Maybank GM Daily - 13 Jun 2016

FX

Global

      USD had a second session of gains on Fri, buoyed by an underlying sense of caution. Fear of “Brexit” sank European equities and NY stocks followed suit. Flight to safety also depressed yields with UST 10yr last seen under 1.63%. Oil prices were also weighed. WTI was last seen at USD48.70 while Brent still held on to the USD50-level.

      The week starts with Australia on holiday. China’s May activity data is due today along with possibly its credit and money supply data that are due anytime this week. Its usual monthly data is not the only focus as MSCI is due to announce the results of its annual classification review on 15th Jun (Wed Asia morning 05:00 SGT). Even partial inclusion of the A-shares could be a nod for investors who track the index to increase their portfolio towards the A-shares. This in turn acts as a buffer for China’s capital account which has seen persistent outflow. Focus is also on MSCI decision on whether Korea would be listed as a candidate for MSCI developed market index (which if included as a candidate will also lead to inflows into Korean equities and support the KRW)

      Dollar strength seems to be playing out in the past few days ahead of the FOMC rate decision on Thu morning. Markets are expecting no hike although we continue to see Jun/Jul as a possibility. Focus is on the dots plots and statement. An upbeat assessment of the US economy, deferred decision to hike in Jun and reiteration of gradual pace of tightening could re-ignite interests for yield plays, benefiting AXJs (in particular IDR, PHP, MYR). Apart from the Fed, three other central bank decisions are scheduled including BOJ, BOE and BI. All three are expected to stand pat.

Currencies

G7 Currencies

      DXY – Upside Risk into FoMC. USD continued to see another round of pullback as we inch closer into an eventful week packed with MSCI decision (Wed early morning) and key central bank meetings (Thu) including Fed, BoJ, BoE while other risk event continues to cast more uncertainty - UK opinion poll on EU referendum continues to swing in favour of Leave. Overall, it was a session where risk appetite was cautious. Fed fund futures continue to show 0% chance of a hike in Jun and only 18% chance of a hike in Jul. And Dec FoMC appears to be the earliest markets are pricing in a hike (implied probability at 50%). All eyes are on FoMC – statement and dots projection for clues on when Fed will hike. DXY was last seen at 94.63 levels. Bearish momentum on daily chart continues to show signs of waning while stochastics is showing signs of turning from near-oversold conditions. We expect further retracement to the upside. Resistance at 94.90 (21 DMA), 95.65 (100 DMA, downward sloping trend-line resistance from Feb and May). Next support at 93.50 before 92 levels. Week ahead brings Retail Sales, Import prices (May) on Tue; PPI, IP, Capacity Utilization (May); Empire Mfg (Jun) on Wed; FoMC meeting (2am SG/KL time); Philly Fed Business outlook (Jun); CPI (May) on Thu; Housing starts, building permits (May) on Fri.

       EURUSD – Waning Bullish Momentum. EUR fell amid broad USD strength. Last seen at 1.1250 levels. Bullish momentum on daily chart remains intact but is showing tentative signs of waning while stochastics is showing signs of turning lower from near-overbought conditions. Support remains at 1.1250 (21 DMA), before 1.12 (100 DMA) and 1.11 (200 DMA). Resistance at 1.1450 levels before 1.15. Week ahead brings ECB Nouy speaks on Mon; EC IP (Apr); EC Employment (1Q) on Tue; EC trade balance (Apr) on Wed; EC CPI (May); Euro-area Finance Ministers meet on Thu; EC current Account (Apr); ECB Draghi, Coeure speak on Fri.

