Maybank GM Daily - 18 May 2016

FX

Global

      The DXY index shrugged off comments by the Fed speakers Williams and Lockhart who see at least two rate hikes this year. Apr data released overnight was positive. US housing starts, industrial production, CPI beat expectations. The UST curve flattened overnight with the 1m UST yield jumping 3.5bps as we write in early Asia while those on the long end shifted modestly lower. Positive oil held the DXY right under the 50-DMA. Stocks slipped overnight on fears that Fed might move earlier than anticipated.

      Overnight trades set the tone for Asian equities. Kospi was down -0.9% while Nikkei flatlined, cushioned by Japan’s GDP which came in at 1.7%q/q, well above the average forecast of 0.3%. Seasonally adjusted, growth quickened to 0.4%q/q from previous -0.3%. Against the USD, AXJ currencies are weaker.  KRW, THB, SGD, MYR traded on the backfoot. JPY strengthened 0.3% so far, as we write, an indication of cautious risk sentiments.

      The day ahead has little data in Asia – only China’s property prices which could provide some insight on real estate performances and impact of recent cooling measures. Beyond Asia, there is CPI print from the Euro-area for Apr. Thereafter, FOMC released the Minutes of its Apr meeting. We see upside pressure on the USDAXJs although the lack of cues could mean that prices would stay largely within familiar ranges.

 

Currencies

G7 Currencies

      DXY – Range with Bias to the Upside. Fed’s Williams joined Lacker in saying that gradual (path of tightening) means 2 to 3 hikes this year. Both are non-voters. Implied probability of rate hike (from fed fund futures) in Jun has finally reacted – jumping to 12%, from 4%. We reiterate our caution that markets could potentially be under-pricing Fed hike trajectory and a shift in expectation could lead to readjustment and could lead higher UST yields and USD strength. US equities fell in response to renewed talks of rate hike. In overnight data – Apr CPI surprised to the upside. USD retraced some of early losses against most majors except JPY. DXY was last seen at 94.55 levels. Bullish momentum on daily chart remains intact while stochastics is at oversold conditions. Resistance at 94.70 levels (50 DMA), 95.90 (50% fibo retracement of 2016 high to low). Support at 94.10 (21 DMA), 92.20 (2016 low). Week remaining brings FOMC Minutes on Wed; Philly Fed Business Outlook (May); Fed’s Dudley speaks; CFNAI (Apr) on Thu; Existing Home Sales (Apr) on Fri.

      EURUSD – Watching 50 DMA. EUR traded in muted range of 1.13 – 1.1350 in absence of fresh catalyst. Pair was last seen at 1.1310 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 remaining brings EC CPI (Apr) on Wed; ECB Current Account, construction Output (Mar); ECB Minutes on Thu; GE PPI (Apr) on Fri.

      GBPUSD – Labor Report on Tap. GBP clawed back some of yesterday’s gains after CPI inflation surprised to the downside amid USD strength into NY close. 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 remaining brings Average Weekly earnings; Employment Change (Mar) on Wed; Retail Sales (Apr) on Thu; CBI Trends Orders (May) on Fri.

      USDJPY – Downside Tilt Within Range. USDJPY traded lower amid dollar weakness and better-than-expected 1Q16 GDP print that weakened the argument for further stimulus. The economy expanded by 1.7% q/q sa annualized (SAAR) vs. market estimates of 0.3% and -1.1% in 4Q. Driving growth higher was an increase in consumer spending with household spending up 1.9% SAAR, and government spending up 2.8% SAAR. Despite the downside pressures, pair continues to trade sideways as expectations of intervention could keep currency swings in check. Further jawboning is also likely in the absence of any concrete action to shore up confidence in Abenomics. Last seen around 109-handle, daily momentum indicators are still bullish bias, and weekly charts remains bearish but waning and stochastics shows signs of climbing higher from oversold conditions. Immediate resistance remains at 109.40 (23.6% Fibo retracement of the Jan-May downswing) before 110.20 (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). Remaining week has machine orders; all industry activity index (Mar) on Thu.

      NZDUSD – Tracking the AUD. NZD rallied to an overnight high of 0.6843 amid better than expected GDT auction results (+2.6% from previous auction) but the subsequent decline of the AUD into NY close took the NZD down as well. Pair was last at 0.6780 levels.  Bearish momentum on daily chart remains intact while stochastics is near oversold conditions. Support at 0.6740 (100 DMA) before 0.6640 (200 DMA). Resistance at 0.6830 (50 DMA). Bias remains to sell on rally. Week remaining brings RBNZ Governor Wheeler Speaks on Wed (not public); Consumer Confidence (May)  on Thu;  Credit Card Spending (Apr) on Fri.

