Maybank GM Daily - 15 Jun 2016

FX

Global

      Flight to safety dominated the action on Tue as markets start to price in the prospect of UK leaving the European Union. Polls have swung towards the ‘leave’ camp and unsurprisingly, European markets took the brunt of the risk-off mood. US stocks slipped into negative right after open and waffled in mild red terrain for the rest of the session. Market players are now in a wait-and-see mode – for key events like the Fed rate decision tonight (dots plot and language of the statement) as well as the EU referendum on 23 Jun (next Thu). The 10-year bund yields was last seen at -0.004% after reaching a low of -0.033% overnight.

      Flight to safety benefited the traditional safe havens including the JPY, the CHF and the USD. With dollar a little firmer overnight and risk sentiments still very cautious, expect Asian currencies to trade on the backfoot in the session ahead as regional investors join their Western counterparts in the waiting game. MSCI has rejected the inclusion of A-shares for the third time, saying that institutional investors desire “further improvements in the accessibility of the China A-shares market”. MSCI will keep China A-share inclusion in its Jun 2017 review but will not rule out an out-of-cycle announcement if there are significant positive developments.

      The FOMC rate decision tonight (2am SGT) is the elephant in the room with focus likely on not just rate action (as we do not rule out the possibility of a surprise hike), the dots plot and language of the statement will also be scrutinized for forward guidance. On the side, there is US empire manufacturing due, UK ILO labour report. Asia’s data docket is a little busy with Singapore’ retail sales due along with Malaysia’s CPI and Indonesia’s May trade numbers. China’s new yuan loans, aggregate financing and money supply M2 prints should be due sometime today as well.

Currencies

G7 Currencies

      DXY – FoMC Tonight – To Hike or To Delay? USD inched higher again as we inch closer to FoMC meeting tonight (2am SG/KL time). Fed fund futures continue to show 0% chance of a hike in Jun and only 16% chance of a hike in Jul. 10Y UST yields have now plunged to all-time lows of 1.6078 levels. We acknowledged that the probability of a hike at this meeting is greatly reduced (markets no longer expecting a rate hike tonight), but we we are not ruling out the possibility of Fed raising rates tonight (our long-held view) especially when Fed Chair Yellen sounded upbeat on the assessment of the US economy and reiterated that rates will need to gradually rise over time. Focus will be on the dots plot and statement for clues on rate hike trajectory. In the event of an upbeat assessment of the US economy, deferred decision to hike in Jun and reiteration of gradual pace of tightening could provide some short-term relief for AXJs including IDR, PHP, MYR. DXY was last seen at 94.90 levels. Bearish momentum on daily chart continues to wane while stochastics is rising from near-oversold conditions. Resistance at 94.90 (21 DMA), 95.65 (100 DMA, downward sloping trend-line resistance from Feb and May) and 96.50 (200 DMA). Next support at 93.50 before 92 levels. Week remaining brings 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 – Downside Risks. EUR remained on a backfoot amid broad USD strength overnight while 10Y bund yields slid to all time low of -0.026%. Fear of Brexit is also one of the main factors weighing on EUR.  Pair was last seen at 1.12 levels. Bullish momentum on daily chart is waning while stochastics is turning lower from near-overbought conditions. Support remains at 1.11 (200 DMA). Resistance at 1.3 (50 DMA), 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 – Labor Report on Tap. GBP fell amid amid opinion polls swinging in favour of Brexit and broad USD strength. FT poll of polls continued to show the “Leave” camp (47%) running ahead of “Remain” (44%). We reiterate that opinion polls should not be treated as the holy grail as 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 39.8% (vs. GFC 2008-09 of 32%). We continue to caution for choppy moves in the lead-up to referendum day (23 Jun) amid poor liquidity conditions amplifying GBP movements. GBP was last seen at 1.4120 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 remaining brings Employment change, unemployment rate, weekly earnings (Apr) on Wed; BoE Meeting; Retail Sales (May) on Thu

   USDJPY – Bearish Risk. USDJPY edged towards its year low of 105.55 yesterday but has since rebounded back above the 106-levels this morning, possibly on profit-taking ahead of the FOMC, BOJ meetings tomorrow. Nevertheless, Brexit concerns and market expectations of a BOJ on hold tomorrow amid FOMC holding steady as well could tilt the balance of risks to the downside. 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 possible downside pressure on the pair intraday. Pair was last seen around 106.00 levels. Risks remain bias to the downside as reflected by our daily charts with stochastics at oversold conditions. Support remains at the year’s low of 105.50. A break below that is expected to trip sell-stops orders below with next support at 101.50 levels (50% Fibo retracement of the 2012 low to 2015 high). Resistance at 107.25 (38.2% Fibo), 108.80 (21 and 50 DMAs). Remaining week has Machine Tool Orders (May) on Wed; BOJ Meeting on Thu.

