Maybank GM Daily - 16 May 2016

FX

Global

       China’s activity data missed estimates for Apr with industrial production, retail sales and FAI-ex rural slowing from the Mar prints. Earlier on Friday, US retail sales surprised to the upside at 1.3%m/m vs. the average consensus of 0.8%. The preliminary figure of Univ. of Mich. Sentiment also jumped from 89.0 to 95.8 in May. US equities softened further.

       Strong consumption data lifted the USD and we suspect upmove is likely to continue in the week ahead as risk appetite weakens on China data. In addition, we think markets are underpricing the potential for a rate hike in Jun especially when PCE core is at 2.1%q/q in 1Q.  We also watch commodity prices in the week ahead. The recent pullback in iron ore prices have weighed on the AUD in particular, extending its bearish run after the rate cut by RBA. This currency seems to be trading higher this morning on flows into the domestic bond markets after weaker data out of China. On the other hand, the combination of strong US data and weaker China’s growth prospect suggest upside bias for the USD/AXJs.

       BNM and BI meet on Thu. We expect both to keep policy rate unchanged at 3.25% and 6.75%, respectively. BI is expected to continue focusing on its newly announced transmission mechanism (effective 19 Aug) and BNM’s new Governor Datuk Muhammad Ibrahim chairs his first meeting and is expected to maintain monetary policy continuity. Other key data we watch include minutes release from RBA (Tue), Fed (Wed), ECB (Thu). 1Q GDP reports from JP (Wed); PH (Thu). Singapore is due to release 1Q GDP between 19 and 26 May. In Asia, Thailand onshore markets are closed for holiday on Fri.

Currencies

G7 Currencies

       DXY – Upside Risk. Overnight data – retail sales and Uni. Of Michigan consumer sentiment surprised to the upside. Fed Williams said that 2 – 3 hikes this year still make sense; may have to do more if can’t move in 2016. Williams is not a FOMC voter this year. We think markets could potentially be underpricing rate hike especially when inflation is inching higher (PCE core at 2.1% q/q in 1Q) and labor market is near full employment. We continue to hold to our out-of-consensus call for a 25bps rate hike in Jun. USD was higher but saw a mild pull back into NY cloe Fri. DXY was last seen at 94.60 levels. Bearish momentum on weekly chart is waning; stochastics is at oversold conditions. There could be scope for USD to rise. Resistance at 94.80 levels (50 DMA), 95.90 (50% fibo retracement of 2016 high to low). Support at 92.20 (2016 low). Week ahead brings Empire Mfg (May); NAHB Housing Market Index (May) on Mon; Housing Starts, building permits, CPI, IP, Capacity utilization (Apr); Fed’s Williams, Lockhart, Kaplan speak on Tue; FOMC Minutes on Wed; Philly Fed Business Outlook (May); Fed’s Dudley speaks; CFNAI (Apr) on Thu; Existing Home Sales (Apr) on Fri.

       EURUSD – Downside Pressure. EUR fell amid firmer USD. Pair was last seen at 1.1310 levels. Bullish momentum on weekly chart shows signs of waning while stochastics is near overbought conditions. There could be scope for a pullback towards 1.13 (50 DMA), 1.1220 (50% fibo retracement of Mar low to May high), 1.1120 (100 DMAs). Resistance at 1.15. Week ahead brings ECB Praet speaks; EC trade (Mar) on Tue; EC CPI (Apr) on Wed; ECB Current Account, construction Output (Mar); ECB Minutes on Thu; GE PPI (Apr) on Fri.

       GBPUSD – Downside Pressure. GBP fell amid broad USD strength. BoE QIR report cut 2016 GDP forecast to 2% (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.” IMF Lagarde echoed the same view. We believe Brexit debate should intensify further in the lead up to referendum on 23 Jun. GBP was last at 1.4350 levels. Bearish momentum on daily chart remains intact. We see downside pressures ahead. Support at 1.4350 (61.8% fibo retracement of 2016 high to low) if broken on daily close basis could see an extension of decline towards 1.4250 (50% fibo), 1.4150 (38.2% fibo). Resistance at 1.4670 (2016 high). Week ahead brings Rightmove house prices (May) on Mon; CPI, PPI, RPI (Apr); ONS House Prices (Mar) on Tue; Average Weekly earnings; Employment Change (Mar) on Wed; Retail Sales (Apr) on Thu; CBI Trends Orders (May) on Fri.

