Maybank GM Daily - 13 May 2015

FX

Global

       Investors remained watchful of the bond markets overnight and the weak risk appetite weighed on equities as well. UST 10yr yields surged to a high of 2.3639% before reversing lower to levels around 2.25% by the end of the session. Dollar softened with the DXY at 94.57 as we write allowing most other majors some gains. AUD was one of the top performers, extending gains this morning above the 0.80-again. GBP was buoyed by the industrial production numbers. Elsewhere, EUR was capped by Greece’s admission that the recent payment was made using an emergency account. Oil crept up in the absence of USD bulls and markets will watch the EIA weekly inventory report today for further cues.

       Day ahead in Asia should focus on China’s activity numbers for Apr, due mid-day. Consensus expects a mild improvement from the Mar number. Liquidity numbers could be released anytime within the week. FX space is dominated by the NZD upmove this morning, MYR and KRW. With the DXY capped by the 100-DMA, expect regional currencies to clock some gains after a mostly weak session on Tue.

       In the afternoon, focus will be drawn to UK’s inflation report. GBP had appreciated 2.8% in the last five sessions and a hawkish stance by BOE could only fuel the bulls.

Currencies

       DXY – Buy on Dips. USD’s move higher hit a roadblock as 100DMA resistance at 95.30 proved strong. Bond yields had a session of 2 halves; initially surging to 6-month high before reversing into the close. Mar JOLTS report overnight was slightly softer. DXY was last at 94.47 levels; a daily close above 100DMA at 95.30 levels is needed before seeing further upside. Day ahead sees 94.00 – 95.00 range with downside risk to 92.20 levels if 100 DMA continues to reject any up-move. Week ahead brings 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. EUR snapped 3 consecutive session of losses to close higher around 1.1210 levels overnight. While Greece has made its EUR767mil repayment to the IMF yesterday, it now only has EUR90mil left and is still required to meet pension/salary payment obligation this month. Price action suggests that the pair may still like to try 1.1450 which we prefer fading into. Daily stochastic hass 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. GBP/USD jumped again pushing above its 200DMA (1.5618) and traded a fresh 2015 high of 1.5711 overnight on better than expected Mar IP, manufacturing sales data. GBP strength continued to be underpinned by a UK recovery story backed by domestic demand and possible one of the central banks to lead the first rate hike. BoE inflation report out today will be closely watched for hints of BoE signalling 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. 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 labor data (Wed); Apr RICS house price balance (Thu); Mar construction output (Fri).

       USD/JPY – Bearish. USD/JPY softened overnight, tracking the dollar overnight. Pair was also helped by the JPY2.7tn current account surplus in Mar, which was the biggest since 2008. Still, pair continues to trade well-within its current 118.50-120.80 range. We continue to wait for a trigger that could see a breakout on either side. For now, the 118.50-120.80 should continue to hold intraday. Four-hourly momentum and oscillators are now showing bearish bias.

       AUD/USD – 2 Steps Forward, 1 Step Back – AUD had a pretty good recovery on Tue and the currency extends its climb this morning, hovering around the 0.80 as we write. The 0.7877-mark is still a support. This week could be a rather rangy week for AUD but its bullish momentum is gradually returning. 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. Wage price index rose 0.6%q/q, in line with consensus. Year-on-year, the index rose 2.5%.

       NZD/USD – RBNZ Next to Ease? NZD traded a low of 0.7320 this morning before rebounding higher towards 0.7403 amid broad USD weakness. RBNZ Wheeler refused to make any comments with regards to monetary policy during this morning’s Financial stability report and press conference as opposed to market expectations that RBNZ could sound dovish disappointed Kiwi bears. 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 Monday). This morning Apr food prices fell -0.3% m/m vs. +0.1% prior, further added to more reasons for the RBNZ to ease, given benign inflation, dairy prices and food prices now. 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, before 0.7480, 0.7530. Week ahead brings Apr food prices (Wed); 1Q retail sales (Thu).

Asia ex Japan Currencies

       The SGD NEER trades around 0.02% below the implied mid-point of 1.3342. The top end is estimated at 1.3075 and the floor at 1.3609.

