Maybank GM Daily - 19 May 2016

FX

Global

      The dollar bulls were awakened overnight by the FOMC Minutes. Participants at the May Meeting had flagged multiple times of the possibility of a rate hike in Jun if “incoming data were consistent with economic growth picking up in the second quarter, labor market conditions continue to strengthen inflation making progress toward the…. 2% objective)”. Fed funds implied probability shot up to 32% from just 12% the day before. We had anticipated this for a while now and we see dollar strength likely to persist into Jun ahead of the next FOMC meeting. USDAXJs had actually made their upmove on Wed and we anticipate the pairings to remain well supported today.

      GBP strength overwhelmed even the dominant dollar after a commissioned by the Daily Telegragh has revealed that 55% of voters wish to stay in the EU. GBP swung to highs of 1.4630, shrugging off the rise in the dollar before tapering off to 1.4590. While we expect more volatilities before the referendum on 23 Jun, we think risks are likely to the upside now.

      The day ahead has Australia’s labour report which moves the AUD more often than not. We see more risks to the downside in this currency. BNM and BI meet. We do not expect any action from them. Philippines will release its 1Q growth print today along with BOP data. Singapore’s GDP is confirmed to be due on the 25th of May. Beyond Asia, ECB releases its minutes. UK has retail sales due. 

Currencies

G7 Currencies

      DXY – Bias to the Upside. FOMC minutes suggested with a bit more market conviction that FOMC meeting in Jun is “live”. This is in line with our caution that markets could potentially be under-pricing Fed hike trajectory and a shift in expectation could lead to readjustment and could lead to higher UST yields and USD strength. Implied probability of rate hike (from fed fund futures) in Jun has also jumped again to 32% (from 12% yesterday before FOMC minutes and 4% the day before). The key takeaway from the minutes was “Most participants judged that if incoming data were consistent with economic growth picking up in the second quarter, labor market conditions continuing to strengthen, and inflation making progress toward the Committee's 2 percent objective, then it likely would be appropriate for the Committee to increase the target range for the federal funds rate in June”. It remains our view that recent data out of US economy (in particular labor market report, inflation reading) have been constructive and supports the case for a rate hike. These further reinforced our earlier call for Fed to hike rates twice this year – once in Jun and another one in Dec. USD was broadly firmer across most currencies. DXY was last at 95.20 levels. Bullish momentum on daily chart remains intact while stochastics is at oversold conditions. Resistance at 94.70 levels (50 DMA) has been broken overnight. Next resistance at 95.90 (50% fibo retracement of 2016 high to low), 96.70 (200 DMA). Support at 94.20 (21 DMA), 93.80 (23.6% fibo). Week remaining brings 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 a resurgence of USD strength post-FOMC minutes. Pair was last seen at 1.1225 levels. Daily momentum remains bearish while stochastics is entering overbought conditions. The key support at 1.13 (50 DMA) that we have been watching has been broken and we earlier cautioned that a break below that could see an extension of the decline towards 1.1220 (50% fibo retracement of Mar low to May high), 1.1120 (100 DMAs). Resistance at 1.13100 (38.2% fibo). Week remaining brings ECB Current Account, construction Output (Mar); ECB Minutes on Thu; GE PPI (Apr) on Fri.

      GBPUSD – Retail Sales on Tap. GBP rose amid opinion polls swinging in favour of Bremain. We maintain our base case for UK to remain in EU as public is becoming more aware of the risks arising out of Brexit. Opinion polls and betting odds are also gradually shifting in favor of Bremain. That said, FX volatility remains near 7-year high and we expect GBP to be caught in 2-way directional swings in the lead-up to referendum. Recent study from BoE suggested that about half of GBP's decline since Nov 2015 is attributed to the referendum. With GBP CFTC positions still indicating shorts at stretched levels, GBP could face considerable upside pressure especially in the event of a vote in favor of Bremain. Our in-house model suggests GBP's fair value at 1.58 levels. USD strength elsewhere did not deter the rise in the GBP.  Pair was last at 1.4580 levels.  Bearish momentum on daily chart is waning and stochastics has risen from oversold conditions. Resistance at 1.4670 before 1.4740 (2016 high). Support at 1.4470 (76.4% fibo retracement of 2016 high to low), before 1.4350 (61.8%), and 1.4250 (50% fibo). Week remaining brings Retail Sales (Apr) on Thu; CBI Trends Orders (May) on Fri.

