Maybank GM Daily - 24 May 2016

FX

Global

      Equity markets in the US closed softer yesterday as range-trading continues amid the lack of market moving data this morning. We had Philly Fed President Harker speak this morning, reinforcing the Fed’s message that the central bank was ready to act if the recovery of the US economy remains on track. Similarly, San Francisco Fed President Williams said that 2-3 hikes this year was reasonable. These remarks and the much anticipated Fed Chair’s Yellen speech on Fri should keep markets on their toes. Benchmark 2Y-5Y yields were higher by 1-2bp, though longer maturies were little changed.

      It was a mixed bag in the FX markets yesterday with JPY still leading the pack against the USD following the failure of the Japanese government to garner G7 support for a weaker JPY over the weekend. This was followed by the KRW and SGD. Coming under-pressure yesterday was the CAD, GBP and CNY.  Dollar index is a tad firmer this morning but continues to hover around the 95-levels. This is helping to keep Dollar/Asians ex-Japan buoyant this morning.

      Quiet data day in the G7 with just US new home sales (Apr) and GE ZEW survey on tap today.  We also have a couple of central bank speakers today with ECB Praet and RBA Steven. Asia is relatively data-quiet today.

Currencies

G7 Currencies

      DXY – Mild Bullishness. Since the release of the FOMC minutes and the various Fed speaks since, Fed Fund Futures showed that the implied probability of a rate hike in Jun has risen significantly to 32% from just 4% the week before. Still, the Fed continues to look for data confirmation for its next move as reiterated by Philly Fed and San Francisco Presidents Harker and Williams. Harker reinforced the Fed’s message that the central bank was ready to act should the economic recovery remain on track. Similarly, Williams viewed 2-3 hikes this year as reasonable. While markets are gradually coming around to 2-3 hikes this year, we still think that markets are potentially underpricing rate hike. We continue to hold to our out-of-consensus call for a 25bps rate hike in Jun. The index was last seen at 95.260 levels. Bullish momentum on the daily chart is still strong although stochastics remains at overbought conditions. We still see room for gains. Resistance is at 95.90 (50% Fibo retracement of 2016 high to low), 96.27 (100DMA). Support at 95-figure (38.2% Fibo); 94.59 (50DMA). Remaining week has 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 – Rangy Within 100 & 50DMAs. EURUSD is inching mildly lower this morning amid a mild rebound in the dollar. Pair was last seen around 1.1215 levels. Momentum is still bearish bias though stochastics remains 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% Fibo 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 range-bound trades capped and limited by the 100 and 50DMAs respectively. Week ahead brings 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 – Focus Still GDP, Two-Way Risks. GBPUSD is softer this morning, seen around 1.4480 levels ahead of 1Q GDP on Thu. We also expect the Brexit debate to 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. Pair lost most of its mild bearish momentum, 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). Immediate resistance at 1.4500 (21DMA); 1.4660 (19 May high). Week ahead has GDP (1Q P) on Thu.

      USDJPY – Range. USDJPY is inching higher after slipping to an overnight low of 109.11, buoyed by the dollar climb this morning.  Though the G7 meeting over the weekend failed to provide Japan with any cover for a concerted effort to weaken the JPY, more jawboning remains likely. USDJPY was last at 109.30 levels. Daily momentum is bullish but waning, and stochastics continues to turn lower from overbought levels. In the absence of catalysts, expect the pair to swivel around the 109-110 levels ahead. Watch for upside to be capped by the 50DMA at 109.90. Support at 108.70 (21-DMA). Remaining week has Nikkei PMI Mfg (May P) on Tue; CPI (Apr) on Fri.

      NZDUSD – Heavy. Kiwi briefly headed above 0.68 levels yesterday before retreating back to the 0.6750 levels this morning. Pair was last seen at 0.6745 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 (200DMA). 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 Within Range. AUD appears to be in consolidation around the 0.71-0.73 region on cautious trade ahead of RBA Governor Steven’s speech later this morning and amid a mild rebound in the dollar. Pair was last seen around 0.7215 levels.  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 show waning bearishness with stochastics still 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 but within range. 200-DMA should continue to 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 should see support nearby around 0.7175 levels (19 May low) before 0.7065 (76.4% Fibo of the Jan-Apr upswing). Resistance at 0.7330 (50% Fibo). Firmer resistance at 0.7450 (38.2% Fibo). Aside from RBA Stevens speech today, we are also watching 1Q CAPEX numbers on Thu. Remaining week has Private Capex (1Q) on Thu; RBA Debelle in panel participation on Fri.

