Maybank GM Daily - 11 May 2015

FX

Global

      The US NFP was described as “goldilocks” with a print of 213K that was close to consensus at 223K while Mar’s data was revised lower to 85K. The labour report eased expectations for a hike in Jun. UST 10yr yields slipped towards 2.1% before stabilizing around 2.15%. Earlier in Asia on Fri, China’s trade numbers disappointed with a contraction in exports and an even greater one for imports. Inflation also missed expectations at 1.5%y/y, albeit quickened a tad from the previous 1.4%. PBOC cut interest rate for the third time in recent months.1-year lending rate and deposit rate were lowered by 25bps to 5.10% and 2.25% respectively but the deposit ceiling was increased to 150bps of benchmark from 130bps. 

      The Euro-area Finance Ministers meet on 11 May (today). Greek development will continue to drive sentiment. Greece is due to make a EUR767mil repayment to IMF on 12 May. For 13 May, focus on 1Q GDP data from Euro-area, Germany, France, Italy to confirm a cyclical recovery in the Euro-area. German, French, Italian Apr CPI will be of interest for inflation development. For Asia, China is due to release Apr activity data – retail sales (Cons. +10.4%); Industrial production (Cons. +6%) and FAI (Cons. +13.5%) and monetary data during the week; and we are expecting the data to be slightly better than prior on recent policy easing measures. Philippines’ BSP will meet on 14 May, and we expect the central bank to hold policy rate.

      Other data/event that to note includes BoE MPC meeting today, and we expect no change to policy rate and asset purchase plan. Also, Malaysia is due to release Mar IP. 12 May, UK Mar IP and manufacturing production on tap. 13 May, US Apr retail sales (Cons. +0.2% m/m); UK Mar labor data and BoE inflation report; Japan Mar trade data on tap. 14 May, 1Q GBP and current account for Malaysia are due. For 15 May, PH Mar overseas remittances (Cons. +5% y/y) and Indonesia 1Q trade (Cons. $145m), current account data on tap.

Currencies

      DXY – Buy on Dips. US NFP failed to provide much direction for the USD, as the DXY closed relatively unchanged. The headline NFP came in close to expectation, led by a rebound in service-sector hiring but disappointing hours worked, softer hourly earnings and downward revisions to Mar headline NFP (from +126k to +85k) meant the details were weak. The employment report was perceived as a modest positive but not sufficient to push a dovish FOMC to begin interest rate normalisation at the June or July meeting. Instead the Fed will continue to take their time with respect to initiating interest rate normalization, as wage pressures remain tame despite a tightening labor market. This is consistent with our house view  for a September rate hike.  DXY was last at 94.87.  Daily momentum showing very early signs of turning higher; while daily stochastics has fallen to oversold levels. DXY needs to make a daily close above 100DMA at 95 levels before seeing further upside. Day ahead sees 94.10 – 95 range. Week ahead brings Apr labor market conditions index (Mon); Mar JOLTS; Fed’s Williams speaks (Tue); Apr retail sales; Apr import price index (Wed); May initial jobless claims, continuing claims, Apr PPI (Thu); Apr industrial production; May Empire Manufacturing; Apr capacity utilization; May Prelim. Univ of Michigan Sentiment (Fri).

      EUR/USD – Likely to See Volatile Swings. EUR closed weaker below the 100 DMA and just below 1.12 last Friday as concerns over Greek development weighs on sentiment. Focus today on Euro-area Finance Ministers meeting later today which the Greeks are confident a deal will be reached by then. Greece is due to make a EUR767mil repayment to the IMF on Tue. Week ahead brings ECB Nowotny speaks (Mon); EC, GE, FR, IT 1Q GDP; EC Mar IP; GE, FR, IT Apr CPI (Wed); Greece sovereign debt rating to be published by Fitch (Fri). Week ahead, first support at 1.1070 (61.8% fibo, 1.1450, 1.0458), before 1.0950 (50% fibo); while resistance at 1.1450 (Feb 2015 high) should attract keen offers. We continue to reiterate our bearish bias on the EUR on a combination of macro factors including diverging monetary policies between Europe and the US (ECB QE while Fed is likely to start tightening Sep 2015), ongoing disinflationary concerns, structural headwinds (labor market slack, high debt, slow reforms, possible fiscal slippages, etc.) and worries over Greece’s ability to meet repayment schedule.

