Maybank GM Daily - 27 May 2016

FX

Global

      The dollar index had a second day of retreat despite stronger durable goods orders print at 3.4%m/m for Apr (vs. the expected 0.5%). The Mar number was also revised significantly higher to 1.9%m/m from previous 0.8%. Equities were in consolidation for much of NY session. Along with the correction of the dollar, Fed Future Futures implied probability fell to just 28.0%. UST yield curve steepened overnight as well. Risk appetite held pretty well with crude prices above the USD50/bbl-level at one point before retreating just a touch under this level by early Asia trade this morning.

      The session ahead is likely to be a consolidative one ahead of Fed Chair Yellen’s appearance tonight. The last time she spoke in a non-FOMC event, she had been rather dovish.  Caution was a key message of hers in Mar as she does not want to risk needing to backpedal on a rate hike given the asymmetric effectiveness of rate actions. Even so, we anticipate that Yellen would stick to the mandate and signal a potential rate hike in Jun. That could spur dollar longs next week. To be sure, she speaks 45mins before the early closure of the US bond markets today so that still leaves plenty of time for reaction in the rates space.

      Other data in focus is US 1Q GDP and Univ. of Mich. Sentiment. RBA Debelle is in a panel participation. Japan’s Apr CPI was a tad better than expected at -0.3%y/y vs. the expected -0.4%, but a clear deterioration from previous -0.1%. The inflation release was largely ignored this morning as USDJPY rose towards the 110 after the G7 said they are committed to “stronger coordinated response to Eco conditions”. In addition, the communique also included an acknowledgement that “excessive, disorderly FX moves have bad impact on economy”.

Currencies

G7 Currencies

      DXY – What Will Yellen Says? USD index fell after cap goods orders surprised to the downside. Headline durable goods orders, on the other hand, came in better than expected. Fed’s Powell (FOMC voter) said “another rate increase may be appropriate fairly soon”. Focus today on Fed Chair Yellen’s speech at Harvard. Markets will be watching for continuation of recent Fed rhetoric that the next rate hike could be round the corner. But we think she is likely to strike a balanced tone, with little surprises – acknowledging that economic data have been fairly resilient; reiterating that Fed tightening remains gradual and NOT committing to a timeline on the next rate hike. Overnight the USD softness was more felt in AXJs than against G7 majors. DXY was last at 95.16 levels. Bullish momentum on daily chart remains intact (though showing tentative signs of waning) 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). Day ahead brings GDP (1Q S), Univ. of Mich. Sentiment (May F), Fed Yellen Speaks on Fri. Bond markets will be closed early today ahead (2pm EST)

      EURUSD – Range-Bound. EUR was a touch firmer amid USD retreat overnight. That said trading range remained muted in 1.1150 – 1.1217. EUR was last at 1.1190 levels. Daily momentum remains bearish (but shows early signs of waning) while stochastics is showing tentative signs of rising from oversold conditions. Next support at 1.11 (200 DMA) before 1.1010 (76.4% fibo retracement of Mar low to May high). Resistance at 1.1220 (50% fibo), 1.1310 (50 DMA). Expect 1.1150 – 1.1220 range intra-day.

      GBPUSD – Tactical Sell on Rally. In data released yesterday - Second estimate of 1Q GDP held steady at +0.4% q/q. On y/y basis, 1Q growth was revised marginally lower at 2% (from 2.1% in advanced estimates). Private consumption remains the main driver but business investment and external sector remain the main drags. GBP eased off recent highs; last seen at 1.4675 levels. We reiterate that the pair needs to break above its recent (and 2016) high of 1.4770 (200 DMA) for further upside to materialise. Meanwhile support at 1.4530 (21 DMA), 1.4470 (76.4% fibo retracement of 2016 high to low). Intra-day, we favour selling GBP on rallies towards 1.47, targeting a move towards 1.4610 (s/l 1.4730). No Uk data on tap today.

      USDJPY – Range. USDJPY was offered overnight amid dollar weakness but has since rebounded back towards the 110-levels, lifted by the uptick in the Nikkei futures. Expectations of further BOJ easing action following disappointing inflation print for Apr. Headline inflation fell for the second straight month by 0.3% y/y in Apr (Mar: -0.1%), slightly better than consensus’ -0.4%. Core inflation (CPI less fresh food) fell 0.3% y/y (Mar: 0.3%). However, focus should be on core core inflation – CPI less fresh food and energy – which is the supposed preferred gauge of inflation for BOJ governor Kuroda. Though data is not yet available for Apr, prints for the past three months showed inflation still elevated at 1.1%. This suggests inflation is gaining traction in Japan though. 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 continues to show waning bullish bias, and stochastics is falling from overbought levels. We expect the pair to trade range intraday with 109.36 (23.6% Fibo retracement of the Jan-Mar downswing) continuing to provide support. A clean break here could see the pair headed towards the 21DMA at 108.70 60. Immediate resistance at 110-handle (upper bound of the trench); 111.70 (38.2% Fibo).

