Maybank GM Daily - 4 May 2015

FX

Global

      The past 2 weeks or so has seen an acceleration in the reduction of USD long positioning into FOMC (30 Apr). Recent CFTC CoT report showed a fall of overall speculative net long USD positioning by $1.3bn to $37.7bn (vs. Nov 2014 high of $49.5bn). This is the 4th consecutive week of decline. We respect the USD correction and look to buy into USD weakness. If seasonality trend can be a guide, the DXY has risen in 5 out of past 5 Mays since 2010, with an average monthly gain of +3.3%.

      Week ahead for the Majors, main focus on US payrolls (8th May). Consensus is looking for a +220k print in NFP, following a shocker (+126k in Mar). Consensus is also looking for +0.2% m/m (vs. +0.3% prior) in average hourly earnings. Further disappointment will only amplify USD weakness. Next, UK goes to the polls on 7th May. Opinion polls continue to suggest a hung parliament and a fragmented political landscape. While GBP has made an impressive run higher over the past fortnight, a delay in forming the next government could weigh on GBP strength. Greece will also be of keen interest as PM Tsipras is optimistic on reaching a deal with creditors on 9th May. Greece is due to meet repayment obligation of EUR767mil on 12th May. A EUR relief rally towards 1.1450 on hopes of a Greek deal potentially materializing could be underway. Australia RBA meets tomorrow. Consensus expects a 25bps cut while we expect no change. A handful of Fed speakers including Yellen, Lockhart, George, Kocherlakota speak on 6th May. BoJ releases minutes from 7-8 Apr meeting. Japan is out from 3 – 6 May. UK is out on 4th May. Liquidity could potentially be thin for the week ahead.

      Week ahead for the AXJs, BNM meets on Thu. We expect policy rate to remain on hold at 3.25%. Indonesia is due to release Apr inflation (Cons. +6.8% y/y) on Mon and 1Q GDP (Cons. +4.95% y/y) on Tue. China will release Apr official manufacturing PMI (Cons. 50 vs. 50.1 prior) on 1st May; HSBC Apr manufacturing PMI (Cons. 49.4 vs. 49.2 prior) on 4th May. China Mar trade data (Cons. $34.25b) will also be release on Fri, which we expect a rebound following the effects of supportive domestic policy. China Apr inflation (Cons. +1.6% y/y) is due on 9 May, and we expect a mild rebound on better consumer confidence, higher energy prices and supportive domestic policy. Malaysia is out for holidays on 4th May; Thailand is out 4 – 5th May.

Currencies

      DXY - Consolidation. Dollar softness subsided as hawkish Fed speaks offset weak US data – US ISM manufacturing, US PMI, construction spending. We continue to cautious that the 94.80 (100 DMA) – 95.50 (before the break higher in end Feb) is a key area of support to watch; a decisive daily close below could expose DXY towards 92.20 (38.2% Fibonacci retracement of the run-up since Jun 2014 to Mar 2015).  Week ahead brings Apr ISM NY; Mar factory orders (Mon); Mar trade; Apr composite/services PMI; Apr ISM non-manufacturing PMI; Fed’s Evans and Williams to speak (Tue);Apr ADP; 1Q unit labor cost; Fed’s Yellen, Lockhart, George, Kocherlakota to speak (Wed); initial jobless claims and continuing claims (Thu); Apr NFP, average hourly earnings; unemployment rate (Fri). DXY last at 95.26 this morning; day ahead could see range-trading 94.80 – 95.80; stochastics is showing tentative signs of turning higher from oversold levels.

      USD/JPY – Consolidation. This is a shortened weak for the USD/JPY with onshore markets closed for holidays from Mon-Wed. Pair drifted lower and tested 118.50 (30 Apr) ahead of the BOJ meeting on the same day and amid dollar weakness. At its meeting, the BOJ had revised downwards its assessment of growth and inflation, which suggested further measures are unlikely for now. Since then, pair has rebounded, playing catch-up with its peers. Double-top formation at 121.85 still holds and will continue to act as resistance until broken. Daily MACD is showing no strong momentum though slow stochastics are bullish bias. All of these suggest that pair could consolidate within 117.90-121.00 this week. Week ahead has BOJ minutes from its 7-8 Apr meeting on Fri.

      AUD/USD – Pre-RBA positioning Lowers Downside Risk. AUD/USD reversed out its recent gains and waffled near the 0.78-figure in Asia morning. The volatile move was driven by the rise in expectations for RBA to deliver a 25 bps cut tomorrow after AUD hit 0.80 and thin liquidity conditions. Our call for RBA not to cut rates at this point puts us in the minority camp. Regardless of the decision tomorrow, we think the risk-reward ratio is not favourable for a short-AUD position at this point. Support is seen at 0.7804 in the near-term with the next support seen around 0.7740, the lower bound of the bearish ichimoku cloud. Resistance is seen at 0.7903, the upper bound of the daily ichimoku chart.