       USD/SGD - Bearish Bias. USD/SGD slipped lower below 1.3340 this morning in line with the softer dollar tone overnight. In the absence of fresh catalyst, look for support around 1.3320 (40DMA) before the next at 1.3300. Rebounds today should meet resistance around 1.3360. Continue to favour buying USD/SGD on dips.

       AUD/SGD – Upside Bias. AUD/SGD disregarded the 1.0619-resistance but bids were finally resisted by the 1.0675 (76.4% Fibonacci retracement) on Tue. This level remains challenged this morning and a break here exposes the next key level at 1.0808 (Mar high). Upward momentum is gaining and 1.0592 should support any unlikely pullbacks.

       SGD/MYR – Range-Bound. SGDMYR traded a familiar range of 2.6935 – 2.7090 overnight and now trades 2.6980 at time of writing. We continue to caution that an ascending (bearish) wedge appears to be in the making (over the medium term) and that 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 firmer oil prices overnight, the cross could continue to trade range-bound intra-day between 2.6900 – 2.7100.

       USD/MYR – Watch 1Q GDP; Our Economist expect a strong print of +6.2% y/y. Ringgit gained following the rebound in oil and broad USD weakness. Cautious of Fitch rating review that is due mid-May to Jun; we believe a downgrade may not have as much impact on the Ringgit given market pricing/expectation; on the contrary a no-move from Fitch might well be seen as a positive for the Ringgit. On the technicals, the move higher in USDMYR did not see the pair make a daily close above the 100DMA at 3.6150; which could suggest that downside risk is not over yet. Repeated failure to close above 100DMA could well see the pair move lower towards 3.5080 levels. . Day ahead expect 3.5650 – 3.6150 range. Week ahead focus on 1Q GDP; Current account (Fri). Industrial output growth (released yesterday) picked up in Mar 2015 on faster manufacturing activities amid sustained mining growth. Our Malaysia Economists commented earlier that a firmer growth in 1Q 2015 - especially in E&E, driven by consumer electronics  (pre-GST production and spending rush), as well as strong index of services (+7.1% y/y) has put our in-house forecast for 1Q GDP at +6.2% (above most market estimates; consensus +5.4%).

       USD/CNH – Steady. USD/CNH slipped this morning, tracking the overnight USD slide. Pair was last seen around 6.2076 and is hardly changed 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 32 pips lower at 6.1123 (vs. previous 6.1155). CNYMYR was fixed 7 pips lower at 0.5795 (vs. 0.5802). China releases its activity data at mid-day and average forecasts projects a mild improvement from the Mar numbers. Markets are likely to be expecting a weak number after PBOC cut the interest rate cut last Sunday (10 May). Liquidity numbers will also be released anytime this week. In news, PBOC will pursue regional financial reforms (BBG). China has also adopted the IMF’s standard for its latest BOP data in a bid for yuan inclusion in the SDR basket.

       USD/IDR – Rangy. USD/IDR retreated to 13165 this morning in line with its regional peers. Intraday MACD forest is showing waning bullish momentum, but slow stochastics is indicating little directional bias. Ahead of the public holiday tomorrow as well as the absence of fresh catalyst, look for the pair to trade range-bound within 13100-13250 intraday. The 1-month NDF is edging lower this morning towards 13300 after hitting a high of 13376 yesterday, having lost most of its bullish momentum as indicated by intraday MACD. Weak sentiments continued to support the pairing with foreign funds selling off a net USD30.21mn in equities yesterday, and removing a net IDR1.74tn from their outstanding holding of debt on 8 May (latest data available). The JISDOR was again fixed higher at 13203 yesterday from Mon’s 13116.

       USD/PHP – Bearish Bias. After gapping higher yesterday, USD/PHP is edging lower, in line with regional peers, spotted around 44.730. Further dips ahead should see support around 44.715 before the next at 44.590. Rebounds today should be capped around 44.810. Intraday MACD and slow stochastics are showing little directional bias ahead. Spot prices tracked the 1-month NDF which slid overnight. 1-month is currently sighted lower around 44.850. Foreign funds again sold off equities yesterday with a net USD25.8mn sold yesterday and a continuation of that could limit the USD/PHP downside.

