Maybank GM Daily - 28 Apr 2016

FX

Global

      The Fed did not move. The statement was neutral, almost non-committal as the Fed noted a slowdown in activity growth along with the moderation in household spending although “households’ real income has risen at a solid rate and consumer sentiment remains high”. What was removed from the Mar statement was the phrase “global economic and financial developments continue to pose risks”. There is no additional cue in the statement that tilts risks to a rate increase in Jun but the removal of this phrase signifies Fed’s comfort with the financial conditions at this point. Oil prices were higher even as crude inventories rose, taking comfort on positive risk sentiments.

      Equities had modest gains overnight as market players remained uncertain on the Fed’s rate hike guidance. The absence of a press conference last night left market players even less to chew on and the VIX index was visibly suppressed around 13. The DXY index hardly budged from the mid-94 level. AUD stuck out like a sore thumb yesterday after the surprising decline in CPI spurred bets on a rate cut next Tue. Policy divergence has reversed in the favour of NZD after RBNZ held rates unchanged this morning.

      In the Asia space, MYR continues to hold its lead as market investors approved the appointment of Datuk Muhammad Ibrahim as BNM next Governor. Positive risk sentiments boosted most Asian currencies against the USD. JPY, CNY, CNH, PHP were the exceptions as we write this morning. Eyes are now on BOJ and the lead up has seen an upmove in the USDJPY amid speculations of negative lending rates. The decision will be made around Asia noon.  Beyond Asia, US has GDP, core PCE for 1Q. Germany releases its Apr CPI.

Currencies

G7 Currencies

      DXY – Maintain Optionality. FOMC kept rates unchanged at ¼ - ½% overnight, as widely expected. Statement was balanced (acknowledged the recent slowdown in economic activity but noted that labor market conditions remain healthy; household spending moderated while real income growth has risen at a solid rate), well-worded and  less dovish (than in Mar) -  the line which said “global economic and financial developments continue to pose risks” has been removed and replaced with “closely monitoring inflation indicators and global and economic and financial developments”.  To sum up. Fed maintains optionality with regards to Jun FOMC meeting. This remains consistent with our long-held view of 2 hikes in 2016 – one in Jun and another hike in Dec. Market sentiment post-FOMC was supported – equities firmer, USD index was largely stable. We continue to be cautious month-end USD/AXJ sell flows. DXY was last seen at 94.43 levels. Daily momentum remains mild bullish bias while stochastics is showing signs of falling. Support at 93.60 (Apr low). Resistance at 94.80 (23.6% fibo retracement of Mar high to Apr low), 95.50 (38.2% fibo). Week remaining brings GDP, Personal Consumption, Core PCE (1Q) on Thu; Fed's Kaplan Speaks, Personal Income, Real Personal Spending (Mar), PCE Core (Mar), U. of Mich. Sentiment (Apr F) on Fri.

      EURUSD – Range. EUR inched higher within a muted range of 1.1270 – 1.1360 as FOMC statement overnight was well-worded and balanced keeping sentiment largely stable as FoMC made no specific commitment to hike or not in Jun. EUR was last seen at 1.1310 levels. Daily momentum is mild bearish bias while stochastics is showing early signs of rising from near-oversold conditions. Resistance at 1.1330 (21 DMA) before 1.14 levels. Support at 1.1220 (38.2% fibo retracement of Mar low to Apr high), 1.1150 (50% fibo). Firmer support at 1.1070 (61.8% fibo, 100 and 200 DMAs). Week remaining brings EC Economic Confidence (Apr), GE CPI (Apr P) on Thu; FR GDP (1Q A), EC CPI Estimate, GDP (1Q A) on Fri.

      GBPUSD – Sell Side Pressures Re-emerging. 1Q GDP (+0.4% q/q) was in line with expectation but a touch weaker than 4Q (+0.6% q/q) as Brexit fear weighs. The expansion was more than accounted for by the services industry, while construction and production dragged on growth.  GBP eased off recent highs, after rising for 3 consecutive sessions. Last seen at 1.4530. Daily momentum remains mild bullish but stochastics show signs of falling from overbought conditions. Support at 1.4470 (76.4% fibo retracement of 2016 high to low), 1.4350 (61.8% fibo), 1.4250 (50% fibo). Resistance is seen at 1.4670 levels (2016 high). Week remaining brings Nationwide House (Apr) on Thu; GfK Consumer Confidence (Apr), Mortgage Approvals (Mar) on Fri.

