Maybank GM Daily - 23 May 2016

FX

Global

      US stocks managed to end the week in the green on Fri, though this was still slightly lower than at the beginning of the week. The hawkish FOMC meeting minutes together with hawkish Fed speakers especially New York Fed’s Dudley that put Jun’s FOMC meeting into play failed to keep equities down. Markets saw possible rate hike in Jun as positive for financial stocks that have so far been laggards. Still sentiments should remain cautious for the week as market watches US data for further clarity. The dollar index has so far remained firm.

      After rising towards the USD50/barrel level (18 May), crude has edge lower towards the USD48-levels following comments by Iran over the weekend that it would not participate in any oil output freeze. The softer oil prices plus concerns about a Jun US rate hike could keep equity markets in Asian rangy ahead. Last week, most of Asia (ex Japan) were lower with Singapore and Malaysia the exceptions.

      Busy week ahead. We have Fed Chair Yellen speaking on Fri, which would keep markets on their toes. There are also a couple of Fed speakers ahead including Bullard, Williams and Harker (Mon), Kashkari and Kaplan (Wed), Bullard and Powell (Thu). These should mean cushion any dollar downside ahead.

      Elsewhere we have preliminary PMI-mfg out of Europe, Singapore CPI on Mon; US new home sales (Apr), ECB Praet speaks, GE ZEW survey, RBA Steven speaks on Tue; BOC decision, GE IFO (May), ECB Constancio speaks, NZ trade (Apr), Singapore GDP (1Q final), Philippines Imports (Apr) on Wed; US durable goods orders (Apr p), AU Capex (1Q), New Zealand budget 2016, UK GDP (1Q), Singapore industrial production (Apr) on Thu; US GDP (1Q), Japan CPI (Apr) and China industrial profit (Apr) on Fri.

Currencies

G7 Currencies

      DXY – Bulls Could Take A Breather Ahead Of Yellen. Since the release of the FOMC minutes, Fed Fund Futures showed that the implied probability of a rate hike in Jun has risen significantly from just 4%. Still, the Fed continues to look for data confirmation for its next move. With Fed Fund futures implied probability at 28%, we still think markets potentially be underpricing rate hike, especially as inflation is inching higher (PCE core at 2.1% q/q in 1Q) and labor market near full employment. Even New York Fed President Dudley has commented that data so far seems to satisfy Fed goals although he also warned that financial conditions do play a role as well. We continue to hold to our out-of-consensus call for a 25bps rate hike in Jun. The index was last seen at 95.315 levels. Bullish momentum on the daily chart is still strong although stochastics has entered into overbought conditions. We still see room for gains. Resistance is at 95.90 (50% Fibo retracement of 2016 high to low), 96.27 (100-DMA). Support at 94-figure (38.2% Fibo); 94.59 (50-DMA). Busy week ahead with Fed's Bullard, Williams, Harker speaks on Mon; Richmond Fed Mfg (May), New Home Sales (Apr) on Tue; MBA Mortgage (May-20), House Price Purchase Index (1Q), Fed Kashkari, Kaplan speaks on Wed; Fed Bullard Speaks, durable goods orders (Apr P), Fed Powell on Thu; GDP (1Q S), Univ. of Mich. Sentiment (May F), Fed Yellen Speaks on Fri.

      EURUSD – Potentially Sticky Around 200-DMA. EURUSD ended the week, resting within striking distance of the 200-DMA, last printed 1.1230 levels. Momentum is bearish bias though stochastics is now in oversold region. We keep in view that EUR vs. risk proxies including AXJs and commodity-linked G7 FX (AUD, NZD) remain supported amid cautious risk sentiment. Bullish momentum on weekly chart is near to zero now while stochastics is turning lower. Against the USD, there could be scope for a pullback towards 1.1120 levels (100 DMAs) and then at 1.1009 (76.4% Fibonacci retracement of the Mar-May rally). Resistance at 1.1315 (38.2% Fibo, 50DMA); 1.1430 (23.6% Fibo). In the nearer term, we sense consolidation around the 200-DM at 1.1160. Week ahead brings FR, GE, EC, PMI-mfg (May P), EC Consumer Confidence (May) on Mon; GE GDP (1Q F), ECB Praet speaks, GE ZEW Survey (May), Euro-Area Finance Ministers Meeting on Tue; GE IFO (May), ECB Constancio speaks on Wed.