       USDJPY – Jawboning May Continue To Support. USDJPY was supported for most of last week by jawboning. BOJ governor Kuroda spoke on Fri and said that the central bank would act ‘decisively’ to achieve its 2% inflation target using its “ample” policy options available. This followed comments by BOJ governor Kuroda’s former deputy at the Ministry of Finance that the BOJ could ease in Jun or Jul if inflation indicators weaken and stock prices drop. We expect more jawboning to come in the absence of any concrete action to shore up confidence in Abenomics. Pair was last seen around 108.75 levels. Daily momentum indicators are still bullish bias, and weekly charts remains bearish but showing tentative signs of waning and stochastics is climbing higher from oversold conditions. Resistance is at 109.40 (23.6% Fibo retracement of the Jan-May downswing) before 110.30 (50DMA). Support at 107.25 (38.2% Fibo retracement of end-2012 -when PM Abe came into power- to 2015 high) ahead of 105.50 (year’s low to date). Week ahead has BOJ governor Kuroda appearing before parliament; machine tool orders (Apr) on Mon; IP, Capacity Utilization (Mar) on Tue; GDP (1Q) on Wed; machine orders; all industry activity index (Mar) on Thu.

       NZDUSD – Better Sellers on Rally. NZD remained on a back foot amid broad USD strength. Pair was last at 0.6765 levels.  Weekly, daily momentum remains bearish bias. Support at 0.68 levels (lower bound of the upward sloping trend channel) is already broken on weekly close and this could suggest deeper correction ahead. Next support at 0.6740 (100 DMA) before 0.6640 (200 DMA).Resistance at 0.6830 (50 DMA). Watch GDT auction and inflation expectation for cues this week. Bias to sell on rally. Week ahead brings GDT Auction prices; 2Y inflation expectations (2Q) on Tue; PPI (1Q); RBNZ Governor Wheeler Speaks on Wed; Consumer Confidence (May)  on Thu;  Credit Card Spending (Apr) on Fri.

       AUDUSD – Downside Risks. AUD was last seen around 0.7280 this morning, inching higher after opening lower. Pair was underpinned by strong inflows into the bond markets in early trades. Despite the uptick this morning, daily momentum remains bearish though stochastic shows some signs of waning bearishness. Pair is unwilling to break the 200-DMA at 0.7278 but momentum signals downside risks still. We continue to eye the 200-DMA and a clean break there opens the way towards the next at 0.7140 (23.6% Fibonacci retracement of the May-Jan sell off). Beyond that, the 0.68-figure comes into focus. Resistance is seen at 0.7338 (50-DMA). Week ahead brings RBA Meeting Minutes on Tue; Wage price index (1Q); Leading Index (Apr); RBA Debelle speaks on Wed; Labor market report (Apr) on Thu

       USDCAD – 50-DMA Now Eyed. USDCAD rose on the back of stronger USD and was last seen around 1.2960. Barrier at 1.2978-level (61.8% Fibonacci retracement of the 2015-2016 rally, 50DMA) is still eyed and could continue to deter bulls. Daily momentum signal is still bullish and 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). Week ahead has existing home sales for Apr, due tonight, followed by Mar manufacturing sales tomorrow, Mar retail sales and Apr CPI on Fri.

Asia ex Japan Currencies

       The SGD NEER trades 0.50% below the implied mid-point of 1.3666. The top end is estimated at 1.3391 and the floor at 1.3941.

       USDSGD – Range But Watch Break Above 1.3770 For Upside.  USDSGD continued to turn higher to start the week, lifted by global growth concerns following disappointing data out of China. Pair was last seen around 1.3740 levels. Momentum is bullish bias but stochastics shows signs of falling from overbought levels. Pair could trade range-bound within 1.36 levels (23.6% Fibo retracement of the Jan-Apr downswing, 50DMA) – 1.3770 (38.2% Fibo) ahead of 1.3875 (100DMA) for the week. We caution a break above 1.37709 could trigger further upside towards 1.39 levels. Week ahead has NODX (Apr) on Tue; 1Q GDP (final print) expected sometime 19-26 May.

