Maybank GM Daily - 25 May 2015

FX

Global

Fed Yellen pared expectations of a 2016 hike by explicitly stating that rate hike is going to happen this year. We stick to our call that the lift off will be timed in Sep. She also reiterated two conditions – (1) continued improvement in labour market conditions, (2) reasonable confidence that inflation will move back to 2% over the medium term. Her speech coincides with the Apr CPI release which saw an upside surprise to 0.3%m/m. With that and the casual mention of the need for Greek parallel currency by German Finance Minister at a private party, the DXY index broke the 100-DMA.        That is the cue for FX players as we head into a quieter week. Liquidity will be thin at the start with US, UK, HK away today. Economic data calendar also light with US durable goods order a key data – an upside surprise may add steam to the USD bulls. USD/AXJs upmove could extend at month end. GDP releases dominate the week with a second reading from the US on Fri. A handful of Fed speaks are also lined up for the week – Fed’s Mester, Fischer (Mon); Fischer and Lacker (Wed); Williams (Thu) before Kocherlakota on Fri. That is more hawks than doves and more wind in the dollar sails. UK and Canada prints their growth number on Thu and Fri respectively. In Asia, Singapore, Philippines and India will also release 1Q GDP.        In Europe, Finance Ministers and Central Bankers will meet 27-29 May. Greece is highly likely to be discussed on the sides. Other data includes Japan Apr trade data; Singapore Apr CPI inflation today. For Tue, focus on US housing data, May Richmond, Dallas manufacturing activity, consumer confidence data; Singapore Apr IP; Japan PPI services and PH Mar trade data. For Wed, GE, FR consumer confidence data is on tap; China Apr industrial profits; RBA Lowe; BoJ Iwata speak. For Thu, AU 1Q capex; EC May economic, consumer confidence on tap; US initial jobless claims. For Fri, US May Chicago purchasing Manager, Univ. of Michigan Sentiment data and Japan Apr CPI inflation on tap.

Currencies

G7 Currencies

      DXY – Supported. Dollar was broadly stronger on better than expected core CPI, Yellen’s speech last Fri and EUR weakness.  Fed Chair Yellen said that policy normalisation will likely start “at some point this year” while she also noted that labor market not at full strength yet. DXY broke above the 100DMA and closed at 96 levels. Favor playing from the long side; intra-day range of 95.70 – 96.60 expected amid thin-liquidity session as US is out for holidays. Daily momentum is mild bullish.  Week ahead Fed’s Fischer and Mester to speak (Mon); Apr durable/capital goods; Mar S&P-CS home prices; Apr new home sales; May Richmond and Dallas Fed manufacturing activity; May Consumer confidence; Fed’s Fisher speaks (Tue); Fed’s Lacker speaks (Wed); May initial jobless claims; Apr pending home sales; Fed’s Williams and Kocherlakota speaks (Thu); 1Q GDP; May Chicago Purchasing Manager; May Univ. of Michigan Sentiment (Fri)..

       EUR/USD – Greek Concerns Weighs On. EURUSD traded heavy on broad USD strength and German Finance Minister’s comments (without endorsing it at a private event). He raised the possibility of a parallel currency alongside the Euro if talks with Greece failed. EUR traded to a low of 1.10 into Fri close and traded a low of 1.0966 this morning.  We have cautioned earlier that the daily MACD is exhibiting a bearish divergence Next support seen at 1.0920 (50 DMA) in the short term. Week ahead data calendar is relatively light; some of the data we are watching includes GE Jun GfK consumer confidence; FR May consumer confidence (Wed); EC May economic, consumer confidence (Thu); EC Apr M3; FR, IT Apr PPI; IT 1Q GDP (Fri).

       GBP/USD – Cautious on Downside Short Term. GBP ended the week on a soft note amid broad USD strength. Pair was last seen at 1.5470 this morning. We cautioned that daily momentum and oscillators were turning bearish last Friday, noting a possible bearish divergence. Day ahead UK is out for holidays; expect liquidity to be thin. Next support at 1.5460 (21 DMA); break below sees little support in between before 1.5180 (50 and 100 DMAs). Week ahead data flow is light; key focus on 1Q GDP; May GfK Consumer confidence (Fri).

