Maybank GM Daily - 3 May 2016

FX

Global

      USD remained on a downtrend, with G7 majors (AUD, NZD, EUR and CHF) the main beneficiaries on this move. We continue to see some weakness in the USD but we are growing a bit cautious as the dollar index could be entering oversold conditions soon. We think EUR as well as EUR-crosses against MYR, KRW have scope to go higher.

      Day ahead the focus is on RBA meeting (1230pm SG/KL time) and Federal Budget (530pm SG/KL time). For the former, we expect RBA to keep policy rate unchanged at 2% as credit growth, capacity utilization rate, and retail sales continue to hold up and even employment has been resilient. We believe the RBA may want to assess market reaction to the budget first before making its next move. The central bank is also likely to be more cautious about expending its monetary toolbox especially when the cash target rate is already at historical low of 2.00%. For the latter, we are watching out for measures that increase revenue rather than just spending cuts, to reduce budget deficit as we are cautious of Australia potentially losing its triple A credit rating.

      Other data we are watching for the week include US Apr ISM Mfg; PMIs from US to Europe; Indonesia Apr CPI on Mon. For Tue, EC Mar PPI, RBA meeting and Aust Budget; NZ GDT auction, UK PMI, China Caixin PMI, Singapore PMI are on tap. For Wed, US durable goods orders, Apr ADP. For Thu, AU retail sales and trade balance; PH Apr CPI and on Fri, US payrolls data; RBA Statement of Monetary Policy; Malaysia trade and FX reserves are due.

Currencies

G7 Currencies

        DXY – Downside Pressure. DXY’s decline continues amid a mixed bag of data overnight. ISM Mfg and construction spending were below market expectation but PMI Mfg held steady and ISM prices rebounded.  DXY was last seen at 92.65 levels. Weekly, daily momentum continues to indicate a bearish bias. next support at 92.20 (38.2% fibo retracement of 2014 low to double top in 2015). Resistance at 95.70 (50 DMA). Support at 92.20 levels should hold on this decline. Week ahead brings ISM NY (Apr); Fed’s Mester, Williams speak on Tue; ADP, Services PMI (Apr); Durable goods (Mar); Fed’s Lockhart speaks on Wed; Fed’s Kashkari, Bullard, Kaplan speak on Thu; Fed's Bullard, Kaplan, Lockhart, Williams speak; NFP, unemployment, wages (Apr) on Fri.

        EURUSD – Upside Risk. EUR maintained its mojo, edging towards more than 8-month high of above 1.15 levels. There are not many EUR-specific events to watch out for next week except for ECB speaks and PMI numbers. EUR was last seen at 1.1525 levels. Monthly, weekly, daily momentum indicators are pointing to a bullish bias. We had previously mentioned that a break beyond 1.15 resistance could see an extension of the rally. Next resistance at 1.17 9Aug 2015 high), before 1.1850 (38.2% Fibonacci retracement of 2014 high to 2015 low), before the final objective of 1.2260 (50% fibo). Support at 1.1230 (50 DMA), 1.1100 (100, 200 DMAs). Week ahead brings EC PPI (Mar) on Tue; EC, GE, FR services PMI (Apr); ECB Weidmann speaks; EC retail sales (Mar) on Wed; ECB Economic Bulletin; EC Retail PMI (Apr) on Thu; GE, FR Retail PMI (Apr) on Fri.

        GBPUSD – Second Try at 1.4670 Resistance Again. GBP is having a second try to break above its 1.4670 resistance after a failed attempt last 2 sessions. Pair was last seen at 1.4670 at time of writing. Monthly, weekly, daily momentum and stochastics are all bullish bias. Resistance at 1.4670 (2016 high). Break above on daily/weekly close basis could see an eventual move towards 1.4880 (200 DMA). Support at 1.4470 (76.4% fibo retracement of 2016 high to low), 1.4350 (61.8% fibo), 1.4250 (50% fibo). Week ahead brings PMI Mfg (Apr) on Tue; Construction PMI (Apr) on Wed; Services PMI (Apr) on Thu.

