Maybank GM Daily - 28 May 2015

FX

Global

       Dollar managed to retain much of its gains and a little more on the back of the USD/JPY up leg. Majors were a tad mixed against the greenback with EUR, NZD and CHF clocking the biggest gains. NZD leads the pack after Fonterra forecasts milk price recovery in 2015-16, underpinned by strong fundamentals demand in the long term.

       More conflicting headlines out of Europe with some optimism lifting the EUR yesterday, supported by news of a staff level accord in the making that could achieve a long terms solution on debt and lower primary budget surpluses.  In addition, German Foreign Minister pressed for a swift solution, adding that there are “no winners” should Greece exit the Eurozone. EUR edged 0.3% up against the USD on Wed before inching lower again this morning as comments from the French Finance Minister asking for a drafted reform agreement suggests that Greece is still in a gridlock with its creditors..

       Elsewhere, Bank of Canada held benchmark lending rate at 0.75%, noting that consumption is “holding up relatively well”. Underlying trend inflation is 1.6-1.8% while financial conditions remain “highly stimulative”. USD/CAD crept higher in tandem with the dollar move, also underpinned by the sluggish oil price

       In Asia, MYR was the laggard this morning, dragged by the weak oil prices. KRW was also weakened against the USD. Today is another data light day for the region with only Philippines’ 1Q GDP due later. Australia releases CAPEX number first before EU’s consumer confidence is out later in the afternoon. US has its usual weekly jobless claims thereafter.

Currencies

      DXY – Supported. USD continues to firm against most majors in particular the JPY overnight. Little data overnight to note; Fed’s Lacker commented that he has not decided how to vote at Jun meeting. Daily momentum remains bullish. Still favor playing from the long side; intra-day range of 96.50 – 98.00 expected. Need to close above the next resistance at 97.37 (61.8% fibo of mid Apr peak – mid May trough) before another leg higher towards 98.37 (76.4% fib). Data/event for week remaining brings 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 – Headline Driven. EURUSD initially traded with a downside bias towards a low of 1.0819 yesterday before rebounding towards near 1.09 levels off the back of ongoing ambiguous development out of Greece – reports of creditors crafting a ‘staff level accord’ which involve a long term solution on debt and lower primary budget surpluses but European Commissioner Dombrovski was quick to dismiss speculation that a deal with Greece is nearing. EUR was last at 1.0902 this morning. Daily momentum remains bearish but stochastics are showing very tentative signs of turning from oversold levels. Intra-day range of 1.0860 – 1.0940 likely. Week remaining we are watching EC May economic, consumer confidence (Thu); EC Apr M3; FR, IT Apr PPI; IT 1Q GDP (Fri).

       GBP/USD – Bearish Bias. GBP slipped to a low of 1.5302 on Queens speech, in particular the mention of a legislation to allow for UK referendum on EU membership amid broad USD strength. Day ahead focus on 1Q GDP and Gfk Consumer confidence. Pair was last at 1.5350 this morning. We continue to stick with our caution (since last week) that daily momentum and oscillators remains bearish, noting a possible bearish divergence. Next support at 1.5180 (50 and 100 DMAs).

       USD/JPY – Bullish Bias. USD/JPY hit a new 8-year high of 124.07 overnight as markets continued to sell JPY against the majors. Market sentiments remained bullish with intraday MACD still showing bullish momentum and slow stochastics still at overbought levels. Pair though remained poised for further upside given the breakout of the bullish triangle formation and could be headed towards 126 over time. In the interim, 124.15 (22 Jun 2007 high) remains the hurdle to cross intraday ahead of the next at the 125-figure. We remain better buyers on dip; any pullback today could see support around 122.80.

       AUD/USD – Bearish Risk.  AUDUSD steadied around 0.7740 this morning, sticky around this figure. Pair awaits the 1Q CAPEX number and consensus expects another -2.2% fall in business expenditure. Details are not expected to be fantastic with a fall in projected mining spending anticipated along with a flat growth for non-mining spending. AUD/USD is still supported by the 0.7658-support with any bounce to meet resistance at 0.7800. Momentum is still bearish.

       NZD/USD – Beware of Upside Squeeze. NZD enjoyed an upside squeeze; high of 0.7269 was traded overnight before trading down to 0.7250 levels at time of writing this morning. Fonterra announced an opening milk price for the 2015-16 season of NZD5.25/kg; reduced the 2014-15 forecast by another 10cnts to NZD4.40/kg. Fonterra CFO commented that RBNZ cut would help weaken ‘overvalued’ Kiwi. This echoed out view for further downside in the NZD on a combination of drivers including mounting expectation of RBNZ cutting rates in Jun, weak dairy prices, falling PPI, risk of CPI slipping in deflation. Daily momentum remains bearish bias, but we are cautious of stochastics at oversold levels, which could suggest some near-term bounce. While we still see downside pressure, we are cautious of the pair nearing the lower end of our range. Still favor selling upticks towards 0.7280/90 intra-day. Friday brings Apr building permits; May ANZ business confidence.

