Maybank GM Daily - 30 May 2016

FX

Global

      Fed Chair Yellen commented that “rate hike in coming months may be appropriate”. USD strengthened against the G10, in line with our expectations. Interestingly, the GBP and the CAD depreciated the least against the greenback, down -0.3% each by the end of Fri, albeit still on the decline this morning. Risk assets hardly took a dent at the prospect of a Fed hike. Oil prices took a dip before rebounding higher, still holding on to the U$49/bbl. Expect the USD/AXJs to be somewhat elevated by the USD strength but upsides could be capped by resilient risk appetite underpinned by the resilient crude prices. USDSGD was last seen around the 1.38-figure with much of the upmove covered last Fri. USDMYR caught up but upmove was probably tempered by the firm brent prices. The pair was last seen at 4.0940.

      For the week ahead, data flow out of US is heavy with focus on Apr PCE core on Tue; May ISM Mfg on Wed, Fed’s Beige Book on Thu and US payrolls on Fri. ADP employment report will be due for release on Thu instead of the usual Wed. Final print of Apr durable goods orders will also be released on Fri. On the payrolls report, consensus is expecting NFP to hold steady at +160k; unemployment rate at 4.9% (vs. 5% prior) and average hourly earnings at +0.2% (vs. +0.3% prior). For Asia, key focus on May PMI releases starting from China on Wed. We are cautious of a weaker print as May PMI appears to be seasonally weak falling in 7 of the past 10 Mays. On the side, the OPEC meeting is eyed on 2 Jun.

      Other data we watch includes Fed’s Bullard speaks; Euro-area May consumer confidence; Japan Apr retail sales on Mon. For Tue, US May Chicago Purchasing Manager, Dallas Fed Mfg, consumer confidence; Euro-area May CPI estimate; Australia Apr building approvals; NZ Apr building permits; JP Apr IP are on tap. For Wed, mfg PMI reports from around the world including US, Euro-area, UK, Japan; Australia 1Q GDP and Indonesia May CPI are in focus. For Thu, Fed’s Kaplan speaks; ECB meeting (expect no change); Australia Apr trade; UK construction PMI; BoJ Sato speaks; Singapore May PMI are on tap. On Fri, Fed’s Evans, Mester, Brainard speak; Euro-area and AU retail sales; China PMI; Malaysia Apr trade.

Currencies

G7 Currencies

      DXY – Bias to Buy on Dips into FOMC Meeting. USD continued to firm into NY close Friday. As we expected, Fed Chair Yellen struck a balanced tone with little surprises in her speech at Harvard last Fri - reiterated that economy continues to improve (while acknowledging weak growth in 1Q and relatively weak growth at the end of 2015). She again emphasized that if growth and labor market continue to improve, it is appropriate for the Fed to gradually and cautiously increase interest rate over time, and probably in the coming for such a move would be appropriate. The last part of the sentence probably “excited” the markets. Implied probability of Fed hike in Jun, Jul inched higher to 30% (from 28%) and 53.8% (from 51%). It remains our base case scenario for Fed to hike in Jun meeting. In data overnight, 1Q GDP was revised higher to +0.8% saar. (from +0.5%) but slightly below consensus of +0.9%. DXY was last at 95.84 levels. Bullish momentum remains intact. 21 DMA appears to cut 50 DMA to the upside soon. Resistance at 95.90 (50% fibo retracement of 2016 high to low), 96.60 (200 DMA). Support at 94.90 (38.2% fibo retracement of 2016 high to low), 93.80 (23.6% fibo). Bias to buy on dips leading into FOMC meeting. Week ahead is heavy in terms of data starting with PCE Core (Apr); S&P/CS HPI (Mar); Chicago Purchasing Manager, Dallas Fed Mfg Activity, Consumer Confidence (May) on Tue; ISM Mfg, new orders; Mfg PMI (May); Construction spending (Apr) on Wed; ADP (May); ISM NY (May); Fed’s Beige Book; Fed’s Kaplan speaks on Thu; NFP, unemployment rate, hourly earnings, services PMI (May); Factory orders, durable goods, cap goods orders (Apr Final); Fed’s Evans, Mester, Brainard speak on Fri. US markets are closed on Mon for Memorial Day Holidays.

      EURUSD – Downside Risk. EUR fell amid broad USD strength. Monetary policy divergence appears to be back in the driving seat as markets continue to reprice a possibility of Fed increasing rate in either Jun or Jul FOMC (while ECB remains on easy monetary policy). EUR was last at 1.1110 levels. Bearish momentum on weekly and daily charts remains bearish bias while daily stochastics is at oversold conditions. Next support at 1.11 (200 DMA) before 1.1010 (76.4% fibo retracement of Mar low to May high). Resistance at 1.1220 (50% fibo), 1.1310 (50 DMA). Week ahead brings Consumer Confidence (May) on Mon; CPI estimate, core (May) on Tue; EC PMI Mfg (May) on Wed; ECB meeting; PPI (Apr) on Thu; EC retail sales (Apr); Services/Composite PMI (Apr) on Fri.