       USD/JPY – Breaking Up. USD/JPY continues to make a run higher; closed at 121.54 – its highest daily close for 2015; this morning traded 121.74. We noted a bullish triangle formation in the making and suggested that a break higher could be in the making. Resistance still seen at 121.50 – 121.85 (previous high in 2015). We reiterate that a potential break on the upside could see the pair make a run towards 126 levels over time. We remain better buyers on dip; pullback (if any) could re-visit 120.50; 120 levels (50 DMA). Week ahead brings Apr trade data (Mon); Apr PPI services (Tue); BoJ Minutes; BoJ Iwata to speak (Wed); Apr retail sales (Thu); Apr jobless rate, CPI, IP (Fri).

       AUD/USD – AUD/USD – Bearish Risk.  AUD/USD ended Fri with engulfing bearish candlestick and waffled around 0.7810. Pair tests the 50-DMA at 0.7800, weighed by dollar dominance.  Daily momentum indicators are increasingly bearish and we expect intra-day bounces to be capped by 0.7918 ahead of the 0.80-figure. Corrective bounce seems to be over, in tandem with the dollar correction but the recovery in iron ore prices in the past two sessions could lend some support to the Aussie on dips. AUD/USD could settle into range within 0.7740-0.8000 hereforth. We watch the CAPEX numbers and we expect business investment to remain on a decline in 2015/2016. Mining investment to taper off from its peak and non-mining investment to remain flat.

       NZD/USD – Stay Short. NZD continues to trade with a heavy bias amid broad USD rebound. Low of 0.7282 was traded before a mild rebound towards 0.7313 at time of writing. We continue to see further downside in the NZD on a combination of drivers including mounting expectation of RBNZ cutting rates in Jun, weak dairy prices, falling PPI. We mentioned previously support at 0.7320 (previous low in May) if broken should see the pair moving closer to our objective of 0.72 levels. Daily momentum remains bearish bias, but stochastics is at oversold levels. While we still see downside pressure, we are cautious of the pair nearing the lower end of its range. Week ahead brings Apr trade data (Tue); Apr building permits; May ANZ business confidence (Fri).

       USD/CAD – Bullish Momentum. USDCAD is on the upmove this morning, underpinned by the dollar strength and as oil prices start to show signs of peaking. Still, bids are being resisted around the 50-DMA at 1.2321. Any unlikely retreats should meet nearby support at 1.2160. Break of the 1.2320/60 region, marked by the 50 and 100-DMAs, is required for the pair to settle at a higher 1.2350-1.2780 range. 1Q GDP is the focus of the week, due on Fri together with the US’ release and consensus is a 0.2%q/q growth from a flat growth in the quarter prior. BOC meets tomorrow and markets expect no change to rates at 0.75%.

Asia ex Japan Currencies

      The SGD NEER trades around 0.03% the implied mid-point of 1.3393. We estimate the top end at 1.3125 and the floor at 1.3661.

       USD/SGD - Upside Bias. USD/SGD reversed losses and closed largely unchanged for the Fri session at 1.3366. Pair continues to catch on a bid tone this morning; traded high of 1.3390 on broad USD strength. Daily momentum is bullish bias; upside could target 1.3480 (50 DMA). Support at 1.3320 should attract bids.

       AUD/SGD – Bearish. AUD/SGD closed well below 50-DMA at 1.0532 and the cross last printed 1.0450. 1.0376 marks the next major support for this cross. Topsides now guarded by the 50-DMA at 1.0523 ahead of the next resistance at 1.0600. Bias is to the downside.

       SGD/MYR – Ascending Wedge; Awaiting Catalyst for Downside. SGDMYR, last seen at 2.6960, 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. The break below 2.69 (50 DMA) sees 2.6770 (100 DMA) before 2.63 levels. Remain better sellers on rally..

       USD/MYR – Range-Bound. USDMYR could trade range-bound in absence of fresh cues. No key data for release this week. Pair is expected to take cues from oil prices and USD moves. Interim support at 3.58 levels (trend-line support from Apr - May 2015 lows). Break below sees next support at 3.56 (May 2014 low). Resistance likely to be capped by 100DMA at 3.6220.

       USD/CNH – Rangebound. USD/CNH hovered around 6.20-figure, bucking the trend of USD/AXJs this morning amid dollar strength. We expect USD/CNY fixing to be higher later and noticed reluctance by PBOC 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 20 May, USD/CNY was fixed 8 pips lower at 6.1131 (vs. previous 6.1139). CNYMYR was fixed 12 pips lower at 0.5814 (vs. 0.5726). In news, the China Securities Regulatory Commission will scrutinize listed companies’ information disclosure and abnormal trading activities to put a stop to market manipulation. Elsewhere State Information Centre Fan Jianping expects the economy to bottom in 2H and easy monetary and fiscal policies to benefit capital markets.

