Maybank GM Daily - 14 Jun 2016

FX

Global

      Overnight, USD pared its recent gains against the G10 majors on Mon ahead of the FOMC meeting that starts tonight. Risk appetite remained weak amid news of the terror attack in Orlando and increasing jitters over the prospect of UK leaving the European Union. Even the news of Microsoft acquiring LinkedIn for U$26.2bn did little to excite the NY equity benchmark indices. Oil prices drifted lower but Brent was still able to hold on to the USD50-level while WTI was last seen at USD48.50. The VIX index extended its exponential rise towards the 21-level.

      Earlier in Asia, there were a number of data releases of note. China’s activity prints indicated a marked slowdown in investment growth. Urban FAI growth dropped to 9.6%y/y for Jan-May from the 10.5% for Jan-Apr. Industrial production and retail sales barely met expectations. May aggregate financing, new yuan loans and M2 money supply growth are still outstanding, due anytime by tomorrow. Elsewhere, India’s CPI firmed to 5.76%y/y from previous 5.47%, the second consecutive print that surprised to the upside. Higher inflation print is likely to keep RBI’s hands tied as India moves into monsoon period.

      The data docket is lighter today with India’s WPI scheduled and potential release of its trade numbers and China’s liquidity prints. Before the FOMC rate decision on Thu morning, markets will be eyeing the result of the MSCI annual classification review (15th Jun 5:00 SGT).  Beyond Asia, US has retail sales due today. Europe has industrial production for Apr scheduled for release.

Currencies

G7 Currencies

      DXY – Consolidation. USD gave back some of its early gains overnight in absence of data flow. 10Y UST yields have now plunged to all-time lows of 1.6096 levels. Focus remains on FoMC meeting on Thu. All eyes are on FoMC – statement and dots projection for clues on when Fed will hike. Fed fund futures continue to show 0% chance of a hike in Jun and only 16% chance of a hike in Jul. DXY was last seen at 94.36 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 to see DXY in consolidation over the next 2 days. 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 – Range of 1.12 – 1.1350. EUR held ground amid USD weakness overnight.  Last seen at 1.1290 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 1.1360 (23.6% fibo retracement of Dec low to May high), 1.1450 levels before 1.15. Week ahead brings 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 – CPI, PPI on Tap. GBP continues to trade near Apr lows of 1.42 levels amid opinion polls swinging in favour of Brexit. FT poll of polls showed “Leave” camp (45% )running ahead of “Remain” (43%). In particular the swing was driven by ORB poll which saw 55% opined to Leave vs. 45% opined to Remain. We remain cautious of how opinion polls can be skewed given the small sample size and the methodology (phone vs. online) used to conduct the polls. GBP 2w vols have now surged beyond GFC 2008-09 levels highs; last seen at 39% (vs. GFC 2008-09 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 1.4210 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 – Consolidating Lower. USDJPY is consolidating lower towards the 106-region currently on safe haven flows on Brexit concerns and market expectations that BOJ would remain on hold at its 16 Jun meeting. Our base case is for no moves by the BOJ before the Upper House elections in early Jul but there is always an element of surprise that should not be ruled out. JGB 5Y and 20Y yields continue to hover around their record lows of -0.27% and -0.18%, respectively. Nikkei futures are also lower, signaling further downside pressure on the pair ahead. USDJPY was last seen at 106.20 levels. 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 with next support at 100 levels. Resistance still at 109 (21 and 50 DMAs). Week ahead brings IP, Capacity Utilisation (Apr) on Tue; Machine Tool Orders (May) on Wed; BOJ Meeting on Thu.

      NZDUSD – GDT Auction on Tap Tonight. NZD traded a subdued range of 0.7030 – 0.7080 range overnight as markets await US FoMC for cues on USD. Food prices data (released earlier today) was a touch softer than expected. Focus tonight on GDT auction tonight. Past 2 auctions in May have seen back to back increases. A break in momentum may have the impetus to weaken the Kiwi. 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 0.7020, 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 GDT auction on Tue; 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 0.7380, little helped by the softer USD as risk sentiment stayed cautious. 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 rose to levels around 1.2820 as we write. Daily stochastics are still in oversold conditions and MACD  forest continued to show waning bearish conditions. The 1.2530-1.3460 range still holds with the 50-DMA at 1.2856 a likely pivot point. Strong support is still seen at 1.2660 before year low of 1.2460. Week ahead has Apr manufacturing sales and May existing home sales for May on Wed. May CPI is due on Fri. Finance Minister Morneau told the press that the housing market dynamics are being scrutinized. This was after OECD Secretary General warn that the country “risk being stuck in a low growth tap”.