      USDJPY – BOJ In Focus. With the FOMC out of the way, focus is now on the BOJ and that is pressuring the USDJPY higher this morning as market is expecting BOJ to add to its easing measures today. CPI data out this morning is also increasing the risks that the BOJ could move on policy. Mar CPI fell 0.3% y/y, the first decline since May 2013, while core inflation – CPI less fresh food – declined for the fourth straight month by 0.3% y/y. Our base case though remains for the BOJ to stand pat on policy for now. They are likely to take this opportunity to evaluate the impact of negative interest rates on the economy, while remaining mindful of the Upper House election in early summer. Nikkei futures continue to tick higher this morning, signalling potential for some upside pressures on the pair intraday. Unlike previous sessions, the JPY was sold off against the majors this morning. Pair was last seen around 111.80-levels. Daily momentum and stochastics remain bullish bias, while weekly momentum appears to be turning higher. Monthly momentum indicators though remain bearish bias. Though the 50-DMA at 111.70 levels has been breached, we need to see a daily/weekly close above that level to confirm bullish extension towards the 113.30-levels (50% Fibo retracement of the 2014 low to 2015 high). Any reversal could see the pair revisit 110.40 (61.8% Fibo); 110-handle (21DMA). Onshore markets are closed for a holiday on Fri, and BOJ Policy Decision and of its economic outlook are due later today. In other news, industrial production outperformed expectations, rising by 3.6% m/m (+0.1% y/y) in Mar vs. cons. +2.8% (-1.6%) and Feb’s -5.2% (-1.2%). Unemployment rate improved slightly to 3.2% in Mar from 3.3% in Feb. Overall household spending though declined by 5.3% y/y in Mar after rising by 1.2% in Feb.

      NZDUSD – Upside Risk. RBNZ kept rate unchanged at 2.25%, as expected. In the accompanying statement, RBNZ continues to express its desire for lower NZD to boost tradables inflation and assist the tradables sector; continues to highlight weakness in dairy sector, decline in inflation expectations and upward pressure on housing market due to high net immigration. RBNZ concluded by saying that further policy easing may be required to ensure that future average inflation settles near the middle of target range. NZD has sprung higher; last seen at 0.69 levels well-within the upward sloping trend channel. Daily momentum remains mild bearish bias but stochastics is showing signs of turning higher. Could see some rebound. Resistance at 0.6935 (50% fibo) before 0.70. Support at 0.6750 (lower bound of the upward sloping trend channel and 38.2% fibo retracement of 2015 high to low). Week remaining brings Mar building permits and business confidence (Fri).

      AUDUSD – Bears Reassert. AUD slumped 2% against the USD yesterday after inflation surprised to the downside. Last seen around the 0.76-figure, the early NZD rally and positive risk appetite have cushioned the pair from further downside although momentum indicators have turned lower. Next support is seen at 0.7500 which lies near the 50-DMA. Resistance is seen at 0.7720 (Mar high). RBA Debelle Gives Speech on Fri.

      USDCAD – Non-Committal. The pair was pressed lower overnight and was last printed 1.2590 and interim support is seen at 1.2574(76.4% fibo retracement of the 2015 rally). Daily momentum and stochastics are not indicating a clear bias. We are still cautious of a potential upmove within the 1.26 – 1.29 range and trigger might come via IP, GDP data on Fri. Clearance of the 1.2574-support  opens the way towards the 1.24-figure. Rebounds to meet barrier at 1.2830 (21-DMA).

     Asia ex Japan Currencies

      The SGD NEER trades 0.46% above the implied mid-point of 1.3545 with the top end estimated at 1.3275 and the floor at 1.3814.

      USDSGD – Buy On Dips.  Following FOMC decision, USDSGD is retracing back below the 1.35-handle this morning. However, the move lower could be short-lived given that BOJ policy decision is just round the corner. Pair was last seen around 1.3480-levels. Daily momentum is exhibiting waning bullish momentum and stochastics is showing no strong bias. We continue to favour accumulating on dips. Further downside today should find support at 1.34-handle (50% Fibo retracement of 2014 low to 2016 high).  1.3650 (61.8% Fibo) remains the handle to cross.  In the news, MAS released its biannual macroeconomic review yesterday suggested that the outlook for the economy has dimmed as global growth remains subdued. Domestically, pervasive negative business sentiments and rising unemployment and slower wage growth should be a drag on growth and result in a protracted period of modest growth ahead. This together with modest pace of growth in core inflation was the likely reason for the shift in MAS policy to a neutral stance.

      AUDSGD – Bearish. AUDSGD tumbled to levels around 1.0230 as we write this morning. Weekly, daily stochastics have eased from overbought conditions and momentum on daily chart has started to tilt lower. Support is seen at 1.0180 (100-DMA). Resistance at 1.0380 (previous high).