       GBPUSD – Choppy and Driven by Opinion Polls. GBP tumbled amid opinion polls swinging in favour of Brexit. FT poll of polls showed “Leave” camp running ahead of “Remain” at 46% to 44%. In particular the swing was driven by ORB poll which saw 55% opined to Leave vs. 45% opined to Remain.  eased amid USD rebound. GBP 2w vols have now surged beyond GFC 2008-09 levels highs; last seen at 37.7% (vs. GFC of 32%). We continue to caution choppy moves in the lead-up to referendum day (23 Jun) amid poor liquidity conditions to amplify GBP movements. GBP was last seen at 1.4220 levels. Daily momentum and stochastics are indicating a bearish bias. Next support at 1.4080 before 1.3840 (2016 low). Resistance at 1.4350 (100 DMA) and 1.4420 (50 DMA). Week ahead brings CPI, PPI, RPI (May); House Prices (May) on Tue; Employment change, unemployment rate, weekly earnings (Apr) on Wed; BoE Meeting; Retail Sales (May) on Thu

       USDJPY – Downside Risk. USDJPY continued to trade near its recent lows. JGB 5Y and 20Y yields plunged to record lows of -0.27% and -0.18%, respectively. USDJPY was last seen at 106.40 levels.  Focus on BoJ on Thu - we do not expect any move before Summer elections but there is always an element of surprise that should not be ruled out. Daily momentum remains bearish bias with stochastics nearing oversold conditions. Support at 105.50 (2016 low). A break below that is expected to trip sell-stops orders below. Next support at 100 levels. Resistance at 109 (21 and 50 DMAs). Week ahead brings BSI Large Industry, Manufacturing (2Q) on Mon; IP, Capacity Utilisation (Apr) on Tue; Machine Tool Orders (May) on Wed; BoJ Meeting on Thu.

       NZDUSD – Downside Risk. NZD continued to reverse gains amid broad USD strength. Pair was last seen at 0.7040 levels. Bullish momentum on daily chart is waning while stochastics is showing signs of turning at overbought conditions. We caution for pullback towards 0.7040, 0.6990 levels. Firmer support down at 0.6930 (50% fibo retracement of May-2015 high to Aug-2015 low). Resistance at 0.7130 (61.8% fibo) before 0.7360 (76.4% fibo). Week ahead brings REINZ House Sales (May) on Mon; Food Prices (May) on Tue; GDT auction on Wed; Finance Minister Speaks on Wed; GDP (1Q) on Thu; Mfg PMI (May); Consumer Confidence (Jun) on Fri.

       AUDUSD – Two-Way Risks. AUDUSD was last seen around 0.7370, weighed by USD rebound and a slip in oil prices. Onshore markets are closed today. Bullish momentum on daily chart continues to decelerate and stochastics signals overbought conditions. Pair can extend its retracement towards the 0.7267 (200-DMA). Resistance at 0.7455 (50 DMA). Break above this on daily close basis could see an extension towards 0.76 levels (23.6% fibo). Week ahead brings CPI Expectation (Jun); NAB Business Confidence (May) on Tue; Westpac Consumer Confidence (Jun); on Wed; Employment Change (May) on Thu.

      USDCAD – Oversold, Rangy. USDCAD bounced from the 1.2660-support which  remained firmly intact. Daily stochastics enter oversold conditions. Pair was last seen around 1.2740 levels. MACD suggest that downside bias for this pair has weakened and pair is likely to remain within 1.2530-1.3460. Strong support is still seen at 1.2660 before year low of 1.2460. May labor report came in pretty strong with 13.8K employment increase in the month vs. expected 1.8K. Unemployment rate fell to 6.9% from previous 7.1%. Week ahead has Apr manufacturing sales and May existing home sales for May on Wed. May CPI is due on Fri.

Asia ex Japan Currencies

      The SGD NEER trades 0.43% above the implied mid-point of 1.3675 with the top estimated at 1.3402 and the floor at 1.3947.

       USDSGD – Upside Risks.  USDSGD continued to retrace some of its early week’s losses. Last seen at 1.3615 levels. Bearish momentum on daily chart remains intact but shows signs of waning. Stochastics is showing signs of rising from oversold conditions. Expect a rebound towards 1.3620 (23.6% fibo retracement of 2016 high to low), 1.3650, 1.37 levels (21 DMA). Support at 1.3450 (trend-line support from Apr to Jun lows). Week ahead brings A[r retail sales (Wed) and May NODX (Fri).