      USDJPY – Limited Downside. USDJPY climbed above the 110-handle overnight as the dollar firmed on the back of hawkish tone of the FOMC minutes. Pair tested but failed to break cleanly above the 50 DMA at 110.20. Pair is now mildly retreating following the overnight move on profit-taking. Also stronger-than-expected core machine orders print (up 5.5% m/m in Mar vs. est. of -2%) is possibly giving the JPY a lift as well. Last seen around 110.15 levels, pair remains bullish bias on the daily charts, but is waning on the weekly charts and stochastics continues to climb higher from oversold conditions.  In the absence of further concrete actions by PM Abe or BOJ governor Kuroda to shore up confidence in Abenomics, further jawboning remains the weapon of choice for now. Look for the pair to re-test the 50DMA again with a clean break exposing the next barrier at 111.70 (38.2% Fibo retracement of the Jan-May downswing). Support is now seen at 109.40 (23.6% Fibo) before 108.90 (21DMA).

      NZDUSD – Sell on Rally. NZD fell amid USD strength post-FOMC minutes. May consumer confidence data released this morning was worse than previous month. Pair was last at 0.6740 levels.  Bearish momentum on daily chart remains intact while stochastics is near oversold conditions. Support at 0.6740 (100 DMA); break that on daily close brings 0.6640 (200 DMA). Resistance at 0.6830 (50 DMA). Bias remains to sell on rally. Week remaining brings Credit Card Spending (Apr) on Fri.

      AUDUSD – Sell on Rallies. AUD was last seen around 0.7220 this morning, softening from its overnight highs on broad dollar strength. With that the 200-DMA is broken. Daily momentum continues to lose downside bias and stochastic also shows that the downside has troughed in the near-term. Still, the 200-DMA has been broken. Support at 0.7140 (23.6% Fibonacci retracement of the May-Jan sell off) is eyed. Beyond that, the 0.68-figure comes into focus. Resistance is seen at 0.7340 (50-DMA). Further dollar rise, soft commodity demand from China and a dovish RBA which is particularly concerned about the currency strength could mean that odds are for the AUD to fall. We have now shifted our target for 0.68-0.75 to be the range to play the rest of the year. In the nearer term, we eye the break of the 0.72-handle that could put 0.7140-support in focus. 1Q wage price index came in at 0.4%q/q vs, previous 0.5%. Labour report for Apr is eyed later. We think that an upside surprise will be opportunities to sell the pair. Risks to the AUD are more to the downside if anything, even from the labour report. Week ahead brings Labor market report (Apr) on Thu.\

      USDCAD – 50-DMA Cleared, Bullish. Last seen around 1.3040, barrier at 1.2978-level (61.8% Fibonacci retracement of the 2015-2016 rally, 50DMA) has been cleared. The 1.3312-barrier is eyed now before the next at 1.3410 (100, 200 DMA). Daily momentum signal is bullish. Immediate support is seen at 1.2830 before 1.2745 (21-DMA). Week ahead has Mar retail sales and Apr CPI on Fri.

Asia ex Japan Currencies

      The SGD NEER trades 0.54% below the implied mid-point of 1.3733. The top end is estimated at 1.3457 and the floor at 1.4009.

      USDSGD – Limited Downside.  USDSGD spiked above the 1.38-handle overnight on the back of a firmer dollar following a hawkish FOMC minutes. Pair is retracement mildly this morning possibly on profit-taking activities. Pair was last seen around 1.3810 levels with daily momentum showing mild bullish bias and stochastics remaining at overbought levels. This suggests that further downside is limited. Further dips should find support around 1.3770 (38.2% Fibo retracement of the Jan-Apr downswing). Any rebound should meet resistance around 1.3860 (100DMA). We have 1Q GDP (final print) is due next week on 25 May.

