Maybank GM Daily - 16 Jun 2016

FX

Global

       The Fed left rates unchanged, lowered the pace of future rate increases and the longer run Federal Fund rate. Fed Yellen cited risks of a “Brexit” and softer job gains in the past two months as key reasons for the Fed’s inaction last night. While she stuck to her mantra of caution (again), the statement acknowledged improvements in the housing sector as well as stronger household spending. PCE inflation forecast for this year was revised higher to 1.4% from 1.2% seen in Mar whilst the GDP estimate was lowered to 2.0% from 2.2%.

       Global yields fell, led by the USTs. 10yr yield was last seen around 1.56% whilst the 10yr bund yield was last seen at -0.10%. 10yr JGBs yield was last seen at -0.198%. In the FX space, the dollar index slipped. The decline was noticeably mild, likely because the outturn was not a surprise. In addition, fears of “Brexit” could keep the traditional safe haven supported on dips. Elsewhere, USDJPY touched fresh 20-month low of 105.44 overnight before sharply reversing above the 106-figure. The pair was last seen back on the decline ahead of BOJ rate decision today. We do not expect them to act before the Summer Elections are over. BI and BOE are also not expected to act today although there is increasing expectations for the latter to resume its easing cycle should UK leave the European Union.  Employment gains for Feb-Apr were less than expected.

       Apart from the three central bank meetings, Australia’s labor report was just released. Hiring pace has been losing momentum in the past few months and could nudge bets towards another cut in Aug. New Zealand released its 1Q GDP, at 0.7%q/q and was firmer than expected, spurring more AUDNZD sales. The US data calendar is light today with only Philly Fed due. Expect a sense of caution to keep USDAXJs supported on dips.

Currencies

G7 Currencies

       DXY – Dovish Fed; Watch CPI tonight. Fed kept rates on hold at 0.255 – 0.50% at the FoMC meeting overnight. Fed/ Yellen’s press conference sounded cautious and dovish. 2016 median dots plot projection still show 2 hikes this year but more FOMC officials now see only 1 hike (6 officials vs. 1 official back in Mar FOMC). The 2017 and 2018 dots plot have also shifted down with officials now seeing only 3 hikes in each of the year (down from 4 hikes). FoMC’s longer term rate projection has dropped to slightly below 3% (down from 3.25%). FoMC also revised GDP forecast lower. FoMC also expressed slightly more concern about development in inflation expectation; and while pace of labor market improvement has slowed, growth in economic activity appears to have picked up. She added that although unemployment rate has declined, job gains have diminished. She also made specific mention to soft business investment (even excluding energy sector). Fed Chair Yellen also said that “fed fund rate is likely to remain, for some time, below levels that are expected to prevail in the longer run”. OIS implied futures are now suggesting that the next hike to be in Mar 2017! USD fell across the board (knee jerk response). Question is will USD fall a lot more? Given that the delay in rate hike was due to cautious Fed, we are cautious that risk sentiment may not be as supported. And if that is the case, USD could in fact find support. This could remain the case as markets could still be on the cautious side as focus now turns to EU referendum next Thu. DXY was last seen at 94.50 levels. 4 hourly momentum and stochastics suggest interim downside pressure on the day. 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 Philly Fed Business outlook (Jun); CPI (May) on Thu; Housing starts, building permits (May) on Fri.

       EURUSD – Range-Bound. EUR firmed amid USD weakness off the back of dovish Fed. Focus turns to EU referendum next (23 Jun). Cautious appetite should continue to weigh on EUR.  Pair was last seen at 1.1270 levels. Daily momentum is not indicating a clear bias. Support remains at 1.11 (200 DMA). Resistance at 1.13 (50 DMA), 1.1360 (23.6% fibo retracement of Dec low to May high), 1.1450 levels before 1.15. Week remaining brings EC CPI (May); Euro-area Finance Ministers meet on Thu; EC current Account (Apr); ECB Draghi, Coeure speak on Fri.