      GBP/USD – Focus back on Macro Drivers. GBP/USD rose to near-2015 high of 1.5523 (8 May) on a surprised majority win for the as opposed to a hung parliament outcome (market and opinion polls-implied expectation). With elections out of the way, focus is now back on macro drivers for the near term before political risks (EU referendum; Scottish referendum) resurfaced again. BoE meets on Mon, which we expect no change to policy rate and asset purchase plan. The BoE inflation report out on Wed will be of keen focus where we will be watching for inflation forecast. Market pricing of BoE rate hike remains dovish and expectation could quickly readjust. We wrote in a note last month that UK fundamentals – strong domestic demand supported by a resilient labor market remain supportive of GBP. Other data we are watching for the week includes Mar IP, manufacturing production (Tue); Mar labor data (Wed); Apr RICS house price balance (Thu); Mar construction output (Fri). The previous high at 1.5552 will continue to serve as resistance in the interim; meantime daily momentum and stochastics remain bullish bias. Support at 1.5270 (23.6% fibo; 1.4566, 1.5492) before 1.5140 (38.2% fibo).

      USD/JPY – Choppy Trades. USD/JPY has been trading choppily within a tight 118.00-120.80 band in the absence of fresh catalyst. CFTC positioning data indicates that markets have almost flushed out short JPY positions – not seen since 2012. With no further BOJ measures expected until Oct, we think the risk-reward ratio favors a short USD/JPY position in the near term. Break of the 118-figure exposes the next support at 117.20. The week ahead brings Mar Trade balance, current account; BOJ Sato speaks (Wed); Apr preliminary machinery tool orders (Thu); and Apr PPI; BOJ Kuroda speaks (Fri).

      AUD/USD – 2 Steps Forward, 1 Step Back - The pair has been supported on dips and we eye the 100-DMA at 0.7860 that has provided reasonable support. We still look for a move up towards the 0.8286-mark (38.2% Fibonacci retracement of the 2014-2015 sell-off). A close above the 0.8008-mark could give us greater conviction. This week is quieter with only NAB business surveys due; Mar credit card purchases; home loans; investment lending (Tue); 1Q wage price index.

      NZD/USD – RBNZ Next to Ease? NZD was the biggest mover this morning, falling from 0.7525 high (just under 50 DMA at 0.7530) to a low of 0.7414. We continue to reiterate our bearish bias for the NZD on a combination of drivers including mounting expectation for RBNZ to cut rates following RBA’s move to cut rate (5 May), weaker than expected 1Q wage inflation data (6 May) and declining GDT dairy auction prices (to near 6-year lows). We continue to see further downside pressure on the NZD targeting 0.7350 first objective before re-visiting 0.72 levels. While daily momentum is bearish bias, stochastics is now at oversold levels; favor fading on rally (if any). Resistance at 0.7530 (50 DMA). Week ahead brings Apr food prices (Wed); 1Q retail sales (Thu). Remain better sellers on rally towards 0.7480 for a re-visit of 0.730.71 – 0.72 levels.

Asia ex Japan Currencies

      The SGD NEER trades around 0.02% above the implied mid-point of 1.3351. We estimate the top end at 1.3084 and the floor at 1.3617.

      USD/SGD - Buy On Dips. The previous week we had cautioned for a descending wedge and suggested a turn higher towards 1.3320 with a risk towards 1.3470 amid a weak USD environment. The call has worked out well and the pair turned higher towards 1.3381 (5 May) before easing towards the 1.3300-figure currently. A move towards 1.3470 cannot be ruled out. Daily momentum indicator is showing tentative signs of bullish momentum, while slow stochastics is indicating bullish bias. Look for 1.3150-1.3470 in the week ahead.