       USD/CAD – Bullish Momentum. USDCAD edged higher overnight, underpinned by the dollar strength. The pair was last seen around 1.2455 with momentum indicators still bullish. The 50-DMA crossed below the 100-DMA, signalling some resistance to bids and we expect continued upmove to be a grind. RSI also indicates overbought conditions. BOC kept benchmark lending rate at 0.75%, noting little change in economic outlook from its Apr meet.  Consumption is expected to hold up relatively well and financial conditions remain “highly stimulative”. Core CPI is higher on weaker CAD but inflation-profile risks are not materially changed.   USDCAD is now supported by the 50-DMA at 1.2380. 1Q GDP is the focus next, due tomorrow Fri together with the US’ release and consensus is a 0.2%q/q growth from a flat growth in the quarter prior.

Asia ex Japan Currencies

      The SGD NEER trades 0.26% below the implied mid-point of 1.3467 with the top end estimated at 1.3196 and the floor at 1.3736.

       USD/SGD – Bearish Tilt. USD/SGD is inching lower towards the 1.35-figure after hitting 1.3542 overnight on the back of firmer dollar. Pair has lost most of its bullish momentum and slow stochastics is showing tentative signs of falling from overbought levels. With the bias tilted to the downside, look for the pair to hover in a tight range today within 1.3480-1.3540.

       AUD/SGD – An Even Chance on Either Side. AUD/SGD steadied around 1.0450, ended Wed with a doji. The tug of war between the bears and bulls is even and intra-day momentum is unclear. We expect price action to be largely within 1.0523-1.0360. Bias is still to the downside beyond intra-day. Watch the CAPEX number due later.

       SGD/MYR – Ascending Wedge (Bearish); Watch out for the Decline. SGDMYR traded around 2.6990 this morning; low of 2.6893 was traded yesterday. The pair remains on the verge of a technical breakdown, with an ascending wedge (bearish bias) in the making and a top formed at 2.7150 levels. Weekly momentum remains bearish bias. A daily close below 2.69 (50 DMA) sees 2.6820 (100 DMA) before 2.6320 (200 DMA) levels. Remain better sellers on rally.

       USD/MYR – Taking Cues from USD and Oil Prices. USDMYR continued to drift higher towards 3.6500 this morning taking cues from external drivers. Pair has since eased towards 3.6430 at time of writing. Moodys commented that it is watching fiscal consolidation efforts; noted no systemic risk for public finance; sees Malaysia current account surplus over next 2-3 years. BNM Governor Zeti commented that Malaysia is still having strong credit growth and that inflation pick up in Apr was as anticipated. No key data for release this week. Interim support now at 3.63 levels (50 DMA). Daily momentum is mild bullish bias. Next resistance at 3.66 levels.

       USD/CNH – Tracking The Onshore to Nowhere. USD/CNH last printed 6.2050, tracking the onshore with no direction bias. We expect USD/CNY fixing to be a tad higher later and we 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 27 May, USD/CNY was fixed 26 pips higher at 6.1198 (vs. previous 6.1172). CNYMYR was fixed 57 pips lower at 0.5773 (vs. 0.5830). In an annual report by PBOC, the central bank expects M2 money supply growth of about 12% and will promote interest rate liberalization in conjunction with capital account convertibility. Economic growth of about 7% for 2015 is on track and PBOC reiterates prudent monetary policy.

       USD/IDR – Whippy. USD/IDR is whippy this morning, hovering around the 13190-levels currently. Pair has lost most of its bullish momentum and slow stochastics is falling from overbought levels. Month-end dollar demand is likely to limit downsides today. Look for the 12950-13250 range to hold intraday. 1-month NDF is edging lower back below the 13300-levels with intraday MACD and slow stochastics indicating bearish bias. The JISDOR was fixed higher at 13229 yesterday from Tue’s 13192. Foreign funds bought net USD16.66mn of equities yesterday and added a net IDR5.98tn to their outstanding holding of debt on 26 May (latest data available) with further selling likely to limit the pair’s downside.