      AUDSGD – Bullish Divergence. AUDSGD slipped from the 1.00-handle, last printed 0.9970. MACD is still losing bearish momentum while stochastics trough. We still see bullish divergence on the charts and hold our view to 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 – Range of 2.93 – 2.97, with Slight Upside Risk. SGDMYR was a touch firmer amid MYR underperformance. Daily momentum is not indicating a clear bias while stochastics is showing signs of falling from overbought conditions. We remain better sellers on rally. Resistance at 2.9620 (100 DMA), 2.99 (50% fibo retracement of 2016 high to low). Support at 2.93 (lower bound of uptrend channel). Technical signals suggest 2.93 – 2.97 range to hold for the week.

       USDMYR – BNM Meeting Today. USDMYR gapped higher this morning, tracking other USD/AXJs higher after Fed minutes overnight was interpreted as hawkish. Pullback in oil prices also weighed on the MYR. Pair was last seen at 4.07 levels. Bullish momentum on daily chart remains intact and stochastics is at overbought conditions. Resistance at 4.0720 (38.2% fibo retracement of 2016 high to low) before 4.10 (100 DMA). Support at 3.9850 (23.6%). We look for better opportunities on the upside to fade into. Week ahead remaining BNM meeting (Thu); Apr CPI and FX reserves (Fri).

      1s USDKRW NDF – Buy on Dips.  1s USDKRW rose amid USD strength post FoMC minutes. Last seen at 1189 levels. Bullish momentum remains intact while stochastics is at overbought conditions. 21DMA cuts 50DMA to the upside – short term bullish signal. Still bias to buy on dips. Some technical levels to watch – resistance at 1185 (50% fibo), 1200 (61.8% fibo). Support at 1171 levels (38.2% fibo retracement of Mar high to Apr low), 1162 (50 DMA).

      USDCNH – Capped. USDCNH touched a high of 6.6145 before reversing lower, last seen at 6.5680. Upside momentum is underpinned by the USD resurgence. Stochastics show a peak forming in bullish momentum. Resistance remains at 6.6200. Support is at 6.5366 (100-DMA) before 6.50 (21, 50 DMA). We see risks of retracement. USDCNY was fixed 315 pips higher at 6.5531 (vs. previous 6.5216). CNYMYR was fixed 37 pips higher at 0.6183 (vs. previous 0.6146). The RMB index strengthened after the fixing.

      1s USDINR NDF – Expect a Gap Up In Spot. 1s USDINR NDF rallied overnight and was last seen around 67.50, testing the upper bound of the familiar 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) which is being challenged. Next barrier is not far away, 67.70. Key support remains at 66.80 levels (21, 200 DMAs).

      USDIDR – Gapped Higher Above 13400 Levels. USDIDR gapped higher at the opening this morning to 13446 from yesterday’s close of 13380, playing catch-up with its regional peers amid dollar strength overnight. It also did not help that oil prices slide lower overnight. The risk remains of further unwinding of carry trade amid softer risk appetite that could weigh on the IDR. We have BI policy decision out later this afternoon but we do not expect any adjustment by the central bank for now given the transition towards a new policy rate and interest rate corridor mechanism. Last seen around the 13450 levels, daily momentum is exhibiting increasing bullish bias now and stochastics fast approaching overbought levels. Resistance is now at 13500 levels (50% Fibo retracement of the Jan-Mar downswing) ahead of 13615 (61.8% Fibo). Support nearby is at 13420 (100DMA) before 13370 (38.2% Fibo). The JISDOR was fixed higher at 13319 yesterday from Tue’s 13278. Market sentiments improved yesterday with foreign funds purchasing a net USD20.05mn in equities. They also had added a net IDR0.02tn to their outstanding holding of government debt on 13 May (latest data available). In the news, it was reported that the tax amnesty bill will be discussed in parliament on 23 May till 9 Jun after which the bill will be put to a vote in parliament on 14 Jun. Passage of the bill could face lesser obstacles now given that the Golkar Party has aligned itself with President Jokowi’s ruling coalition.