       AUDSGD – Bearish Momentum Waning. AUDSGD hovered around 0.9990 as we write in Asia morning. 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 – Lean Against Strength. SGDMYR remained little changed, still trading within 2.9290-2.9630 range. Bullish momentum on daily chart is waning and stochastics shows signs of falling from overbought levels. In the short-term, pressure remains on the upside. But we are medium term bear in the cross and favour fading against strength (if any). Resistance is at 2.9630 (50% Fibo retracement of the Jan-Apr downswing, 100DMA) ahead of 2.9960 (200DMA). Support at 2.9260 (50DMA and lower bound of the uptrend channel). Break below could see further downside risks towards 2.90 (21DMA), 2.85 (2016 lows).

       USDMYR – Upside Risks. USDMYR firmed this morning, playing catch up with the dollar upmove last Fri. Last printed at 4.0415, momentum is still bullish though stochastic suggests that momentum has already peaked. Still, bias is still to the upside in the near-term. Real GDP slowed to +4.2%y/y in 1Q, in line with our economist’s estimate. Growth slowed on weaker domestic demand as investment stagnated and private investment decelerated. Our economist continues to hold full year growth forecast at +4.3%, expecting recovery in consumer spending and public investment. 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 – Bulls In Favor.  1M NDF was elevated around 1180 as we write this morning, underpinned by strong dollar momentum. Bullish momentum remains intact 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. We also continue to see upside risks to the 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.

       USDCNH – Bullish Vigor. USDCNH bounced to levels around 6.5595 at last print and this pairing is on the way higher along with dollar recovery. USDCNY was fixed 97 pips higher at 6.5343 (vs. previous 6.5246). CNYMYR was fixed 8 pips higher at 0.6162 (vs. previous 0.6154). 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). New yuan loans shrank to just CNY555.6bn compared to the previous CNY1.37trn and was also lower than the expected CNy800bn. The decline had not been a surprise as PBOC was said to have suspended sales of some wealth products by city banks. There were also some cancellations in bond issuance that resulted in weaker total social financing. We continue to expect the central bank to remain prudent in monetary easing. Over the weekend, industrial production slowed to 6.0%y/y in Apr from previous 6.8%. Retail sales also decelerated to 10.1%y/y from previous 10.5%. Urban FAI also recorded a decline in growth to 10.5%y/y from previous 10.7%. With activity slowing more than expected, many are starting to doubt the bounce in Mar figures and sentiments on yuan have turned bearish. Only property prices are due this week (Wed).

       1s USDINR NDF - Bias Upside. 1s USDINR NDF softened from its Fri highs and was last seen around 67.26. Pair though continues to remain within the 66.50-67.30 range. 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 trade deficit narrowed to U$4.84 bn. Imports and exports recorded -23.1%y/y and -6.7%/y/y declines respectively. Week ahead has Apr wholesale prices today and no other tier one data.

       USDIDR – Bullish. USDIDR turned higher into the week’s close amid a resurgence in the dollar and unwinding of carry trade amid softer risk appetite. Pair was last seen around 13345 levels. Momentum is still bullish bias but is waning, and stochastics shows no strong bias. Immediate resistance at 13370 levels (38.2% Fibo retracement of the Jan-Mar downswing) ahead of 13430 (100DMA). Support is at 13200-240 levels (23.6% Fibo, 21 & 50 DMA). The JISDOR was fixed higher at 13311 on Fri from Thu’s 13299. Market sentiments were weak with foreign funds selling a net USD31.91mn in equities last week. They had also removed a net IDR3.77tn from their outstanding holding of government debt on 9-11 May (latest data available). Week ahead has trade (Apr) on Mon; BI meeting on Thu. Closely watched will be BI meeting but we do not expect any adjustment by the central bank given the transition towards a new policy rate and interest rate corridor mechanism.