       AUDSGD – Two-Way Trade. AUDSGD slipped to levels around 1.0035. Momentum indicators showing further pullbacks are possibly with support seen at 21-DMA at 0.9985. Beyond the near-term, momentum indicators are mixed and we see two-way trades within 0.9900-1.0200.

       SGDMYR – Little Momentum. SGDMYR inched higher amid MYR underperformance. Cross remains well within its trend channel; last seen around 3.0150 levels. There are little cues from momentum indicators. We remain bias to lean against strength. Resistance remains at 3.0230 (61.8% fibo retracement of Oct high to Apr low). Support at 2.99 (50% fibo), 2.9570 (38.2% fibo, 100 DMA).

       USDMYR – Upside Risk. USDMYR gapped higher amid broad USD strength and slightly softer oil prices. Pair was last seen at 4.1060 levels. Bearish momentum on daily chart remains intact but shows signs of waning while stochastics is showing signs of turning higher from oversold conditions. Resistance at 4.1070 (23.6% fibo retracement of Apr low to Jun high) before 4.18 levels (200 DMA, Jun high). Support at 4.0580 (38.2% fibo, 100 DMA). Week ahead brings CPI inflation (Wed).

       1s USDKRW NDF – Sustained Rebound. 1s USDKRW NDF remained big amid sustained USD rebound and cautious risk sentiment as we head into an eventful week. Pair was last seen at 1174 levels.  Bearish momentum on daily chart is waning while stochastics is showing signs of rising from oversold conditions. We believe downside likely to be floored at 1153 levels (23.6% fibo retracement of 2016 high to low). Could see upside risks towards 1176 levels (200 DMA). Focus is also on MSCI decision (early Wed morning) on whether Korea would be named as a candidate for MSCI developed market index (which if included as a candidate will lead to gradual inflows into Korean equities and support the KRW). Week ahead brings May unemployment rate (Wed).

       USDCNH – Trend is Up. USDCNH has arrived 6.60-mark before easing back under the key-level, weighed by the lower-than-anticipated USDCNY fixing. Technically, this pair seems to be overstretched and due for a correction. Further retracement could meet support at 6.5650 for this pair. USDCNY was fixed 212 pips higher at 6.5805 (vs. previous 6.5593). CNYMYR was fixed 3 pips higher at 0.6176 (vs. previous 0.6172). Expect PBOC to use the fixing to temper the rise of the USDCNH and USDCNY in times of dollar strength and weak risk appetite such as this.  Eyes are on May activity data (today), liquidity numbers (anytime this week) and potential inclusion of the A-shares into the MSCI emerging market indexes(15^th Jun 0500 SGT). Should MSCI give the nod for the partial inclusion of A-shares, asset managers that track the index would be forced to gain exposures to A-shares, providing a buffer for China’s persistent capital outflows.

       SGDCNH – Higher. SGDCNH slipped from multi-month highs a yesterday and waffled around 4.8475 as we write. Trend is still up but momentum indicators are waning. Stochastics in overbought levels. Further pullbacks could meet support at 4.8400 before 4.8074 (23.6% Fibonacci retracement of the Jan-May rally). Barrier at 4.8813 still holds.

       1s USDINR NDF – Downside Risks. The 1M NDF had been choppy and was last seen around 67.25, underpinned by the firmer USD tone.  Technical indicators provide little directional signal fofr this pair but we suspect a failure to make a convincing break of the 100-DMA at 67.51 could leave the pair back on the slide towards the 66-figure. Support is seen at 66.25 (year’s low).  Further upside is likely to be capped. Foreign investors bought USD39.5mn of equity on 9 Jun and sold USD9.3mn of debt. Week ahead has May inflation due today followed by May trade due anytime this week.

       1s USDIDR NDF – Upside Risks. 1s USDIDR NDF was last seen around 13400, lifted by higher dollar. This pair is in tandem with most of USDAXJs. A break of the 100-DMA at 13405 could expose the next barrier at 13546(21-DMA) before 13730 (200-DMA). We see upside risks in the current environment of weak risk appetite and higher dollar. The JISDOR was fixed higher at 13309 on Fri from 13231 on Thu. Foreign investors bought USD39.5mn in equities on 10 Jun and USD528.6mn of debt on 9Jun. This week brings May trade numbers on Wed and BI makes rate decision on Thu.

