Maybank GM Daily - 17 May 2016

FX

Global

      Overnight trade was positive in the equity markets, lifted by Apple stocks. Benchmark indices booked an average of 1% of gains in the session. Oil prices rose. Brent, in particular, came close to the psychological U$50/bbl-level. We note that technical charts are bullish on crude, especially the golden cross and that could lend further support to commodity-linked currencies in the near-term.

      Dollar moves were muted. Oil-sensitive currencies were the better performers against the greenback while JPY, CHF, SEK weakened. The Asian basket was mixed as well but the divide is clear. North-Asians underperformed, possibly weighed by the weaker China activity data released over the weekend while USD/ASEANs clocked modest gains. This trend could continue to play out in the absence of significant events. Another thing to note is the announcement of the interest rate corridor by BSP yesterday.  The interest rate corridor takes effect on 3-Jun. The benchmark rate is set at 3%. Lending rate at 3.5% and special deposit account is at 2.5%. Next BSP meeting is on 23-Jun.  That did little to move the FX as markets see the rates adjustment as a sharper alignment to where the short term rates are anyway.

      RBA releases Minutes of its May meeting anytime now. Singapore’s NODX came in -7.9%y/y vs. the average expected -8.4%. The electronics exports undershot expectations at -7.4%y/y, albeit a smaller decline than the previous -9.1%. GDT auction could move NZD tonight. Inflation expectations are due later this morning. Beyond Asia, ECB Praet speaks. UK has Apr CPI, PPI, RPI. There are a number of US data due including housing starts, building permits, CPI, IP, capacity utilization (Apr). Fed Williams, Lockhart and Kaplan will take turns to speak as well.

Currencies

G7 Currencies

      DXY – Sideways. US Equities were firmer, supported by oil prices (partly due to supply disruptions in Nigeria, Venezuela). Most commodity-linked currencies held ground while USD was marginally softer overnight. Fed’s Lacker said there is a strong case to raise rate in Jun FoMC meeting (non-voter). In overnight data – empire manufacturing plunged. All eyes look to data tonight in particular the IP, CPI and housing data for cues.   DXY was last seen at 94.53 levels. Bullish momentum on daily chart remains intact while stochastics is at oversold conditions. Resistance at 94.80 levels (50 DMA), 95.90 (50% fibo retracement of 2016 high to low). Support at 94 (21 DMA), 92.20 (2016 low). Week ahead brings Housing Starts, building permits, CPI, IP, Capacity utilization (Apr); Fed’s Williams, Lockhart, Kaplan speak on Tue; FOMC Minutes on Wed; Philly Fed Business Outlook (May); Fed’s Dudley speaks; CFNAI (Apr) on Thu; Existing Home Sales (Apr) on Fri.

      EURUSD – Watch 50 DMA. EUR was a touch firmer this morning amid slightly weaker USD.  Pair was last seen at 1.1320 levels. Daily momentum remains bearish while stochastics is entering overbought conditions. Key support at 1.13 (50 DMA); a break below could see an extension of the decline towards 1.1220 (50% fibo retracement of Mar low to May high), 1.1120 (100 DMAs). Resistance at 1.1430 (23.6% fibo). Week ahead brings ECB Praet speaks; EC trade (Mar) on Tue; EC CPI (Apr) on Wed; ECB Current Account, construction Output (Mar); ECB Minutes on Thu; GE PPI (Apr) on Fri.

      GBPUSD – Inflation Data on Tap. GBP rose to a high of 1.4469 this morning. Not too sure the main drivers behind that move. Market talks of opinion polls that saw strong support for remain in EU that supported the pair. But polls results were released yesterday night. GBP was last at 1.4450 levels. Bearish momentum on daily chart remains intact. Stochastics showing signs of rising from oversold conditions. Resistance at 1.4470 (76.4% fibo retracement of 2016 high to low), before 1.46 levels. Support at 1.4350 (61.8%) if broken on daily close basis could see an extension of decline towards 1.4250 (50% fibo), 1.4150 (38.2% fibo). Week ahead brings CPI, PPI, RPI (Apr); ONS House Prices (Mar) on Tue; Average Weekly earnings; Employment Change (Mar) on Wed; Retail Sales (Apr) on Thu; CBI Trends Orders (May) on Fri.