       GBPUSD – BoE, Retail Sales on Tap. GBP recovered lost grounds, rising above 1.42 yesterday on better than expected jobs report (unemployment rate fell, wage growth firmed). Dovish and cautious Fed overnight kept GBP supported. We continue to caution for choppy moves (2-way direction) in the lead-up to referendum day (23 Jun) amid poor liquidity conditions amplifying GBP movements. GBP was last seen at 1.4195 levels. Daily momentum is indicating a bearish bias while stochastics is near oversold conditions. Next support at 1.4080 before 1.3840 (2016 low). Resistance at 1.4350 (100 DMA) and 1.4420 (50 DMA). Week remaining brings BoE Meeting (expect MPC to be unanimous in keeping policy rate unchanged at 0.5% and asset purchase facility to remain unchanged at 375bn); Retail Sales (May) on Thu.

    USDJPY – Awaiting BOJ, 101 Next? USDJPY hit a new low for the year at 105.44 overnight, tracking the dollar lower as the US FOMC kept policy on hold and Fed expectations of at least two rate hikes slipped. Pair has since rebounded slightly as the dollar regained some of its losses. Focus is now on BOJ later this morning. As per our report yesterday, our base case remains for no moves by the BOJ before the UK referendum on 23 Jun and Upper House elections on 10 Jul but there is always an element of surprise that should not be ruled out. Pressure remains to the downside as Brexit concerns and market expectations of a BOJ on hold today amid FOMC holding steady. JGB 5Y and 20Y yields fell to new record lows of -0.300% and -0.205%, respectively as funds flocked to the safety of JGBs. Nikkei futures are again lower, signaling possible downside pressure on the pair intraday. Pair was last seen around 105.70 levels. Daily charts continue to show bearish bias intact and stochastics remaining at oversold conditions. New low of the year at 105.44 should provide support nearby. A sustained break below that should expose the next support at 101.50 levels (50% Fibo retracement of the 2012 low to 2015 high). Resistance still at 107.25 (38.2% Fibo), 108.40 (21DMA).

       NZDUSD – Inching Higher. NZ 1Q GDP surprised to the upside on building and services while oil/gas extraction, coal mining and manufacturing fell. NZD jumped higher; last seen at 0.7070 levels. Bullish momentum on daily chart remains intact. Resistance at 0.7130 (61.8% fibo) before 0.7360 (76.4% fibo). Support at 0.6930 (50% fibo retracement of May-2015 high to Aug-2015 low). Week remaining brings Mfg PMI (May); Consumer Confidence (Jun) on Fri.

       AUDUSD – 50-DMA hard to break. AUDUSD was last seen around 0.7430, helped by the softer USD. Bullish momentum on daily chart continues to decelerate and stochastics show tentative sign of falling from overbought conditions. The 50-DMA continues to act as a barrier for the pair. Break above this on daily close basis could see an extension towards 0.76 levels (23.6% fibo). Jobs report gives little inspiration with employment change higher than expected at 17.9K, all of it from part-time hires. The month saw no full time employments gains and the Apr print was revised lower from -9.3K to -18.2K. Pair risk decline towards the 0.7267 (200-DMA) should the immediate support at 0.7328 (50% Fibonacci retracement of the 2016 rally) give way.  Bulls seem to be running out of momentum and risks seem to be on the downside. We now eye the labor report for May on Thu.

       USDCAD – Upside Retracement. USDCAD rose, defying gravity as the pullback in oil prices  underpinned the pair. Last seen at 1.2898. 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. Apr manufacturing sales rose more than expected by 1.0%y/y. May CPI is due on Fri. 

Asia ex Japan Currencies

       The SGD NEER trades 1.07% above the implied mid-point of 1.3647. The top is estimated at 1.3377 and the floor at 1.3917.

       USDSGD – Bearish.  USDSGD slipped below the 1.34-handle overnight on dollar weakness after the US Fed signalled a more gradual rate hike trajectory. As well, lower USDJPY is also weighing on the pair. Pair has since rebounded back above the 1.35-handle as the dollar regained some of its losses. Focus will now turn to BOJ later this morning. Still Brexit concerns are likely to return to the forefront and weaken global risk appetite again that could mitigate this downside move. Pair was last seen around 1.3510 levels. Daily momentum shows bearish bias remains intact but is waning. Stochastics is at oversold conditions. Support remains at 1.3450 (trend-line support from Apr to Jun lows). Resistance still at 1.3610 (23.6% Fibo retracement of Jan-Mar downswing; 50DMA), 1.3690 levels (21 DMA), 1.3740 (100DMA). Remaining week has May NODX tomorrow. The MAS quarterly survey showed that growth expectations for Singapore have been pared slightly to 1.8% from 1.9% previously. While expectations are for manufacturing to stabilize, the outlook for services has been downgraded.