      NZD/USD – Bias Downside. NZD drifted lower tracking other commodity-bloc currencies – AUD, CAD lower amid a dovish slant RBNZ. Pair is biased for further downside; MACD and stochastics are bearish bias; favour playing from the short side; intra-day range of 0.7450 – 0.7560.

      EUR/USD – Possibly Toppish. The push higher met with resistance at 1.1290 (100 DMA) amid quiet holiday trading. Stochastics is showing tentative signs of turning lower from overbought areas which could suggest some toppishness in the pair; Friday’s candlestick seems like a doji star possibly suggesting more downside if the pair mange to close lower. Day ahead favour fading rallies towards 1.1280 for a move back towards 1.1050 (first objective). 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 speeches from ECB’s Coeure and Stevens (Mon); GE Apr CPI; EC Apr consumer confidence (Wed); EC, IT Apr CPI; FR, IT Mar PPI; EC, GE, IT Mar unemployment rate (Thu).

      EUR/SGD – Drifting Higher. EUR/SGD continues to trade higher around 1.49 levels after breaking out of its consolidation zone. 50 DMA at 1.48 levels now turn support. Intra-day see 1.48 – 1.50 range; daily MACD and stochastics are mild bullish bias.    

Asia ex Japan Currencies

      The SGD NEER trades around 0.11% below the implied mid-point of 1.3335. We estimate the top end at 1.3068 and the floor at 1.3601.

      USD/SGD – Descending Wedge. The USD/SGD decline has test all support levels we mentioned last week including 1.3470 (100DMA), 1.3320 (50% Fibo retractment of 1.2705-1.3941) and 1.3170 (61.8% Fibo retracement). But has since rebounded back above the 1.33-levels. Though daily MACD is showing no strong momentum, a descending wedge has formed with slow stochastics showing very tentative signs of turning from oversold levels and 200DMA at 1.3110. Ahead of US NFP, look for range-bound trades within 1.3110-1.3320 with risk of a move towards 1.3470.

      AUD/SGD – Heavy. AUD/SGD gapped down this morning and was last seen around 1.0420. Momentum indicators suggest bearish condition for this cross and support level to watch next is marked at 1.0376 for near-term trades. Topsides capped at 1.0525.

      SGD/MYR – Range Bound. The double-top formation around 2.71 levels continued to cap the pair. Cross traded 2.6990 levels this morning. Intra-day range of 2.67 – 2.70 is expected to hold while we continue to caution that 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).  Daily momentum is mild bearish bias while stochastics are entering oversold areas. Malaysia is out for holidays today.

      1s MYR NDF – Bullish Bias. Malaysia is out for holidays today. 1s NDF traded higher towards 3.60 amid holiday-thin liquidity session last Fri and weaker oil prices. The pair trades 3.6060 at time of writing this morning and technicals appears to be pointing higher. Daily momentum and oscillators are mild bullish bias. Next resistance at 3.6135 before 3.6300 (21 DMA). Favor playing from the long side; buying on dips towards 3.5850. Week ahead  focus on BNM meeting (Thu); we are not expecting any change to policy rate.

      USD/CNH – Consolidative. USD/CNH steadied around 6.2120 this morning, underpinned by firmer dollar tone seen last Fri. Pair is settling into a consolidation phase within 6.1842-6.2292. A breakout is needed for more directional cues at this point. Expect USD/CNY fixing to be little changed from the fixing at 6.1137 last Thu. 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. On 30 Apr, USD/CNY was fixed 32 pips lower at 6.1137 (vs. previous 6.1169). CNYMYR was fixed 10 pips lower at 0.5700 (vs. 0.5710). Apr PMI-mfg came in just above consensus ( 50.0) at 50.1 last Fri. A report from the State Information Centre suggests that China’s GDP may grow about 6.8% in 2Q (BBG). The nation releases the HSBC version of the PMI-mfg later at 0945 (SGT) and consensus expects 49.2.

      USD/IDR – Two-Way Trades. The USD/IDR remains trapped within a daily ichimoku cloud, suggesting that the pair could see two-way trades in the week ahead. Downsides are likely to be limited by expectations of lacklustre economic growth in 1Q15 and beyond as well as negative sentiments surrounding the President’s fight against corruption and possible backlash from the high profile executions. Expect rangy trades 12850-13050 the week ahead with both daily MACD and slow stochastics showing little bias in either direction. Foreign funds sold a net USD0.55bn in equities last week, which probably weighed on the IDR. 1-month NDF is trapped within a daily ichimoku cloud and should trade range-bound within the 12950-13150 with daily MACD showing tentative signs of bullish momentum and slow stochastics indicating bullish bias. The JISDOR was fixed lower again at 12937 on Thu from Wed’s 12964.