      NZDUSD – GDT Auction on Tap Tonight. NZD traded softer amid broad USD strength. In data released this morning current account deficit for 1Q stood at -3% of GDP (as 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 0.6980 levels. Bullish momentum on daily chart is waning while stochastics is turning lower from overbought conditions. We caution for pullback towards 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, Finance Minister Speaks on Wed; GDP (1Q) on Thu; Mfg PMI (May); Consumer Confidence (Jun) on Fri.

      AUDUSD – Bears Assert. AUDUSD was last seen around 0.7342, weighed by firmer USD and risk-off mood. Bullish momentum on daily chart continues to decelerate and stochastics show tentative sign of falling from overbought conditions. Pair can continue to extend its retracement towards the 0.7267 (200-DMA) should the immediate support a t0.7328 (50% Fibonacci retracement of the 2016 rally) give way. Resistance at 0.7455 (50 DMA). Break above this on daily close basis could see an extension towards 0.76 levels (23.6% fibo). Not helping the AUD is the consumer confidence data for week ending 12 Jun which inched lower to 116.4 from 116.8. NAB survey shows that business conditions improved while business confidence has fallen. Week ahead brings Employment Change (May) on Thu.

      USDCAD – Upside Retracement. USDCAD continued to rise and was last seen around 1.2865. 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 1.2857 a 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. Focus remains on the housing market and that has underpinned its household debt. Latest statistics show that the credit-market debt that includes mortgages showed little improvement at 165.3% of after-tax income for 1Q compared to 165.4% in 4Q 2015.

Asia ex Japan Currencies

      The The SGD NEER trades 1.03% above the implied mid-point of 1.3700 with the top estimated at 1.3429 and the floor at 1.3972.

   USDSGD – Upside Risks.  USDSGD is inching higher this morning as global risk appetite remains soft amid Brexit concerns and a firmer dollar overnight. Pair was last seen around 1.3560 levels. Daily momentum shows bearish bias remains intact but is waning. Stochastics continues to show tentative signs of rising from oversold conditions. Further upticks should meet resistance around 1.3610 (23.6% Fibo retracement of Jan-Mar downswing; 50DMA), 1.3690 levels (21 DMA), 1.3740 (100DMA). Support at 1.3450 (trend-line support from Apr to Jun lows). Remaining week has Apr retail sales (Wed) and May NODX (Fri).

      AUDSGD – Two-Way Trade. AUDSGD slipped past parity again at 0.9960, after breaking the 21-DMA at 0.9985. Near-term risks are still to the downside with next support seen around 0.9906, before Jan low of 0.9846 and then the year low of 0.9717. Resistance is now seen around 1.0028.

      SGDMYR – Little Momentum. SGDMYR inched higher amid MYR underperformance. Cross remains well within its trend channel; last seen around 3.0280 levels. There are little cues from momentum indicators. We remain bias to lean against strength. Resistance remains at 3.0480 (trend-line resistance from the highs of Nov and Jan) before 3.0640 (76.4% fibo retracement of Oct high to Apr low). Support at 2.99 (50% fibo), 2.9570 (38.2% fibo, 100 DMA).

      USDMYR NDF – Mild Upside Risk. Pair remains better bid this morning off the back of USD strength, slightly softer oil prices and cautious risk sentiment. 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 4.1420 (50% fibo retracement of 2016 high to low) before 4.18 levels (200 DMA). Support at 4.0720 (38.2% fibo). Day ahead brings CPI inflation (Wed).

