Maybank GM Daily - 20 May 2015

FX

Global

It was the EUR that moved first after ECB Coeure declared that QE will be front loaded. EUR pulled back against the USD and bounced around the 1.12-figure before the US housing data pressed it lower under the 1.1150-mark. US housing starts surprised to the upside with a print of 1135K (vs. consensus at 1015K) for Apr. Building permits also surpassed expectations at 1143K. The strong housing data added fuel to the broad dollar bids.        JPY was the most resilient amongst the major but USD/JPY is still on the climb this morning, along with Nikkei this morning. Japan’s GDP firmed to 0.6%q/q in 1Q from the previous 0.3%, adding to the optimism in early Asia trade. NZD and AUD are ticking higher from its overnight lows but gains in the latter currency are likely to be capped by iron ore prices which saw a stronger pullback today.        Data calendar is light today and focus should be on FOMC Minutes tonight. That was probably what kept the DXY from closing above the 100-DMA. We recall that the weak 1Q data was only partially attributed to bad weather and port strike. The Minutes will be scrutinized for another confirmation of a Sep rate hike as opposed to one in Jun. A break of the 100-DMA by the DXY index could mean the awakening of the dollar bulls that we have been anticipating.

Currencies

      DXY – Focus on FOMC Minutes. Dollar maintained its bid tone overnight, helped by much better than expected US housing starts/building permits data, EUR weakness driven by ECB Coeure’s comments of front-loading QE due to seasonal low-liquidity period and widening of 10Y Bunds-UST yield differentials. DXY was last seen at 95.38 levels this morning; yet to close above the 100 DMA at 95.53 overnight. Day ahead sees 95.00 (21 DMA) – 95.60 range ahead of FOMC minutes tomorrow morning (SGT 2am). Still favour buying on USD dips.  Week ahead sees Minutes of the Apr FOMC meeting is released on Thu (Asia 2am); existing home sales, leading index and Kansas City Fed Manf. Activity; initial claims (Thu) before Fed William speaks on Fri.

       EUR/USD – Punished by the ECB. Euro took another dump after comments from ECB Coeure. He said the ECB intends to increase its purchases of euro-area assets in May and June ahead of an expected low-liquidity period. These comments echoed earlier comments made by ECB’s Draghi (on 15 May) and Mersch (on 18 May) that ECB’s QE must run its full course or until there are clear signs that inflation is back on track. These should dampen market hopes that the ECB may end QE earlier than expected. Daily MACD is exhibiting a bearish divergence while stochastics is showing tentative signs of falling from overbought levels. Further downside could target 1.1050/60 (trend-line support from Apr 2015 lows) before 1.0920 (50 DMA) in the short term.  There is more to our bearish view than just a technical call on the EUR and that encompasses a combination of macro factors including diverging monetary policies between Europe and the US (ECB QE while Fed is likely to start tighten 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 (crunch time now in Jun and likely a resolution then – if Greece defaults or compromise to reach a deal). Week ahead brings preliminary PMI-mfg numbers on Thu along with consumer confidence. IFO business survey should round up the week’s data releases. In data overnight, Eurozone Apr CPI inflation was 0% y/y; 0.2% m/m, as expected while German ZEW was worse than expected.

      GBP/USD – Negative Inflation for First Time since 1960. GBP eased to an overnight low of 1.5447 as UK inflation slipped into negative territories for the first time since 1960. Core inflation also moderated to 0.8% y/y from 1.0% y/y. The BoE is forecasting inflation to remain subdued in the near term.  Daily momentum and oscillators are bearish bias. Next support at 1.5390 (21 DMA). Day ahead focus on BOE Minutes; retail sales on Thu.

      USD/JPY – Bullish. The USD/JPY is still on the uptick this morning after tracking the dollar moves overnight. 1Q15 GDP came in better than expected at 2.4% annualized (4Q14: 1.1%) vs. cons.: 1.6% was supportive of the pair, but the market’s focus remained on the dollar. Pair is currently sighted around 120.74 with intraday MACD showing bullish momentum and slow stochastics at overbought levels. With the bias to the upside, we reckon that the pair could head towards 121.85. Dips today remain supported by 118.50.

       AUD/USD – Bearish Risk.  AUD/USD sold off on the back of another steeper decline in iron ore prices and languished around the 0.79-figure. Daily momentum indicators have turned bearish and we look for support to come in around 0.7850, marked by the 100-DMA. Any bounces could be capped by the 0.80-figure.

