Maybank GM Daily - 26 May 2016

FX

Global

      Dollar pulled back overnight in the absence of the strong market cues. EURUSD gained a tad and was last seen around 1.1160. The score for IFO business climate out of Germany, improved to 107.7 from the expected 106.7. That of current assessment rose to 114.2 from previous 113.2 whilst that of expectations also increased to 101.6 from Apr’s 100.5. Sentiments were positive overnight with the DAX at +1.5%. Euro Stoxx also gained by 1.7%. Risk appetite extended into NY session.

      Earlier in Asia on Wednesday, there were some rumors that China would prefer the Fed to deliver the rate hike in Jul rather than in Jun. Along with the softer dollar, USDAXJs have started to retrace from their recent highs led at first by USDCNH and then by USDKRW earlier this week. USDJPY was not spared as the pair saw a sudden drop in early Asia hours this morning. NZDUSD plunged towards the 0.67-figure after the 2016-2017 milk payout was below the breakeven price for most farmers. We continue to see more or less sideway trades ahead of Yellen’s speech on Fri. The G7 meets today and whispers are that China’s economic and maritime activities will be a focus as well as Japan PM Abe’s bid for coordinated fiscal easing or currency intervention.

      The day ahead is rather quiet in terms of data in Asia with Thailand’s trade due along with Singapore’s industrial production. Australia has 1Q CAPEX as well which partially contributes to 1Q GDP print due on 1 Jun. Beyond Asia, US durable goods orders are due for Apr. UK has growth figures due today as well.   

Currencies

G7 Currencies

      DXY – Focus on Durable Goods Order. USD index retreated across the board (except NZD) with magnitudes felt differently across different currencies. USD was much softer against Asians in particular MYR, KRW and JPY and slightly less soft against EUR. NZD was the exception underperformer due to Fonterra’s lower than expected forecast.  Risk sentiment remains supported overnight despite renewed talks of possible Fed hike as early as Jun. This could be a sign that markets are interpreting the rate hike as a indication of economic growth. And if this continues to hold, we may not see much of a sell-off in risk proxy currencies including some AXJs. We continue to monitor risk sentiment for further clues.  We reiterate our call for Fed to hike twice this year – once in Jun and another one in Dec. In Fed speaks overnight, Harker repeats expects 2 – 3 rate hikes this year; Kaplan said Fed “ought to be taking action in the near future”. DXY was last at 95.27 levels. Bullish momentum on daily chart remains intact while stochastics is at oversold conditions. Next resistance at 95.90 (50% fibo retracement of 2016 high to low), 96.60 (200 DMA). Support at 94.90 (38.2% fibo), 94.60 (50 DMA). Week remaining brings 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 – Range-Bound. EUR traded a subdued range of 1.1129 – 1.1167 yesterday. In overnight ECB speaks - Knot said monetary stimulus is reaching its limits. In data overnight IFO business climate index was better than expected.  EUR was a touch higher this morning at 1.1170 levels. Daily momentum remains bearish while stochastics is entering overbought conditions. EUR has broken various technical support at 1.1310 (50 DMA) and 1.1220 (50% fibo retracement of Mar low to May high). Pair could extend its downside further. Watch next support at 1.11 (200 DMA) before 1.1010 (76.4% fibo). Resistance at 1.1220 (50% fibo). Expect 1.11 – 1.1220 range intra-day.

      GBPUSD – Defying Gravity; GDP on Tap. GBP continues to push higher amid USD pullback while bets and opinion polls continue to swing in favour of Bremain. GBP was last at 1.4705 levels. Pair needs to break above its recent (and 2016) high of 1.4770 (200 DMA) for further upside to materialise. Support at 1.4470 (76.4% fibo retracement of 2016 high to low). Week remaining brings 1Q GDP (Thu).