      USDJPY – Watching 1Q GPD. USDJPY continues to trade sideways, supported by jawboning. The pair is in a holding pattern ahead of 1Q16 GDP due tomorrow, which should show the economy avoiding a technical recession. Market is expecting growth of 0.3% q/q sa annualized vs. -1.1% in 4Q. Expectation that growth would remain fragile though has fuelled increased speculation that the consumption sales tax hike expected in Apr 2017 will be postponed in move to support the economy. Moreover, PM Abe told parliament yesterday that fiscal policy may be needed to create demand. Further jawboning is also likely in the absence of any concrete action to shore up confidence in Abenomics. Pair was last seen around 109.10 levels. Daily momentum indicators are still bullish bias, and weekly charts remains bearish but showing tentative signs of waning and stochastics is climbing higher from oversold conditions. Immediate resistance is at 109.40 (23.6% Fibo retracement of the Jan-May downswing) before 110.30 (50DMA). Support at 107.25 (38.2% Fibo retracement of end-2012 -when PM Abe came into power- to 2015 high) ahead of 105.50 (year’s low to date). Week ahead IP, Capacity Utilization (Mar) on Tue; GDP (1Q) on Wed; machine orders; all industry activity index (Mar) on Thu.

      NZDUSD – Inflation Expectation and GDT Auction Data. NZD traded a lackluster range of 0.6750 – 0.6810 yesterday in absence of fresh catalyst. Pair was last at 0.6780 levels.  Bullish momentum on daily chart is showing signs of waning. Stochastics is near oversold conditions. Support at 0.6740 (100 DMA) before 0.6640 (200 DMA). Resistance at 0.6830 (50 DMA). Watch GDT auction and inflation expectation for cues. Bias to sell on rally. Week remaining brings GDT Auction prices; 2Y inflation expectations (2Q) on Tue; PPI (1Q); RBNZ Governor Wheeler Speaks on Wed; Consumer Confidence (May)  on Thu;  Credit Card Spending (Apr) on Fri.

      AUDUSD – Overbought. AUD was last seen around 0.7290 this morning, inching higher along with other commodity-sensitive currencies. Daily momentum seems to be losing downside momentum and stochastic also shows some signs of waning bearishness. Pair is unwilling to break the 200-DMA at 0.7278 but momentum signals downside risks still. There could be a short-term retracement and we continue to eye the 200-DMA and a clean break there opens the way towards the next at 0.7140 (23.6% Fibonacci retracement of the May-Jan sell off). Beyond that, the 0.68-figure comes into focus. Resistance is seen at 0.7338 (50-DMA). AUD has been trading on the backfoot because of the surprise rate cut by RBA at the start of May. The selling continued also because of the fall in iron ore prices. The Statement on Monetary stressed on the uncertainties on domestic and global inflation and even more importantly the impact of the AUD on its growth and inflation. RBA highlighted a few uncertainties that could affect AUD – outlook for growth in China, developments in commodities as well as the expected path of monetary policy in major developed economies. AUD strength is the key reason for the cut and with Fed keeping the pace of rate hikes very gradual in the year, risk could be another cut in August. We no longer think that 0.72-0.78 is desirable for RBA and 0.70-0.75 range is more likely for the rest of the year. In the nearer term, we eye the break of the 0.72-handle that could put 0.7065-support in focus. RBA releases its Minutes for its May meeting today. We also watch wage price index for 1Q tomorrow, likely to come in subdue and labour report on Thu. Week ahead brings RBA Meeting Minutes today; Wage price index (1Q); Leading Index (Apr); RBA Debelle speaks on Wed; Labor market report (Apr) on Thu.

      USDCAD – 50-DMA Could be Broken. The 50-DMA provides strong guidance to this pair, as well as the oil prices. Last seen around 1.2904, barrier at 1.2978-level (61.8% Fibonacci retracement of the 2015-2016 rally, 50DMA) is still eyed and could continue to deter bulls. Oil gains are capping this pair at the 50-DMA but we notice that oil gains did not add further legs to the bears. That could suggest that the break of the 50-DMA awaits. Beyond this level, 1.3370 comes into focus. Daily momentum signal is bullish and continues to show signs of waning though stochastics are still on the rise. Immediate support is seen at 1.2830 before 1.2745 (21-DMA). Existing home sales accelerated to 3.1%m/m from 1.5%. Week ahead has Mar manufacturing sales tonight, Mar retail sales and Apr CPI on Fri.

Asia ex Japan Currencies

      The SGD NEER trades 0.34% below the implied mid-point of 1.3642. We estimate the top end at 1.3368 and the floor at 1.3915.