       1s USDPHP NDF – Upside Risk.  1s USDPHP NDF rebounded amid broad USD strength and cautious risk sentiment. The pair is likely to take cues from external drivers this week – FoMC meeting (Thu) for USD direction and risk sentiment. 1s NDF was last seen around 46.26 levels. Bearish momentum on daily chart remains intact but shows signs of waning and stochastics is also showing signs of rising from oversold conditions. Next resistance at 46.30 (23.6% fibo retracement of May high to Jun low) before 46.54 (38.2% fibo). Support at 45.90 (double-bottom) should provide firm support in the interim. Week ahead brings overseas remittances (Wed).

      USDTHB –  Range.  USDTHB was on the downtick for most of last week before climbing higher towards the end of the week. Pair was last seen around 35.260 levels. Daily momentum remains bearish bias but waning and stochastics is at oversold levels. With BOJ, FOMC meetings and UK’s EU referendum approaching, expect choppy trades with current ranges of 35.000-35.370 ahead. Resistance is around 35.370 (38.2% Fibo retracement of the Jan-Mar downswing; 100DMA). Support at the 35-figure still. A break here could expose the next at 34.800 before the year’s low at 34.720. Risk sentiments were positive last week with foreign funds purchasing THB3.47bn and THB60.55bn in equities and government debt. Quiet week ahead with just 10 Jun foreign reserves on tap on Fri.

Rates

Malaysia

      Government bonds traded range bound with some healthy cheapening of ultra-long end bonds ahead of the 30y MGS 3/46 auction this month. Trading volume was decent with the most volume seen on 7y benchmark MGS 8/23s.

       MYR IRS rates mostly up 1bp except for the 7y which +3bps and the 5y which -1bp. No strong receiving interest was seen and nothing was dealt in the market. 3M KLIBOR unchanged at 3.65%.

       PDS market was muted with mostly crosses and levels flat to MTM. At the front end of the curve, AAAs tightened 6bps and GGs tightened 2bps. The belly was mostly quiet, while the long end saw AAAs widened 1bp and GGs unchanged. In the AA space, RHB 22 sub notes traded 3bps tighter, but other trades on this curve remain unchanged.

Singapore

      SGS market opened on a bearish tone as USDSGD moved up and PDs were defensive. In the afternoon, however, weak equities drove demand for safe assets and SGS yields retraced slightly, ending 1-3bps higher in a steepening bias. We view this as a healthy correction.

       Asian credits had mixed results, with profit taking in EM bonds and IGs holding steady despite softer indices overnight, weak regional equities and firm UST. IG was generally flat to +1bp, with some light trading of SOE papers and liquidity confined to a few recent issues. EM cash space mainly saw selling which appear to be profit taking instead of risk-off. Prices lowered about 25cts, translating to 3-4bps widening in spreads across the curve.

Indonesia

      Indonesia bond market closed lower during the day. We see that the decline as a healthy correcting following a significant hike of IGS prices this week. Considering a 2 day’s settlement, as of June 9th, Foreigner booked net buy worth of Rp12.88 tn within the month of June and are the biggest buyer. Events which would affect movement of IGS prices this week are upcoming FOMC meeting, U.S. May CPI and retail sales, Eurozone May CPI release, BI Board of Governor meeting and May Indonesia trade balance data release. 10-yr, 15-yr and 20-yr benchmark series yield stood at 7.431%, 7.591%, 7.794% and 7.798% while 2y yield shifts up to 7.163%. Trading volume at secondary market was seen thin at government segments amounting Rp7,023 bn with FR0073 as the most tradable bond. FR0073 total trading volume amounting Rp1,693 bn with 94x transaction frequency and closed at 108.341 yielding 7.794%.

       Corporate bond trading traded heavy amounting Rp969 bn. WSKT02CN1 (Shelf registration II Waskita Karya Phase I Year 2016; Rating: idA-) was the top actively traded corporate bond with total trading volume amounted Rp170 bn yielding 9.242%.