Maybank GM Daily - 13 May 2016

FX

Global

       Dollar gained against most G10 currencies overnight. The creep-up started in Asian session and the dollar index held on to the 94-handle, underpinned by somewhat hawkish comments by FOMC voters (Rosengren and George). Fed Rosengren spoke of rates normalization “should incoming economic data continue to be consistent with gradual improvement in labor markets and inflation gets closer to target”. Fed George also expressed concerns that current rates are too low for today’s economic conditions.

       Still, markets are not convinced that the Fed will move as soon as  June. The Fed fund futures implied show that markets are pricing in just a 4% probability of a rate hike next month. JPY traded on the backfoot because of comments by a former BOJ official who looked for easing in Jun/Jul depending on data. The other big mover yesterday was perhaps the GBP which rallied to a high of 1.4930 before reversing sharply. BOE left rates unchanged but growth and inflation forecasts. Governor Carney warned Brexit could send UK into recession.

       BOK left key interest rate at 1.5%. Key data of the day is retail sales. Household consumption is scrutinized now after a series of earning misses from the consumer sector. Along with this data is PPI (Apr), Univ of Mich. Expectations for May from the US. Europe has GDP numbers due after Malaysia releases its 1Q print in Asian session. Into the weekend, eyes are on China’s activity data for any cues of further stabilization.

Currencies

G7 Currencies

        DXY – Retail Sales Data in Focus. Fed speaks last night suggests market’s expectation for Fed tightening may be overly-complacent. Fed’s Rosengren said “market remains too pessimistic about the fundamental strength of the US economy and the likelihood of removing monetary accommodation is higher than is currently priced into financial markets based on current data”; Fed’s George said “moving rates to a more normal level and at a gradual pace is necessary to minimise distortions”; Fed’s Mester said “support a gradual adjustment of short term interest rates towards a more normal level but viewed the current level (of rates) as too low for today’s economic conditions”.  USD was a touch higher. DXY was last seen at 94.15 levels. Mild bullish momentum on daily chart remains intact.  Resistance at 94.80 levels (50 DMA). Support at 93.50 (23.6% fibo retracement of Mar high to May low), 92.20 (2016 low). Day ahead brings Apr retail sales, PPI; May Uni of Michigan Expectations (Fri). A weaker than expected retail sales could spook sentiment and re-ignite further unwinding of carry trades (i.e. sell risk proxies such as AUD, NZD, AXJs while EUR, JPY, CHF and USD could stay supported).

        EURUSD – Downside Pressure. EUR was a touch softer amid firmer USD. Mar IP disappointed expectation. EUR was last seen at 1.1370 levels. Daily momentum is showing signs of bearish bias while stochastics is falling. Could some downside pressure vs the USD; less so against the AXJs (i.e. SGD). Support at 1.13 (50 DMA), 1.1220 (50% fibo retracement of Mar low to May high), 1.1120 (100 DMAs). Resistance at 1.1430 (23.6% fibo), 1.16 levels (2016 highs). Day ahead brings EC, GE 1Q GDP; GE Apr CPI (Fri).

       GBPUSD – Range of 1.4350 – 1.4520 Expected. BoE MPC was unanimous in keeping policy rate unchanged at 0.5%, as expected. QIR report cut 2016 GDP forecast to2% (from 2.2%) due to Brexit concerns weighing on activity; inflation forecast for this year remained unchanged but 2017 forecast was lowered to 1.5% from 1.6%. BoE Governor Carney warned that “A vote to leave the EU could have material effects on the exchange rate, demand and supply potential,” and said that the impact “could possibly include a technical recession.” GBP was last at 1.4440 levels. Bearish momentum on daily chart cremains intact but stochastics is entering near-oversold conditions. Support at 1.4350 (61.8% fibo retracement of 2016 high to low), 1.4250 (50% fibo). Resistance at 1.4670 (2016 high). Bias remains to accumulate GBP on dips. Day ahead brings Mar construction output (Fri).