       NZD/USD – Stay Short. NZD enjoyed a moment of rally yesterday following slightly better than expected 2-year ahead inflation expectation but devil is in the details. While the mean expectation was better than expected, the median expectation fell to new low of 1.9%. Still on the same RBNZ report, the median year ahead inflation expectation was the lowest for the past 20 years (since the beginning of the household survey). Overnight, GDT auction prices continue to fall (-2.2%). Taken together,  NZD is expected to retain a downside. NZD was last at 0.7350; low this morning seen at 0.7340. Next support at 0.7320 (previous low in May); if broken should see the pair moving closer to our objective of 0.72. Daily momentum remains bearish bias. Week ahead brings Apr credit card spending (Thu).

Asia ex Japan Currencies

      The SGD NEER trades around 0.10% below the implied mid-point of 1.3371 with the top end estimated at 1.3104 and the floor at 1.3638.

       USD/SGD - Bullish Bias. USD/SGD hit an overnight high of 1.3365 following the pull-back in the EUR. The sell-off in the JPY and EUR continues to be supportive of the pair.  Intraday MACD is showing bullish momentum though slow stochastics is at overbought levels. With the bias still to the upside, look for moves towards 1.3401 ahead. Pullbacks, if any, should find support around 1.3320. It was announced yesterday that final 1Q15 GDP will be released on 26 May (Tue).

       AUD/SGD – 100-DMA Gives Way. AUD/SGD slid along with the AUD bears, waffling around 1.0560. Bears are gaining traction for this cross and could reverse towards 1.0465, should prices clear the 1.0532-support. 1.0526 marks the upper bound of the cloud and we expect this region to be formidable support. Topsides to be guarded by 1.0675 in the near-term.

       SGD/MYR – Ascending Wedge (Bearish Bias). SGDMYR remains in an ascending wedge and was last seen around 2.6980, awaiting for fresh cues to break-out. Daily stochastics has fallen from oversold levels while momentum is turning mild bearish. As cautioned previously, the break below 2.69 (50 DMA) sees 2.6770 (100 DMA) before 2.63 levels.

       USD/MYR – Mild Upside Bias. USD/MYR continued to take cues from oil prices and the greenback. Pair gapped higher this morning off the back of firmer USD and a slump in oil prices; pair last traded 3.61 at time of writing. Resistance seen at 3.62 (100 DMA) before 3.6380 (50 DMA). Support at 3.5870 (21 DMA). Daily momentum and oscillators are mild bullish bias. Week ahead focus on Apr CPI inflation (Fri).

       USD/CNH – Firmer in Range. USD/CNH steadies around 6.2090 this morning, buoyed by the resurgent dollar and perhaps another higher USD/CNY fixing by PBOC. We notice that PBOC has a reluctance 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 19 May, USD/CNY was fixed 19 pips higher at 6.1098 (vs. previous 6.1079). CNYMYR was fixed 9 pips higher at 0.5763 (vs. 0.5754).

       USD/IDR – Supported. USD/IDR slipped lower yesterday as bets unwound that the BI would cut rate to support the economy. Instead, the BI chose to keep the policy rate steady but loosened macroprudential policies to support the economy, namely raising the loan-to-value ratio of loans for mortgages and motorcycle loans. This morning though, the pair has regained most of its losses of yesterday, jumped back to 13181 at last sight, tracking its regional peers. Further upticks could be mild as intraday MACD is showing no strong momentum and slow stochastics is only showing mild bullish bias. Look for 12950-13200 range to hold intraday. The 1-month NDF is on the retreat after climbing back above the 13300-levels overnight, sighted around 13290 currently. Foreign funds sold a net USD32.59mn in equities yesterday. The JISDOR was fixed higher at 13183 yesterday from Mon’s 13116.

       USD/PHP – Gapping Higher. The USD/PHP gapped higher to 44.600 at the opening this morning, playing catch up with its regional peers. Continued gains in the dollar today should continue to keep the pair supported. Pair is currently sighted around 44.585, having lost most of its bearish momentum and with slow stochastics on the rise. Upticks today should see support around 44.715 and dips are likely to be supported around 44.400. The 1-month NDF was sighted around 44.670 this morning with intraday MACD showing bullish momentum and slow stochastics at overbought levels. Foreign funds sold a net USD7.99mn in equities yesterday and a further sell-off could keep USD/PHP supported.

       USD/THB – Upticks.  USD/THB is back on the upticks in line with the dollar moves. Sighted around 33.530 currently, intraday MACD forest is showing mild bullish momentum, and slow stochastics bullish bias. Further upside today is likely to meet resistance around 33.635 before the next at 33.810. Any dips today should see support around 33.450. Yesterda[y, foreign funds sold a net THB0.61bn in equities but bought a net THB2.26bn in debt that weighed on the pair yesterday.