      USD/PHP – Bullish. The USD/PHP should continue its uptick in line with its regional peers. Pair continues to be supported on possible speculation that the BSP could be next to cut rates at its policy meeting on 14 May. Further bounce higher this week could see the pair approach the 44.80-levels. Dips though could see support around 44.400. Daily MACD and slow stochastics are bullish bias. 1-month NDF continues its climb towards 44.70-levels with daily MACD slow stochastics showing bullish bias. Last week, foreign funds sold a net USD84.80mn in equities.

      USD/THB – Bullish Bias.  Onshore markets are close on Mon-Tue for holidays and re-opens on Wed. The USD/THB bounced higher above 33.00-figure to levels not seen since Feb 2010, following the release of measures to encourage capital outflows on Thu. These measures together with the rate cut on Wed should support the pair in the near term. Given sluggish export and economic growth expected, further rate cut cannot be ruled out for now (not our economic team’s base case). Look for the pair to hover in two-way trades within 33.000-33.300 amid quiet trades this week. Both momentum and oscillator remain bullish bias. Last week, foreign funds sold off a net THB9.06bn and THB1.79bn in equities and debt.

Rates

Malaysia

       In the local government bond market, we noticed better buying flow into the MGS curve despite a selloff in US Treasuries (UST) during Asian trading time. The 5y benchmark MGS 10/20 was the main focus with the bond ending 1bp lower amidst decent trade size. Afternoon session saw light buying on the 7y and 10y benchmarks which closed 1-2bps lower.

      IRS levels ended relatively flat albeit softer UST. Some trades were reported on the 2y IRS. 3M KLIBOR unchanged at 3.72%.

      Local PDS market concluded the short week with another muted day. In the AAA space, Aman papers were well bid as the 4y and 9y papers tighten 2bps and 1.5bps respectively. Rantau 19s were also highly sought after as it tightened 3bps with MYR115m traded volume. In the GG space, a large volume of Dana 7/24 were traded with MYR50m done as it tightened 3bps. We hope to see activity pick up this week in view of the recent developments in the UST market.

Singapore

      SGS prices fell further in line with the movement in UST following the weaker US economic growth in 1Q and the slightly dovish tone in the FOMC statement. The SGS yield curve bear steepened slightly with yields higher by 2-6bps across the curve.

      Asian credits were relatively quiet as it was the month end and a short trading week. Most spreads traded largely unchanged, especially in IG space, but skewed towards better buying as the UST movement gave investors better absolute yields. Good two way flow was seen for Bharat Petroleum’s newly printed 5y USD500m 5y at CT5+208. Secondary market traded around reoffer spreads. Beijing Enterprise’s 5y EUR500m issue also traded tighter after an initial print of MS+120bps. We saw good buying on Malaysian names with PETRONAS and MALAYs trading tighter by 3-5bps across the curve. On the other hand, INDONs saw some selling of long end bonds and ended 0.25-0.5pts lower. Market is on the lookout for selective Korean and Indian credits. The sentiment is likely to persist this week given it is the beginning of a new month.

Indonesia

      Dovish reading post Wednesday FOMC meeting have given a positive sentiment to Indonesia bond market on Thursday trading causing the bond prices to hike. There will be several important domestic data published data this week such as April inflation data today and 1Q GDP growth tomorrow. Our economist sees that April inflation would continue creep up by 0.48% MoM or 6.92% YoY. This is due to the rising prices which are regulated by the government (administered prices) such as fuel price which rose by 7%, LPG price which hiked by 4% and an increase in electricity tariff. Core inflation is expected to reach 0.41% MoM or 5.22% YoY due to rising prices of inter-city transportation tariff, cars, motorcycles, LPG and electricity tariff. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 7.577%, 7.698%, 7.869% and 8.049% while 2y yield shifts up to 7.341%. Trading volume at secondary market was seen moderate at government segments amounting Rp10,648 bn with FR0071 (15y benchmark series) as the most tradable bond. FR0071 total trading volume amounting Rp1,862 tn with 70x transaction frequency and closed at 109.434 yielding 7.869%.

      Corporate bond trading traded heavy amounting Rp720 bn. BBMISMSB1CN2 (Shelf Registration Subordinated Sukuk Mudharabah I Bank Muamalat Phase II Year 2013; Rating: idA(sy)) was the top actively traded corporate bond with total trading volume amounted Rp111 bn yielding 11.131%.