      USDJPY – Consolidation. USDJPY continues in consolidation, pulled in two directions - firmer dollar overnight on one side and weak Nikkei futures as well as comments by a former deputy to BOJ governor Kuroda at the Ministry of Finance that the BOJ could ease in Jun or Jul if inflation indicators weaken and stock prices drop on the other. Continued jawboning is putting upside pressure on the pair. BOJ governor’s speech today will be closely watched for hints of further easing. Yesterday, he had said that it was desirable for JPY move to more in stable manner but did not think that the Ministry of Finance would weaken the JPY for exporters and would be hard for them to do it. We remain concern though that the government/BOJ is not implementing any concrete action to shore up confidence apart from jawboning. Pair was last seen around the 109-handle. Daily momentum indicators are still bullish bias, though monthly and weekly charts remains bearish. Par should continue to trade range-bound within current range of 107.25 (38.2%  Fibo retracement of end - 2012-when PM Abe came into power - to 2015 high) - 110.50 (50DMA).

       NZDUSD – Better Sellers on Rally. NZD was little changed from where it opened and closed. Last seen around 0.6820 levels. Bearish momentum on daily chart remains intact but stochastics are at oversold conditions. Resistance at 0.6830 (50 DMA), 0.69 (21 DMA). Remain better sellers on rally. Support at 0.6720 (100 DMA), 0.6650 (200 DMA). Bias to sell on rally. 1Q retail sales released this morning, disappointed expectations. (+0.8% vs. 1% Expected vs. 1.2% prior).

       AUDUSD – Downside Risks. AUD remained at the 0.73-handle this morning, albeit looking a little heavy. Daily momentum remains bearish but stochastics is showing very tentative signs of rising from oversold conditions. Right now, the pair seems to be pivoting around the 100-DMA, awaiting fresh cues. Risks are still to the downside. Support at 0.7330 (50% fibo retracement of Jan low to Apr high) seems to have broken and we eye the next at 0.7260 (200 DMA) while resistance remains at 0.7450 (38.2% fibo). Watch China’s industrial production print this Sat.

      USDCAD – 50-DMA a Firm Barrier. USDCAD ended the session relatively unchanged, last seen at 1.2848. Barrier at 1.2978-level (61.8% Fibonacci retracement of the 2015-2016 rally, 50DMA) is solid and could continue to deter bulls, especially after the oil rally overnight. Daily   bullish momentum continues to show signs of waning though stochastics are still on the rise. Immediate support is seen at 1.2830 before 1.2745 (21-DMA). New housing price index for Mar exceeded expectations with a 0.2%m/m print vs the consensus at 0.1%. Year-on-year, the new housing price index picked up pace to 2.0% from previous 1.8%.

Asia ex Japan Currencies

       The SGD NEER trades 0.79% below the implied mid-point of 1.3635 with the top end estimated at 1.3360 and the floor at 1.3910.

       USDSGD – Mild Bullish Bias.  USDSGD closed above the 1.37-handle overnight amid a firmer dollar. Pair was last seen around 1.3745 levels. Daily momentum indicators are still mildly bullish bias and stochastics remains at overbought levels. This suggests the potential for a retracement ahead but for now risks remain to the upside. Immediate resistance remains at 1.3770 (38.2% Fibo of the Jan-Apr downswing) ahead of 1.3875 (100DMA). Support is at 1.3650 levels. Mar retail sales is on tap later today. Minister of Finance Heng Swee Kiat suffered a stroke yesterday and is now in intensive care after undergoing surgery. In the interim, Deputy Prime Minister and former Finance Minister will helm the ministry with immediate effect.

       AUDSGD – Bearish Momentum Waning. AUDSGD hovered around 1.0040 as we write in Asia morning, boosted by SGD weakness. Bearish momentum on daily chart continues to weaken waning and stochastics is showing signs of rising from oversold conditions. We are opportunistically looking to buy on dips. Resistance at 1.02 (23.6% fibo). Support at 0.9970 (previous low) before 0.9910 levels (76.4% fibo retracement of 2016 low to high).

       SGDMYR – Better Seller on Rallies. SGDMYR was little changed. Last seen at 2.9370 levels. Bullish momentum on daily chart is waning while stochastics is showing signs of falling from overbought conditions. We remain better sellers on rally. Break below 2.9260 (50 DMA and lower bound of uptrend channel) will confirm further downside towards Support at 2.90 (21 DMA), 2.85 (2016 lows). Resistance at 2.9660 (50% fibo retracement of 2016 high to low), 2.9930 (200 DMA).

