Maybank GM Daily - 12 May 2015

FX

Global

       Greece made the EUR767 mn payment to the IMF a day before the deadline but focus was shifted elsewhere as US benchmark indices slipped into moderate red. Bonds were broadly sold off overnight with UST 10yr yield within striking distance of 2.3% again. Risk sentiments favoured the dollar as majority of the majors clocked losses against the greenback on Mon. NZD was the worst hit as investors start to price in a rate cut by RBNZ, down 2.1% against USD. GBP was the only gainer, up 0.9% still high on post-election euphoria.

       Earlier in Asia, the INR was the only gainer against the USD. Rest of regional currencies weakened with SGD as the laggard at -0.7%. Sentiments this morning remain weak for regional currencies with MYR down -0.6%, dragged by the slide in oil prices. China is due to release its monetary data anytime this week and consensus do not expect a particularly strong figure after the rate cut was rendered over the weekend. Other than that, this session is likely to be a rather quiet one with Philippine’s Mar exports out (2.1%y/y) and India’s industrial production.

Currencies

       DXY – Buy on Dips. USD firmed modestly against most currencies except against the GBP in light data flow overnight. UST were sold off and yields climbed higher. Somewhat the theme of monetary policy divergence is re-surfacing again. Most of the majors and AXJs are either on easing mode/easing bias or easy monetary policy vs. US which is expected to begin tightening at some stage in late-2015 or early-2016 (our house view remains unchanged for first rate hike to begin sometime in Sep 2015). As such we continue to favor currencies whose central banks are about to embark tightening bias - US. Seasonality trend also favor long USD for the month of May.  DXY was last at 95.05 levels.  Daily momentum continues to indicate early signs of turning higher; while daily stochastics has started to show tentative signs of turning higher. DXY needs to make a daily close above 100DMA at 95 levels before seeing further upside. Day ahead sees 94.50 – 95.50 range. Week ahead brings 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 – Fade Relief Rally (if any). EUR continued to trade with a heavy bias, closing around 1.1155 overnight as Greek impasse weighs on sentiment. Focus today on whether Greece managed to pay its due EUR767mil repayment to the IMF. We prefer to fade any rallies towards 1.1220 levels intra-day; daily stochastic is starting to fall from overbought areas. 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. Week ahead brings 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.

       GBP/USD – Supported; Beware of Further Upside. GBP/USD jumped on post-election euphoria and market speculation that BoE Carney may use the Wed’s Inflation report to signal rates outlook. BoE kept rates and asset purchase plan unchanged as expected overnight. The BoE inflation report out on Wed will be of keen focus and could keep the GBP supported in the meantime. We wish to highlight market pricing of BoE rate hike remains dovish and risk is biased for an earlier adjustment and could further lend support to the GBP. The move higher overnight has made fresh-2015 high of 1.5613 overnight while 200 DMA at 1.5623 remains a key resistance. Weekly chart continues to look supportive for GBP strength; beyond 200DMA see next resistance only at 1.5860. 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).

       USD/JPY – Ascending Triangle (Bullish)? USD/JPY firmed overnight; traded high of 120.17 this morning. Recent CFTC CoT report (8 May) showed JPY net short positioning which had seen about 6months of steady decline to about $0.6bn has increase saw an increase of $2.7bn to $3.3bn following BoJ decision on 30th Apr to defer the timing for achieving 2% inflation by about 6months to 1H 2016. On technicals, there is tentative signs of USD/JPY making an ascending triangle formation; the previous strong resistance (double top) at 121.85 needs to be broken to confirm this chart formation. With a relatively clean position, bullish MACD (since Dec 2014), USD bull bias and higher UST yield, the breakup in the pair could well be large. Favor buying on dips under 120 for 124 first objective before 126 objective.

       AUD/USD – 2 Steps Forward, 1 Step Back - The pair was dragged by broad dollar strength and to some extent, the weakness in its fellow antipodean (NZD) on Mon. Pair was last seen around the 0.79-figure and remain supported on dips. Prices are unwilling to test the 0.7877-support and the 100-DMA at 0.7860 will also provide reasonable support. This week could be a rather rangy week for AUD. 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. NAB business conditions for Apr slipped to a score of 4 from 6 in Mar. Business confidence steadied at 3. Mar home loans is due today and consensus expects a deceleration to 1.0%m/m from previous 1.2%.