      AUD/SGD – Tangled in the Thin Cloud. Bullish tests remained capped by the upper bound of the daily cloud but we still look for a break to the upside. Support is seen at 1.0459 while resistance is seen 1.0675. 1.0376 marks the next supports. This week has NAB business surveys done along with home loans and 1Q wage price index out of Australia.

      SGD/MYR – Ascending Wedge. SGDMYR could be on the verge of a breakdown, with an ascending wedge in the making and a top formed at 2.7150 levels. Weekly stochastics is also falling from oversold levels while weekly MACD is showing tentative signs of falling. Favor selling on rally. We continue to caution that a break out lower with a decisive close below the 100DMA at 2.67 level could see the pair ease towards 2.6350 (23.8% Fibonacci retracement of 2013 low to 2015 high).  Day ahead 2.6850 (50 DMA) – 2.7080 likely to hold.

      USD/MYR – Gravestone Doji? USD/MYR made a gravestone doji-liked formation on the Friday close. What this could suggest is possible downside risk for the day ahead. The 21DMA also appears to be cross the 100DMA at 3.6130 levels suggesting possible downside pressure. Day ahead could see 3.5680 – 3.6000 range. Week ahead focus on Mar industrial production, manufacturing sales; FX reserves data (Mon); 1Q GDP; Current account (Thu). Our Economists in KL will provide their forecast after the release of the industrial production data later today. Basically they expect 1Q growth to be lower than 4Q’s +5.8%, but remain above 5% amid signs of pre-GST spending rush.

      USD/CNH – Consolidative. USD/CNH steadied around 6.2130 this morning, hardly budged from its narrow band of 6.1980-6.2160. The pairing is still in consolidation phase within the broader 6.1842-6.2292 range. A breakout is needed for more directional cues at this point. Expect USD/CNY fixing to hardly changed from the last fixing at 6.1147 yest. 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 6.1896. On 8 May, USD/CNY was fixed 34 pips higher at 6.1147 (vs. previous 6.1113). CNYMYR was fixed 29 pips higher at 0.5777 (vs. 0.5748). China’s trade numbers disappointed with a -6.4%y/y contraction in exports and an even greater one for imports (-16.2%). Inflation also missed the mark at 1.5%y/y, albeit quickened a tad from the previous 1.4%. PBOC cut interest rate for the third time in recent months.1-year lending rate and deposit rate were lowered by 25bps to 5.10% and 2.25% respectively but the deposit ceiling was increased to 150bps of benchmark from 130bps. The latest monetary easing underscored the downward pressure that the economy faces as the central bank seeks to cut financing costs for firms. PBOC said in a statement that China’s banking system has ample liquidity and expects most financial institutions not to utilize the new deposit rate ceiling. China is due to release Apr monetary data anytime this week. Retail sales, IP and urban FAI are due on Wed. Yuan-wise, we continue to expect PBOC to keep USD/CNY steady.

      USD/IDR – Supported. USD/IDR ended the Fri session with a daily doji, suggesting a possible reversal. Pair is currently off its Fri’s high of 13233, sighted around 13105 at last sight. Still, lacklustre economic growth (Note: IMF has lowered growth to 5%) and political mis-steps by President Widodo are likely to limit downsides. In the absence of fresh catalyst and a shortened week (Thu is a public holiday), look for the pair to trade range-bound within 12950-13250 ahead. The 1-month NDF continues its climb higher, sighted around 132345 currently with daily MACD and slow stochastics showing bullish bias. Foreign funds sold a net USD64.3mn in equities last week and added a net IDR0.97tn to their outstanding holding of government debt on 4-6 May. The JISDOR was fixed at 13177 on Fri and a lower fixing is likely today given the spot’s drift lower this morning.