       USDMYR – GDP Data on Tap. USDMYR firmed, tracking slightly cautious risk sentiment this morning. Our Economists noted Industrial production index (IPI) slowed in Mar 2016 to +2.8% YoY (Feb 2016: +3.9% YoY) but picked up in 1Q 2016 to +3.3% YoY (4Q 2015: +2.9% Yoy). Index of services (IOS) growth was relatively sustained at +4.7% YoY last quarter (4Q 2015: +4.8% YoY).  Palm oil-related production slumped amid sustained value of construction works, pointing to lower agriculture and sustained construction. 1Q 2016 real GDP growth (to be released later this afternoon) is estimated at +4.1% YoY (4Q 2015: +4.5% YoY). Pair was last seen at 4.0380 levels. Bullish momentum on daily chart remains intact but signs of waning were observed. Daily stochastics is also showing signs of falling from overbought conditions. Next resistance at 4.0720 (38.2% fibo retracement of 2016 high to low). A break above 4.07 levels puts next resistance puts 4.1420 (50% fibo, 100 DMA) in focus. Support at 3.9850 (50 DMA) and 3.93 (21 DMA). We look for better opportunities on the upside to fade into.

      1s USDKRW NDF – BOK on Friday.  BoK kept rate unchanged at 1.5%, in line with our expectation. We reiterate that a rate cut would be more effective if supported by fiscal stimulus and structural reform. We still see upside risks for USDKRW against a backdrop of factors including, ongoing sluggish external demand, rising risks of slowing recovery in domestic demand, benign inflation outlook, ongoing geopolitical tension, monetary and political risks. Korean-style QE is also being discussed in parliament but lacking the go-ahead due to Saenuri Party losing its majority at last month’s elections. 1s USDKRW was stable. Last seen at 1171 levels. Bullish momentum remains intact (but waning) while stochastics shows signs of falling from overbought conditions. Bias remains to buy on dips. We still see risk towards 1176 (200 DMA), 1185 (50% fibo retracement of Mar high to Apr low). Support at 1150 (21 DMA), 1140 levels.

       USDCNH – Bullish Vigor. USDCNH bounced to levels around 6.5480 and this pairing is on the way higher along with dollar recovery. USDCNY was fixed 287 pips lower at 6.5246 (vs. previous 6.4959). CNYMYR was fixed 5 pips higher at 0.6185 (vs. previous 0.6180). Momentum indicators are still bullish bias. Resistance at 6.5380 (100 DMA) has been broken and we now eye the next at 6.5650 (38.2% fibo retracement of 2016 high to low). Support at 6.50 (21 and 50 DMAs).

       1s USDINR NDF - Bias Upside. 1s USDINR NDF inched higher and was last seen around 67.20. Pair though continues to in a wide range within 66.50-67.30, albeit with an upside bias. Pair exhibits mild bullish momentum and stochastics is bullish bias. That continues to suggest upside bias. Resistance remains at 67.45 (38.2% Fibo retracement of the Feb-Apr downswing; 100DMA). Key support remains at 66.80 levels (21, 200 DMAs) with a break here could see bearish extension towards the year's low of 66.25 (4 Apr). Apr CPIcame in firmer than expected at 5.39%y/y, accelerating from the previous at 4.83%. Mar industrial production decelerated to almost a flat growth of 0.1%y/y, undershooting the expected 2.5%. Data could fan further upsides in the USDINR. Apr trade is still outstanding, (due 13-17 May).

       USDIDR – Bullish Tilt. USDIDR is back above the 13300-levels this morning underpinned by dollar resurgence overnight and softer global oil prices this morning. Unwinding of carry trade amid softer risk appetite remains supportive of the pair. Pair was last seen around 13310 levels. Daily chart continues to show waning bullish momentum, and stochastics is showing no strong bias. In the absence of domestic catalyst, pair should remain guided by external events. Further upticks should meet resistance at 13370 levels (38.2% Fibo retracement of the Jan-Mar downswing) ahead of 13430 (100DMA). Any down moves should find support at 13225 levels (23.6% Fibo, 21DMA). The JISDOR was fixed higher at 13299 yesterday from Wed’s 13271. Market sentiments improved with foreign funds buying a net USD27.81mn in equities yesterday. They had however removed a net IDR2.82tn from their outstanding holding of government debt on 11 May (latest data available).