      1s USDKRW NDF – Upside Risk. MSCI has decided (early this morning) that Korea will not be named as a candidate for MSCI developed market index. Elsewhere MSCI has also decided not to include China into its EM index. Kospi was last seen in negative territories but could largely be due to the overall cautious risk sentiment driven by FoMC and EU referendum uncertainty. 1s USDKRW NDF was higher amid broad USD strength and cautious risk sentiment. Pair was last seen at 1179 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 1185 (50% fibo retracement of 2016 high to low). Near term support at 1171 (38.2% fibo). May unemployment rate released this morning held steady at 3.7% (vs. 3.8% expected)

      USDCNH – Trend is Up. The retest of the 6.60-figure was inevitable and the pair is now seen at 6.6112 as we write. Risk-off and dollar strength have nudged USDAXJs higher and USDCNH is unlikely to escape unscathed. Next barrier is seen around 6.6560. USDCNY was fixed 210 pips higher at 6.6001 (vs. previous 6.5791). CNYMYR was fixed 15 pips higher at 0.6198 (vs. previous 0.6183). MSCI has rejected the inclusion of A-shares for the third time, saying that institutional investors desire “further improvements in the accessibility of the China A-shares market”. MSCI will keep China A-share inclusion in its Jun 2017 review but will not rule out an out-of-cycle announcement if there are significant positive developments. Specifically, investors want to see how effective rules on QFII quota allocation, capital mobility and stock-trading suspensions will be.  MSCI said that not all investors want to use Shenzhen-HK stock link.

      SGDCNH – Elevated. SGDCNH remained elevated around 4.8745. 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 – Bullish. The 1M NDF rose to 67.65 at last sight.  The break of the 100-DMA suggest that further upside extension is likely. Barrier at 67.7072(23.6% Fibonacci retracement of the Oct-Feb rally) hinders the bulls. Break here exposes the next at 68.3656. Support is now seen at 67.1750 (50% Fibo, near 50,200-DMA) before the next at 66.25 (year’s low).  Foreign investors bought USD53.4mn of equity and USD23.3mn of debt on 13 Jun. WPI has also rose more than expected to 0.79%y/y from previous 0.34%, driven by primarily food costs. May trade is still outstanding, due anytime this week. A domestic press cited FinMin Jaitley saying that all states except for Tamil Nadu support the GST. The Finmin hopes to seek the passage of the tax bill in the monsoon session of Parliament. In other corporate news, Bharti Airtel and Singtel has collaborated to provide high-speed, secure data network coverage to Asia-Pacific, the Middle East, Africa, Europe and the US.

      1s USDIDR NDF – Upside Risks. 1s USDIDR NDF is on the uptick back above the 13400 levels amid softer global risk appetite and firmer dollar overnight.  Moves intraday will likely be guided by external events ahead including FOMC, BOJ meetings and BI policy decision tomorrow. 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. Moreover, ongoing Brexit concerns should continue to weigh on risk sentiment and put upward pressure on the 1s NDF ahead. 1s NDF was last seen around 13460. Daily chart continues to show waning bearish momentum and stochastics is showing tentative signs of rising from oversold levels. With the 100-DMA resistance level taken out, next barrier at 13550 (21-DMA) before 13720 (200-DMA). 100DMA resistance-turned-support level and 50DMA at 13390 should be supportive. The JISDOR was fixed lower at 13273 yesterday for the first time in three sessions from 13341 on Mon. Foreign investor optimism returned with them buying USD54.40mn in equities yesterday. They had also added IDR1.31tn to their outstanding holding of debt on 13 Jun (latest data available). On tap today is May trade numbers and then we have BI meeting tomorrow. BI governor expects the trade surplus to come in around USD400mn, less than the USD723mmn market is expecting and Apr’s surplus of USD667mn.

      1s USDPHP NDF – Upside Bias.  1s USDPHP NDF continues its bounce higher this morning amid weak global risk sentiment over Brexit concerns and firmer dollar overnight. Broad USD strength and cautious risk sentiment should 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 tomorrow - for USD direction and risk sentiments. Last seen around 46.44 levels, 1s NDF has lost most of its bearish momentum and stochastics continues to climb from oversold conditions. With risks tilted to the upside, further upmoves should meet immediate resistance at 46.50 (23.6% Fibo retracement of Jan-Mar downswing) before 46.63 (50DMA), 47-levels (100DMA). Support remains at 45.90 (double-bottom) which should provide firm support in the interim. Risk sentiment remained soft for the third consecutive session with foreign investors selling USD6.63mn in equities yesterday. Apr overseas remittances is on tap today.