       USD/PHP – Two-Way Trades. The USD/PHP gapped lower at the opening to 44.610, playing catch-up with the rest of its regional peers. Pair has rebounded slightly to around 44.635 with intraday MACD showing mild bullish momentum and slow stochastic bearish bias, suggesting two-way trades are possible ahead. Ahead of 1Q15 GDP (cons.: 6.6%) release later this morning, Look for the pair to hover within 44.530-44.715 intraday. Upside GDP surprises could see the pair edge closer to the lower bound of the trading range. The 1-month NDF is easing off this morning below the 44.700-levels with intraday MACD showing no strong momentum and slow stochastic bearish bias. Foreign funds continued to sell Philippines equities with a net USD28.48mn sold yesterday with further selling could limit the pair’s downside.

       USD/THB – Bearish Bias.  USD/THB climbed to a high not seen since Sep 2009 at 33.920 overnight but has eased off back below 33.810. Pair has lost most of its bullish momentum and slow stochastics is falling from overbought levels. With the bias tilted to the downside today, further pullbacks could see support around 33.620 still. We remain better buyers on dips. Any rebounds could see the pair headed towards the 34-figure. Foreign funds bought a net THB0.14n in government debt yesterday but this was overshadowed by their selling off a net THB0.79bn in equities and further assets sales could be supportive of the pair.

Rates

Malaysia

       Local government bonds traded softer ahead of the auction for the 7y GII 7/22 reopening, with the yield curve closing 1-3bps higher. We expect a decent auction today, with demand mainly to come from local real money accounts and lesser from offshore players.

       IRS market remain lacklustre as nothing traded in the market. Levels ended mixed. We reiterate to receive 5y IRS at above 3.90% and pay at around 3.80%. 3M KLIBOR unchanged at 3.69%.

       PDS market turn muted and most trades were at the belly of the AA curve. Bright Focus 17 and Imtiaz 11/17 tightened 1bp and 9bps respectively. Kesturi papers were well bidded with longer dated ones trading 1-4bps tighter. GGs and AAAs mostly traded at previous done levels. We look to stay slightly long on high grades and GGs in the 10y-15y bucket.

Singapore

       SGS yield curve flattened further as the front end to the belly rose 4-8bps while the back end was only up by 1-2bps. The 10y SGS auction of SGD2.6b drew a moderate bid/cover of 1.57x. Cut-off bid came in at 2.42% and median yield was 2.35%. Post auction the bond closed at 2.43% which is within our expectation.

       Asian credits were rather muted in the secondary space with plenty profit takers due to the UST movement. INDONs traded almost unchanged to slightly lower, while Chinese IGs traded on a weak tone with most widening 2-5bps. Primary space see heavy issuances as yields came lower: 1) Garuda Indonesia (unrated) planning 5y USD sukuk at guidance of 6.25%; 2) Hong Kong government (AAA) issuing 5y USD sukuk at guidance of T5+35-40bps; 3) Dubai Islamic Bank (Baa1) issuing 5y USD sukuk at MS+140bps; 4) CIFI Holdings Group (B1) issuing 5NC3 USD bond at 7.875%; 5) Fantasia planning USD200m bonds at guidance around 12%; and 6) Guangzhou Communications (Baa2) issuing USD400m bonds at guidance of T3+205-210bps. Of the new issuances, we like Guangzhou Communications as it is wholly owned by the municipal government and the level seems fair for a 3y exposure. We also think Garuda Indonesia should do well given its strong support from the Indonesian government and lower fuel prices at this point in time.

Indonesia

       Indonesia bond market closed slightly positive yesterday amid minimal market sentiments. Several investors which won the auction yesterday might have taken profits yesterday. We recall some buying from onshore foreign names during the trading day. Overall, Indonesia bond market trend remains bearish with no sign of reversal yet. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 7.895%, 8.094%, 8.241% and 8.330% while 2y yield shifts up to 7.613%. Trading volume at secondary market was seen heavy at government segments amounting Rp13,936 bn with FR0070 (10y benchmark series) as the most tradable bond. FR0070 total trading volume amounting Rp4,097 tn with 119x transaction frequency and closed at 101.723 yielding 8.094%.

       Corporate bond trading traded heavy amounting Rp1,284 bn. BBMISMSB1CN1 (Sukuk subordinated mudharabah shelf registration I Bank Muamalat Phase I year 2012; Rating: idA(sy)) was the top actively traded corporate bond with total trading volume amounted Rp290 bn.

       Corporate bond trading traded heavy amounting Rp300 bn. WOMF01BCN3 (Shelf registration I WOM Finance Phase III Year 2015; B serial bond; Rating: AA(idn)) was the top actively traded corporate bond with total trading volume amounted Rp63 bn yielding 10.222%.