      USDJPY – Heavy. USDJPY is heavy this morning, weighed by dollar weakness. This morning, the majors were sold off against JPY that lifted the JPY higher. Further downside though could be limited as Nikkei futures are tracking the US and Europe higher this morning that could put upside pressure on the JPY. Any JPY strengthening could see further jawboning as intervention is unlikely with G7 summit currently underway in Japan. Jawboning should remain the weapon of choice for the government in the absence of any concrete action to shore up confidence in Abenomics. USDJPY was last at 109.70 levels. Daily momentum shows waning bullish bias, and stochastics is turning lower from overbought levels. Support remains at 108.60 (21-DMA). Any rebound should meet resistance at 111.70 (38.2% Fibo retracement of the Jan-Mar downswing). Apr CPI is due on Fri. At his appearance before parliament yesterday, BOJ governor Kuroda once again reiterated his mantra that the central bank would expand monetary easing measure if factors including FX risks threaten the 2% inflation target. He also said that the central bank will continue to watch the FX markets. He also viewed the economy as no longer in a deflationary state even though deflation has not ended completely. In other news, it was reported that PM Abe intends to announce his decision on whether to move forward with the planned consumption sales tax increase in Apr 2017 as well as to whether he will hold simultaneous elections for both houses of parliament in a press conference on 1 Jun.

      NZDUSD – Sell on Rally. NZD fell on news that Fonterra cut its 2016/17 forecast payout for milk solids by 25cents/kg to $4.25/kg. This is below the breakeven point for most farmers. And to reiterate RBNZ had said in its recent Financial Stability Report that dairy farmers now face a 3rd season of negative cash flow with heavy demand for working capital and more so due to winter when cash flow is seasonally low. We think the case for a rate cut at the upcoming meeting (9 Jun) is strong and we are expecting at least 25bps cut to its OCR. Market implied probability of rate cut is only 33% while economists’ consensus survey is for 25bps cut. This suggests markets have yet to fully price in a cut and that could mean further downside could be in play when markets start to price in. NZD was last at 0.6720 levels. Bearish momentum on daily chart remains intact but shows tentative signs of waning while stochastics is near oversold conditions. Support at 0.6720 (100 DMA); break that on daily close brings 0.6660 (200 DMA) into play. Resistance at 0.6840 (21 and 50 DMAs). Bias remains to sell on rally. Week remaining brings NZ budget on Thu, Finance Minister speaks on Fri.

      AUDUSD – Downsides A Grind, For Now. AUDUSD slipped below the mid-0.71 before rebounding sharply towards levels before the CAPEX release. Last seen around 0.719, 200-DMA still caps at around 0.7255. We continue to expect rebounds to meet barriers around there. Daily momentum indicators continue to show waning bearishness with stochastics still showing a trough in oversold region. Bias is still to the downside but momentum indicators suggest that downside could be a grind. The 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 at 0.7065 (76.4% Fibo of the Jan-Apr upswing). Resistance at 0.7330 (50% Fibo). Firmer resistance at 0.7450 (38.2% Fibo). 1Q Capex fell 5.2%q/q, undershooting the already weak expected -3.5%. The quarter-on-quarter fall in business expenditure was not unexpected. The second estimate for the 2016-2017 expenditure rose from the first estimate to A$89.231mn. However, this estimate is still lower than that made in the same period last year for 2015-2016. The fall is mainly due to the decline in planned expenditure in the mining sector. However, the same cannot be said for the manufacturing and other selected industries which saw higher estimated business expenditure for 2016-2017 compared to the same estimate made for 2015-2016. Economic rebalancing is still progressing at a slow pace. Week ahead has RBA Debelle in panel participation on Fri.

      USDCAD – Two-Way Trades. This pair is stuck within the 50 and the 100-DMA, last seen around 1.3020. Bank of Canada did not move as expected, leaving its benchmark overnight borrowing rate at 0.50%. Momentum indicators suggest upside bias still with 21-DMA at the brink of cutting the 50-DMA. Further upmove to meet resistance at 1.3312 (100-DMA). In the longer-term, we are more wary of downside trades as we notice a bearish cross over of the 100-DMA on the 200-DMA chart. Support is seen at 1.2920 (50-DMAbefore year low of 1.2460.

Asia ex Japan Currencies

      The SGD NEER trades 0.12% below the implied mid-point of 1.3751. The top end is estimated at 1.3476 and the floor at 1.4026.

      USDSGD – Retracing.  USDSGD is heavy this morning as retraces after staying in a holding pattern for the past week or so, helped by a softer dollar. Even the possibility of a growth downgrade ahead on the back of softer global outlook did not deter Sing bulls. Pair was last seen around 1.3765. Daily charts continue to show waning bullish bias, while stochastics is turning lower from overbought conditions. Further downside should find support around 1.3670 (21DMA). Any rebound though remains a grind this week with the 100DMA still capping upside around 1.3840 levels. Apr industrial production is on tap this afternoon.