      USDTHB –  Tilting Higher.  USDTHB is testing the 100DMA resistance level this morning amid  a firmer dollar overnight and deteriorating global risk sentiment. Last seen around 35.350 levels, pair’s bearish momentum remains intact but shows signs of waning and stochastics is showing tentative signs of rising from oversold levels. Pair should continue to take its cues from external events this week – FOMC, BOJ meetings – as well as concerns over possible Brexit. Expect choppy trades within current ranges of 35.000-35.370 to hold. A break of the upper bound of the range should expose the next barrier at 35.500 (21DMA). Support remains at 35-figure. Risk sentiments deteriorated yesterday with foreign funds selling THB0.07bn and THB0.61bn in equities and government debt. 10 Jun foreign reserves is on tap on Fri.

Rates

Malaysia

      Local govvies softened slightly with front end govvies declining in price. The 10y MGII 9/26 had the most amount of volume traded with the bond closing flattish. Market sentiment turned risk-off in the afternoon widening bid/offer spreads as players became defensive.

      MYR IRS saw better bids as risk-off sentiment prevailed, and the curve moved 1-3bps higher. A trade was reported on the 2y at 3.59% with a decent size. We think players will stay lightly positioned ahead of the FOMC this week. 3M KLIBOR stood the same at 3.65%.

      PDS space was lackluster with the risk-off sentiment. HG papers still well supported at the belly but spreads at the long end edged wider. Danga 26 tightened 2bps to 4.45% (G+61bps/ Z+44bps), while Plus 27 widened 5bps to 4.60% (G+72bps/Z+55bps). GG space mainly focused at the front end with levels relatively unchanged. The AA curve weakened at the long end widening 5-6bps, with names being traded include TBEI and YTL Power.

Singapore

      SGS started quiet but soon had selling interest as banks lightened up ahead of this week’s volatile events, mainly in the 2y-5y sector. Some dip buying was seen. Risk-off sentiment heightened on the back of the stronger USD against Asian FX and higher UST futures. Yields closed 1-3bps higher amid a cautious interbank market. SGD IRS curve bear flattened on paying interest, driven by expectations of higher USDSGD.

      Asian credits still on a defensive note on concerns of Brexit. Generally wider by 2-3bps, with JD.com widening as much as 5bps. Sovereign bonds managed to move up slightly due to short covering but there was no follow through. Market will remain cautious up till the actual UK voting on EU.

Indonesia

      Indonesia bond market closed slightly lower ahead of the FOMC meeting, trade balance data and BI Board of Governor meeting. Despite concern about brexit was enveloped the trading of IGS yesterday, 10y negative Bund yield could be a reason for IGS and Indon yield to move lower from current level in our view. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 7.372%, 7.596%, 7.836% and 7.819% while 2y yield shifts up to 7.163%. Trading volume at secondary market was seen moderate at government segments amounting Rp12,440 bn with FR0056 as the most tradable bond. FR0056 total trading volume amounting Rp2,497 bn with 74x transaction frequency and closed at 105.464 yielding 7.596%.

      Indonesian government conducted their sukuk auctions yesterday and received incoming bids of Rp6.90 tn bids versus its target issuance of Rp4.00 tn or oversubscribed by 1.73x. Incoming bids during the auction was noted the lowes since begin year. The incoming bids were lower by 28.3% compared to the last sukuk auction (two weeks ago) or 43.5% and compared to YTD average incoming bids during sukuk auction amounting Rp12.22 tn respectively. However, DMO only awarded Rp5.08 tn bids for its 5mo, 1.6y, 4y and 16y bonds. Incoming bids were mostly clustered on the PBS009 series. 5mo SPN was sold at a weighted average yield (WAY) of 5.97969%, 1.6y PBS009 was sold at 7.31598%, 4y PBS006 was sold at 7.69973% while 16y PBS012 was sold at 8.20987%. PBS011 series bids were rejected during the auction. Bid-to-cover ratio during the auction came in at 1.14X – 3.09X. Till the date of this report, Indonesian government has raised approx. Rp100.35 tn worth of debt through bond auction which represents 94.7% of the 2Q 16 target of Rp106.00 tn.

      Corporate bond trading traded moderate amounting Rp655 bn. ADMF01CCN3 (Shelf registration I Adira Dinamika Multi Finance Phase III Year 2012; C serial bond; Rating: idAAA) was the top actively traded corporate bond with total trading volume amounted Rp145 bn yielding 8.665%.