      GBPUSD – GDP on Thu, Two-Way Risks. The swing towards “Bremain” in the polls lifted the GBPUSD to a high of 1.4663 before inching lower. It was the rare outperformer of the week, outshining even the USD. The week ahead could be a softer one for the pair as 1Q GDP is on tap. A BOE official warned of greater stimulus even if UK remains in the EU unless there is evidence of an improvement in the economy. Even the G7 finance ministers and central bank governors added their voices to “Bremain”, warning that a Brexit would be the wrong decision and hurt economic growth. From the last inflation report, the CPI forecast for this year remained unchanged but 2017 forecast was lowered to 1.5% from 1.6%. We also believe Brexit debate should intensify further in the lead up to referendum on 23 Jun but given our base scenario of Bremain, we continue to seek opportunities to buy on dips. GBP was last at 1.45-handle. MACD is at zero while stochastics has room on either side. We see potential two way movements ahead although the medium term remains a buy on dips as bets on Brexit unwind. Any retracements will be shallow. Support at 1.4350 (50,100DMAs). Resistance at 1.4700; 1.4790 (200DMA). Week ahead brings GDP (1Q P) on Thu; GfK Consumer Confidence (May) on Mon.

      USDJPY – Room For Upside. The USD resurgence has lifted the USDJPY above the 110-level by week’s end. The G7 Summit failed to provide Japan with any cover for a concerted effort to weaken the JPY so more jawboning  could be in the works. Still, the current weakness in the JPY may mean that this could be of less focus. USDJPY was last at 109.80 levels. Daily momentum is bullish, stochastics indicate scope for upside. The 50-DMA, which has been a strong guidance for this pair, had been taken out on Fri. Expect the lack of market cues to keep the pair in swivels around the 110. That said, we still reiterate that risks are to the upside. Next barrier is seen at 112 before 113.60 (50% Fibo retracement of the Jan-Mar downswing). Support at 108.80 (21-DMA) before 105.55 (2016 low). Week ahead brings BOJ Nakaso speaks on Mon; Nikkei PMI Mfg (May P) on Tue; CPI (Apr) on Fri.

      NZDUSD – Better Sellers on Rally. Kiwi is still heavy, dragged lower by dollar gains. Pair was last seen at 0.6775 levels. Weekly, daily momentum remains bearish bias. Support at 0.68 levels (lower bound of the upward sloping trend channel) has been broken but the 100-DMA is still intact at 0.6720. Next support is at 0.6650 (200 DMA). Resistance at 0.6840 (21, 50 DMAs), 0.7050 (double top in Apr and May). Watch the delivery of the budget on Thu. Week ahead brings Trade (Apr) on Wed; New Zealand Budget on Thu.

      AUDUSD – Retracements. AUD touched a low of 0.7176 before rebounding sharply to levels around 0.7250 by the end of the week. The decline last week was largely due to broad dollar strength, in line with most of the risk proxies. In the medium term, industrial commodity prices look bearish and could extend its losses and this will have a negative bearing on the AUD. Daily momentum indicators are waning in bearishness with stochastics showing a trough in oversold region. The price action in the past two sessions suggests that bears are less surefooted and the week ahead could be one of retracements. 200-DMA could be retested on the way up towards the next barrier at 0.7340 (100DMA). Upticks are likely on short leash and could be seen as opportunities to sell. Further downside could shift focus on 0.7065 (76.4% Fibo of the Jan-Apr upswing) before 0.6830 (2016 low). Resistance at 0.7330 (50% Fibo). Firmer resistance at 0.7450 (38.2% Fibo). We watch RBA Stevens speech on Tue as well as 1Q CAPEX numbers on Thu. Week ahead brings RBA Stevens Speech in Sydney on Tue; Private Capex (1Q) on Thu; RBA Debelle in panel participation on Fri.

Asia ex Japan Currencies

      The SGD NEER trades 0.35% below the implied mid-point of 1.3743. The top end is estimated at 1.3467 and the floor at 1.4019.