       USDJPY – Bearish. 101 the Next Target? Local Markets are closed from Tue – Thu. USDJPY extended its decline this morning – lows seen at 106.20 levels. Monthly, weekly, daily momentum indicators are bearish bias. Next support 101 levels (50% fibo retracement of end-2012 – when PM Abe came into power to 2015 high). Resistance at 109 (21 DMA). Week ahead is quiet on the Japanese calendar with Monetary base, PMI (Apr) in focus on Fri.

      NZDUSD – Focus on GDT Auction Tonight. NZD continued to inch higher amid USD weakness. Focus today on GDT auction. Previous 2 auctions in April showed dairy prices rebounded, and that drove future prices for whole milk powder to their highest level since mid-Jan, and lent support for the NZD. Pair was last seen at 0.7040 levels; still trading well-within the upward sloping trend channel - lower bound at 0.6820; upper bound at 0.7130. Daily momentum is mild bullish bias.  Could see further upside risk. Week ahead brings GDT Auction on Tue; Employment, wages (1Q); Commodity prices (Apr) on Wed.

       AUDUSD – Focus on RBA and Federal Budget Today. AUD inched higher amid USD weakness. All eyes on RBA and the Budget. Speculation for RBA to cut rate mounted after 1Q CPI surprised to the downside last week. Implied probability for RBA to cut jumped from around 15% before the CPI release last week to 55% as of yesterday. We expect RBA to keep policy rate unchanged at 2% as credit growth, capacity utilization rate, and retail sales continue to hold up and even employment has been resilient. We believe the RBA may want to assess market reaction to the budget first before making its next move. The central bank is also likely to be more cautious about expending its monetary toolbox especially when the cash target rate is already at historical low of 2.00%. That said we just want to add a word of caution that Australia could be at risk of losing its triple A credit rating unless Australia maintain fiscal restraint in the upcoming Federal Budget to be announced later today. Markets are watching for measures that increase revenue rather than just spending cuts, to reduce budget deficit. But this is tricky especially when Australia is expected to hold its elections in the next few months. Downgrade in credit rating could drive up wholesale funding cost in Australia, which has been rising since last year (till Feb this year) despite RBA keeping rate unchanged. AUD was last at 0.7670 levels. Bearish momentum on daily chart shows tentative signs of waning. Resistance remains at 0.7720 before 0.7835 (2016 high). Support at 0.76 (23.6% fibo retracement of 2016 low to high) before 0.7550 (50 DMA), 0.7450 (38.2% fibo). Week ahead brings RBA Meeting; Budget Day; Building Approvals (Mar) on Tue; Retail Sales, Trade balance (Mar) on Thu; RBA Statement of Monetary Policy on Fri.

       USDCAD – Nearing Oversold Conditions. The pair remains on a downtrend amid USD weakness. Last seen at 1.2520 levels. Daily momentum is not indicating a clear bias while stochastics is at oversold conditions. Next support at 1.2175 (61.8% fibo retracement of 2014 low to 2016 high). Resistance at 1.2656 (50% fibo). Week ahead brings mar building permits (Thu); Apr employment (Fri).

     Asia ex Japan Currencies

      The SGD NEER trades 0.32% above the implied mid-point of 1.3435 with the top end estimated at 1.3167 and the floor at 1.3703.

       USDSGD – Break of 1.34 Could Spell Further Downside.  USDSGD fell amid USD weakness. Pair was last seen at 1.3395 this morning. Momentum and stochastics remain bearish bias. Next support at 1.3405 (50% fibo retracement of 2014 low to 2016 high). Break on weekly close basis puts 1.3160 in sight. Resistance remains at 1.3650 (38.2% fibo, 50 DMA). 