       USD/IDR – Rangy. USD/IDR closed a tad higher on Fri at 13158, in anticipation of the dollar resurgence. 1-month NDF steadied around 13235 with bullish momentum tapering. Spot prices are likely to remain supported as well with 50-DMA at 13028 to cushion dips. In the absence of fresh catalyst, look for the 12950-13200 range to still hold. Foreign funds sold a net USD39.3mn of equities on Fri and further sell-off in Indonesia assets could keep the pair supported. The JISDOR was fixed lower at 13136 yesterday from Thu 13150. We expect a firmer fixing later.

       USD/PHP – Bullish Signals. The USD/PHP closed higher at 44.549 on Fri. We expect this pair to remain on the upmove this week. While daily momentum indicators show little bias, the 50-DMA has crossed above 100-DMA and 200-DMA, a golden cross more than a week ago and we continue to expect the pair to remain on the upmove. Interim support is seen at 44.400, while rebounds should meet resistance around 44.650. The 1-month NDF is bid this morning, hovering around 44.680. Foreign funds sold a net USD14.3mn in equities on Fri and a further sell-off could keep USD/PHP supported. Philippines will release its imports number along with its trade balance tomorrow. Consensus expects a slower 5.5% growth and that should narrow trade deficit to USD409mn from the previous USD813mn. Key data is GDP on Thu for 1Q and a deceleration to 6.6%y/y is expected from the previous 6.9%.

       USD/THB – Consolidation.  USD/THB remains in consolidation around the 33.500-region but we expect a bullish tilt for the pairing this week. Still, intraweek should see the 33.450-33.670 hold. THB found some support on Fri from foreign buying of a net USD68.8bn in equities, which offset the sell-off of a net USD23.7mn in debt, capping the pair’s upside. Apr trade numbers are due this week and markets expectations for a BOP current account deficit could weigh on the THB.

Rates

Malaysia

The local government bond curve ended lower by 1-4bps and flattened as buyers were seen at the long end. CPI data for the month of Apr came in lower than expected at +1.8% YoY. Bonds maturing 2016 were still being bought up as scarcity on short dated BNM bills remains.        IRS rates closed 1-3bps lower, with the 5y being traded at 3.895%. The low Apr CPI may have been one of the factors that pulled rates down. 3M KLIBOR remain unchanged at 3.70%. Monday would likely be a quiet trading day as major financial centres are on holiday.        PDS market saw activity pickup with GGs being well bidded after the new Jambatan Kedua issuance. GGs were generally offered 2-5bps lower but trades were only done for the longer dated ones, with Dana 29 tightening 2bps. The AAA curve was rather quiet with some trades on Danga 30 and Telekom 24. The AA curve saw some pick up in trading interest with Imtiaz belly bonds tightening 1-2bps and Gamuda and Malakoff seeing good demand. But most of the trades were crosses. We hope to see better activity this week given a stronger MYR last Friday and the flatter govvy curve.

Singapore

       In the SGS market, selling sentiment on the 10y benchmark appears to have dissipated and PD community is looking to buy again. SGS yields ended 3-6bps lower while SGD IRS was down by 3-4bps. Bond swap spread widened slightly.

       Asian credit market saw Indonesia issue its USD2b 10y sukuk overnight at 4.325%. The paper traded to a high of 100.625 before profit takers came in and was last seen around par. Other INDONs saw good two way flows due to the UST rally, but prices were unchanged to higher by 0.50pt. For Chinese IGs, tech names saw better buying. Chinese and Korean short ends were being lifted in the market. Focus was on China Shanshui and Delhi Airport due to some negative headline news which led their bonds to come off 3-4pts. In the primary space, China Three Gorges are meeting investors for an expected USD issuance.

Indonesia

       Indonesia bond market was relative quiet in the last Friday. That was typical trading session in the end of weekdays. Total volume was also small during that day. The 10Y-Govt bond was traded rangy around 8.02%-8.05%.

       Meanwhile, in the same day, Indonesia completed its largest-ever global Sukuk offer.  The country sold US$2 billion of the debt at the lowest yield in three years after Standard & Poor’s raised its outlook on the nation’s credit rating. The Finance Ministry issued the dollar notes at 4.325%, less than its initial indication of 4.55%. The government received US$6.8 billion of bids. Ministry of Finance also will hold an auction for SPN 9-month, FR0070 (10 year tenor) and FR0068 (20 year tenor) with target issuance of Rp 10 trillion on the next Tuesday.