      AUDUSD – Sell on Rallies. AUD was last seen around 0.7300 this morning, softening from its overnight highs as risk appetite waned. Daily momentum continues to lose downside momentum and stochastic also shows that the downside has troughed in the near-term. Pair is unwilling to break the 200-DMA at 0.7278. There could be a short-term retracement higher but 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). Potential dollar resurgence, soft commodity demand from China and a dovish RBA which is particularly concerned about the currency strength could mean that odds are for the AUD to fall. We have now shifted our target for 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. The Minutes of the May meeting had some re-thinking their calls for more rate cuts this year but rallies in the AUD was short-lived. We watch wage price index for 1Q due later, likely to come in subdue and labour report on Thu. Week ahead brings; Wage price index (1Q); Leading Index (Apr); RBA Debelle speaks today; Labor market report (Apr) on Thu.

      USDCAD – Bulls Awaiting Chance To Clear 50-DMA. The 50-DMA continues to provide strong guidance to this pair. Last seen around 1.2920, 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). Mar manufacturing sales came in better than expected at -0.9%m/m vs. expected -1.9% but that still did not give USDCAD bears more steam. We suspect bulls are awaiting a chance for a breakout. Week ahead has Mar retail sales and Apr CPI on Fri.

Asia ex Japan Currencies

      The SGD NEER trades 0.50% below the implied mid-point of 1.3655 with the top end estimated at 1.3381 and the floor at 1.3930.

      USDSGD – Consolidating.  USDSGD is edging higher above the 1.37-handle amid market concerns of US interest rates higher than what market is pricing. Pair though continues in consolidation mode within 1.3600-1.3770. Pair was last seen around 1.3720 levels with daily momentum showing waning bullish bias and stochastics falling from overbought levels. Range-bound remains likely in the near term. Resistance remains at 1.3770 (38.2% Fibo retracement of the Jan-Apr downswing). A break above 1.3770 could trigger further upside towards 1.39 levels. Support is at the 1.36 levels (23.6% Fibo). We have 1Q GDP (final print) due sometime 19-26 May.

      AUDSGD – Bullish Divergence. AUDSGD held above parity, last printed 1.0014. We still see a bullish divergence on the charts and hold our view to opportunistically looking to buy on dips. Resistance at 1.02 (23.6% fibo). Support at 0.9970 (previous low) before 0.9910 levels (76.4% fibo retracement of 2016 low to high).

      SGDMYR – Range of 2.92 – 2.96 to Hold. SGDMYR continues to trade in recent range of 2.93 – 2.9470 yesterday in absence of fresh catalyst. Last seen at 2.9360 levels (same level as we wrote yesterday’s daily). 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). But we note that downside pressure may not be as forthcoming as 21 DMA is about to cut 50 DMA to the upside (short term upside pressure and can turn around soon). Technical signals suggest 2.92 – 2.96 range to hold for the week.

       USDMYR – Range of 3.98 – 4.05 to Hold. USDMYR was little changed as gains in oil prices countered USD strength. Pair was last seen at 4.0250 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. Meantime range of 3.98 – 4.05 is expected to hold for the week. Week ahead remaining BNM meeting (Thu); Apr CPI and FX reserves (Fri).

      1s USDKRW NDF – Upside Risk.  1s USDKRW traded a touch higher amid USD strength and cautious risk sentiment. Last seen at 1180 levels. Bullish momentum remains intact while stochastics is at overbought conditions. Bias remains to buy on dips looking for a move towards 1185 on the upside. 21DMA is expected to cut 50DMA to the upside – short term bullish signal. Some technical levels to watch – support at 1171 levels (38.2% fibo retracement of Mar high to Apr low), 1162 (50 DMA). Resistance at 1185 (50% fibo), 1200 (61.8% fibo).

      USDCNH – Little Bias. USDCNH steadied around 6.5480. Upside momentum waned as the USD was subdued overnight. Stochastics show a peak forming in bullish momentum. Resistance remains at 6.5650. Support is at 6.50 (21, 50 DMA). USDCNY was fixed 16 pips higher at 6.5216 (vs. previous 6.5200). CNYMYR was fixed 1 pip higher at 0.6146 (vs. previous 0.6147). 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 today. In news, SAFE says the capital outflow pressure is gradually easing.

      1s USDINR NDF - Bias Upside. 1s USDINR NDF inched higher and was last seen around 67.29. Pair 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).

      USDIDR – Gapped Higher. USDIDR gapped higher at the opening this morning to 13318 from yesterday’s close of 13295, playing catch-up with its regional peers. Even then, pair remains in range within 13250-13380. The risk remains of further unwinding of carry trade amid softer risk appetite that could weigh on the IDR. Pair was last seen around 13320 levels. Daily momentum is exhibiting waning bullish bias and stochastics is turning lower. Pair should remain in range trading for now as market awaits BI policy decision tomorrow. We do not expect any adjustment by the central bank for now given the transition towards a new policy rate and interest rate corridor mechanism. Resistance remains at 13370 levels (38.2% Fibo retracement of the Jan-Mar downswing) ahead of 13420 (100DMA). Support is at 13250 (21DMA). The JISDOR was fixed lower for the first time in four days at 13278 yesterday from Mon’s 13328. Market sentiments remained soft with foreign funds selling a net USD6.52mn in equities yesterday. In the news, Finance Minister Brodjonegoro does not expect any adjustments to the policy rate ahead of the adoption of the new policy framework in Aug. He was also sanguine about the economy, expecting growth to come in above 5% in 2Q on improvements in public spending and agriculture output.

