Maybank GM Daily - 8 Jun 2015

FX

Global

      Dollar bounced on the stronger payroll data, up against most majors on Fri with the exception of GBP. US NFP surprised to the upside for May with a print of 280K addition. Labour force participation rate also ticked higher along with average hourly earnings. UST 10yr yields broke out of range and steadied above 2.4%, still seen thereabouts in early Asia today. Oil prices on the decline with brent around USD63/bbl.

      Week ahead is a busier week for Asia relative to Western markets. Onshore players are away in Australia. Focus is on China’s data barrage with trade data out later. Inflation prints are due tomorrow, activity data due on Thu followed by monetary data due anytime between 10-15 Jun. We expect inflation and activity data to be muted, credit growth to be slightly higher. Other data of note is Philippines’ exports on Wed, India’s trade numbers on Wed onwards, Malaysia’ industrial production on Thu, India’s industrial production and Singapore’s retail sales on Fri.

      A number of central banks meet this week.  We expect the BoK to continue to adopt a wait-and-see approach and keep base rate unchanged at 1.75% and expect the RBNZ to cut OCR by 25bps to 3.25%, against a backdrop of checking all of RBNZ’s criteria for future easing – 15Y low inflation with risk of slipping into negative territories, benign wage inflation, low levels of dairy prices for longer. Other data we are also watching for the week includes JP 1Q GDP (Mon); 1Q Euro-area GDP (Tue); UK Apr industrial, manufacturing production, JP Apr machine orders; RBA Stevens speaks (Wed); US May retail sales; AU May employment change; Malaysia Apr Industrial, manufacturing production (Thu); US May PPI; Euro-area Apr PPI; UK Apr construction output (Fri).

Currencies

       DXY – Buy on Dips. USD enjoyed a rally last Fri after US payrolls data surprised to the upside – NFP +280k (vs. +226k Cons.); average hourly earnings +2.3% y/y (vs. +2.2% Cons.). This helped to re-ignite market speculation of Sep rate lift-off. We continue to reiterate our long-standing view of a Sep rate lift off. While the DXY did rally, the eventual move into the close appears less strong. DXY closed below the 50DMA at 96.30 and remained well below 97.37 (61.8% fibo of Apr high – May low). We earlier mentioned that DXY needs to clear above this level for the rally to have legs.  Still expecting range trading between 96.10 (100 DMA) and 97.00. Week ahead brings May labor market conditions index (Mon); Apr JOLTS (Tue); MBA mortgage applications (Wed); initial jobless claims, May retail sales; May import price index (Thu); May PPI; Jun Prelim Univ. of Michigan Sentiment (Fri).

       EUR/USD – Choppy Range. EUR fell to 1.1050 lows as US NFP surprised to the upside. While downside pressure could persist for the EUR in the early week on spill-over euphoria from strong US NFP (supporting the USD), the daily/weekly close in the EUR/USD above the 1.11 handle may suggest that downside could be limited towards 1.09 levels (trend-line support from Apr and May lows). While topside could be capped towards 1.14 levels as Greek concerns continue to weigh on sentiment. Favor picking levels; as opposed to chasing the pair; playing the wide range of 1.09 – 1.14. Bias to buy dips towards 1.09.  Week ahead brings GE Apr trade, IP; ECB’s Constancio speaks (Mon); 1Q German labor cost; EC 1Q GFP (Tue); FR Apr IP, manufacturing production; IT Apr industrial production (Wed); FR May CPI (Thu); EC Apr IP (Fri)..

      GBP/USD – Buy Dips. Cable was weaker amid broad USD strength on US NFP data. Pair traded 1.5191 low before clawing back some of its losses to close 1.5270 on Fri overnight. We continue to see firm support around 1.5180/90 levels (50 and 100 DMAs); and look to buy dips. Daily stochastics continue to show mild signs of turning higher from oversold levels. Next resistance at 1.5450 (50% fibo of 1.5090 – 1.5815); support at 1.5260 (76.4% fibo). Day ahead sees 1.5210 – 1.5300 range. Week ahead brings Apr trade (Tue); Apr industrial production and manufacturing production; GDP estimate (Wed); RICS house price balance (Thu); Apr construction output (Fri).