      USDSGD – Still Rangy.  USDSGD is in consolidation mode within 1.3600-1.3770 after climbing higher on 9 May, even as it edges lower this morning amid dollar softness overnight. Pair is awaiting cues for a breakout of these ranges. Continued weakness in Apr NODX however failed to boost the pair significantly. Pair was last seen around 1.3690 levels. Daily momentum is bullish bias but waning and stochastics still show signs of falling from overbought levels. Look for the pair to still trade range-bound within 1.36 levels (23.6% Fibo retracement of the Jan-Apr downswing, 50DMA) – 1.3770 (38.2% Fibo) ahead of 1.3870 (100DMA) for the week. A break above 1.3770 could trigger further upside towards 1.39 levels. We have 1Q GDP (final print) sometime 19-26 May. NODX fell for the second consecutive month in Apr by 7.9% y/y, beating market estimates of -8.4% and improving from Mar’s -15.7%. Electronics shipments slipped by a larger 7.9% y/y in Apr vs. estimates of -5.8%. Non-oil re-exports (NORX) fell 2.8% y/y in Apr, the third contraction in four months, due to a decrease in electronics NORX which outweighed the rise in non-electronics NORX.

      AUDSGD – Better Seller on Rallies. SGDMYR continues to trade in recent range of 2.93 – 2.95 in absence of fresh catalyst. Last seen at 2.9360 levels. Bullish momentum on daily chart is waning while stochastics is showing signs of falling from overbought conditions. We remain better sellers on rally. Break below 2.93 (lower bound of uptrend channel) should extend a move lower towards Support at 2.92 (21 DMA), 2.85 (2016 lows). Resistance at 2.9620 (100 DMA), 2.99 (50% fibo retracement of 2016 high to low).

      SGDMYR – Lean Against Strength. SGDMYR remained little changed, still trading within 2.9290-2.9630 range. Bullish momentum on daily chart is waning and stochastics shows signs of falling from overbought levels. In the short-term, pressure remains on the upside. But we are medium term bear in the cross and favour fading against strength (if any). Resistance is at 2.9630 (50% Fibo retracement of the Jan-Apr downswing, 100DMA) ahead of 2.9960 (200DMA). Support at 2.9260 (50DMA and lower bound of the uptrend channel). Break below could see further downside risks towards 2.90 (21DMA), 2.85 (2016 lows).

       USDMYR – Sell on Rally. USDMYR was a touch softer amid support oil prices (due to supply disruption in Venezuela and Nigeria). Pair was last seen at 4.0180 levels. Bullish momentum on daily chart is waning and stochastics is also showing signs of falling from overbought conditions. Support at 3.9850 (23.6% fibo retracement of 2016 high to low). Resistance at 4.0720 (38.2%). We look for better opportunities on the upside to fade into. Week ahead brings BNM meeting (Thu); Apr CPI and FX reserves (Fri).

      1s USDKRW NDF – Buy on Dips.  1s USDKRW was slightly softer amid a softer USD and supported risk sentiment. Last seen at 1177 levels. Bullish momentum remains intact (but shows tentative signs of waning) while stochastics is at overbought conditions. There could be short term downside pressure buy bias remains to buy on dips towards 1171 levels (38.2% fibo retracement of Mar high to Apr low), 1162 (50 DMA). Resistance at 1185 (50% fibo). Week ahead brings Apr PPI (Thu).

      USDCNH – Bullish Vigor. USDCNH reversed from earlier highs and steadied around 6.5450. Upside momentum wanes as the USD was subdued overnight. Stochastics show a peak forming in bullish momentum. Resistance at 6.5650. Support is at 6.50 (21, 50 DMA). USDCNY was fixed 143 pips higher at 6.5200 (vs. previous 6.5343). CNYMYR was fixed 8 pips higher at 0.6162 (vs. previous 0.6154). In the past 3-months, we have noted that in episodes of dollar strength, USDCNY is higher but CNY will be anchored by its trading basket meaning CNY will remain strong against the rest of the non-US trading partners. In episodes of dollar weakness, USDCNY tends to be lower and the CNY will weaken against the rest of the non- US trading partners. Markets seem to have caught onto this pattern as well. However, we would like to note that since 11 May, the tendency of CNY fixing has shifted. Perhaps, its because PBOC does not want too much predictability in the yuan movements or fixing, especially when dollar is on a significant upmove. We suspect that there could be a tweak in its FX policy, especially to temper the USDCNY upmove. It is still too early to confirm anything but we are monitoring the fixing and the RMB index as the USD continue to strengthen. Only property prices are due this week (Wed). In news, SAFE says the capital outflow pressure is gradually easing.