       USDPHP – Bearish.   After the sharp drop in the days following the elections, USDPHP has bounced higher since mid-week as drop in the pair was likely overdone and as the elections euphoria faded. With election rhetoric now out of the way, market is now focused on unofficial president-elect Duterte’s economic policy direction and cabinet members. For now, market is giving Duterte the benefit of the doubt. This was reflected in the purchase of USD24.73mn in equities last week. The coming days though will be closely watched and there could still be investor jitters should investors’ concerns regarding Duterte’s economic direction and cabinet members fail to be met. 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. PHP could come under pressure. Last seen around 46.560 levels, pair is bearish bias. Support nearby is at 46.500 (50DMA) before 46.400 (23.6% Fibo retracement of the Jan-Mar downswing). Resistance at 46.730 (38.2% Fibo; 21DMA) ahead of 47-figure (50% Fibo; 100DMA). Week ahead has overseas remittances (Mar) on Mon; GDP (1Q); BoP (Apr) on Thu.

       USDTHB – Upside Risks.  USDTHB continues its climb higher that began last week on the back of a sell-off in Thai assets amid the central bank’s concern about THB strength. Foreign funds sold a net THB0.97bn and THB10.79bn in equities and government debt last week. Weak China data out is also supportive of the pair. Pair was last seen around 35.450 levels. Daily momentum indicators remain mildly bullish bias, and stochastics remains at overbought levels. This suggests there is a potential for a retracement ahead though for now risks remains tilted to the upside. Immediate resistance is at 35.490 (100DMA) ahead of 35.660 (200DMA). Support is at 35.370 (38.2% Fibo retracement of Jan-Mar downswing); 35.120 (23.6% Fibo; 21 & 50DMA). Week ahead has GDP (1Q) on Mon; foreign reserves (13 May) on Thu. 1Q 2016 GDP is due later this morning 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

       Govvies market saw aggressive buying led by foreign interest in the morning, which pushed the 7y MGS 8/23 yield down 3bps initially. Malaysia 1Q16 GDP growth came in slightly better than consensus at 4.2%, though this is the slowest pace in 6½ years. The MGS yield curve closed 1-2bps lower.

       Onshore IRS market was quiet, hardly reacting to the 1Q GDP result. 5y and 7y rates were quoted 1-3bps higher, though nothing was dealt in the market. 3M KLIBOR was unchanged at 3.67%.

       PDS ended last week with lower daily trading volume and better buying seen on AAAs at the belly and long end. Plus 26 and 30, Putra 23 and Aquasar 29 tightened 1-3bps. Rantau 22s and 29s were also snapped up but levels were unchanged. In GG space, Dana 29 traded 1bp wider while others largely remained flat. AA space continued to be lackluster. Gamuda 19 widened 3bps to 4.46% (G+97bps/Z+89bps) which seems rather tight for AA3.

Singapore

       SGS saw better selling in line with the weaker UST overnight. But prices later recovered and yields ended mixed in a narrow range of 1-2bps, with the short end underperforming. SGD IRS curve marginally flatter as front end rates rose 1bp while long end rates fell about 2bps.

       Asian credit market saw strong interest in Basel 3 Tier 2 papers, with most names in secondary market tightening. ANZ’s new 10y USD Basel 3 Tier 2 bonds issued in the previous day rallied 10bps better. As a guide, MAYMK 10y NC5 is trading at CT5+221bps from a re-offer of +255bps. Elsewhere, CDS widened marginally and cash bonds softened by around 2bps.

 Indonesia

       Indonesia bond market closed the last day within the week with IGS prices inclining. The incline was contributed by (1) Indonesia deposit insurance agency (LPS) which cuts its guaranteed deposit rates cut by 25bps to 7.00% from 7.25%. (2) Rumours in related to exempted tax on IGS from 15% final tax. IGS market last week however closed with a weekly loss. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 7.408%, 7.700%, 7.916% and 7.917% while 2y yield shifts down to 7.006%. Trading volume at secondary market was seen thin at government segments amounting Rp13,096 bn with FR0056 as the most tradable bond. FR0056 total trading volume amounting Rp2,015 bn with 77x transaction frequency and closed at 104.742 yielding 7.700%.

       Corporate bond trading traded thin amounting Rp382 bn. INDF06 (Indofood Sukses Makmur VI Year 2012; Rating: idAA+) was the top actively traded corporate bond with total trading volume amounted Rp31 bn yielding 7.75%.