      USD/JPY – Two-Way Trades. USD/JPY jumped from below the 125-levels to 125.86 in the aftermath of the US NFP release. But has eased off to around 125.57 currently, helped by positive data out this morning. Final 1Q GDP released this morning showed the economy expanding by a better-than-expected 3.9% annualized (cons.: 2.8%) on the back of stronger non-residential investment spending (11% ann.) and private consumption holding steady (1.5% ann.), while current account surplus climbed to  JPY1.33tn in Apr (Mar: JPY2.8tn). Two-way trades within 123.60-126 are likely with a bullish tilt this week as could help to keep the USD/JPY in check this week. For another leg up towards the 128-figure, we need to see a break of 125.69 (5 Dec 2002 high). Bullish momentum remains intact with any dips an opportunity to accumulate. Our long-standing view is for BOJ to ease in Oct 2015. Week ahead sees May machine tool orders (Tue); Apr machine orders (Wed); May IP (Fri).

      AUD/USD – Vulnerable. AUD/USD slumped back towards support at 0.7600 and remained sticky around 0.7620.  Eyes are on China’s trade data later and AUD could be vulnerable to weak imports growth. On the charts, weekly momentum and oscillator indicators are bearish bias. Next support at 0.7530 (previous low in Mar-Apr 2015); break below could see the pair ease further towards 0.7420. Technically speaking, the pair has broken out of its ascending (bearish) wedge; and is likely to trade with a downside bias over the medium term. For the week, we believe AUD rally (if any) is likely to stay capped at 0.78 levels; Favor fading rally. Week ahead brings NAB May business conditions (Tue); Westpac Jun consumer confidence; RBA Stevens to speak (Wed); Jun CPI inflation expectation; May employment change (Thu). Monday is a public holiday in Australia. 

      NZD/USD – Fade Strength (if any). The 0.71-handle finally gave way as NZD traded to a low of 0.7025 amid broad USD strength following strong US NFP on Fri. Pair is trading around 0.7045 levels this morning. We continue to see further downside pressure on the NZD on a combination of drivers including mounting expectation of RBNZ cutting rates in Jun, weak dairy prices, falling PPI. We expect RBNZ to cut OCR by 25bps to 3.25% (Consensus is tilted towards no cut) at its upcoming MPC meeting on 11 Jun. We remain better sellers on rally towards 0.7065/75 levels for a push towards 0.6950 levels objective. Week ahead brings May house prices (Tue); May house sales (Wed); RBNZ meeting (Thu); May food prices (Fri).

      USD/CAD – Supported on Dips. USDCAD remained underpinned by fall in oil prices. CAD is surprisingly resilient to the declines in oil prices however as the USD/CAD remain stuck within the 1.23350-1.2630 range, last printed 1.2460. Support is seen at 100-DMA which also coincided with the daily ichimoku cloud. Expect dips to remain supported by next support at 1.2301 at 50-DMA. Daily momentum indicators have lost further bullish momentum and we see sideway trades for the rest of the week with a growing downside risk.

Asia ex Japan Currencies

      The SGD NEER trades 0.21% below the implied mid-point of 1.3567. We estimate the top end at 1.3296 and the floor at 1.3840.

      USD/SGD – Bullish Bias. USD/SGD jumped towards but failed to break   the 1.36-figure in the aftermath of the US NFP. With the neckline at 1.3550 broken, a re-test of the 1.36-figure cannot be ruled out this week. New resistance is now seen at 1.3640 (61.8% Fibo retracement of the 1.3941-1.3151 downswing). In the absence of fresh domestic catalyst, pair is likely to track the dollar in the week ahead. Daily MACD is showing bullish momentum, though slow stochastics is at overbought levels. Support is seen around 1.3400.

      AUD/SGD – Choppy Sideway Trades. AUD/SGD is still heavy this morning ahead of the China’s trade data. The cross was last priced at 1.0350. The ichimoku cloud still caps upticks at 1.0470 and then at 1.0525.  This cross continues to be capped by the ichimoku cloud. Support is seen at 1.0376. Daily momentum indicators suggest downside bias and we look for choppy action to remain within 1.0240-1.0525 in the medium term.