      AUDSGD – Heavy. AUDSGD was last seen around 0.9890, still retaining a heavy tone. Similar to AUDUSD, daily MACD is near to zero and stochastics show tentative signs of climbing higher from oversold levels. Bearish bias is likely to hold but we would not sell at this point as there is a risk of correction. Upticks should meet resistance around parity, while any correction puts next support at 0.9830.

      SGDMYR – Early Signs of Waning Bullish Momentum. SGDMYR inched lower on MYR strength off the back of firmer oil prices and supported risk sentiment. Cross was last seen at 2.9680 levels.  Bullish momentum on daily chart remains intact but is showing signs of waning while stochastics is at overbought conditions. We remain better sellers on rally. Resistance at 2.99 (50% fibo retracement of 2016 high to low). Support at 2.9570 (38.2% fibo, 100 DMA, lower bound of uptrend channel) before 2.92 (50 DMA).

       USDMYR – Range. USDMYR was sold of right at the opening bell this morning. Move came off the back of gains in oil prices, USD pullback and supported risk sentiment. Pair was last seen at 4.0860 levels. Bullish momentum on daily chart remains intact while stochastics remains at overbought conditions. Resistance remains at 4.0960 (100 DMA), 4.14 (50% fibo retracement of 2016 high to low). Support at 4.0720 (38.2% fibo). Sees 4.07 – 4.10 range intra-day. 1s

      1s USDKRW NDF – Downside Risk.  1s USDKRW fell amid risk-supported sentiment and USD pullback. Bullish momentum is waning while stochastics is falling at overbought conditions. Next support at 1177 (200 DMA) before 1172 (38.2% fibo retracement of 2016 high to low). Resistance at 1185 (50% fibo), 1200 (61.8% fibo).

      USDCNH – Consolidation. USDCNH remained stuck around the 6.5650-level, within the 6.55-6.57 range. 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 -141 pips lower at 6.5552 (vs. previous 6.5693). CNYMYR was fixed 10 pips lower at 0.6225 (vs. previous 0.6234). We have just Apr industrial profits on Fri.

      SGDCNY – Sideways. This cross closed at 4.7540 on Wed, right in the middle of the 50 and 100-DMA. More consolidation is expected within the 4.71-4.78 as momentum indicators on the daily chart show little directional bias. Stochastics indicate oversold conditions though so the first move could be to the upside before the bearish reversal of the 2015-2016 rally resumes. Next support is seen at 4.6960.

      USDINR - Retracements.  USDINR retraced from its 68.00-highs to levels around 67.70 at last sight. Upside momentum is still sustained and next barrier is seen at 68.36 while support is seen at 67.5350 (100-DMA). In news, PM Modi told WSJ that the country is gearing for faster growth because of his reforms. He highlighted that the economy is now more open to foreign investment, reforms to reduce corruption, gap filled in rural infrastructure and greater ease to do business.

      USDIDR – Limited Downside. USDIDR is seeing some relief after bouncing higher over the past few sessions, playing catch-up with its regional peers amid a softer dollar. There could be some further unwinding of carry trades amid soft risk sentiments which could put downside pressure on the IDR. Also the possibility of further BI easing following the dovish comments last week and growth downgrade for 2016 could keep the pair elevated. Pair was last seen around 13625 levels. Daily momentum remains bullish bias and stochastics is still at overbought levels. Further downside moves appears limited. Support nearby is at 13610 (61.8% Fibo retracement of the Jan-Mar downswing) before 13490 (50% Fibo). Resistance is at 13670 (200DMA). The JISDOR was fixed higher yesterday at 13671 from Tue’s 13606, but the slide in the spot today, if it holds, should result in a lower fixing today. Sentiments remained positive with foreign investors buying a net USD24.82mn in equities yesterday. They had however continued to remove a net IDR3.09tn from their outstanding holding of government debt on 23 May (latest data available).

