Maybank GM Daily - 25 May 2016

FX

Global

      Dollar strengthened on Tue, bolstered by rising bets of a rate hike in Jun. The implied probability of a rate hike in Jun base on Fed Fund Futures inched higher to 34.0% from 28% before the weekend. Implied probability of a rate hike by Dec rose to near 80%. The UST yield curve flattened a tad more overnight, into Asia morning. Overnight data was somewhat supportive as new home sales for Apr jumped to 619K from previous 531K (which was also revised higher). Eyes are on durable goods orders next on Thu and an upside surprise could lift the greenback higher. In the meantime, oil is sticky.

       In Asia this morning, Singapore released the final print of its 1Q GDP at 1.8%y/y (not revised from its previous release). Sequentially, growth was revised higher to 0.2%q/q (annualized) from 0.0%. After the release, MAS assured that inflation outlook is unchanged, restraining upticks in the USDSGD around the 1.38-handle. Separately, MAS ordered Switzerland’s BSI Bank in Singapore to shut down as a merchant bank because of “serious breaches of anti-money laundering requirements, poor management oversight of the bank’s operations, and gross misconduct by some of the bank’s staff”.

      The day ahead is rather quiet in terms of data with only Philippine’s imports due. Europe There is a number of Fed speakers tonight including Fed Harker, Fed Kashkari as well as Fed Kaplan. Europe has German IFO. ECB Constancio is also scheduled to speak. BOC makes rate decision but we do not expect a rate change. We continue to eye a supported dollar tone ahead of Fed Yellen’s speech at the end of the month.

   

Currencies

G7 Currencies

      DXY – Bias to the Upside. USD jumped higher, 2Y UST yields also rose to 2-month high of 0.9185% as markets continue to reprice expectation for Fed rate hike, possibly as early as in Jun or July (implied probability seen at 34% and 54%, respectively). The jump in new home sales data added to conviction. Fed’s Harker said can easily see 2 to 3 rate hikes this year; dismissed risk of Brexit as reason to delay a possible Jun hike. We reiterate our call for Fed to hike twice this year – once in Jun and another one in Dec. Interesting to note is US equities also closed in positive territories, led by financials and construction. This is despite expectation that Fed could hike sooner than later. Could be a sign that markets are interpreting the rate hike as a sign of economic growth. If this continues to hold, we may not see much of a sell-off in risk proxy currencies including some AXJs. We continue to monitor risk sentiment for further clues.  DXY was last at 95.62 levels. Bullish momentum on daily chart remains intact while stochastics is at oversold conditions. Next resistance at 95.90 (50% fibo retracement of 2016 high to low), 96.60 (200 DMA). Support at 94.90 (38.2% fibo), 94.60 (50 DMA). Week remaining brings MBA Mortgage (May-20), House Price Purchase Index (1Q), Fed Kashkari, Kaplan speaks on Wed; Fed Bullard Speaks, durable goods orders (Apr P), Fed Powell on Thu; GDP (1Q S), Univ. of Mich. Sentiment (May F), Fed Yellen Speaks on Fri.

      EURUSD – Watching Support at 200 DMA. EUR fell amid USD strength. ECB Constancio expects inflation to be near 2% in 2018 (an implicit suggestion that ECB monetary easing could stay longer than expected). In data release - ZEW expectations index slumped in May. EUR was last seen at 1.1140 levels. Daily momentum remains bearish while stochastics is entering overbought conditions. EUR has broken various technical support at 1.1310 (50 DMA) and 1.1220 (50% fibo retracement of Mar low to May high). Pair could extend its downside further. Watch next support at 1.11 (200 DMA) before 1.1010 (76.4% fibo). Resistance at 1.1220 (50% fibo). Week remaining brings GE IFO (May), ECB Constancio speaks on Wed.

      GBPUSD – Need a Break Above Previous High of 1.4770. GBP rose despite USD strength overnight as bets and opinion polls continue to swung in favour of Bremain. UK front-end yields have also risen. BoE Gov Mark Carney told a parliamentary committee that a ‘remain’ vote would mean that the next move in interest rates would probably be up, whereas the implications of a ‘leave’ vote would depend on the reaction of the exchange rate. GBP was last at 1.4610 levels. Pair needs to break above its recent (and 2016) high of 1.4770 (200 DMA) for further upside to materialise. Support at 1.4470 (76.4% fibo retracement of 2016 high to low). Week remaining brings 1Q GDP (Thu).