      SGD/MYR – Bullish Divergence into Uncharted Territories. SGDMYR maintained its upward push into uncharted territories on ringgit weakness and a largely resilient SGD. We had earlier cautioned for a bullish divergence forming (near term) and that implies upside pressure. Cross was last at 2.7666. Still see a weak Ringgit keeping the cross supported.

      USD/MYR – Upside Risk. USDMYR continues to trade one-way higher towards 3.7650 (multi0year high), driven by political/economic concerns at home. Pair is likely to remain supported on concerns at home. Daily MACD is bullish bias. We continue to reiterate our expectation for further uncertainty. Week ahead data release: Apr IP and manufacturing production (Thu). Further upmove could target 3.7850 levels.

      USD/CNH – Tracking The Onshore to Nowhere. USD/CNH bounced on the back of stronger dollar and was last seen around 6.2120. We expect higher USD/CNY fixing later though 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 5 Jun, USD/CNY was fixed 17 pips higher at 6.1181 (vs. previous 6.1164). CNYMYR was fixed 23 pips higher at 0.5975 (vs. 0.5952). China is due to release trade numbers for May today with exports expected to fall -4.4%y/y and imports to decline -10.0%, widening the trade surplus to USD44.80bn from previous USD34.13bn.

      USD/INR – Upside Bias. USD/INR just can’t seem to get above the 64.30 mark and closed at 63.755 last Fri. 1-month NDF is on the rise however and was last seen around 64.88, revisiting year-to-date highs. We expect the pair to retain an upside bias, led by the stronger dollar. For spot prices, expect a gap up that could test the high of 64.283. Next barrier seen around 64.48. Trade numbers for May are due on Wed, followed by industrial production and CPI on Fri.

      USD/KRW – Bullish Bias. USDKRW gapped in the open this morning above the 1120-handle (vs. spot close on Fri at 1111) amid USD strength following strong US NFP. Over the medium term, we are bearish on the Korean Won against the USD on a combination of drivers including weak growth/inflation dynamics, falling exports, large and rising household debt (which could threaten financial sector stability) amid Fed tightening/strong USD risk. Sharp weakening of the JPY tends to undercut Korea’s export competitiveness and this could potentially see an impetus for policymakers to be biased for a weaker KRW. The pause in BoK rate cuts (in Apr and May meetings) does not suggest the end of an easing cycle as BoK adopts a wait and see approach to assess and some market participants are still expecting further cuts (our base view is for BoK to keep base rate on hold at the upcoming MPC meeting on 11 Jun). Taken together, these factors should keep USDKRW supportive. Day ahead support at 1120; favour buying on dips there targeting a move back above the 1130-handle.

      USD/IDR – Sideways.  USD/IDR closed at 13290 on Fri after climbing higher on Thu and Fri. Pair is likely to jump higher at the opening this morning, tracking the dollar strength. It is a data-quiet week and pair is likely to track the dollar this week in line with the 1-month NDF. 1-month NDF jumped towards 13530 on Fri following the strong US NFP print, but has since eased slightly to hover around the 13500-region currently. Daily MACD is still showing bullish momentum and slow stochastics is at overbought levels. Look for topside to be capped by 13450 this week while dips should see support around 13150. The JISDOR was fixed higher again at 13288 on Fri from Thu’s 13243. Last week, foreign funds sold a net USD88.71mn in equities but added a net IDR1.48tn to their outstanding holding of debt on 1-4 Jun (latest data available).

      USD/PHP – Consolidation. The USD/PHP should consolidate this week after Fri’s massive climb higher above the 45-figure at 45.178 on Fri, ahead of the US NFP print. Dollar strength ahead should keep the pair supported this week. The governor of the BSP continued to brush off suggestions of a rate cut, saying that there was no strong impetus to provide support to growth even if the central bank downwardly revised its inflation forecast. Look for the pair to hover around 44.500-45.200 the week ahead. The 1-month NDF jumped to 45.440 on Fri – a high not seen since Mar 2014 – underpinned by the dollar moves. 1-month NDF has seen retreated back towards the 45.00-figure with daily MACD and slow stochastics showing bullish bias. Foreign funds continued their selling spree with a net USD422.27mn in equities sold last week and further selling should continue to support the pair higher.