       USDPHP – Bullish Tilt.   USDPHP is bouncing higher this morning on fading post-elections euphoria and amid a firmer dollar overnight. The sharp drop in the pair in the three sessions following the elections was likely overdone. With election rhetoric now out of the way, market is now focused on unofficial president-elect Duterte’s cabinet members. Yesterday’s BSP policy decision yesterday had little impact on the PHP as the decision was widely expected. BSP left its key rate unchanged at 4.0% and the SDA rate at 2.5% ahead of the implementation of the interest rate corridor expected in Jun. Benign inflationary environment and expectations of a growth pick up in 2016 suggest little need for the central bank to move on policy currently. The central bank continues to expect inflation to come in at 2.1% in 2016 and that growth of 7-8% remains achievable. This was reflected in the purchase of USD40.18mn in equities yesterday. The coming days though will be closely watched and there could still be investor jitters should investors’ concerns regarding Duterte’s economic positions fail to be resolved. The president-elect did release a statement yesterday vowing to continue outgoing President Aquino’s economic policy but little details were provided on how these were to be achieved. Our study showed that there is a tendency for equities to be sold-off for at least another six months after the elections as a result of the uncertainty surrounding the policies of the incoming president. We expect the PHP to remain under pressure. Yesterday, foreign funds sold a net USD0.75mn in equities. Last seen around 46.750 levels, pair is now showing bearish bias. Further upswing should meet resistance around 46.890 (200DMA) ahead of the 47-figure (50% Fibo retracement of the Jan-Mar downswing; 100DMA). Support at 46.510 (50DMA).

       USDTHB – Upside Risks.  USDTHB is bouncing higher this morning, tracking its region peers broadly higher. Aside from firmer dollar, jawboning by the BoT governor regarding recent THB strength was also supportive of the pair. The governor had added his voice to the central bank’s concern about the THB strengthening too quickly vs. other currencies, warning that the central bank will ensure that THB volatility does not obstruct economic recovery. Pair was last seen around 35.380 levels. Daily momentum indicators remain mildly bullish bias, and stochastics is at overbought levels. This suggests there is a potential for a retracement ahead though for now risks remains tilted to the upside. Resistance is at 35.490 (100DMA) ahead of 35.650 (200DMA). Support is at 35.120 (23.6% Fibo retracement of Jan-Mar downswing). Risk sentiments soured with foreign funds selling a net USD0.88bn and THB8.57bn in equities and government debt yesterday. 1Q 2016 GDP is due this Mon and market is expecting growth of 2.8% y/y, unchanged from 4Q 2015. Our economic team is more sanguine, expecting growth of 3.25% y/y, supported by growing domestic demand as well as the possible ramping up of production ahead of factory closures for holidays in Apr and May.

Rates

Malaysia

       MGS saw continued buying with the curve lowering 1-5bps at the front end to the belly. Market’s focus still centered on the 7y benchmark which declined 1bp in yield, and total traded volume was decent. Players look to 1Q GDP which will be out at noon on Friday.

       IRS rates were slightly higher in the morning but quickly came back down and was under pressure amid lower regional rates and MGS yields. The 3y IRS was dealt at 3.55% in the market, while 3M KLIBOR remained the same at 3.67%.

       MYR PDS were being snapped up, especially laggards in the AAA space, following the slower growth in Mar industrial output. Aman papers got taken 2bps tighter at the front end while the belly was relatively unchanged. Telekom and Plus saw better buying at the mid and long duration tenors but levels were flat. The GG space was also well bid on long duration with Prasa, Dana and PTPTN tightening 1-3bps. AA curve had some crosses and small buying on front end and belly papers. UEM 18s tightened 3bps and Westports 25s tightened 2bps.

Singapore

       Buying in SGS followed through but profit taking later set in and prices traded range bound amid good 2-way interest. Benchmark yields were largely lower by 3-4bps, except the 2y which -1bp. SGD IRS rates also closed lower, down by 4-6bps. Swap spreads tightened 2-3bps.

       In Asian credits, new issues were active as Huawei 26/25 tightened again by 4bps, new CICC 19 tightened by 20bps and CHGRID’s new 5y and 10y came in better than reoffer. In SGD space, UOB’s new Basel 3 perps were in high demand given the under allocation, and traded up to around 100.60/100.85. SOCGEN’s paper, though at a slower pace, also closed higher at 100.15/100.45. EM sovereign space was muted and softened slightly.

 Indonesia

       Indonesia bond market unchanged yesterday. The secondary bond markets seemed very quiet given minimal of catalyst and significant news. Small trade was quiet active for the government bonds’ on the 3Y and 10Y. The market players will wait incoming Indonesia’s Apr-16 trade data. The trade data will be release on next Monday. It will give a signal of Indonesia’s economic condition for early period of 2Q16. More aggressive on exports will reflect higher global demand, while stronger imports will indicate national aggregate demand.