       AUDSGD – Watch RBA and Budget for Cues. AUDSGD was last seen around 1.0280 as we write this morning. Bearish momentum on daily chart shows tentative signs of waning. Resistance at 1.0350 (21 DMA) before 1.05 (38.2% fibo from 2014 high to 2016 low). Support at 1.0180 (23.6% fibo). Development at RBA and Federal Budget today could provide the catalyst for the pair.

       SGDMYR – Another Rising Wedge in the Making? SGDMYR saw a mild up-move towards 2.9160 levels but remained capped. Price action shows a potential rising wedge in the making. This is typically bearish and the cross could possibly test lower. Next support at 2.85 levels (2016 low) before our objective at 2.8250 (50% fibo retracement of 2014 lift-off to 2015 high; a level we previously highlighted in our short SGDMYR strategy). Resistance at 2.9350 (50 DMA), 2.98 levels (100 DMA).

       USDMYR – 3.88 – 3.93 Range Intra-day. USDMYR remained broadly stable in absence of fresh cues. Last seen at 3.9075 levels. Daily momentum is mild bullish bias. We are cautious of technical rebound. Next resistance at 3.95 before 3.9850 (23.6% fibo retracement of 2016 high to low). Support at 3.8440 (2016 low); below that puts 3.80 in sight. Week ahead brings trade and FX reserves data on Fri.

       1s USDKRW NDF – Downside Pressure Persists. Apr CPI data released this morning was in line with estimates while core inflation inched up slightly. 1s USDKRW NDF fell tracking the declines in USD, USDKRW amid supported risk sentiment. Pair was last seen around 1135 levels. Bullish momentum on daily chart is waning again. Support remains at 1125 levels (previous low in Apr). Resistance at 1146 (21 DMA) before 1153 (23.6% fibo retracement of 2016 high to low).

       USDCNH – Caixin PMI on Tap Today. China NBS PMI fell slightly to 50.1 (vs. 50.2 prior vs 50.3 Cons). New orders and production continue to underpin the PMI, following a rebound last month, maintaining at a high level of 51.0 and 52.2, respectively. USDCNH was a touch softer this morning at 6.4760 levels. Daily momentum is showing signs of turning mild bearish while stochastics is falling. Support at 6.4670 (200 DMA). Break below could target 6.40 levels. Resistance at 6.4970 (50 DMA). Week ahead brings Caixin PMI Mfg (Tue); Caixin PMI Services (Thu); Current account (Fri). USDCNY fix was set at 6.4565 (-24pips below last Fri fix of 6.4589).

      1s USDINR NDF – Range-bound. 1M USDINR was a touch softer amid USD weakness. Last seen at 66.70 levels. Bullish momentum on daily chart is showing tentative signs of waning. Next support at 66.25 (Apr lows). Resistance at 66.80 (200 DMA) before 67 levels (23.6% fibo retracement of 2016 high to low).  Week ahead brings PMI services on Wed.

       1s USDIDR NDF – Range. 1s USDIDR NDF tracked broad USD/AXJ lower. Last seen around 13165 levels. Daily momentum is flat while stochastics is falling. There is no data for the week remaining and pair could take cues from other USD/AXJ. Correlation between IDR is most significant with SGD, KRW, THB and PHP. Downside likely to find support at 13100 levels. A break below could revisit 13000 levels. Resistance at 13240 (50 DMA).

       USDPHP – Upside Risk.  USDPHP continued to trade higher amid election uncertainty weighing on sentiment onshore., Pair was last seen at 46.95 levels. Weekly and daily momentum indicators are bullish bias. Next resistance at 47 levels (50% fibo retracement of 2016 high to low). Before 47.25 (61.8% fibo). Support at 46.73 (38.2% fibo). There is increasing uncertainty regarding the economic positions of presidential candidates particularly that of the front runner Davao Mayor Rodrigo Duterte that is weighing on foreign investment decision and on the PHP as well.