Asia ex Japan Currencies

      The SGD NEER trades 0.72% above the implied mid-point of 1.3652. We estimate the top at 1.3381 and the floor at 1.3923.

   USDSGD – Upside Risks.  USDSGD climbed to a high of 1.3623 yesterday on weak global risk appetite before slipping back below the 1.36-handle overnight as the dollar softened. Last seen at 1.3560 levels, pair shows waning bearish momentum on daily chart. Stochastics is showing tentative signs of rising from oversold conditions. Weak risk appetite could put further upside pressure on the pair intraday. Expect a rebound towards 1.3610 (23.6% Fibo retracement of Jan-Mar downswing), 1.3650, 1.37 levels (21 DMA). Support at 1.3450 (trend-line support from Apr to Jun lows). Week ahead brings Apr retail sales (Wed) and May NODX (Fri).

      AUDSGD – Two-Way Trade. AUDSGD slipped to levels around 1.0008. 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 remained supported amid MYR underperformance. Cross remains well within its trend channel; last seen around 3.0130 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).

      1s USDMYR NDF – Mild Upside Risk. Pair was better bid in the day off the back of USD strength but eased into NY close off the back of pullback in USD and supported oil prices. Pair was last seen at 4.0920 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 4.1435 (50% fibo retracement of 2016 high to low) before 4.18 levels (200 DMA). Support at 4.0700 (38.2% fibo). Week ahead brings CPI inflation (Wed).

      1s USDKRW NDF – Watch Out for MSCI Decision. Focus is also on MSCI decision (early Wed morning 5am SG/KL time) 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). 1s USDKRW NDF was a touch softer amid USD pullback. Pair was last seen at 1170 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), 1185 (50% fibo retracement of 2016 high to low). Week ahead brings May unemployment rate (Wed).

      USDCNH – Trend is Up. USDCNH waffled around the 6.5960-level by early Asia this morning in anticipation of another lower 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. As of 13 Jun, 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). May activity data shows industrial production steady at 6.0%y/y, slight deterioration in retail sales growth to 10.0%y/y from previous 10.1%. Urban FAI surprised to the downside with a drop to 9.6%y/y for Jan-May from previous 10.5% for Jan-Apr.  A NBS spokesperson said that the economy “faces uncertainties including Fed rate increase and geopolitical factors’. The private FAI print is “not ideal” and is primarily due to overcapacity. China seeks to accelerate reforms to encourage private investment. May liquidity numbers are still outstanding, due anytime by tomorrow.

      SGDCNH – Elevated. SGDCNH remained elevated around 4.8650. 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 – Mixed. The 1M NDF had been choppy and was last seen around 67.50, on the upswing.  Technical indicators provide little directional signal for this pair but 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 USD32.8mn of equity and USD35.9mn of debt on 10 Jun. Week ahead has May WPI due today followed by May trade due anytime this week. India’s CPI firmed to 5.76%y/y from previous 5.47%, the second consecutive print that surprised to the upside. Higher inflation print is likely to keep RBI’s hands tied as India moves into monsoon period. In other news, RBI introduces new regulations to improve the ability of lenders to cope with stressed assets and “put real assets back on track by providing entities facing genuine difficulties an avenue for reworking financial structure”.

      1s USDIDR NDF – Consolidation With Upside Risks. 1s USDIDR NDF appears to be in consolidation after last week’s climb higher as markets focus on the FOMC, BOJ and BI meeting on Thu. We expect BI to remain on hold at 6.75% at this meeting given that the central bank may not want to add policy-driven volatility to current market conditions, particularly with Brexit risks in the horizon, and as it transitions to a new interest rate policy rate and interest rate corridor policy on 19 Aug. Pair was last seen around 13370, little changed from its overnight close, as the dollar paired some of its overnight gains. Daily chart is showing waning bearish momentum and stochastics remains at oversold levels. A break of the 100-DMA at 13400 could expose the next barrier at 13543 (21-DMA) before 13725 (200-DMA). We see upside risks in the current environment of weak risk appetite and higher dollar. The JISDOR was fixed higher at 13341 yesterday from 13309 on Fri. Foreign investors sold USD30.13mn in equities yesterday and have added IDR2.80tn to their outstanding holding of debt on 10 Jun (latest data available). This week brings May trade numbers on Wed and BI makes rate decision on Thu.  In the news, the Home Affairs Ministry has revoked 3,143 local government regulations to boost competitiveness and improve bureaucracy reform.