      USDPHP – Limited Downside.   USDPHP is on the slide this morning, tracking its regional peers broadly lower amid dollar softness. Market seems to be gradually buying into Duterte’s policy platform, even though some concerns remain about his economic policy direction and cabinet members. Pair was last seen around 46.670 levels. Pair has lost most of its bearish momentum and stochastics continues to climb higher. This suggests that risks remain tilted to the upside and downside could be limited. Support is around 46.510 (50DMA). Resistance remains at 46.985 (50% Fibo retracement of the Jan-Mar downswing; 100DMA). Investor sentiments finally rebounded after a three-day sell-off which saw foreign funds buying a net USD19.06mn in equities yesterday, reversing the losses of those three-days and more.

      USDTHB – Downticks Within Range.   USDTHB is inching lower this morning amid a softer dollar overnight. Pair was last seen around 35.640. Daily momentum shows waning bullish bias and stochastics is tentatively turning lower from overbought levels. Pair remains in range-bound trades in the near term in the absence of fresh catalyst and any dips could be buying opportunities. Resistance is at 35.770 (61.8% Fibo retracement of Jan-Mar downswing). Support at 35.570 (50% Fibo). Sentiments were positive yesterday with foreign investors buying a net THB0.37bn in equities and THB0.50bn in equities and government debt. BoT highlighted in its minutes for its 11th May policy meeting that they left the policy rate unchanged to preserve policy space as risks abound including further delay in global economic growth, prolonged weakness in domestic and political uncertainties that could dent public and private investments. Customs exports fell by a sharper 14.92% y/y in Apr, worse than market expectation of -7.65% and Mar’s -6.94%. Imports also slipped further by 8.0% y/y from +1.3% in Mar (cons.: -1.5%). This resulted in a trade surplus of USD0.72bn in Apr vs. Mar’s USD2.97bn.

Rates

Malaysia

      In local govvies yesterday, MGS benchmark yields were mixed with the 7y +1bp and the 10y -2bps. 5y MGS 10/20 cheapened by 7bps ahead of the new benchmark 5.5y MGS 11/21 auction size announcement which is expected today. We anticipate a size of MYR4b.

      In IRS market, sentiment differed between local and foreign players with the former having better receiving interest and the latter having better paying interest. Locals may find it difficult to push IRS levels down given the neutral MPC statement and US Fed’s rate hike rhetoric, while on the other hand capping the rise in rates. Few trades were reported on the 5y point at 3.72%. 3M KLIBOR was unchanged at 3.67%.

      Better global risk sentiment spilled over to the local PDS market. In GG space, Caga 17s saw good demand across the 3 tranches tightening 13bps. At the long end, Dana 39s and 46s widened 1bp. Prasa 22 also widened 1bp to 4.07% (G+36bps/Z+19bps), looks fair. In AA space, Gamuda 18s (AA3) tightened 3bps to 4.28% (G+110bps/Z+66bps).

Singapore

      SGS prices declined, this time tracking the drop in UST prices overnight and as short dated forwards remain biddish. Activity level remained low as most were sidelined ahead of Thursday’s 10y SGS auction. The yield curve moved up 1-3bps from the 5y point onwards. Notably, 30y bonds saw intermittent buying for short covering and ended only 1bp higher. SGD IRS curve was unchanged.

      In Asian credit market, new issues continued to trade well with Yangtze 21s and 26s 5-8bps better than re-offer. China CDS also came in a couple bps better. Some B3 AT1 issuances overnight were well sought after in primary as retail allocation was close to zero and Coco AT1 issuances in 2016 is estimated to be 30% lower than last year according to Moody’s.

 Indonesia

      IGS prices hiked during the day post couple of days declining. There were not any significant market sentiment however buying appetite was seen. Discussion in regards to tax amnesty continue to occur with several options arising yet legislative and the goverment have not finanlize any option available. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 7.546%, 7.836%, 8.053% and 8.039% while 2y yield shifts down to 7.151%. Trading volume at secondary market was seen thin at government segments amounting Rp10,274 bn with FR0056 as the most tradable bond. FR0056 total trading volume amounting Rp3,363 bn with 158x transaction frequency and closed at 103.028 yielding 7.937%.

      Corporate bond trading traded thin amounting Rp424 bn. SIEXCL01ACN1 (Shelf registration Sukuk Ijarah I XL Phase I Year 2015; A serial bond; Rating: AAA(idn)) was the top actively traded corporate bond with total trading volume amounted Rp64 bn.