       USD/THB – Temporary Downticks.  USD/THB is taking a breather after its climb passed the 33.700-levels. Pair is currently edging lower, sighted around 33.735 with daily MACD showing tentative signs of bearish momentum and slow stochastics indicating bearish bias. Dips today should see support around 44.640. Still, pair’s slow grind towards the psychological barrier at 34.000 remains in sight. Foreign funds sold a net THB1.20bn and THB0.84bn in equities and debt yesterday.

Rates

Malaysia

§  The local government bond curve got sold off 1-9bps higher on the back of higher US Treasury (UST) yields. However, buying was still seen on the 5y benchmark MGS 10/20s which managed to outperform. Issue size for the new 3y GII 5/18 is MYR4.0b, as expected. The WI was done at 3.535% and 3.53% levels.

§  The IRS curve steepened, rising 1-8bps in line with global rates. The move was mainly led by foreigners as offshore curves rose much higher. 5y IRS traded multiple times at 3.92%. Meanwhile, basis tightened by another -5bps. We believe some banks need MYR term funding. 3M KLIBOR unchanged at 3.71%, but with the average lower we could see 3.70% soon. 

§  PSD market saw better bidding with heavier trading activity in the morning. AAA papers at the belly of the curve tightened 1bp, while longer dated papers widened. We think Plus papers, especially the 10y-15y, were slightly overdone as the curve flattened significantly. At these levels, we see more value in Plus 24 as it is trading flat to Plus 25. GG names traded range bound, while the AA space was quiet with some trades done on Malakoff. Activity became muted in the afternoon due to the steepening in the govvy curve. We expect local PDS spreads to hold firm given the lack of new AAA issuances YTD.

Singapore

§  SGS tracked the UST and Bunds closely with yields rising 2-7bps, whereas SGD IRS closed about 7bps higher. 10y bond swap spread ended mid -20bps. Market appears to be cautious of incoming supply when players would unwind positions.

§  The Asian credit space was quiet on the back of UST weakness. Selloff on the 10y UST continued and it broke 2.30%. INDONs also experienced a selloff. Chinese IGs were sought after with HRAM, SINOPE and CNOOC trading tighter in spreads. MALAY names also tightened as funds went after the long end MALAYs and financial names. In the primary market, a couple of new issuances are lining up: 1) Huawei Investment & Holding is proposing 10y USD bond with guidance of T10+195 (+/- 5bps). The unrated issue garnered a stunning USD9b of orders. We think its credit is similar to Baidu and Tencent with a premium needed for the unrated status; 2) China General Nuclear Power’s (A3) subsidiary is issuing 10y USD bonds at guidance of T10+200bps which will be guaranteed by the parent. We think the issuance may do well at T10+180bps or above; 3) Agile is issuing 5NC3 USD senior with guidance of 9.125%. The order book was almost USD2b; and 4) DP World is issuing 5y USD500m bonds (Baa3) at guidance of T5+160bps (+/-5bps).

Indonesia

§  Post a slight gain on Monday trading, Indonesia bond market closed negative yesterday. There were minimum sentiment yesterday; however, the decline of bond prices may occur due to foreign outflow from the bond market as Rupiah continue to depreciate. Foreigner sold Rp1.74 tn worth of LCY bond during Friday trading. Foreign ownership as of May 8^th stood at Rp506.58 tn or 38.42% of total tradable LCY government bond. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 7.925%, 8.214%, 8.381% and 8.531% while 2y yield shifts down to 7.650%. Trading volume at secondary market was seen heavy at government segments amounting Rp16,997 bn with FR0070 (10y benchmark series) as the most tradable bond. FR0070 total trading volume amounting Rp6,768 tn with 145x transaction frequency and closed at 100.978 yielding 8.214%.

§  Corporate bond trading traded heavy amounting Rp955 bn. BBMISMSB1CN1 (Shelf registration sukuk subordinated I Bank Muamalat Phase I Year 2012; Rating: _idA(sy)) was the top actively traded corporate bond with total trading volume amounted Rp290 bn%.