      USDSGD – Consolidation likely around the 100-DMA, Bias Upside.  USDSGD turned higher into the close of last week and was last seen at 1.3780 levels, sticky around the 100-DMA. Momentum is still bullish bias but stochastics is in overbought conditions. Further upmove could be a grind this week and we see resistance at 1.3900 levels (50% Fibo retracement of the 2016 sell off). Support is seen at 1.3770 (38.2% Fibo) and further retracements to meet next support at 1.3650 (23.6% Fibo) which should not be challenged. Week ahead has Apr CPI on Mon; 1Q (Final) GDP on Wed; Apr industrial production on Thu.

      AUDSGD – Downside Risks. AUDSGD is still heavy and was last seen at 0.9980 levels, almost little change from last week. We see further correction on the weekly chart with stochastics bearish bias. Further correction puts next support at 0.9830 levels before 0.97 levels (double bottom).

       SGDMYR – Medium Term Bear. SGDMYR rallied to test the 50-DMA last week and was last seen around 2.9545 levels. Bullish momentum on daily chart has dissipated but stochastics continues to climb higher. We do not rule out further upmove but retracements seem more likely in the near-term. We are medium term bear in the cross and favor fading against strength (if any). Resistance at 2.9650 (50% Fibo retracement of 2016 high to low), 2.9920 (61.8% Fibo). Support at 2.9230 (50 DMA and lower bound of uptrend channel). Break below could see further downside risk towards 2.90 (23.6% Fibo), 2.85 (2016 lows).

       USDMYR – Upside Bias. USDMYR has rallied towards the 100-DMA. Last seen at 4.0710 levels. Daily momentum remains bullish bias while stochastics shows tentative signs of falling from overbought conditions. Retracement risk is high but likely to be shallow in the face of a dominant dollar. Next support is at 4.00. The 100-DMA at 4.1010 has become a resistance to watch. A break here could see a move towards 4.1550 (16 Mar high) to cap topsides. No notable data on tap this week.

      1s USDKRW NDF – Buy on Dips.  1s USDKRW gapped lower at the opening this morning to 1185 from Fri’s close of 1188, amid dollar softness. Last seen at 1185 levels, pair’s bullish momentum remains intact while stochastics is still at overbought conditions but shows tentative signs of turning lower. 21DMA cuts 50DMA to the upside – short term bullish signal. Still bias to buy on dips. Support is at 1177 (200DMA). Barrier is at 1200 (61.8% Fibo retracement of the Feb-Apr downswing). There are no data of note this week.

      USDCNH – Retracement Risks. USDCNH came off to end last week after climbing higher towards 6.5820 mid-week. Pair was last seen around 6.5585 levels. Bullish momentum is waning on the daily charts and stochastics shows signs of turning lower from overbought levels. Support is at 6.5360 (100-DMA) before 6.50 (50 DMA). We continue to see risks of retracement. Resistance is at 6.5820 (19 May high) ahead of 6.6200. USDCNY was fixed 55 pips lower at 6.5455 (vs. previous 6.5510). CNYMYR was fixed 4 pips higher at 0.6204 (vs. previous 0.6200). We have just Apr industrial profits on Fri.

      USDIDR – Upside Risks. USDIDR spiked higher last week towards the 13600 levels and is again retesting those levels this morning as unwinding of carry trades amid soft risk sentiments continue to weigh. Also concerns of further BI easing following the dovish comments by BI last week is also weighing on the pair as is the growth downgrade for 2016. Last seen around the 13610 levels, daily momentum is bullish bias and stochastics remains at overbought levels. Barrier is at 13675 (200DMA); 13760 (76.4% Fibo retracement of the Jan-Mar downswing). Support remains at 13490 (50% Fibo). The JISDOR was fixed higher at 13573 to end last week and the spot’s climb this morning could see a higher fixing again. Market sentiments softened last week with foreign funds selling a net USD29.42mn in equities. They had however added a net IDR0.3tn to their outstanding holding of government debt on 16-18 May (latest data available). No notable data due this week.

