentum now increasingly bullish and close to overbought conditions. Still, the grind higher is likely to be gradual and we continue to expect 11658 to slow bids ahead of 11700. 11475 should remain supportive for the week. 1-month NDF continued is uptick this morning after its bullish-engulfing move on Fri with the 1-month hovering around 11641 currently. MACD is now indicating increasing bullish momentum with the RSI close to overbought conditions. The JISDOR index ended the week higher at 11560 on Fri, up from the previous Fri’s fixing of 11415.

      USD/PHP – Little Momentum In Either Direction. USD/PHP has been trading in familiar ranges within 43.528-43.855 for the past nine sessions. Strong economic fundamentals have made the pair stand out among its regional peers so far. Currently, MACD is indicating little momentum in either direction. For bull extension, we need to see a firm break of 43.855 to expose strong resistance at 44.000. For bears to take control, a sustained break of 43.430 is needed to expose the next support at 43.421. Otherwise, expect price to remain range-bound within 43.528/43.855 this week. 1-month NDF continues to creep higher to start the week, hovering around 43.720 this morning, though MACD is indicating little momentum in either direction ahead. Philippines’ 1Q14 GDP is on tap on this Thu 29 May and market is expecting steady economic growth of 6.4%, little changed from 4Q13’s 6.5%.

      USD/THB – Upside Risks. USD/THB remained elevated to start the week, hovering around 32.590 as investors remained on the sidelined as the coup leader consolidated his hold on power. Foreign funds have sold off a net THB6.8bn and THB7.3bn in equities and government bonds last week. The spike in the USD/THB could have been worse if not for the BoT moves to steady the pair. Still, the quick focus of the coup leaders on the economy (paying farmers under the rice pledging scheme and moves to quickly approve the FY15 budget) should reassure investors and the business community and could bring some calm to the markets.  Still, pockets of protests have begun to spring up and could add to the tense situation there.  32.660 continue to provide strong resistance this week, and a sustained break of this level would expose the next hurdle at 32.770. 32.370 should limit downsides this week.

Rates

Malaysia

      It was a slow day in the government bond market with the curve almost unchanged from yesterday. Some flows were seen on the 20-year MGS 4/33 during the afternoon session as the bond dipped 1.5bps from yesterday’s close. All eyes pin on the next auction which is a retap on the 10-year MGS 7/24. We expect a size of MYR3b with outstanding amount being MYR4b.

      The IRS market was pretty quiet with some trades only happened just before the market closed. We continue to see some receiving interest at current levels despite the 3M KLIBOR has been inching up every other day – added another 1bp to 3.44%. 5-year was traded at 4.01% and 4.02%.

      The credit market was very lackluster. Market appetite for high grades stalled, shifting instead to AA papers. Volume remained low with most transactions being bargain hunting deals. Interest in Malakoff Power picked up, with the 2019 and 2022 being dealt at 4.88% and 5.39% respectively.

Indonesia

      Foreigner added most of their portfolio in the 2 to 5 year bond tenors during the month of April with a total net buy of Rp16.65 tn. Despite foreigner added most of their portfolio in the short term tenor bond during the month of April yet foreign weighted average tenor slightly increased to a range approx. between 10 to 11 years. By using FR0070 (10-yr benchmark series) and FR0040 (11-yr) duration we could easily retrieve an approximation of foreign ownership duration of between 6.84 to 7.05 year which is slightly higher than the benchmark index (HSBC ALBI) of 6.79. Foreign inflow into Indonesia bond market was not as aggressive as couple of consecutive month earlier yet foreigner would appreciate 10-yr bond yield somewhere near 8.00%.

      Notting much happened in Indonesia bond market during Friday’s trading. Bond prices moved within a range and closed with a relatively minimum change. IDR currency continue its depreciation by 84.50 points to Rp11,615.00 per USD while JCI index slightly climbed surge by 3.18 points to 4,973.06. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 7.630% (+0.9bps), 8.025% (+0.4bps), 8.498% (+0.8bps) and 8.605% (+0.4bps) while 2-yr yield shifted up to 7.356% (+0.8bps). Trading volume at secondary market dropped significantly to Rp3,989 bn (vs average per day trading volume of Rp7,602 bn). FR0068 (20-yr benchmark series) and FR0070 (10-yr) was the most tradable bond during the day. FR0068 total trading volume amounting Rp656 bn with 54x transaction frequency and closed at 104.229 yielding 8.490% while FR0070 total trading volume amounted Rp643 bn with 10x transaction frequency and closed at 94.069 yielding 8.021%.

      DMO will conduct Conventional auction today with indicative target issuance of Rp8.0 tn. Five series to be auctioned today are SPN12150305 (Coupon: discounted; Maturity: 5 Mar 2015), SPN12150501 (Coupon: discounted; Maturity: 1 May 2015), FR0069 (Coupon: 7.875%; Maturity: 15 Apr 2019), FR0071 (Coupon: 9.000%; Maturity: 15 Mar 2029) and FR0068 (Coupon: 8.375%; Maturity: 15 Mar 2034). Our view on the indicative yield for certain series as follows FR0069 (range: 7.60% – 7.70%), FR0071 (range: 8.45% – 8.55%) and FR0068 (range: 8.57% – 8.67%). We might be seeing incoming bids either remaining similar or declining compared to previous conventional bond auction as bond trading would be rather ineffective this week due to two days holidays (Tuesday and Thursday).

      On the corporate bond segment, trading volume remains thin amounting Rp495 bn yesterday (vs average per day trading volume of Rp750 bn). TUFI01ACN2 (Shelf registration I Mandiri Tunas Finance Phase II Year 2014; A serial bond; Rating: idAA) was the top actively traded corporate bond with total trading volume amounting Rp160 bn and was last traded at par yielding 10.7005%.

Rgds,

Maybank FX Research

Global Markets

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