      USDJPY – Still Testing 50DMA. USDJPY continues to bounce higher after slipping lower towards the 109-levels yesterday, bolstered by a firmer dollar overnight.  Nikkei futures are also higher this morning, adding upside pressure on the JPY. This morning, the JPY was sold off against most of the majors that is weighing on the JPY. With G7 support lacking for any intervention to weaken the JPY, further jawboning remains likely. Jawboning is likely the weapon of choice for the government in the absence of any concrete action to shore up confidence in Abenomics. USDJPY was last at 110.10 levels. Daily momentum remains bullish but waning, and stochastics continues to turn lower from overbought levels. Pair continues to test the 50DMA at 109.90 levels but has failed to break on a daily or weekly basis. A clean break of the 50DMA could see bullish extension to 111.70 (38.2% Fibo retracement of the Jan-Mar downswing). BOJ governor Kuroda is due to appear before parliament later this morning. Support at 108.70 (21-DMA). Data of note remaining this week is CPI (Apr) on Fri.

      NZDUSD – Sell on Rally. NZD was soft but decline remains a grind. Apr trade surplus came in better than expected, helped by exports. NZD was last at 0.6745 levels. Bearish momentum on daily chart remains intact but showing signs of waning while stochastics is near oversold conditions. Support at 0.6720 (100 DMA); break that on daily close brings 0.6660 (200 DMA) into play. Resistance at 0.6840 (21 and 50 DMAs). Bias remains to sell on rally. Week remaining brings NZ budget on Thu, Finance Minister speaks on Fri.

      AUDUSD – Downsides A Grind, For Now. AUDUSD bears seem less surefooted yesterday, even after the break of the 0.72-handle. RBA Governor remarks (his penultimate) was unremarkable. Amid calls for  an adjustment to the inflation target band of 2-3%, he defended the band saying that the “best monetary framework we’ve ever had”. However, he also said that the band is not “rigid” that demands “ “knee-jerk responses”, suggesting that central bank is merely acting ahead of the curve. This pair was last seen around 0.7190. Daily momentum indicators continue to show waning bearishness with stochastics still showing a trough in oversold region. Bias is still to the downside but momentum indicators suggest that downside could be a grind. The 200-DMA should continue to be retested on the way up towards the next barrier at 0.7340 (100DMA). Upticks are likely on short leash and could be seen as opportunities to sell. Further downside should see support at 0.7065 (76.4% Fibo of the Jan-Apr upswing). Resistance at 0.7330 (50% Fibo). Firmer resistance at 0.7450 (38.2% Fibo). Week ahead has 1Q CAPEX numbers on Thu, RBA Debelle in panel participation on Fri.

      USDCAD – Upside Bias. This pair has not been moving much in the past few sessions, still around 1.3120. Momentum indicators suggest upside bias still with 21-DMA at the brink of cutting the 50-DMA. Further upmove to meet resistance at 1.3312. In the longer-term, we are more wary of downside trades as we notice a bearish cross over of the 100-DMA on the 200-DMA chart. Support is seen at 1.2920 (50-DMAbefore year low of 1.2460.

Asia ex Japan Currencies

      The SGD NEER trades 0.14% below the implied mid-point of 1.3797. We estimate the top end at 1.3520 and the floor at 1.4073.

      USDSGD – Still Capped by 100DMA, Bias Upside.  USDSGD is inching higher this morning underpinned by the firmer dollar. Final 1Q GDP print released this morning did not have a significant impact on the pair. The economy grew by 1.8% y/y (0.2% saar q/q) in the final print for 1Q 2016, coming in below below market estimates of 1.9% y/y (0.6% saar q/q). However, this was better than the advanced estimates of 0% saar q/q, helped by a resurgence in manufacturing which was up by 23.3% saar q/q. The government maintained its full-year growth forecast at 1-3% for 2016. Pair was last seen around 1.3820 levels, still capped by the 100-DMA. Daily charts are showing waning mild bullish bias, while stochastics remains at overbought conditions. Further upmove could be a grind this week with the 100DMA still capping upside aaround 1.3850 levels ahead of 1.3900 levels (50% Fibo retracement of the 2016 sell off). Support nearby remains at 1.3770 (38.2% Fibo) and further retracements could meet next support at 1.3650 (23.6% Fibo) which should not be challenged. Remaining week has Apr industrial production tomorrow.

