Maybank GM Daily - 20 May 2016

FX

Global

      Stocks dipped well into negative terrain overnight before modest recovery into close. Earnings report by Walmart was strong, lending some comfort to risk-takers. However, the underlying sentiment was still cautious. Equity players digested the possibility of a rate hike in one of the next two meetings as suggested by Fed Vice-Chair Dudley in his comments overnight. 2Y UST yield inched higher by 0.25bps this morning.  The dollar index was little moved overnight and so was the GBP.

      Crude was also higher by early Asia and oil seems to be supporting sentiments in early Asia trade as Kospi opened with small gains. KRW is on the upmove as we write, up +0.4%. The rest of Asia (ex Japan) lagged with more modest gains. USD/AXJs are lower as market players take profit from long positions. BNM and BI did not change policy rates yesterday and markets were hardly surprised. Noteworthy is that future BNM policy rate decisions will be released at 3pm.

      The day ahead has existing home sales for Apr out of the US. Before that in Asia, Malaysia released its Apr CPI. In the absence of data cues, eyes are on the G7 meeting in Sendai, Japan which starts today and ends tomorrow. Little is expected out of the meeting though, and market repositioning ahead of the weekend should dominate trades for the rest of the day. Onshore markets in Thailand are closed.

Currencies

G7 Currencies

      DXY – Bias to the Upside. The DXY index edged higher, last seen at 95.31 as Fed Dudley suggested that “tightening in Jun-Jul time frame” is a “reasonable expectation”. This concurrence with the FOMC minutes is not unexpected as we think its high time to signal a rate hike for Jun-Jul. We also concur with the Vice Chair that “many signs in economy point to satisfying Fed goals”. 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 risen to 28% at last seen (from 12% before FOMC minutes and 4% the day before). 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. Bullish momentum on daily chart remains intact while stochastics has entered overbought conditions. Next resistance at 95.90 (50% fibo retracement of 2016 high to low) is still eyed. Given overbought conditions and a diagonal barrier around 95.60, upsides may be capped intraday. However, a break of the 95.90 brings the 96.70 (200 DMA) into focus. Retracements to meet 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 slipped as USD strength continues to dominate post-FOMC minutes. Pair was last seen at 1.1200 levels. Daily momentum remains bearish while stochastics is entering oversold conditions. Next key support is seen at 1.1120 (100 DMAs). Resistance is now seen at 1.13100 (38.2% fibo). Week remaining brings GE PPI (Apr) on Fri. ECB Coeure commented overnight that the “overall impact of negative rates on bank revenue has been positive”. He stressed that credit easing is more important than negative rate.

      GBPUSD – Bias To the Upside. GBP held steady around 1.4600. Retail sales surprised to the upside at 1.5%m/m compared to the consensus of 0.6%. 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. Even without Brexit, BOE Vlieghe warned that stimulus may be needed unless there is evidence of improvement in the economic outlook.  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 1.4600 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 – Bullish Tilt. USDJPY re-tested the 110-handle overnight as the dollar firmed on more Fed speakers rising the possibility of a Fed move in Jun. Pair again tested but has so far failed to break cleanly above the 50 DMA at 110.15. A clean break here could see the pair headed towards the 111-levels. Pair is again on the backpedaled on further jawboning by BOJ governor Kuroda, who spoke yesterday before the start of the today’s two-day G7 Financial Ministers and central bank governors meeting, reiterated that the BOJ would add to its record monetary stimulus without hesitation if necessary, especially if FX becomes a risk to its price target. Pair was last seen around 110 levels. Daily momentum remains bullish bias, and shows tentative signs of turning bullish on the weekly charts. Still, 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 remains at 109.40 (23.6% Fibo) before 108.90 (21DMA).

      NZDUSD – Sell on Rally. NZD remained heavy though downside momentum seems to be waning and stochastics has troughed in oversold conditions. Last seen around 0.6760, the pair seems to be well supported by the 100-DMA at 0.6720. Break that on daily close brings 0.6650 (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 0.7230 this morning, retaining a heavy tone under the 200-DMA. We expect some retracements in this pair given waning bearish momentum on the daily chart and a bottom in stochastics at oversold levels. Rebounds will meet barriers at 0.7260 ahead of the next at 0.7340(100-DMA). However, we still prefer to sell on rallies towards support 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 0.7340 (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. The labor report was mixed with all of the employment additions from part-timers and a fall of 9300 in full time employment. Participation rate slipped to 64.8% but jobless rate steadied at 5.7%. Risks to the AUD are more to the downside if anything.