       NZD/USD – RBNZ Next to Ease? NZD remains the biggest loser falling to a low of 0.7333 this morning on expectation that RBNZ may move to cut rate soon. 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 have released a note on this yesterday). Our first objective at 0.7350 has already been achieved; next targets on the downside at 0.72 levels. Daily momentum is bearish bias, stochastics is now falling from oversold levels; remain short and add on rally (if any). Resistance at 0.7430. Week ahead brings Apr food prices (Wed); 1Q retail sales (Thu).

Asia ex Japan Currencies

       The SGD NEER trades around 0.03% below the implied mid-point of 1.3391. We estimate the top end at 1.3122 and the floor at 1.3659.

       USD/SGD - Possibly Higher Towards 1.3460. USD/SGD traded higher towards 1.3399 this morning, breaking above its 21DMA. Pair could have further upside towards 1.3460 on bullish technical outlook. But we are cautious of an ascending wedge (bearish) formation. Further signs needed to confirm this formation.  Intra-day favour buying 1.3360, targeting 1.3460 objective.

       AUD/SGD – Rangy. AUD/SGD has finally broken above the thin cloud and hovered around 1.0575, supported by the upper bound of the cloud at 1.0544. We see slight upside risks with our view supported by bullish momentum on MACD and RSI. Topsides to be guarded by 1.0592-1.0619 region. Should support at 1.0575 give way, 1.0376 marks the next support.

       SGD/MYR – Range-Bound. SGDMYR traded 2.6950 – 2.7080 overnight and now trades 2.7060 at time of writing. We continue to caution that an ascending (bearish) wedge appears to be in the making and the cross could be on the verge of a breakdown; 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).  But meantime in absence of catalyst and softer oil prices overnight, the cross could continue to trade range-bound intra-day between 2.6950 – 2.7150.

       USD/MYR – Upside Bias. USD/MYR remains supported and traded higher towards 3.6230 this morning as oil prices underperformed amid broad USD strength. Daily momentum and stochastics are bullish bias. Day ahead expect 3.6100 – 3.6350 range. Week ahead focus on 1Q GDP; Current account (Thu). Industrial output growth (released yesterday) picked up in Mar 2015 on faster manufacturing activities amid sustained mining growth. Firmer growth in 1Q 2015 - especially in E&E, driven by consumer electronics - suggest pre-GST production and spending rush, hint at better than expected GDP growth.

       USD/CNH – Consolidative. USD/CNH is biased to the upside this morning, underpinned by broad dollar gain overnight. Pair was last seen around 6.2140 and 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 6.1896. USD/CNY was fixed 23 pips higher at 6.1155 (vs. previous 6.1132). CNYMYR was fixed 33 pips higher at 0.5802 (vs. 0.5769). SAFE released its 2014 annual report yesterday and commented that the ratio of current account surplus and GDP may remain at reasonable level. The regulator also noted that cross-border capital flows in the capital and financial accounts may be more volatile in 2015 whilst highlighting that China has enough forex reserves to cushion against external impacts. Moody’s expect China’s GDP to slow to 6.8% in 2015 and 6.5% in 2016.

       USD/IDR – Supported. USD/IDR ended the Mon with another bullish daily candlestick at 13155. Pair continues to inch higher to levels around 13165 as we write this morning. With RSI near overbought levels, we note some interest to sell on upticks is seen but we expect momentum to favour the bulls. In the absence of fresh catalyst and a shortened week (Thu is a public holiday), pair should continue to be biased upside within 12950-13250. The 1-month NDF also extends climb, last seen around 13340. Pairings are supported by weak sentiments at home with foreign funds having sold a net USD5.1mn in equities yesterday. The JISDOR was fixed at 13116 yesterday and a higher fixing is likely today.