      AUDSGD – Waning Bearish Momentum. AUDSGD was last seen around 0.9930, still retaining a heavy tone. Similar to AUDUSD, daily MACD is near to zero and stochastics show tentative signs of climbing higher from oversold levels. Bearish bias is likely to hold but we would not sell at this point as there is a risk of correction. Upticks should meet resistance around parity, while any correction puts next support at 0.99-levels.

       SGDMYR – Range of 2.95 – 2.98, with Slight Upside Risk. SGDMYR retraced some of yesterday’s gains, helped by MYR strength off the back of firmer oil prices. Cross was last seen at 2.9770 levels.  Daily momentum remains bullish bias while stochastics is at overbought conditions. We remain better sellers on rally. Resistance at 2.99 (50% fibo retracement of 2016 high to low). Support at 2.9570 (38.2% fibo, 100 DMA, lower bound of uptrend channel).

       USDMYR – Upside Risk. USDMYR eased off recent highs, helped by the gains in oil prices. Pair was last seen at 4.12 levels. Bullish momentum on daily chart remains intact and stochastics remains at overbought conditions. Resistance at 4.14 (50% fibo retracement of 2016 high to low). Support at 4.0960 (100 DMA) before 4.0720 (38.2% fibo). Fed hike risk in Jun/Jul is expected to support the pair while sustained oil price gains could temper excessive rise. We watch for risk sentiment – if supported (market interprets Fed rate hike as a signal that economy is healthy) – could lend strength to MYR. Sees 4.10 – 4.14 range.

      1s USDKRW NDF – Bullish Momentum But Showing Signs of Waning.  1s USDKRW remains supported near recent highs of 1190 amid USD strength. Bullish momentum remains intact while stochastics is at overbought conditions. Still bias to buy on dips. Support at 1185 (50% fibo retracement of 2016 high to low), 1177 (200 DMA). Resistance at 1200 (61.8% fibo).

      USDCNH – Consolidation. USDCNH appears to be in consolidative mode within 6.55-6.57. Pair was last seen around 6.5635 levels. Bullish momentum is waning on the daily charts and stochastics shows signs of turning lower from overbought levels. In the absence of fresh catalyst, we expect range trading to continue. Support is at 6.5350 (100-DMA). Resistance is at 6.5820 (19 May high). USDCNY was fixed 225 pips higher at 6.5693 (vs. previous 6.5468). CNYMYR was fixed 13 pips higher at 0.6234 (vs. previous 0.6221). We have just Apr industrial profits on Fri.

      USDINR - Upside Bias.  USDINR reached 68.00 on bullish USD tones. Upside momentum is still sustained and next barrier is seen at 68.36 while support is seen at 67.5350 (100-DMA). In news, Secretary General of Bombay Sugar Merchants Association said that India may have to Import sugar in 2016-17 to curb price pressures. No tier-one data due this week.

      USDIDR – Bullish. USDIDR continues to test the 13700 levels this morning amid a firmer dollar. There could be some further unwinding of carry trades amid soft risk sentiments which should weigh on the IDR. Also expectations of further BI easing following the dovish comments last week could keep the pair elevated as would the growth downgrade for 2016. Pair was last seen around 13700 levels. Daily momentum is bullish bias and stochastics remains at overbought levels. Next resistance is at 13760 (76.4% Fibo retracement of the Jan-Mar downswing). Support remains at 13490 (50% Fibo). The JISDOR was fixed slightly lower yesterday at 13606 compared to Mon’s 13607. Positive market sentiments yesterday saw foreign investors buying a net USD3.79mn in equities. They had however removed a net IDR0.73tn from their outstanding holding of government debt on 20 May (latest data available). No notable data due this week.

      USDPHP – Bullish Tilt.   USDPHP continues to climb higher, playing catch-up with its regional peers. Pair is likely to retest the 47-level on the back of expectations of US Fed fund rate hikes as well as concerns about president-elect Duterte’s economic policy direction and cabinet members. So far, the market’s benefit of the doubt given to Duterte appears to be giving way to skeptism as his economic direction and remain unclear. 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. This could keep the PHP under pressure. Last seen around 46.880 levels, pair has lost most of its bearish momentum and stochastics continues to climb higher. Resistance is at 46.985 (50% Fibo retracement of the Jan-Mar downswing; 100DMA); 47-handle. Support remains at 46.730 (38.2% Fibo). Continued weak investor sentiments saw foreign funds selling a net USD2.30mn in equities yesterday. Imports rose sharply by 11.7% y/y in Mar, beating market expectations of 8.9% and compared to Feb’s 1.2%. This resulted in a wider trade deficit of USD1.75bn in Mar (cons.: -USD1.36bn) vs. Feb’s USD1.1mn.