      USDCAD – Trend Is Your Friend. Last seen around 1.3080, barrier at 1.3157 was tested. Daily momentum signal is bullish though stochastic is at overbought region. Still, we would not fight the trend. The 1.3312-barrier is eyed next before 1.3410 (100, 200 DMA). Immediate support is seen at 1.2987 (23.6% Fibonacci retracement of the Jan-Apr fall) before 1.2745 (21-DMA). Week ahead has Mar retail sales and Apr CPI tonight.

Asia ex Japan Currencies

      The SGD NEER trades 0.35% below the implied mid-point of 1.3742. We estimate the top end at 1.3466 and the floor at 1.4018.

      USDSGD – Bearish Tilt.  USDSGD is on the retreat for the second straight session despite the firmer dollar overnight. Pair is slipping back below the 1.38-levels on possible profit-taking activities again following the climb on 18 May. Last seen around 1.3780 levels, pair continues to exhibit waning mild bullish bias and stochastics shows tentative signs of turning lower from overbought levels. We remain better buyers on dip. Further dips should find support around 1.3650 (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 softened amid relative MYR strength this morning following the rebound in oil prices overnight. Daily momentum continues to show no strong bias while stochastics showing signs of climbing back towards overbought conditions. Immediate resistance at 2.9650 (50% Fibo retracement of 2016 high to low) ahead of 2.99 (61.8% Fibo). Support at 2.93 (lower bound of uptrend channel). Technical signals suggest 2.93 – 2.97 range to hold for the week.

       USDMYR – Softer Tone. USDMYR is softer this morning despite the firmer dollar overnight. The rebound in oil prices is helping to keep the MYR supported. There were no surprises from BNM yesterday, who kept the policy rate unchanged at 3.25% as expected, preferring to keep its ammunition dry for when it is needed most later. Pair was last seen at 4.075 levels. Bullish momentum on daily chart remains intact but is showing tentative signs of waning and stochastics remains at overbought conditions. Support is around the 4.00 figure (50% Fibo). Resistance at 4.10 (100DMA) ahead of the next at 4.12 (38.2% Fibo retracement of 2016 high to low). We look for better opportunities on the upside to fade into. We have Apr CPI and FX reserves due later today. In the news, future BNM policy rate decision will be released at 3pm

      1s USDKRW NDF – Buy on Dips.  1s USDKRW slightly softer this morning despite continued USD strength post FOMC minutes, possibly on profit-taking. Last seen at 1188 levels, pair’s bullish momentum remains intact while stochastics is still at overbought conditions. 21DMA cuts 50DMA to the upside – short term bullish signal. Still bias to buy on dips. Support nearby is at 1185 levels (50% Fibo, 100DMA), 1177 (200DMA). With our resistance level at 1185 (50% Fibo retracement of Feb high to Apr low) taken out, next barrier is at 1200 (61.8% Fibo).

      USDCNH – Capped. USDCNH slipped from previous day highs to levels around 6.5600. 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 continue to see risks of retracement. USDCNY was fixed 21 pips higher at 6.5510 (vs. previous 6.5531). CNYMYR was fixed 17 pips higher at 0.6200 (vs. previous 0.6183). The RMB index strengthened after the fixing.

      1s USDINR NDF – Bullish Breakout. 1s USDINR NDF rallied overnight and was last seen around 67.85. Pair exhibits mild bullish momentum and stochastics is bullish bias. That continues to suggest upside bias. Resistance remains at 68.37 (23.6% Fibo retracement of the Feb-Apr downswing). The 100-DMA has turned into a support at 67.54. Key support remains at 66.80 levels (21, 200 DMAs).

      USDIDR – Gapped Higher Again. USDIDR again gapped higher at the opening this morning to 13594 from yesterday’s close of 13565, playing catch-up with its regional peers amid dollar strength overnight. There were no surprises from BI yesterday who left its policy rate unchanged at 6.75% yesterday as expected. We had not expected any adjustments given the transition towards a new policy rate and interest rate corridor mechanism. Pair was also supported by a more dovish BI with the governor noting that BI can ease monetary policy if the room is available and supported by data and stability of the economy is maintained. It also did not help that the growth outlook for 2016 was lowered slightly to 5.0-5.4% from 5.2-5.6% previously. The risk remains of further unwinding of carry trade amid softer risk appetite that could weigh on the IDR. Last seen around the 13560 levels, daily momentum is bullish bias and stochastics is at overbought levels. New barrier is at 13615 (61.8% Fibo retracement of the Jan-Mar downswing); 13675 (200DMA). Support at 13490 (50% Fibo). The JISDOR was fixed higher at 13467 yesterday from Wed’s 13319. Market sentiments soured yesterday with foreign funds selling a net USD51.98mn in equities. They had however added a net IDR0.67tn to their outstanding holding of government debt on 17 May (latest data available).