Asia ex Japan Currencies

      The SGD NEER trades 0.29% below the implied mid-point of 1.3754 with the top end estimated at 1.3479 and the floor at 1.4031.

      USDSGD – Capped by 100DMA, Bias Upside.  After edging lower yesterday, USDSGD is back on the uptick underpinned by a firmer dollar. Pair was last seen at 1.3795 levels, still capped by the 100-DMA. Momentum is still mildly bullish bias but waning while stochastics remains at 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), though 100DMA at 1.3850 could cap further upmoves before that. Support nearby is seen at 1.3770 (38.2% Fibo) and further retracements could meet next support at 1.3650 (23.6% Fibo) which should not be challenged. Remaining week 1Q (Final) GDP on Wed; Apr industrial production on Thu. In the news, headline inflation continued to fall in Apr by 0.5% y/y vs. Mar’s -1.0%. Core inflation edged higher to 0.8% y/y (Mar: 0.6%). MAS kept their 2016 inflation outlook intact at -1.0-0.0% and core inflation forecast at 0.5-1.5%. Our economic team left their 2016 headline and core inflation forecast unchanged at -0.4% and +0.5%.

      AUDSGD – Waning Bearish Momentum. AUDSGD is on the uptick this morning after sliding lower over the past few sessions. Cross was last seen at 0.9965 levels. Cross has lost most of its bearish momentum, while stouchastics show tentative signs of climbing higher from oversold levels. We see further correction on the weekly chart with stochastics bearish bias. Upticks should meet resistance around parity, while any correction puts next support at 0.99-levels.

       SGDMYR – Fade Rallies. SGDMYR gapped higher at the opening to 2.9639 from yesterday’s close of 2.9598 on the relative weakness of the MYR. Pair was last seen around 2.9725 levels. Bullish momentum on daily chart is rising again, while stochastics is fast approaching overbought levels. Still, we remain medium term bear in the cross and favor fading against strength. Resistance at 2.9920 (61.8% Fibo retracement of 2016 high to low). Support nearby is at 2.9580 (100DMA) before 2.9380 (38.2% Fibo; 21DMA) Support nearby is at 2.9580 (100DMA) before 2.9380 (38.2% Fibo; 21DMA).

       USDMYR – Upside Bias. USDMYR has bounced above the 4.10-levels this morning amid softer global oil prices and firmer dollar. Last seen at 4.0710 levels, pair is showing bullish bias while stochastics shows remains at overbought conditions. Though the 100MA has been taken out this morning, we need to see a clean break on a daily and weekly basis to confirm bullish extension towards 4.1550 (16 Mar high). Support remains at 4.00. No notable data on tap this week.

      1s USDKRW NDF – Bullish Tilt.  1s USDKRW’s slide lower over the past three was stalled this morning amid a mild rebound in the dollar. Last seen around 1188 levels, pair’s bullish momentum is waning 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. Upticks should meet barrier at 1200 (61.8% Fibo retracement of the Feb-Apr downswing). Support remains at 1177 (200DMA). There are no data of note this week.

      USDCNH – Consolidation. USDCNH appears to be in consolidative mode within 6.55-6.57. Pair was last seen around 6.5635 levels. Bullish momentum is waning on the daily charts and stochastics shows signs of turning lower from overbought levels. In the absence of fresh catalyst, we expect range trading to continue. Support is at 6.5350 (100-DMA). Resistance is at 6.5820 (19 May high). USDCNY was fixed 13 pips higher at 6.5468 (vs. previous 6.5455). CNYMYR was fixed 17 pips higher at 0.6221 (vs. previous 0.6204). We have just Apr industrial profits on Fri.

      USDIDR – Upside Risks. USDIDR continues its climb higher, tracking its regional peers amid a firmer dollar. There continues to be the possibility of some further unwinding of carry trades amid soft risk sentiments which should weigh on the IDR. Also expectations of further BI easing following the dovish comments 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 13607 on Mon from Fri’s 13573. Market sentiments improved with foreign funds buying a net USD13.03mn in equities yesterday. They had however removed a net IDR0.61tn from their outstanding holding of government debt on 19 May (latest data available). No notable data due this week.

      USDPHP – Bullish Tilt.   USDPHP continues it climb higher, edging back towards the 47-figure, playing catch-up with its regional peers. Aside from expectations of US Fed fund rate hikes, there remain concerns about president-elect Duterte’s economic policy direction and cabinet members. Though market has been giving Duterte the benefit of the doubt, it is becoming weary. Investor jitters are possibly re-emerging as investors’ concerns regarding Duterte’s economic direction and cabinet members remain unclear. 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 46.845 levels, pair has lost most of its bearish momentum and stochastics is climbing higher. Risks are now tilted to the upside. Immediate resistance is at 46.900 (200DMA) ahead of 46.985 (50% Fibo retracement of the Jan-Mar downswing; 100DMA); 47-handle. Support remains at 46.730 (38.2% Fibo). Sentiments remained weak with foreign investors selling a net USD4.64mn in equities yesterday. Week ahead has Mar imports on Wed.