      1s USDINR NDF - Bias Upside. 1s USDINR NDF inched lower and was last seen around 67.17. Pair though continues to remain within the 66.50-67.30 range. Pair exhibits mild bullish momentum and stochastics is bullish bias. That continues to suggest upside bias. Resistance remains at 67.45 (38.2% Fibo retracement of the Feb-Apr downswing; 100DMA). Key support remains at 66.80 levels (21, 200 DMAs) with a break here could see bearish extension towards the year's low of 66.25 (4 Apr). Apr trade deficit narrowed to U$4.84 bn. Imports and exports recorded -23.1%y/y and -6.7%/y/y declines respectively. Apr wholesale prices rose 0.34%y/y, rebounding from the previous decline of -0.85%. At home, Finance Minister Jaitley said the GST bill “can eventually overcome opposition”.

      USDIDR – Limited Downside. USDIDR is inching lower this morning amid dollar softness overnight but continues to trade range-bound within 13250-13380. News that President Jokowi now has the upper hand in parliament following the entry of the Golkar Party into the ruling coalition fold. This should be supportive of the IDR as it would give the President a majority in parliament and allow him to push through his reforms and govern more effectively. Still, further unwinding of carry trade amid softer risk appetite could weigh on the IDR. Pair was last seen around 13310 levels. Momentum is still bullish bias but is waning, and stochastics shows signs of turning lower. Support remains at 13200-240 levels (23.6% Fibo, 21 & 50 DMA). Resistance at 13370 levels (38.2% Fibo retracement of the Jan-Mar downswing) ahead of 13430 (100DMA). The JISDOR was fixed higher again at 13328 yesterday from Fri’s 13311. Market sentiments remained soft with foreign funds selling a net USD0.04mn in equities yesterday. They had however added a net IDR0.16tn to their outstanding holding of government debt on 12 May (latest data available). Key focus will be on BI meeting on Thu but we do not expect any adjustment by the central bank given the transition towards a new policy rate and interest rate corridor mechanism. In the news, exports remained in the doldrums, contracting by 12.64% y/y in Apr, coming in worse than market’s -10.9%, but an improvement from Mar’s -13.38%. Imports continued to contract as well, falling by 14.62% y/y in Apr from Mar’s -10.37%. This resulted in a wider trade surplus of USD667mn in Apr than Mar’s USD508mn.

      USDPHP – Bearish.   The interest rate corridor announcement, which saw the planned cut in benchmark policy rate, affected the USDPHP only marginally. Market viewed the rate cut as a change in policy direction but as part of the adjustment to make the policy rate more effective. After the sharp drop in the days following the elections, USDPHP has bounced higher this morning, possibly on profit-taking activities. With election rhetoric now out of the way, market is now focused on unofficial president-elect Duterte’s economic policy direction and cabinet members. For now, market is giving Duterte the benefit of the doubt. The coming days though will be closely watched and there could still be investor jitters should investors’ concerns regarding Duterte’s economic direction and cabinet members fail to be met. Our study showed that there is a tendency for equities to be sold-off for at least another six months after the elections as a result of the uncertainty surrounding the policies of the incoming president. PHP could come under pressure. Last seen around 46.440 levels, pair is bearish bias and stochastics is fast approaching oversold levels. Support is at 46-figure. Any upside could meet resistance at 46.490 (50DMA) ahead of 46.730 (38.2% Fibo retracement of the Jan-Mar downswing; 21DMA). Week ahead has overseas remittances (Mar) on Mon; GDP (1Q); BoP (Apr) on Thu. The BSP announced yesterday that it plans to cut the benchmark rate to 3% from 4% and that the interest rate corridor will be set plus and minus 50bp effective 3 Jun. The overnight deposit facility, which replaces the special deposit rate (SDA), will be left unchanged at 2.5%. The lending rate is cut to 3.5% from 6.0%. The adjustment is an operational change to boost the effectiveness of the transmission mechanism and does not constitute a policy move. A narrower corridor would guide the market closer to the benchmark rate.