       AUDSGD – Risks on Both Side. AUDSGD rebounded overnight as AUD strengthened much more than the SGD, last seen around 1.0023. Still, we see downside risk with support at 0.9900. Further upside extensions are likely capped at 1.0124 (200-DMA).

       SGDMYR – Little Momentum. SGDMYR was little changed. Cross remains well within its trend channel; last seen around 3.0250 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– Range. USDMYR fell amid softer USD (off the back of dovish and cautious Fed). Oil prices and EU referendum concerns are expected to drive the pair going forward. Pair was last seen at 4.0850 levels. Bearish momentum on daily chart remains intact. Resistance at 4.0970 (21 DMA), 4.1420 (50% fibo retracement of 2016 high to low) before 4.18 levels (200 DMA). Support at 4.0720 (38.2% fibo). Expect 4.07 – 4.10 range intra-day. On May CPI inflation, headline and core inflation rate stayed low at +2.0% YoY (Apr 2016: +2.1% YoY) and +2.1% YoY (Apr 2016: +2.3% YoY) respectively. YTD 2016 headline inflation is +2.9% YoY while core inflation is at +3.0% YoY. Our Economists maintained our 2016 headline inflation rate forecast range at 2.7%-3.2%. Bloomberg reported that BNM to adopt transaction methodology in the way USDMYR spot is fixed; BNM to lengthen official closing hour to 6pm from 5pm currently. The new methodology is expected to be more transparent and better reflects underlying trades during the day. 

       1s USDKRW NDF – Range. 1s USDKRW NDF fell amid broad USD weakness overnight. 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 1185 (50% fibo retracement of 2016 high to low). Near term support at 1171 (38.2% fibo). While Fed may have kept rates on hold and kept monetary conditions accommodative for longer, the cautious approach could translate into cautious risk sentiment. In addition EU referendum next week could still swing sentiment. Bias remains to the downside in terms of risk. Pair could inch higher in the interim. We continue to watch development. Expect 1165 – 1178 range to hold intra-day.

       USDCNH – Softening with the dollar. USDCNH slipped with the USD and was last seen around 6.5914. We think this may not be a trend reversal s dollar slippage has been shallow amid cautious risk sentiments. Barrier remains at 6.6181 while dips to meet support at 6.5779 (21-DMA). USDCNY was fixed 262 pips lower at 6.5739 (vs. previous 6.6001). CNYMYR was fixed 2pips higher at 0.6201 (vs. previous 0.6198). China released its liquidity data yesterday and money supply M2 slipped to 11.8%y/y from previous 12.8%. New yuan loans was higher than expected at CNY985.5bn and aggregate financing fell short of expectations at CNY659.9bn.

       SGDCNH – Elevated. SGDCNH remained elevated around 4.8816. 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 slipped to 67.45 at last sight.  Pair pivots around the 100-DMA. Barrier remains at 67.7072 (38.2% Fibonacci retracement aof the Oct-Feb rally). Support is now seen at 67.1750 (50% Fibo, near 50,200-DMA) before the next at 66.25 (year’s low).  Foreign investors sold USD13.7mn of equity and USD51.8mn of debt on 14 Jun. May trade deficit widened to U$6.27bn from previous U$4.8bn. Exports declined by -0.8%y/y, improving from the previous -0.8%. Imports also had a smaller contraction by -13.2%y/y from previous 23.1%.

       1s USDIDR NDF – Waning Bearish Momemtum. 1s USDIDR NDF is softer this morning amid a softer dollar after the US Fed signaled a more gradual rate hike trajectory. Moves intraday remains guided by external events ahead including BOJ meetings and BI policy decision later today. 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. 1s NDF is back below the 13400-handle and was last seen around 13375 levels. Daily chart continues to show waning bearish momentum and stochastics tentative signs of rising from oversold levels. We expect range within 13240-13500 to hold intraday. Support is at 13290 (23.6% Fibo retracement of the Jan-Mar downswing). Barrier at 13470 (38.2% Fibo). The JISDOR was fixed higher at 13398 yesterday from 13273 on Tue. Investor sentiments slipped yesterday with foreign funds selling USD17.55mn in equities yesterday. They had also added IDR0.40tn to their outstanding holding of debt on 14 Jun (latest data available). Exports remained in the doldrums, contracting by 9.75% y/y in May (Apr: -12.42%), while imports slipped by a more modest 4.12% y/y vs. Apr’s -14.36%. This resulted in a narrower trade surplus of USD376mn in May from USD662mn in Apr.