      USD/THB – Consolidation.  USD/THB hit a high of 33.960 following the better-than-expected US NFP print before easing off slightly to around 33.918 at last sight. With the pair having broken above the double-top formation at 33.899, further upside is likely in store. In the interim though, pair could consolidate around current levels after the jump on Fri with momentum indicator and oscillators indicating little directional bias ahead. Trades within 33.700-34.00 is likely for now, though a firm break of the 34-figure could expose the next barrier at 34.15. Consensus and our economic team are not expecting any moves by the BoT this Wed, but the meeting will nevertheless be closely watched for hints of further easing measures down the road. Last week, foreign funds sold a net THB4.98bn and THB9.48bn of equities and government debt and the continued sell-off in Thai assets could keep the pair supported.

Rates

Malaysia

      Local government bond yields jumped as after the poor show of the 10y MGS 9/25 reopening auction. The auction garnered BTC of a mere 1.67x, which is the lowest BTC of all govvy auctions this year. Successful bids average 4.037%. The 7y MGS benchmark MGS 9/22 rose 10bps from previous close. Next auction we have the 7y benchmark MGS 9/22 and it would be interesting to see whether this part of the curve would to cheapen subject to the volatility in global rates.

      MYR IRS levels moved marginally lower but nothing was traded. A slew of receivers came in at 4.00%. MGS’s grumpy performance had no impact on IRS players. However, the spreads between on/offshore still persists hence bidders were visible at 3.98%. Positioning-wise, I believe onshore players are not heavily received hence any paying interest would mostly be from foreign payers.

      Local PDS market remains muted. Offers were plenty but only few bids. The MGS 4/30s tightened 2bps which led to some buying of long-dated Plus names. Plus 31s and 34s were traded at previously traded levels. Telekom 6/24s saw MYR20m in volume at 4.40%. AA and GG curve mostly traded at MTM levels or 1-2 bps wider. Because of the lack of new issues, cheapened yields may attract buyers.

Singapore

      SGS market was choppy with initial gain in prices at the open following overnight rally in Bunds and USTs all but vanished by mid-day.  Market was still jittery as players stayed defensive after the recent spike in yields and ahead of US jobs report. Yields ended higher around the 10y and 15y sectors whilst the belly and the 30y benchmark fared better by closing about unchanged. 

      The Asian credit space focused on new issues. Anhui Transportation issued USD300m 3y at T3+195bps (T2+232bps). Anhui was last traded around 225/223bps. China Blue Star reissued its 3y and 5y and both were received warmly with two-way flows. Market's sentiment was generally weaker. Players were mostly sidelined and cautious ahead of the US jobs market data. Indons continued to trade weak, with very little bid shown amid the selling pressure. Chinese and Korean IGs were the favorite and traded 1-3bps tighter.

Indonesia

      Indonesia bond market slumped for 2 consecutive days ahead of U.S. NFP data which later came in at 280K or above market consensus. Indonesia bond market would reply to this data negatively today. As a result, we might see that another drop in bond prices would occur today. Bond prices may move negative today ahead of tomorrow bond auction. We now see the potential of 10y benchmark series yield to reach 8.750%. Bank Indonesia released end May 2015 Indonesia official reserve asset which stood at US$110.8bn or slightly lower than April 2015 numbers. BI further explained that the decline occur due to increase in foreign exchange demand, among other for Government foreign debt payments and the use of foreign exchange to stabilize rupiah exchange rate in accordance with the fundamental. However, the number have also priced in the receipts from Government global sukuk issuance. This means excluding the global issuance receipt, Indonesia official reserve asset would be approx. US$108.8 bn. 5-yr, 15-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 8.235%, 8.436%, 8.630% and 8.720% while 2y yield shifts up to 7.809%. Trading volume at secondary market was seen moderate at government segments amounting Rp10480bn with FR0070 (10y benchmark series) as the most tradable bond. FR0070 total trading volume amounting Rp2340tn with 72x transaction frequency and closed at 99.609 yielding 8.436%.

      Corporate bond trading traded moderate amounting Rp233bn. SISMRA01CN1 (Shelf registration sukuk ijarah I Summarecon Agung Phase I Year 2013; Rating: idA+(sy)) was the top actively traded corporate bond with total trading volume amounted Rp50bn yielding 10.164%.