      USD/PHP – Range-Bound. The USD/PHP slid lower this morning, in line with regional peers and is hovering around 44.639 currently. Still, pair remains well-within its currently trading range of 44.400-44.800. For now, we do not expect a break-out of the current range as we do not expect the central bank to move on policy on Thu. Continue to expect range-bound trades within 44.400-44.800 ahead. 1-month NDF bounced higher this morning to 44.710 with both daily MACD and slow stochastics showing bullish bias. Foreign funds sold a net USD12.9mn in equities last week, which weighed on the PHP.

      USD/THB – Grinding Higher.  USD/THB has been on a steady climb higher following the surprised 25bp rate cut and capital outflow measures introduced by the BoT. Daily momentum indicators continue to point to bullish momentum with slow stochastics still at overbought levels. The pause in the upmove this morning is unlikely to prevent bulls head from eventually testing the psychological barrier at 34.000. In the interim, look for hurdle at 33.700. Last week, foreign funds sold a net THB0.57bn and THB14.7bn in equities and debt, keeping the pair supported. The week ahead is data light with just foreign reserves (Fri) in focus.

Rates

Malaysia

§  Local government bonds traded mixed with better sellers throughout the day and amid very thin trading volumes. Players turned their focus to the US NFP data release last Friday night.

§  In the IRS market, there was some consolidation around and a touch off the highs of previous day’s levels as bond yields recovered. The 2y IRS was dealt at 3.64%-3.65% and the 5y at 3.88%-3.89%. There was some profit taking as the curve have steepened quite a bit. We maintain our view on squaring paid positions and turning received when rates move higher on the belief that KLIBOR would decline. 3M KLIBOR moved down by 1bp to 3.71%.

§  PDS market ended the week with more liquidity as there was good two way flows. The GG curve was fairly active at the longer end with trades done around 1bp of MTM values. AAA space was the most active with names such as Danga, Plus, Telekom, Putrajaya and Aman trading slightly wider due to the steepening govvy curve. We saw rather good liquidity on Caga papers with MYR120m of Caga 16s being traded, closing 6bps tighter from the last traded level which we note was quite some time ago. Other Caga papers traded 1-2bps from MTM values. NFP was the main focus last Friday night for a direction of the local PDS scene this week.

Singapore

§  SGS yields fell 3-7bps with the 10y benchmark down by as much as 10bps before eventually settling around 7bps lower. SGD IRS declined by about 4.5bps and the 10y bond swap spread widened roughly 3bps. All eyes were on the NFP last Friday night.

§  Asian credit market was generally quiet and calmer after the previous day’s volatile session as rates rebounded back to levels before the selloff. Better buying was seen on some seasoned IG names as yields were higher. Trading activity was mostly concentrated on the new issues by China Merchants Bank and Hsin Chong Construction which performed very well with spreads tightening 10bps. Players turned their focus to the NFP release for a better idea of market direction this week.

Indonesia

§  Indonesia bond market continues to decline amid buyback auction was conducted by BI. The decline continues on the note of available negative sentiments since Tuesday as well as a slight decline in Indonesia’s April foreign reserve. Foreign reserve in April stood at US$110.9 bn (vs Mar 15: US$111.6 bn). BI further explains that the decline occurs as a result of increasing in Government external debt payments and the use of foreign exchange to stabilize rupiah exchange rate in accordance with the fundamental lessen. What was interesting is, based on available data, amid LCY bond prices slumps significantly, foreign ownership remains still above Rp508 tn level. There was not any rush or outflow from foreign investors. As a matter fact, foreign ownership on MTD basis booked a net buy of Rp0.14 tn. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 7.845%, 8.138%, 8.317% and 8.482% while 2y yield shifts up to 7.649%. Trading volume at secondary market was seen heavy at government segments amounting Rp15,567 bn with FR0070 (10y benchmark series) as the most tradable bond. FR0070 total trading volume amounting Rp3,188 tn with 77x transaction frequency and closed at 101.459 yielding 8.138%.

§  Corporate bond trading traded thin amounting Rp364 bn. ANTM01BCN1 (Shelf registration I ANTAM Phase I year 2011; B serial bond; Rating: _idA) was the top actively traded corporate bond with total trading volume amounted Rp80 bn yielding 10.282%.