      USDTHB – Limited Downside.  USDTHB is slipping lower this morning, helped by softer dollar overnight as well as better-than-expected GDP print in 1Q. 1Q 2016 GDP beat market expectations of 2.8%, coming in at 3.2% y/y   vs. 4Q’s 2.8%. Driving growth higher was the boost from government investment spending, rising tourist arrivals and foreign investment. However, growth in domestic demand and exports remain weak. Both are likely to remain weak given rising bad debt levels especially among households and still soft external demand. Nevertheless, given the better-than-expected 1Q GDP, the NESDB has revised higher its 2016 growth forecast to 3-3.5% from 2.8-3.8% previously. Pair was last seen around 35.390 levels. Daily momentum indicators remain mildly bullish bias but waning, and stochastics shows signs of turning lower from overbought levels. Further downside should find support at 35.120 (23.6% Fibo retracement of Jan-Mar downswing; 21 & 50DMA). Immediate resistance is at 35.480 (100DMA) ahead of 35.660 (200DMA). Sentiments were mixed yesterday with foreign funds buying a net THB0.58bn sold in equities but selling a net THB2.95bn in government debt. Remaining week has foreign reserves (13 May) on Thu.

Rates

Malaysia

In MGS, buying flows were seen for the 7y and 10y benchmarks with a decent amount of volume traded. The yield curve ended 1-3bps lower at the belly and 1-3bps higher at the long end.       MYR IRS market was lackluster and rates were largely stagnant. The 5y IRS got traded at 3.66%, and 3M KLIBOR stayed the same at 3.67%.       Good buying interest seen in PDS space across credit curves. Decent amount of GGs maturing in 2020 and 2023 traded at 3.85-3.87% (G+51bps/Z+23bps) and 4.10% (G+37bps/Z+28bps) respectively. AAAs also saw more buying flows with Putrajaya and Danga papers being dealt 2-3bps below previous MTM. AA names widened a tad, with Kesturi and Gamuda 1-3bps wider from previous MTM. CIMB Group Holdings opened book for its B3 AT1 Perp NC5 at 5.80% with a target issue size of MYR1b.

Singapore

SGS yields lowered 1-3bps tracking the UST rally and helped by the dip in USDSGD, though trading volume remained thin. SGD IRS saw keen receiving interest and closed 3-5bps lower with a slight flattening bias.       In Asian credit, 2 new SGD issuances were in focus. Manulife’s bond issuance coincided with Manulife USA’s REIT IPO in Singapore, which is looking to raise USD500m with a projected dividend yield of 6.5-7.0%. In spite of the more attractive REIT yield relative to the new bond’s 3.85% YTM, Manulife’s order book garnered a size of over SGD3.5b. USD space, however, was muted trading +/-1bp from last Friday’s levels.

 Indonesia

Indonesia bond market move sideways within the day with IGS prices closed mixed where several tenor series prices incline while others decline. April trade balance was published by Indonesia statistics which came in with a widening surplus of $667 mn compared to previous month surplus of $508 mn. The widening surplus was contributed by exports of CPO due do incline in CPO prices. This may have resulted given a positive sentiment to the IGS market. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 7.372%, 7.655%, 7.872% and 7.896% while 2y yield shifts up to 7.147%. Trading volume at secondary market was seen moderate at government segments amounting Rp12,798 bn with FR0053 as the most tradable bond. FR0053 total trading volume amounting Rp2,426 bn with 42x transaction frequency and closed at 103.700 yielding 7.372%.       DMO will conduct their bi-weekly sukuk auction today with five series to be auctioned which are SPN-S04112016 (Coupon: discounted; Maturity: 4 Nov 2016), PBS006 (Coupon: 8.250%; Maturity: 15 Sep 2020), PBS009 (Coupon: 7.750%; Maturity: 25 Jan 2018), PBS011 (Coupon: 8.750%; Maturity: 15 Aug 2023) and PBS012 (Maturity: 15 Nov 2031). We believe that the auction will be oversubscribe by 2.0x – 3.0x from its indicative target issuance of Rp4 tn while our view on the indicative yield are as follows SPN-S04112016 (range: 5.60% – 5.70%), PBS006 (range: 7.40% – 7.50%), PBS009 (range: 7.65% – 7.75%), PBS011 (range: 7.90% – 8.00%) and PBS012 (range: 8.20% – 8.30%).       Corporate bond trading traded thin amounting Rp411 bn. BEXI02BCN7 (Shelf Registration Indonesia Eximbank II Phase VII Year 2016; B Serial bond; Rating: idAAA) was the top actively traded corporate bond with total trading volume amounted Rp90 bn yielding 8.253%.