       USD/PHP – Choppy. The USD/PHP gapped up this morning, in line with regional peers, last priced at 44.808. Pair is now drifting lower and we expect 44.916 to cap upticks. Support is now seen at 44.715. Spot prices tracked the 1-month NDF which rallied overnight. Foreign funds sold a net USD18.74mn in equities yesterday and a continuation of that could continue to keep USD/PHP underpinned. Mar exports surprised with a 2.1%y/y growth, a rebound from the -3.1%y/y contraction in the month prior.

       USD/THB – Grinding Higher.  USD/THB is on the climb still, last seen around 33.770, still reeling from 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. With hurdle at 33.700 cleared, pair is marching towards the psychological barrier at 34.000. On Mon, foreign funds bought a net -USD49.90mn in equities and sold a net -USD82.2mn in debt.

Rates

Malaysia

§  Local government bonds ended mixed with noticeable inflow into the 5y benchmark MGS 10/20s. The bond closed 3bps lower on the back of continued foreign buying. We expect an auction announcement on a new 3y Islamic benchmark GII 5/18 this week, anticipating a size of MYR4.0b.

§  IRS levels were down mostly by 1-2bps but nothing was dealt. Receivers came into the market on the back of the 5y benchmark govvy outperforming. Players appear to want to square paid positions at these levels. 3M KLIBOR remained at 3.71% though the average was marginally lower.

§  Local PDS market was quiet until late afternoon saw a surge in demand for 8y-13y AAA papers. Telekom 4/2023s tightened 2bps with MYR25m traded, while Plus papers saw about MYR140m trading volume done at MTM values. In the AA space, we saw good demand for short dated papers by UEM, TBEI and Sabah Development Bank as well as for RHB’s sub-debts. Liquidity was rather thin with only MYR597m traded in total.

Singapore

§  SGS market had a relatively quiet day, opening with buying interest before profit taking sentiment dominated towards closing. SGS yields traded down by about 8bps but eventually settled 2-4bps lower. SGD IRS was also lower by 2-4bps.

§  The Asian credit space was also fairly quiet overall. We saw some decent buying in the IG space and INDON sovereigns. INDONs rose by 0.50-0.75pt but moved weaker into London time. US Treasuries saw some selloff after London opened which deterred some buying. Korean Development Bank came out with a 5y USD paper at guidance of T5+low 80s and the book will be subject to NY times. We feel that the pricing is slightly tight compared to the existing EIBKOR and KDB paper and do not expect the paper to do well given market’s cautious state currently. Players seem to be picky and favor the 3y-5y bucket.

Indonesia

§  Indonesia bond market closed slightly better than Friday closing. LCY bond prices were seen strengthening during the first session of the day as a respond to Friday U.S. NFP data which came in lower than consensus expectation as well as PBOC decision of cutting China’s reference rate. However, in the second session, the strengthening started to fade post bond auction results. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 7.802%, 8.137%, 8.332% and 8.434% while 2y yield shifts up to 7.656%. Trading volume at secondary market was seen heavy at government segments amounting Rp13,467 bn with FR0070 (10y benchmark series) as the most tradable bond. FR0070 total trading volume amounting Rp5,139 tn with 126x transaction frequency and closed at 101.466 yielding 8.137%.

§  Indonesian government conducted their conventional auctions yesterday and received incoming bids of Rp13.30 tn bids versus its target issuance of Rp8.00 tn or oversubscribed by 1.7x. However, DMO only awarded Rp11.80 tn bids for its 3mo which was sold at a weighted average yield (WAY) of 5.76920%, 1y SPN at 6.52767%, 10y FR0070 at 8.16169% while 20y FR0068 was sold at 8.47925%., Incoming bids were mostly clustered on 10y tenors. No bids were rejected during the auction. Bid-to-cover ratio during the auction came in at 1.04X – 2.50X. Foreign incoming bids during the auction were noted Rp4.88 tn or 36.7% of total incoming bids and was higher compared to Rp2.16 tn bids during previous conventional auction. However, only Rp4.74 tn bid (40.2% of total awarded bids) were awarded to foreign investors. Till the date of this report, Indonesian government has raised approx. Rp31.93 tn worth of debt through bond auction which represents 38.2% of the 2Q 15 target of Rp83.50 tn.

§  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%.