      USDPHP – Bullish Bias.   USDPHP edged close to the 47-figure last week before coming off to hover around the 21-DMA at 46.800 levels. With election rhetoric now out of the way, market’s focus is on unofficial president-elect Duterte’s economic policy direction and cabinet members. For now, market is giving Duterte the benefit of the doubt. Still, the coming days 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. Already his recent bluster against the Catholic Church – a pillar of society – could raise jitters about his temperament. 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 46.820 levels, pair has lost most of its bearish momentum and stochastics is climbing higher. Resistance is at 46.985 (50% Fibo retracement of the Jan-Mar downswing; 100DMA); 47-handle. Support remains at 46.490 (50DMA). Sentiments soured with foreign funds selling a net USD5.39mn in equities last week. Week ahead has Mar imports on Wed.

      USDTHB – Buy On Dips.   After climbing past the 35.800-levels last week, USDTHB has retraced and is hovering around the 35.600-levels currently on the back of dollar softness. Pair was last seen around 35.630 with daily charts still bullish bias and stochastics showing signs of turning lower from overbought levels.  Pair should trade range bound in the near term in the absence of fresh catalyst and any dips could be buying opportunities. Support is at 35.570 (50% Fibo retracement of Jan-Mar downswing). Rebounds should meet resistance at 35.770 (61.8% Fibo). Sentiments improved with foreign investors buying a net THB0.96bn and THB1.96bn in equities and government debt last week. Week ahead brings Apr customs trade on Wed; 19 May foreign reserve on Fri.

Rates

Malaysia

      Local government bonds reversed some gains as less dovish than expected MPC statement deterred players from adding positions. Yields mostly ended higher by as much as 4bps at the belly, and 7y MGS benchmark with the highest traded volume. The new benchmark 10.5y MGS 11/26 will be auctioned on Monday. WI traded at 3.87% last Friday.

      MYR IRS market saw good bids in reaction to the less dovish MPC statement. Some trades were reported at the 5y point, and the curve ended 1-4bps higher. We think market will remain better bid as players readjust positions given no rate cut. 3M KLIBOR unchanged at 3.67%.

      PDS levels pretty much unchanged. GG space saw decent activity but prices remained firm, with short dated PASB and long dated Prasa, Dana being dealt. AAAs felt better offered especially at the belly. Aman 5/25 widened 5bps to 4.48% (G+59bps/Z+45bps), which we think offers value. Telekom 21s tightened 1bp to 4.11% (G+57bps/Z+36bps), seems fair. Market remains cautious given the flat yield curves.

Singapore

      Good buying in SGS early in the day following the rebound in UST overnight, but market later turned cautious. Local was seen offering around the 10y point which depressed prices at the long end, though the 30y benchmark remained well supported. 10y SGS yield +2bps pending announcement of the issue size for the new 10y benchmark, while elsewhere on the yield curve closed unchanged. Short dated forwards were well bid in late afternoon and SGD IRS curve rebounded from a low of -4bps to end flat.

      Asian credits managed to regain some of the previous day’s losses. In EM sovereign, INDONs rose +50-75cts higher at the belly and about +1pt higher at the long end on the back of short covering. In IG space, spreads were flat to 2bps tighter.

 Indonesia

      Indonesia bond market closed lower during Friday trading session marking a weekly loss. Selling pressure was noticed during the day supported by weakening local currency. Minimum data release during this week along with uncertainty whether the country would receive an upgrade in rating by S&P rating agency may have caused a selloff of IGS by bond investors. The decline in IGS prices also occurred ahead of the bi-weekly auction by DMO this week. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 7.586%, 7.848%, 8.117% and 8.014% while 2y yield shifts up to 7.272%. Trading volume at secondary market was seen thin at government segments amounting Rp10,416 bn with FR0056 as the most tradable bond. FR0056 total trading volume amounting Rp2,058 bn with 76x transaction frequency and closed at 103.664 yielding 7.848%.

      Corporate bond trading traded heavy amounting Rp948 bn. ASDF03ACN1 (Shelf registration III Astra Sedaya Finance Phase I Year 2016; A serial bond; Rating: AAA(idn)) was the top actively traded corporate bond with total trading volume amounted Rp135 bn yielding 9.322%.