      USDTHB – Bullish Bias.   USDTHB is bouncing higher back towards the 35.800-levels this morning underpinned by renewed expectations of a Fed fund rate hike in Jun. Pair was last seen around 35.760 levels. Daily momentum is mildly bullish bias and stochastics remains at overbought levels. Pair should trade in a wide range in the near term in the absence of fresh catalyst and any dips could be buying opportunities. Immediate resistance is at 35.770 (61.8% Fibo retracement of Jan-Mar downswing) and a clean break here could see the pair headed towards the 36-figure. Support is at 35.570 (50% Fibo). Sentiments were mixed yesterday with foreign investors buying a net THB0.45bn in equities but selling a net THB2.91bn in government debt. Week ahead brings Apr customs trade on Wed; 19 May foreign reserve on Fri.

Rates

Malaysia

      In the government bond market, new benchmark 10.5y MGS 11/26 auction posted a strong bid/cover of 2.19x, with re-allotment of almost MYR1.5b, driven by interest from real money accounts as foreigners also participated. Notable elsewhere is the 5y MGS 10/20 with a total of MYR443m trades done. Next auction will be another new benchmark 5.5y MGS 11/21 which we expect a size of MYR4b.

      Nothing got traded in the local IRS market due to wide bid/ask spreads. Rates ended mixed with the 6m and 1y +1-2bps while 9m and 5y -1bp. 3M KLIBOR remained at 3.67%.

      PDS market was quiet as investors focused on the new MGS benchmark. Yields mostly unchanged on rangebound trades. GGs saw bidding interest for 9-10y tenors but nothing dealt, while at the long end Prasa 36s and 41s traded flat to previous close. AA space was rather active, with long dated Kesturi tightening 1-2bps and YTL 19s tightening 1bp. PDS remains supported but the flat yield curve does not leave much to be desired at the moment. We think the front end seems tight while the belly and long end offers value.

Singapore

      SGS market hardly reacted to the SGD2.5b issue size for the new 10y benchmark. Prices initially moved up across the board helped by lower USDSGD, but it was short-lived as short-dated forwards remained well supported and SGD IRS rebounded from intraday lows. Selling gained more momentum as SGD IRS kept getting paid up. The SGS yield curve flattened with the front end to the belly up 1-2bps while the back end was down 1-2bps. SGD IRS ended 2-4bps higher.

      Asian credit market started the week with a couple of new issuances, and more are in the pipeline – RoI with a new EUR denominated bond, and BPCE with a SGD denominated B3 T2. Secondary market activity was fairly muted as more interest was in the CDS space, which widened a touch. Bonds traded +/-1bp from previous close.

 Indonesia

      Indonesia bond market closed lower during the first day trading session of the week, ahead of the bond auction. During the day, discussion in regards to tax amnesty between the government and legislative was conducted. Tax amnesty is expected to generate approx. Rp53.4 tn of state revenue while would help the currency to appreciate as USD supply may increase. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 7.544%, 7.888%, 8.102% and 8.054% while 2y yield shifts up to 7.272%. Trading volume at secondary market was seen thin at government segments amounting Rp8,216 bn with FR0056 as the most tradable bond. FR0056 total trading volume amounting Rp1,026 bn with 45x transaction frequency and closed at 103.375 yielding 7.888%.

      DMO will conduct their weekly auction with four series to be auctioned which are SPN12170203 (Coupon: discounted; Maturity: 3 Feb 2017), FR0056 (Coupon: 8.375%; Maturity: 15 Sep 2026), FR0073 (Coupon: 8.750%; Maturity: 15 May 2031) and FR0072 (Coupon: 8.250%; Maturity: 15 May 2036). We believe that the auction will be oversubscribe by 1.10x – 2.10x from its indicative target issuance while our view on the indicative yield are as follows SPN12170203 (range: 6.42% – 6.52%), FR0056 (range: 7.90% – 8.00%), FR0073 (range: 8.10% – 8.20%) and FR0072 (range: 8.10% – 8.20%).

      Corporate bond trading traded heavy amounting Rp1,688 bn. NISP02ACN1 (Shelf registration II Bank OCBC NISP Phase I Year 2016; A serial bond; Rating: idAAA) was the top actively traded corporate bond with total trading volume amounted Rp417 bn yielding 7.563%.