      NZDUSD – Sell on Rally. In budget released yesterday, the Treasury reported budget surplus of NZD668m (vs. NZD401m deficit). Budget surplus for the following 2 years have also been raised due to higher tax revenue and lower expenses. As a result of better than expected budget, the planned bond issuance for 2017-17 has been lowered to NZD7bn (from NZD9bn). In Finance Minister English’s speech this morning, he said debt reduction may slow if tax cuts proceed. He added that “there is some uncertainty” about the size of projected surpluses which are a “product of forecasts for the economy”; in talks with RBNZ about the MOU for macroprudential policy which may allow inclusion of new instruments. NZD was largely where it opened and close yesterday; last seen at 0.6750 levels. Downside moves remain a grind. 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 0.6820 (21 DMA). Bias remains to sell on rally.

      AUDUSD – Downsides A Grind, For Now. AUDUSD found itself above the 0.72-handle in Asia morning, lifted by the overnight dollar sogginess. Barrier is still at the 200-DMA, 0.7254 ahead of the next at 0.7350. 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). Today, we have RBA Debelle in panel participation.

      USDCAD – Retracements. This pair is stuck within the 50 and the 100-DMA, last seen around 1.2974. Prices tested the 50-DMA at oone point, nudged by the firmer oil prices but rebounded thereafter. Overbought conditions are flagged by the stochastics and suggest that bias could be to the downside in the near-term. 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-DMA) before year low of 1.2460.

Asia ex Japan Currencies

      The SGD NEER trades 0.03% below the implied mid-point of 1.3737 with the top end estimated at 1.3462 and the floor at 1.4012.

      USDSGD – Within Range.  USDSGD is inching higher this morning, tracking the USDJPY higher. The better-than-expected industrial production (IPI) print for Apr only provided marginal support for the SGD yesterday. This was even though Apr IPI seems to indicate that growth remains on track, printing growth of 2.9% y/y vs. Mar’s 0.1%. Manufacturing growth in Apr was led by gains in biomedical and electronics, both of which were up by 14.9% and 10.9% y/y respectively. The outlook for manufacturing appears to be improving with results of the recent business expectation survey hinting of a moderate recovery following last quarter’s dip of 1.0% y/y. Pair remains capped by the 100DMA on the upside and limited by 21DMA on the downside. Ahead of Fed Chair Yellen’s speech early tomorrow morning, we expect this range to hold. Last seen around 1.3730 levels, pair has lost most of its bullish momentum and stochastics is falling from overbought conditions. Further downside should find support around 1.3685 (21DMA). Rebounds remain a grind with upside capped around 1.3830 levels (100DMA).

      AUDSGD – Heavy. AUDSGD was last seen around 0.9930, 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 – Watch Support at 2.9570. SGDMYR was little changed this morning. Cross was last seen at 2.9670 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). Break outside of range on weekly close puts next support at 2.92 levels (50 DMA).

       USDMYR – Watching Support at 4.07 Levels. USDMYR traded lower off the back of gains in oil prices, USD pullback and supported risk sentiment. Pair was last seen at 4.0780 levels. Bullish momentum on daily chart remains intact but shows signs of waning while stochastics is falling from 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). A break below that on weekly close puts 4.03 (21 DMA) in focus.

      1s USDKRW NDF – Range Intra-day.  1s USDKRW fell amid risk-supported sentiment and USD pullback. Pair was last at 1179 levels. Bullish momentum is waning while stochastics is falling from overbought conditions. Next support at 1177 (200 DMA) before 1172 (38.2% fibo retracement of 2016 high to low), 1162 (50 DMA). Resistance at 1185 (50% fibo), 1200 (61.8% fibo). Expect 1175 – 1185 range intra-day.

      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 6.5590 (100-DMA). Resistance is at 6.5820 (19 May high). USDCNY was fixed -62 pips lower at 6.5490 (vs. previous 6.5552). CNYMYR was fixed 33 pips lower at 0.6192 (vs. previous 0.6225). We have just Apr industrial profits due today.

      SGDCNY – Sideways. This cross gapped up yesterday and pushed further north to test the 50-DMA before closing at 4.7731. 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 initial bias should be to the upside before the bearish reversal of the 2015-2016 rally resumes. Next support is seen at 4.6960.

      1s USDINR NDF - Retracements.  1M NDF was last seen around 67.35 after a significant fall yesterday along with dollar softness. Stochastics indicate overbought conditions are pressure is to the downside for now with next support at 67.175 ahead of the next at 66.94.  Fed Chair Yellen speaks tonight and less dovish comments might re-invigorate dollar bulls that could lift USDINR. There has been plenty of speculation of a potential re-appointment of the RBI Rajan as an ally of the BJP is garnering supports to oust the incumbent central bank Governor. 