       1s USDPHP NDF – Upside Bias.  1s USDPHP NDF is little changed this morning, hovering within its current trading range of 45.3045.60. There lingering selling pressure on the PHP following BSP Deputy Governor’s comments yesterday that there was no need for the Philippines to match any US Fed tightening. As well, overseas remittances disappointed, rising by just 4.1% y/y in Apr vs. expectations for a 7.5% rise. With FOMC out of the way, market focus is now on BOJ meeting later today and the UK referendum on 23 Jun (the same day as BSP meeting). Cautious risk sentiment ahead on Brexit concerns should continue to put upward pressure on the 1s NDF ahead. Last seen around 46.40 levels, 1s NDF has lost most of its bearish momentum and stochastics continues to climb from oversold conditions. Upticks should 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 with foreign investors selling USD11.35mn in equities yesterday.

       USDTHB –  Edging Lower Within Range.  USDTHB is softer this morning amid  a softer dollar following US Fed suggestion of a slower pace of rate hike ahead. Pair though continues to trade well-within its current range of 35.000-35.370. Pair was last seen around 35.190 levels. Daily chart shows bearish momentum still intact but with signs of waning and stochastics remains at oversold levels. Pair should continue to take its cues from external events ahead – BOJ meeting and UK referendum. Current range of 35.000-35.370 should hold intraday. Risk sentiments were mixed yesterday with foreign funds buying THB0.90bn in equities and selling THB4.50bn in government debt. 10 Jun foreign reserves is on tap tomorrow.

Rates

Malaysia

       Local government bonds weakened further with yields up by 2-3bps. Trades centered on the 10y MGII 9/26 again, ending with MYR681m traded volume and 3bps higher in yield from previous day.

       MYR IRS market continued to be better bid amid weaker bond prices. The curve largely ended flat to 1bp higher, with some trades reported at the belly of the curve. 3M KLIBOR stayed at 3.65%.

       Fairly active PDS market as risk sentiment improved after 2 days of risk-off. AAA curve saw better buying at the belly with Plus and Manjung being dealt but prices stood pat to previous levels. At the long end, Rantau 31s and Plus 27s exchanged hands at yields flat to last traded levels. GGs, however, were on a weaker tone. Prasa 2/26s widened 7bps to 4.39% (G+54bps/Z+37bps), which is near AAA levels and could have some upside if risk sentiment improves. AA curve was rather quiet and traded range bound with Jimah 25 and 26 tightening 1bp.

Singapore

       SGS saw selling interest at the open as UST yields rose overnight. Additionally, there was also profit taking as players reduced duration before the FOMC outcome. Amid lighter volumes, the yield curve rose 5-8bps. SGD IRS got paid up with the curve higher by 3-7bps. Market is expected to stay cautious given major events this week and the Brexit risk hanging over.

       Asian credits turned firmer as higher UST yields overnight, currencies retracing slightly and short covering drove spreads to compress by around 2bps overall and 5bps in selected names. In the Malaysia space, however, PETMK and MALAYS still a touch wider as news of IPIC approaching the International Arbitration weighed down investors’ holdings.

Indonesia

       Indonesia bond market closed slightly lower ahead of the FOMC meeting. During the day, Indonesia statistics released May trade balance which came in a surplus of $357.6 mn narrowing from a surplus of $662.3 mn during the month of April. Indonesia DMO during the day issued 5y samurai bond worth of ¥38 bn at yield of 1.16%. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 7.445%, 7.597%, 7.859% and 7.841% while 2y yield shifts up to 7.203%. Trading volume at secondary market was seen thin at government segments amounting Rp9,768 bn with FR0056 as the most tradable bond. FR0056 total trading volume amounting Rp2,000 bn with 152x transaction frequency and closed at 105.450 yielding 7.597%.

       Corporate bond trading traded moderate amounting Rp636 bn. BNLI01SBCN2 (Subordinated Shelf registration I Bank Permata Phase II Year 2012; Rating: idAA+) was the top actively traded corporate bond with total trading volume amounted Rp185 bn yielding 8.999%.

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