      USDPHP – Gapped Higher.   USDPHP gapped higher at the opening this morning to 46.475 from yesterday’s close of 46.430, tracking the USD/AXJs broadly higher. With election rhetoric now out of the way, market’s focus is on unofficial president-elect Duterte’s economic policy direction and cabinet members. Among those considered for cabinet positions include Carlos Dominguez III (for Finance Secretary). 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 are not 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. Sentiments weakened yesterday with foreign funds selling a net USD0.45mn in equities. Last seen around 46.520 levels, pair is still bearish bias and stochastics is fast approaching oversold levels. Further upside should meet resistance at 46.730 (38.2% Fibo retracement of the Jan-Mar downswing; 21DMA). Support is at 46-figure. We have GDP (1Q); BoP (Apr) due tomorrow. Market is expecting the economy to expand by a faster 6.9% y/y in 1Q16 vs. 6.3% in 4Q15.

      USDTHB – Bullish.  USDTHB continues its climb higher amid concerns faster-than-expected US rate hikes even as the dollar is softer. Even the downside pressure from better-than-expected GDP print for 1Q was not sustained as global concerns dominated. Pair was last seen around 35.600 levels. Daily momentum indicators remain mildly bullish bias, and stochastics remains at overbought levels. Further upticks should meet resistance at 35.660 (200DMA) ahead of 35.770 (61.8% Fibo retracement of Jan-Mar downswing). Any retracement should find support around 35.370 (38.2% Fibo). Sentiments soured yesterday with foreign funds selling a net THB0.65bn and THB2.28bn in equities and government debt. Remaining week has foreign reserves (13 May) on Thu.

Rates

Malaysia

      Local government bonds were well supported ahead of the MPC as the curve ended the day 1bp lower on the back of continued buying on the belly of the curve amidst very good volumes. Trades centered upon the 7y benchmark MGS 8/23 and GII 7/23 with a total of 430m and 920m worth of trades done by close respectively.

      MYR IRS curve was quoted marginally higher with no trade reported. 3M KLIBOR was unchanged at 3.67%.

      The PDS market saw a surge in buying interest in the 5-7y AAA and GG papers. Names like Danainfra and Danga were favoured. Cagamas did a retap of its 7/17 with guidance of 3.95-4.05% level (G+73bps / Z+35bps) which we think likely will be priced at 3.95% judging from secondary levels. Names we think provide better value include Putrajaya 7/19 at around 4.00-4.05%.

Singapore

SGS prices dipped at opening tracking lower USTs overnight as US stocks rallied, but soon recovered on bottom fishing by players.  SGS yields were unchanged by half time as softer USDSGD pressured short-dated forwards to the left. Things turned around in the afternoon session as UST futures bottomed out from recent lows, triggering some selling in SGS at the long end. Curve steepened with yields of long-dated issues from the 10y benchmark onwards up 2-4bps whilst the short end closed about unchanged.  The SGS IRS curve also steepened to end the day down 1-2 bps at the front end and up 2bps at the long end.        In Asian credit, Manulife in SGD outperformed by trading to 100.40/60, meaning a good 12bps rally putting itself as one of the best performers in SGD for new issuances despite the final guidance of 3.85% already seemed expensive. IG space felt a touch risk on with some good buying seen in CHGRID and even JD Com. IG markets traded 2-3bps better on spread although outright price lower due to a lower UST. Large USD issuance to be priced include Dell (for EMC acquisition) in the 3, 5, 7, 10, 20 and 30y line with over USD80n book on USD20b size, which reportedly is the second biggest deal this year.

 Indonesia

Indonesia’s government bonds strengthened yesterday. Investors came back to Indonesia’s bond markets after the last data of quarterly current account deficit and monthly trade balance surplus improved. Those macro data results gave more confidence about Indonesia’s economic robustness. Yesterday’s successful Sukuk auction also increased government bonds in the secondary market. The government successfully absorbed Rp6.51 trillion in yesterday’s Sukuk auction. It exceeded its initial target at Rp4 trillion. The market players also felt optimist to further result on Indonesia’s rating upgrade to be investment grade by S&P, the tax amnesty scheme, and Bank Indonesia’s further monetary meeting. Those sentiments are expected to keep Indonesia’s bond markets to be conducive.