      USDTHB – Downside Risk.  In data released yesterday, headline inflation turned positive for the first time since Dec 2014, led by gains in tobacco (9duie to tax increase) and beverage prices. USDTHB is tracking other USD/AXJ lower. Last seen at 34.85 levels Daily momentum and stochastics have turned mild bearish. Support at 34.80 (trend-line support from Mar and Apr lows), before 34.50 (50% fibo retracement of 2015 low to high). Resistance at 35 (38.2% fibo).

Rates

Malaysia

      Government bond yields lowered amid buying flow in the afternoon and on the back of lower than expected US 1Q GDP overnight. The newly auctioned 7y MGS 8/23 was the most active and closed -4bps at 3.77%. The strong buying interest spread to the rest of the curve, with 30y MGS 3/46 being dealt at 4.61%, 8bps lower than the previous close.

       Short end IRS continued to see better receiving interest from foreign flows which favor putting on steepeners. But nothing was reported traded in the market. 3M KLIBOR remained at 3.69%.

       PDS market was muted before the long weekend. AAA belly papers biased to the offer side, but bids were hard to come by. Danga 26s and Putra 23s widened 1bp to 4.45% (G+51bps/Z+36bps) and 4.33% (G+57bps/Z+41bps) respectively. GG curve felt better bid at the belly as Prasa 22s got taken at 4.03% (G+34bps/Z+16bps) and PASB 26s tightened 1bp to 4.35% (G+42bps/Z+27bps). AA curve saw better buying at the long end, with JEP 31s trading 1bp tighter. In summary, the week saw AAA and GG curves trade in a narrow range of +/-2bps, while the AA curve saw better buying at the long end. The low liquidity may continue into May if there is no catalyst in the market.

Singapore

      SGS traded sideways on good 2-way interest and yields stayed flat ahead of the long weekend. SGD IRS also largely unchanged. We expect SGS to continue trading around current levels.

       Asian credit market was fairly muted and new Huawei 26s were the main focus. The USD2b issuance, which was 2.5x covered, opened at +229bps bid versus a re-offer +230bps. Some flipping was seen in the +229-228bps range, then the bonds briefly widened to +231bps, but buying from under-allocated accounts brought them back to close at +228bps bid.

 Indonesia

      Indonesia bond prices closed lower during the first trading day of the week amid easing inflationary pressure in the month of April. According to Indonesia statistics release, deflation of 0.45% MoM occurred during the month of April which was mainly contributed by decline in food prices, transportations and electricity prices. Despite this data could have support an incline in IGS price, yet bond investors may have avoid taking position due to long holiday ahead as during the holiday several U.S labour data will be release. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 7.398%, 7.698%, 7.873% and 7.863% while 2y yield shifts down to 6.943%. Trading volume at secondary market was seen thin at government segments amounting Rp6,033 bn with FR0056 as the most tradable bond. FR0056 total trading volume amounting Rp1,977 bn with 78x transaction frequency and closed at 104.759 yielding 7.698%.

       DMO will conduct their bi-weekly sukuk auction today with five series to be auctioned which are SPN-S04112016 (Coupon: discounted; Maturity: 4 Nov 2016), PBS006 (Coupon: 8.250%; Maturity: 15 Sep 2020), PBS009 (Coupon: 7.750%; Maturity: 25 Jan 2018), PBS011 (Coupon: 8.750%; Maturity: 15 Aug 2023) and PBS012 (Maturity: 15 Nov 2031). We believe that the auction will be oversubscribe by 2.0x – 3.0x from its indicative target issuance of Rp4 tn while our view on the indicative yield are as follows SPN-S04112016 (range: 5.60% – 5.70%), PBS006 (range: 7.70% – 7.80%), PBS009 (range: 7.45% – 7.55%), PBS011 (range: 7.90% – 8.00%) and PBS012 (range: 8.20% – 8.30%).

       Corporate bond trading traded thin amounting Rp322 bn. FIFA02BCN3 Shelf Registration II Federal International Finance Phase III Year 2016; B serial bond; Rating: idAAA) was the top actively traded corporate bond with total trading volume amounted Rp177 bn yielding 9.140%.