      USDPHP – Pressured Higher.   USDPHP continued its climb higher this morning above the 46.800-levels, tracking the USD/AXJs broadly higher. With election rhetoric now out of the way, market’s focus is on unofficial president-elect Duterte’s economic policy direction and cabinet members. Among those considered for cabinet positions include Carlos Dominguez III (for Finance Secretary) who has reportedly declined the post. For now, market is giving Duterte the benefit of the doubt. 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 are not 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 46.840 levels, pair is still bearish bias but waning and stochastics shows tentative signs of climbing higher. Further upside should meet resistance at 46.900 (200DMA) ahead of 46.985 (50% Fibo retracement of the Jan-Mar downswing; 100DMA). Support is at 46.490 (50DMA). Sentiments remained weak with foreign funds selling a net USD0.11mn in equities yesterday. We have GDP (1Q) later morning. Market is expecting the economy to expand by a faster 6.9% y/y in 1Q16 vs. the upward revised print in 4Q15 of 6.5% (previously 6.3%).

      USDTHB – Still Biased To The Upside.  USDTHB broke above the 35.700-levels overnight on a firmer dollar following a hawkish FOMC minutes. Pair has since retreated mildly back below the 35.700-levels at 35.680 currently. Daily momentum indicators remain mildly bullish bias, and stochastics remains at overbought levels. This suggests that the pair remains bias to the upside and down moves intraday could be limited. Support is at 35.570 (50% Fibo retracement of Jan-Mar downswing). Rebounds should meet resistance at 35.770 (61.8% Fibo). Mixed sentiments saw foreign funds buying a net THB0.90bn in equities yesterday but sold a net THB2.19bn in government debt. We have foreign reserves (13 May) later today. In the news, the Finance Ministry believes that growth should exceed 3% y/y in 2Q, buoyed mainly by government spending as more than THB100bn is expected to be spent in 2Q. Similarly, government spending is expected to lift growth in 3Q and 4Q with the Finance Ministry expecting growth to peak in 3Q at more than 4% and then moderate in 4Q by more than 3%.

Rates

Malaysia

      MYR government bonds continued to see inflows ahead of the MPC outcome on Thursday. The belly of the curve remains the preferred spot, which has resulted in GII-MGS spreads compressing a fair bit over the last couple of weeks. Some players were positioning for a more dovish stance from BNM, while market consensus is still expecting no change in policy.

      IRS levels rose 1-2bps higher, possibly due to foreigners taking profit on receive positions and/or weaker MYR alluding to a lower likelihood of a rate cut. The 3y and 5y IRS were dealt at 3.57% and 3.68% respectively. 3M KLIBOR remained at 3.67%.

      In MYR PDS, the re-tap on Cagamas 7/19 was priced at 3.95% (G+78bps/ Z+35bps) and WI was last seen dealing at 3.90/3.87%. Putrajaya’s and Cagamas’ 3y-7y papers appear cheap now. AAAs and GGs remained the favorite, and SEB and BGSM had decent amounts traded. Elsewhere was quiet with spreads mostly unchanged.

Singapore

      SGS yield curve bear steepened, with the long end +5-6bps and the short end up +2-4bps, driven up by higher funding on the back of higher USDSGD. SGD IRS rose 2-6bps in a flattening move, and swap spreads at the back end narrowed by more than 3bps. The concentrated selling at the long end could have also been due to players lightening positions ahead of the new 10y benchmark issue size announcement.

      Asian credit market had significantly more buyers than sellers with spreads better by 2-3bps across most sectors. Dell’s new USD bonds were poorly allocated, pushing bids in the grey market 10-20bps tighter across all the tenors. FTT to trade on NY open and that would set the tone for the RegS issue.

 Indonesia

      Indonesia bond market closed lower during the day backed by two Fed members commented possibility of two rates hike this year, U.S. and EU CPI came in line with consensus expectation and declining Indonesia motorcycle sales in the month of April. These published data this week have created a negative sentiment towards the IGS prices so far. However, bond investors are waiting for the result of central bank Board of Governor meeting. A BI rate cut would drag IGS prices higher and may close with week with a weekly gain. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 7.413%, 7.632%, 7.853% and 7.899% while 2y yield shifts up to 7.179%. Trading volume at secondary market was seen thin at government segments amounting Rp9,864 bn with FR0056 as the most tradable bond. FR0056 total trading volume amounting Rp1,811 bn with 101x transaction frequency and closed at 105.219 yielding 7.633%.

      Corporate bond trading traded thin amounting Rp449 bn. ANTM01BCN1 (Shelf Registration I ANTAM Phase I Year 2011; B Serial bond; Rating: idA) was the top actively traded corporate bond with total trading volume amounted Rp122 bn yielding 9.026%.