      SGDMYR – Consolidate. SGDMYR was a touch softer amid MYR outperformance. Cross was last seen around 2.8970 levels. Daily momentum remains mild bullish bias while stochastics is showing tentative signs of falling. Resistance at 2.9165 (23.6% fibo retracement of 2015 high to 2016 low), before 2.95 (38.2% fibo). Support remains at 2.85 (2016 low).

      USDMYR – Consolidate 3.88 – 3.93 Range Intra-day. USDMYR fell amid firmer oil prices (near $47/bbl), supported risk sentiment arising out of US FOMC well-balanced statement and the appointment of BNM deputy Muhammad Ibrahim as the new BNM Governor (policy continuity; removal of uncertainty). USDMYR was last seen at 3.9120 levels.  Daily momentum remains mild bullish bias. Resistance at 3.95 before 3.9850 (23.6% fibo retracement of 2016 high to low). Support at 3.9010 (21 DMA), 3.8440 (2016 low). No key data for release this week.

      1s USDKRW NDF – Mild Bullish Bias. 1s USDKRW NDF was largely unchanged at where it closed and opened yesterday. Last seen around 1149 levels. Risk sentiment remains supported. Focus today on BoJ meeting for cues of direction. Daily momentum and stochastics indicators are exhibiting mild bullish signals. Resistance at 1153.70 levels (23.6% fibo retracement of Mar high to Apr low) before 1171 levels (38.2% fibo). Support at 1140 levels. Week remaining brings Business Survey; IP on Fri.

      USDCNH – Upside Risks in the 6.45-6.54 Range. USDCNH hovered around 6.5090 this morning, sticky around the 50-DMA at 6.5014. Momentum remains on the upside though MACD forest has waned a little. Barrier is now seen at 6.5400 (100DMA). Support is at 6.4845 (21DMA) ahead of the next at 6.4575 (200DMA). We continue to observe that PBOC uses the DXY index and the RMB index to guide the USDCNY. USDCNY was fixed 117 pips higher at 6.4837 (vs. previous 6.4882). CNYMYR was fixed 35 pips lower at 0.5660 (vs. previous 0.6026). We think there that given the primary concerns on capital outflows had ebbed and an outstanding overvaluation of its REER, PBOC would be less concern of a weaker RMB against the basket and seek to adjust the fixing in order for its REER lower in episodes that the dollar is weak. This is again, in line with our observations that the RMB index is positive correlated to the dollar. In news, SWIFT says yuan used in 1.88% of global transactions. Separately, PBoC adviser Huang Yiping said “nationwide capacity reduction plan that has been announced is way smaller than market expectations and won’t help much with current structural problems (BBG).

      SGDCNY – Further Pullback Likely. SGDCNY inched lower from its open and closed above the 21-DMA at 4.8109.  Momentum indicators suggest further decline ahead. Support is first seen at 21-DMA at 4.7943 before 4.7513 (23.6% Fibo retracement of the Nov-Apr rally). Next support is seen at 50-DMA at 4.7389. Resistance at recent high of 4.8408.

      1s USDINR NDF – Slight Risks to the Upside. 1M USDINR hovered around 66.80 this morning. Bias is still slightly to the upside with first resistance seen at 67.175 (50% Fibo retracement of the Oct-Feb rally). Daily momentum and stochastics are showing mild bullish bias but this pair has proven to be sticky around the 200-DMA at 66.70 and could remain a line of pivot in the absence of stronger market cues. Next barrier at 67.50 (100-DMA). The 50-DMA has crossed the 100-DMA from above and we could see more risks to the downside in the medium-term. Foreign investors bought U$85.7mn of equities and sold U$129.1mn of debt on the 26^th of Apr. 

      USDIDR – Range-Bound. USDIDR slipped lower below the 13200-levels this morning, playing catch-up with its regional peers. Firmer oil prices should also be supportive of the IDR. Still should risks sentiments remain weak today, further outflows are likely and weigh on the IDR today. Yesterday, foreign funds had sold off a net USD27.76mn in equities yesterday. They had however added a net IDR1.52tn to their outstanding holding of government debt on 26 Apr (latest data available). Last seen around 13200 levels, daily momentum indicators are bullish bias. With risks still bullish, further downmoves could be limited and find support around the 13000-handle. Resistance is at 13225 levels (23.6% Fibo retracement of the Jan-Mar downswing; 50DMA). The JISDOR was fixed lower again yesterday at 13173 from Tue’s 13215. No data of importance due this week.