      USDTHB – Bullish Bias.   USDTHB continues its bounce higher towards the 35.800-levels this morning underpinned by renewed expectations of a Fed fund rate hike in Jun and a firmer dollar. Pair was last seen around 35.780 levels. Daily momentum is mildly bullish bias and stochastics remains at overbought levels. Pair is on the grind higher and should remain in range-bound trades in the near term in the absence of fresh catalyst and any dips could be buying opportunities. A clean break of 35.770 (61.8% Fibo retracement of Jan-Mar downswing) could see the pair headed towards the 36-figure. Support is at 35.570 (50% Fibo). Sentiments remained mixed yesterday with foreign investors selling a net THB0.37bn in equities but buying a net THB1.04bn in government debt. We have Apr customs trade due later today and 19 May foreign reserve on Fri.

Rates

Malaysia

      Govvies softened amid MYR weakness with the curve higher by 1-4bps. The newly issued 10.5y MGS 11/26s erased gains ending 4bps higher from previous close. Government bonds could stay weak if MYR weakness persists.

      IRS levels ticked up on EM worries and softer local bonds on the back of weaker MYR. Nothing got dealt in the market, and 3M KLIBOR is still the same at 3.67%.

      PDS remain muted, though GG space was a little more active. Prasa had strong interest but widened 1bp at the belly and long end. PASB 26s bucked the trend tightening 1bp. AAA space saw bids a tad wider amid lower trading volume and felt better offered. AA curve mostly saw crosses. PDS to remain weak against a backdrop of weaker USDMYR, but if onshore rates stay pat the curve would look cheap and supported.

Singapore

      SGS prices fell on players lightening positions ahead of the new 10y benchmark auction this week, higher USDSGD on broad USD strength and biddish short dated forwards. SGS yield curve rose up by 1-7bps, with the 5y being the worst performer. Short end bonds saw buying on dips and long end bonds remain supported. Liquidity was thin. SGD IRS curve also up by 6-7bps.

      Primary issuances continued to dominate the Asian credit market. Some are trading light heading into the summer period when liquidity may be sporadic and going in and out would be challenging. Yantze 25s tightened slightly in secondary despite upcoming new 5y and 10y issuances. With Aa3 rating, demand for this better China credit should be well received.

 Indonesia

      Indonesia bond market closed lower during the day. Selling was seen during the day resulting in the LCY to depreciate. There were not anything major during the day as there won’t be any economic data release this week. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 7.569%, 7.937%, 8.122% and 8.120% while 2y yield shifts down to 7.182%. Trading volume at secondary market was seen heavy at government segments amounting Rp18,535 bn with FR0056 as the most tradable bond. FR0056 total trading volume amounting Rp5,333 bn with 211x transaction frequency and closed at 103.028 yielding 7.937%.

      Indonesian government conducted their conventional auctions yesterday and received incoming bids of Rp14.69 tn bids versus its target issuance of Rp12.00 tn or oversubscribed by 1.22x. However, DMO only awarded Rp9.99 tn bids for its 7mo, 10y, 15y and 20y bonds. Incoming bids were mostly clustered on the FR0056 series. 7mo SPN was sold at a weighted average yield (WAY) of 6.43775%, 10y FR0056 was sold at 7.97700%, 15y FR0073 was sold at 8.14964% while 20y FR0072 was sold at 8.15696%. No series were rejected during the auction. Bid-to-cover ratio during the auction came in at 1.00X – 2.95X. Foreign incoming bids during the auction were noted Rp5.62 tn or 38.3% of total incoming bids. However, only Rp2.96 tn bid (29.6% of total awarded bids) were awarded to foreign investors. Till the date of this report, Indonesian government has raised approx. Rp72.34 tn worth of debt through bond auction which represents 68.3% of the 2Q 16 target of Rp106.00 tn.

      Corporate bond trading traded heavy amounting Rp869 bn. STTP01ACN2 (Shelf registration I Siantar Top Phase II Year 2016; A serial bond; Rating: idA) was the top actively traded corporate bond with total trading volume amounted Rp300 bn yielding 10.497%.