      1s USDPHP NDF – Rangy.  1s USDPHP NDF is little changed this morning after closing with a doji overnight. This signals the lack of directional clarity ahead and could see the pair trade rangy ahead.  Still, broad USD strength and cautious risk sentiment could continue to put upward pressure on the 1s NDF ahead. The 1s NDF should continue to take its cues from external drivers this week – FOMC, BOJ meetings (Thu) for USD direction and risk sentiments. 1s NDF was last seen around 46.21 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 46.50 (23.6% Fibo retracement of Jan-Mar downswing) before 46.63 (50DMA). Support remains at 45.90 (double-bottom) which should provide firm support in the interim. Foreign investors sold USD9.33mn in equities yesterday – the second consecutive day of selling. Apr overseas remittances are on tap tomorrow.

      USDTHB –  Range Still.  USDTHB is inching lower this morning amid  a pullback in the dollar overnight. Last seen around 35.170 levels, pair’s bearish momentum remains intact but shows signs of waning and stochastics remains at oversold levels. With BOJ, FOMC meetings and UK’s EU in focus, expect choppy trades within  current ranges of 35.000-35.370 to hold. Resistance is around 35.370 (38.2% Fibo retracement of the Jan-Mar downswing). Support at the 35-figure still. A break here could expose the next barrier at 34.810 (double-bottom); 34.720 (year’s low). Risk sentiments were mixed yesterday with foreign funds selling THB0.44bn in equities and purchasing THB1.94bn in government debt. Quiet week ahead with just 10 Jun foreign reserves on tap on Fri.

Rates

Malaysia

      Government bonds stayed supported as buying was seen on the bellies and sizeable volume done on MGIIs. MGS yield curve ended 1-3bps lower at the belly despite the higher USDMYR. Players will look to the next auction – retap on 30y MGS 3/46 which we anticipate a size of MYR2b.

      IRS rates fell 1-3bps with locals as better payers and foreigners as better receivers. But nothing got traded in the market. As global yields have fallen, the curve would be heavy for the time being. 3M KLIBOR remained at 3.65%.

      PDS market saw better bidding interest on front end and belly papers. In the GG space, PASB 23s were taken 1bp tighter at 4.11% (G+46bps/ Z+30bps), while Prasa 23s dealt unchanged at 4.10% (G+43bps/Z+29bps). WI for the new 7y PASB also did well as it tightened 2bps to 4.15%. AAA curve felt better bid for Rantau, Aman and Telekom papers at the belly which traded 2bps tighter. Elsewhere, the AA space was muted.

Singapore

      Led by the firm UST last Friday, SGS market opened strong with buying bias, but trading volume was thin. SGS curve moved lower with yields from the 5y point onwards down 3bps and the front end down 1bp. We expect SGS prices to remain supported in the near term. SGD IRS levels lowered 3bps at the front end while the back end was flat.

      Asian credit market was predominantly risk-off, with INDON sovereigns and quasis bearing the brunt of the sell-off, prices 0.375-1pt lower. Newly issued INDON Euro papers, which did well past 2 days, slipped down and are almost back to re-offer price. IG bonds weaker by 3-5bps across the board as UST yields lowered on Brexit fears. Additionally, profit taking was also seen.

Indonesia

      Indonesia bond market moved sideways during the day and closed slightly higher. We expect IGS prices would move sideways till post FOMC results and statements. This will determine the next heading of IGS. Our economist believes that Indonesia trade balance during May would book surplus of US$0.44 bn or narrows compared to US$0.67 bn surplus in the month of April. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 7.425%, 7.591%, 7.827% and 7.811% while 2y yield shifts up to 7.163%. Trading volume at secondary market was seen thin at government segments amounting Rp9,782 bn with FR0053 as the most tradable bond. FR0053 total trading volume amounting Rp2,592 bn with 19x transaction frequency and closed at 103.434 yielding 7.425%.

      DMO will conduct their bi-weekly sukuk auction today with five series to be auctioned which are SPN-S01122016 (Coupon: discounted; Maturity: 1 Dec 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-S01122016 (range: 5.60% – 5.70%), PBS006 (range: 7.40% – 7.50%), PBS009 (range: 7.65% – 7.75%), PBS011 (range: 7.95% – 8.05%) and PBS012 (range: 8.25% – 8.35%).

      Corporate bond trading traded heavy amounting Rp1,696 bn. BBRI01BCN2 (Shelf registration I Bank BRI Phase II Year 2016; B serial bond; Rating: idAAA) was the top actively traded corporate bond with total trading volume amounted Rp500 bn yielding 8.585%.