      USDPHP – Limited Downside.   USDPHP is on the slide this morning, tracking the USD/AXJs broadly lower. Also helping was the strong 1Q16 GDP growth, which came in within expectations, rising by 6.9% y/y vs. 4Q15’s upwardly revised 6.5% (previously 6.3%). Lifting growth higher was strong government spending (9.9% y/y) and consumer spending (7% y/y). Growth acceleration is expected to continue into 2Q, likely buoyed by election spending. 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 flip-flopped over accepting 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 46.720 levels, pair has lost most of its bearish momentum and stochastics is climbing higher. Support remains at 46.490 (50DMA). Rebounds should meet resistance at 46.985 (50% Fibo retracement of the Jan-Mar downswing; 100DMA). Sentiments improved yesterday with foreign funds buying a net USD0.08mn in equities.

      USDTHB – Closed For Holiday.   USDTHB is edging lower this morning amid quiet trades with onshore markets out for a public holiday today and re-open on Mon. Pair is seen around 35.680 currently with daily charts still bullish bias and stochastics at overbought levels.  Support is at 35.570 (50% Fibo retracement of Jan-Mar downswing). Rebounds should meet resistance at 35.770 (61.8% Fibo). Range-bound trades within 35.500-35.800 are likely intraday. Sentiments rebounded yesterday with foreign investors buying a net THB0.13bn and THB9.38bn in equities and government debt

Rates

Malaysia

      Government bond market remained active before of the MPC outcome. Real money accounts were buying 5y and below tenors which pushed off-the-run yields closer to benchmark levels. Issue size for the new benchmark 10.5y MGS 11/26 is in line with our expectation of MYR4b. The WI was last quoted at 3.87/80%. The MPC, chaired by the new bank governor, kept OPR unchanged at 3.25%.

      IRS rates hardly moved in spite of higher global yields. Nothing was reported traded in the market. 3M KLIBOR still the same at 3.67%.

      PDS largely unchanged ahead of the MPC. Buying interest in Cagamas papers remained strong, though WI was the same as previous closing at 3.88/3.85%. AAA names such as Putrajaya and Plus were still favored, with Plus 24 trading at 4.36% (G+60bps/Z+44bps). Market still lacks catalysts.

Singapore

      A slightly hawkish FOMC Apr minutes led to a selloff in UST and a rally in USD rates. SGS yield curve bear steepened further, up by 3-7bps, with the long end bearing the brunt of the selling again, though less so at the 30y point. SGD IRS up by 6-8bps across the board, with the front end underperforming as short-dated forwards got paid up implying higher SOR Fixings.

      In Asian credits, spreads were on the defensive amid risk off sentiment. China TMT widened around 4bps, while Dell’s papers were priced at attractive spreads and rallied 15-20bps. INDON and MALAY CDS underperformed. In EM sovereign bond space, INDONs also did not do well as long liquidation lowered prices by 3pts at one point before recovering slightly to close 1-2pts down, with the long end worse off. Overall, spreads moved +4bps to -2bps but cash price was lower due to higher UST yield.

 Indonesia

      Indonesia bond market closed lower during yesterday trading session. The decline was contributed by FOMC Minutes where the participants see a possibility of a rate hike in June if U.S. economy data improves. On the other hand, bond investors were waiting result of central bank Board of Governor meeting which post market close results in halting its reference rate at 6.75%. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 7.501%, 7.757%, 7.983% and 7.947% while 2y yield shifts up to 7.243%. Trading volume at secondary market was seen moderate at government segments amounting Rp11,350 bn with FR0056 as the most tradable bond. FR0056 total trading volume amounting Rp2,599 bn with 108x transaction frequency and closed at 104.321 yielding 7.757%.

      Corporate bond trading traded thin amounting Rp493 bn. BNGA02SB (Subordinated II Bank CIMB Niaga Year 2010; Rating: AA(idn)) was the top actively traded corporate bond with total trading volume amounted Rp90 bn yielding 9.648%.