      USDIDR – Bearish Tilt. USDIDR continues see relief as it plays catch-up with its regional peers amid a softer dollar. Still, there could be some further unwinding of carry trades amid soft risk sentiments that is mitigating some of this downside pressure on the pair. As well,  the possibility of further BI easing following the dovish comments last week and growth downgrade for 2016 could keep the pair elevate around the 13500 levels for now. Pair was last seen around 13570 levels. Daily momentum shows waning bullish bias and stochastics is showing tentative signs of falling from overbought levels. Support is at 13490 (50% Fibo retracement of the Jan-Mar downswing). Resistance remains at 13670 (200DMA). As expected, the JISDOR was fixed lower yesterday at 13615 from Wed’s 13671, and should the slide in the spot holds, a lower fixing can be expected today. Sentiments were positive with foreign investors buying a net USD20.14mn in equities yesterday. They had however continued to remove a net IDR1.07tn from their outstanding holding of government debt on 24 May (latest data available).

      USDPHP – Trapped Between 50- and 21-DMAs.   USDPHP is heavy this morning as it tracks the USD/AXJs broadly lower this morning amid dollar weakness. Market appears to be gradually warming up to president-elect Duterte, given his intention to continue with the economic policies of outgoing President Aquino. This was reflected in the boost in investor confidence yesterday where foreign funds purchased a net USD180.03mn in equities – a level not seen for the past year. Pair was last seen around 46.675 levels. Daily momentum is now mildly bearish bias though stochastics continues to climb higher. Ahead of Fed Chair Yellen’s speech early tomorrow morning, we continue to expect the pair to trade range-bound as it remained trapped within the 50DMA and 21DMA. Support remains at 46.510 (50DMA). Resistance is at 46.800 (21DMA).

      USDTHB – Downticks Within Range.  USDTHB remained heavy this morning amid a softer dollar overnight. Pair was last seen around 35.590. Daily momentum still shows waning bullish bias and stochastics is falling from overbought levels. With Fed Chair Yellen speaking early tomorrow morning, range-bound trades should continue to hold intraday. Dips could be opportunities for buying. New support is at 35.440 (100DMA). Immediate resistance is at 35.670 (200DMA); 35.770 (61.8% Fibo retracement of Jan-Mar downswing). Sentiments were mixed yesterday with foreign investors buying a net THB0.54bn in equities but sold a net THB2.59bn in government debt.

Rates

Malaysia

      Government bonds traded range bound and the new 5.5y MGS 11/21 issue size was announced at MYR4b as widely expected. In WI trading, MYR30m of trades were done at 3.57%. Elsewhere, activity centered on the 10y MGS 11/26s with total volume traded of MYR200m.

      IRS market saw the differing sentiment between local and foreign players continue. Rates were quoted tight but both sides were unwilling to concede. Only the 5y IRS got traded at 3.70%. We think receivers have the capacity to wait given the upcoming MYR4b 5y MGS auction. 3M KLIBOR remained at 3.67%.

      PDS saw better buying on belly and long end papers. The AAA curve was particularly active with Manjung 20 and 21 tightening 3-4bps and Putra 24 tightening 2bps to 4.37% (G+56bps/Z+38bps). Public Bank’s 2018 senior notes tightened 4bps to 3.91%, which offers value as 3y AAA is trading around 3.90-3.95%. GGs traded range bound in the 7y space, with MYR75m PASB 2/23s done at 4.11% (G+39bps/ Z+24bps). In AA space, Imtiaz 21s tightened 1bp to 4.47% with MYR40m trades done.

Singapore

      SGS market turned better with strong buying interest seen following higher USTs overnight and boosted by selling interest in short dated forwards on lower USDSGD. SGS yields, including the recent underperforming 5y and 10y benchmarks, lowered 3-7bps across the curve with a flattening bias. SGD IRS curve also lowered by 3-4bps, while swap spreads widened by about 2bps.

      For Asian credits, Qatar sovereign bonds was issued at a larger USD9b size compared to market’s expectation of USD5b and had mixed results. The 5y and 10y traded slightly under re-offer but the 30y quickly jumped over 2.5pts. This indicates that long duration are still well liked by RMs. In China space, TMT widened dramatically on news of Alibaba being investigated by the SEC on accounting practices of affiliates, among others. Baba +10bps and JD and Baidu +4-6bps. In primary, BPCE (French bank) and ValueMax (chain of licensed pawnshops) are tapping the SGD market.

Indonesia

      Indonesia bond market closed higher during the day supported by an increase in buying appetite as Indonesia bond yield remains to be attractive. There were rumours during the day in regards to tax amnesty which might be effective as soon as July 1st as well as 0% tax on Indonesia LCY bonds. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 7.492%, 7.800%, 8.025% and 8.022% while 2y yield shifts up to 7.266%. Trading volume at secondary market was seen heavy at government segments amounting Rp9,231 bn with FR0056 as the most tradable bond. FR0056 total trading volume amounting Rp3,025 bn with 142x transaction frequency and closed at 104.002 yielding 7.800%.

      Corporate bond trading traded heavy amounting Rp875 bn. BFIN02CCN3 (Shelf registration II BFI Finance Indonesia Phase III Year 2016; C serial bond; Rating: A+(idn)) was the top actively traded corporate bond with total trading volume amounted Rp200 bn yielding 10.694%.