Rates

Malaysia

       Government bonds mostly unchanged despite overnight selling on UST. Bidders were lining up at open waiting for a selloff which did not happen. The issue size on the new 20y MGS 5/35 auction was announced yesterday at a slightly lower than expected MYR2.0b. Bid/offer on the WI tightened to 4.25/15% but nothing traded.

       Another very quiet day in the IRS market. The 4y IRS was dealt at 3.79% while 3M KLIBOR remain unchanged at 3.70%.

       Local PDS market saw good two way flow yesterday, but prices mostly unchanged as bidders were reluctant to pay higher than MTM levels. The 10y Cagamas notes, however, tightened 2bps to 4.39% with a good amount done at MYR30m. There was also good buying interest for Aman 5/2024s and Manjung 24s which tightened 1-2bps to close at the same yield of 4.40%. On the other hand, Telekom 3/2024s traded at 4.42%, a discount relative to the aforementioned papers, hence may see it tighten. Elsewhere, the GG curve mostly traded unchanged but at sizeable volumes, while the AA curve widened slightly by 1-2bps.

Singapore

       SGS underperformed yesterday with yields up by 1-5bps as the USDSGD broke above 1.3300. We think SGS may continue to underperform slightly towards the new 10y SGS auction next week. The auction size will be announced later today.

       Asian credit market traded on a firmer tone. Beijing State Owned Asset Management’s (BJASST) new 5y and 10y issuances rallied 5-15bps. The focus in the morning was on BJASST and ICBC’s new 5y that was issued at T5+120bps. Rio Tinto and Mongolia announced their collaboration to expand the Oyu Tolgoi mine estimated to cost USD5b. Mongolia and the new TDBM rallied 3pts up on the news. In the primary issuance space, Shanghai Electric (A2) is proposing to sell EUR500m 5y bonds at guidance of MS+95bps and ICBC Singapore Branch (A1) is issuing 3y USD bonds at the guidance of T3+110 +/-2.5bps. At the current level, ICBC Singapore’s bond only looks fair relative to the recently issued Agricultural Bank of China 2018 that is trading around T3+102bps.

Indonesia

       Indonesia bond market closed lower due to minimum market sentiments. Bank Indonesia (BI) conducted their Board of Meeting yesterday and resulted in a maintained reference rate at 7.50%, deposit and lending facility rate at 5.50% and 8.00% respectively. Along with those result, BI also loosens macro prudential policy by soon planning a revision of LDR-RR regulation, LTV policy for mortgage loans as well as down payments on automotive loans. We see bond market today would move sideways within a tight range. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 7.706%, 7.987%, 8.198% and 8.332% while 2y yield shifts up to 7.477%. Trading volume at secondary market was seen heavy at government segments amounting Rp12,219 bn with FR0070 (10y benchmark series) as the most tradable bond. FR0070 total trading volume amounting Rp2,336 tn with 118x transaction frequency and closed at 102.407 yielding 7.987%.

       Indonesian government conducted their sukuk auctions yesterday and received incoming bids of Rp5.08 tn bids versus its target issuance of Rp2.00 tn or oversubscribed by 2.5x. However, DMO only awarded Rp2.51 tn bids for its 5mo, 1y and 26y bonds. Incoming bids were mostly clustered on front end tenors. 5mo SPN-S was sold at a weighted average yield (WAY) of 6.03781%, 1y PBS008 at 7.59510% while 26y PBS007 was sold at 8.70749%. PBS006 bid was rejected during the auction. Bid-to-cover ratio during the auction came in at 1.04X – 7.77X. Incoming bids during the auction started to incline while awarded weighted average yield for the offered asset came in higher compared to previous day closing. Post auction, DMO announced that they will change the structure of SPN issuance in term of issuance size for 9mo and 1y SPN to Rp4 tn – Rp5 tn for each series (tenors). Between beginnings of the year till date, DMO normally absorbs Rp1 tn – Rp4 tn for each series. Till the date of this report, Indonesian government has raised approx. Rp34.44 tn worth of debt through bond auction which represents 41.3% of the 2Q 15 target of Rp83.50 tn. On total, Indonesian government has raised approx. Rp214.6 tn worth of debt through domestic and global issuance which represent 47.5% of this year target of Rp451.8 tn.

       Corporate bond trading traded thin amounting Rp335 bn. PPGD02ACN3 (Shelf registration II Pegadaian Phase III Year 2015; A serial bond; Rating: idAA+) was the top actively traded corporate bond with total trading volume amounted Rp98 bn yielding 8.508%.