      USDPHP – Range.  Unlike its regional peers, USDPHP is bouncing higher back above the 46.800-levels this morning. Markets are likely positioning ahead of the 9 May presidential and general elections. 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. This is being reflected in the sell-off in the equity market where a net USD3.40mn was sold-off yesterday. Pair was last seen around 36.810 levels. Daily momentum remains bullish bias and stochastics is now at overbought conditions. This suggests the potential for a retracement in the near term and could keep the pair rangy. Look for support around 46.730 (38.2% Fibo retracement of the Jan high to Mar low); 46.625 (50DMA).  Barrier is around 46.985-levels (50% Fibo). The 50-DMA has crossed the 200-DMA lower and further downside risks are possible in the medium-term.

      USDTHB – Buy On Dips.  USDTHB is seeing some relief following the FOMC decision to stand pat on interest rate. Pair though remains stuck within the 34.720-35.370 trading range. Downside could also be limited given that funds have been exiting Thai assets in recent days on sluggish domestic growth and potential for political tensions. Foreign funds again sold off a net THB0.06bn and THB2.35bn in equities and government debt sold off yesterday. Pair was last seen around 35.100 levels. Daily momentum indicators are bullish bias. Bullish risks remain and further downside moves could be limited. Look for support around the 35-handle; 34.810 (19 Apr low). Barrier is at 35.230 (50DMA) before the next at 35.370 (38.2% Fibo retracement of the Jan high to Mar low). We continue to favour buying the pair on dips targeting 35.50. On tap this Fri is foreign reserves (22 Apr), trade (Mar), current account balance (Mar).

Rates

Malaysia

      MGS traded mixed as players await the FOMC outcome. Domestically, Muhammad Ibrahim, currently deputy governor, was announced as the new central bank governor and this resulted in USDMYR gapping 200pips lower from intraday high. The pair later stabilized ending around 3.915.

      IRS rates declined by 1-2bps yesterday, with short-end rates (2y-3y) feeling the most pressure. 3y IRS just got lifted at 3.62% on Tuesday and was being quoted at 3.60/57% yesterday. The 2y traded at 3.56%. 3M KLIBOR was unchanged at 3.69%.

      PDS market was quiet in the morning as the local headline remained an overhang. After the new central bank governor was announced, buying flow was seen in AAAs and GGs which had widened slightly. In AAA space, Aman, Danga, Putra and Rantau traded 1-2bps wider. In GG space, MDV 18s tightened 5bps to 3.73% (G+36bps/Z+13bps) and Dana 40s tightened 1bp to 4.83% (G+37bps/Z+49bps). Although long dated GGs may have some upside on z-spread basis, we would be cautious as long end MGS has seen some correction from the recent rally. An internally appointed governor suggests the central bank is likely to maintain the current monetary stance which could bode well for the PDS market. For primary, UEM Sunrise Bhd is looking to set up another MYR2b programme comprising of ICP and IMTN with the total ICPs capped at MYR500m.

Singapore

      SGS yields opened higher following the UST weakness overnight, but turned better bid after the 7y reopening auction results reported a decent cut off of 2.01%. The bond closed 1bp lower at 2.00%. Lower funding also contributed to the biddish sentiment as foreign flow was seen buying the 5y and below. Yields closed 1-4bps lower, while SGD IRS ended 6-7bps higher. We think the 3y-7y sector remains attractive as most investment books are light. All eyes turn to the FOMC for more direction.

      In Asian credit market, strong buying flow of MALAY, PETMK and MAYMK pushed spreads to tighten about 6bps and CDS 2-3bps better. Malaysian names remain well supported as the promotion of the deputy governor, Muhammad Ibrahim, to central bank governor signaled the likelihood of continuation of the departing governor’s policy. OGIMKs middling 88.50 and TIAMK 1pt higher at 102.5. Elsewhere in EM cash bonds, INDON and quasis up slightly by +25cts, while PHILIP felt heavy at one point but recovered from short covering.

 Indonesia

      Indonesia bond market closed slightly lower. We see that FOMC result specifically the statement results post meeting may hinder bond investors from the IGS market. There was just minimal positive sentiment to drive IGS prices higher. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 7.313%, 7.582%, 7.753% and 7.761% while 2y yield shifts up to 6.997%. Trading volume at secondary market was seen heavy at government segments amounting Rp18,848 bn with SPN12170106 as the most tradable bond. SPN12170106 total trading volume amounting Rp6,169 bn with 16x transaction frequency and closed at 96.091 yielding 5.897%.

      Corporate bond trading traded thin amounting Rp443 bn. IMFI02BCN3 (Shelf registration II Indomobil Finance Phase III Year 2016; B serial bond; Rating: idA) was the top actively traded corporate bond with total trading volume amounted Rp100 bn yielding 10.476%.