      GBPUSD – Another Tactical Sell on Rally. Our short term tactical trade (in Fri GM Daily) worked well – to sell GBP targeting a move towards 1.4610 (low last Fri was 1.4605). We still see GBP being caught up in 2-way directional swings in the lead-up to referendum day. GBP was last at 1.4610. Bullish momentum on daily chart is waning and stochastics is showing tentative signs of falling. We look for opportunities (intra-day trade idea) to sell on rally towards 1.4660 for a move towards 1.4550 (trend-line support from the lows in May), with S/L at 1.4695. Week ahead brings PMI Mfg, Nationwide House prices (May) on Wed; Construction PMI (May) on Thu; Services/Composite PMI (May) on Fri. UK markets are closed on Mon for Bank holiday.

      USDJPY – Upside Risks Towards 111.70. USDJPY traded range-bound (109.11-110.45) last week. It was reported that PM Abe is poised to announce a delay to the consumption sales tax increase that was expected in Apr 2017 and this is lifting the Nikkei futures higher and re-exerting upside pressure on the pair. The sales tax hike is expected to be delayed till Oct 2019 according to market whispers. Continued weakness in retail sales should increase the likelihood of a sales tax hike delay. As well, PM Abe intends to propose a JPY5-10tn supplementary budget – the second after the supplementary package to aid recovery in the earthquake hit areas around Kumamoto – to stave off risks of another crisis. He intends to seek parliamentary approval for such a budget after the Upper House election in Jul. There is also increasing speculation that the BOJ could ease again in Jun (not our base case) following disappointing inflation print for Apr. USDJPY was last seen at 110.80 levels. While stochastics continues to fall from overbought levels, momentum remains bullish bias. With the upper bound of the trench channel at 110.40 tested, a clean break here on a weekly close exposes next barrier at 111.70 (38.2% Fibo retracement of the Jan-Mar downswing); 113.60 (50% Fibo). Failing which, we could see the pair back into the trend channel.  Week ahead has Apr IPI on Tue; 1Q Capex, May PMI on Wed; BOJ Sato speaks on Thu; Apr cash earnings, May Nikkei PMI Services on Fri.

      NZDUSD – Breaking out of the Range. NZD fell amid broad USD strength and tracking losses in Aussie. NZD was last seen at 0.6680 levels. Bearish momentum on daily chart remains intact while stochastics is at oversold conditions. The move lower has broken key support at 0.6720 (100 DMA); and we previously said that a break of that on daily close brings 0.6660 (200 DMA) into play. Resistance at 0.6720 (200 DMA), 0.6820 (21 DMA). Bias remains to sell on rally. Week ahead brings Building Permits (Apr); Business Confidence (May) on Tue; Terms of Trade (1Q); House Prices (May) on Wed; 10-month Government Financial Statement; ANZ Commodity Price (May) on Fri.

      AUDUSD – Downsides Bias. AUDUSD found itself back under the 0.72-figure, weighed by the dollar strength. Bias is still to the downside but momentum indicators suggest that downside could be a grind. Support is seen at recent low of 0.7145 and a break there exposes the next at 0.7064 (76.4% Fibo of the Jan-Apr upswing). Barrier is still at the 200-DMA, 0.7254 ahead of the next at 0.7350. 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. Week ahead brings New home sales (Apr); Company operating profit (1Q) on Mon; Building approvals, private sector credit (Apr); Current account (1Q) on Tue; GDP (1Q); Commodity Index (May) on Wed; Trade (Apr) on Thu; Retail Sales (Apr) on Fri.

      USDCAD – Retracements. This pair is still stuck within the 50 and the 100-DMA, last seen around 1.3070. Prices rebounded from the 50-DMA last week, lifted by the USD strength. Overbought conditions are flagged by the stochastics and suggest that bias could be to the downside in the near-term. Resistance at 1.3070 (100-DMA). 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-DMA) before year low of 1.2460. Week ahead has Mar 1Q GDP is due on Tue, RBC Canadian manufacturing (May) on Wed.

          Asia ex Japan Currencies

      The SGD NEER trades 0.10% below the implied mid-point of 1.3807. We estimate the top end at 1.3530 and the floor at 1.4083.

      USDSGD – Side-Ways.  USDSGD gapped slightly higher at the opening this morning to 1.3810 from Fri’s close of 1.3795 amid Fed Chair Yellen’s hawkish comments on Fri and JPY weakness. Pair’s upside though continues to be capped by the 100DMA resistance at 1.3825 levels. Last seen around 1.3810 levels, pair has lost most of its bullish momentum and stochastics continues to fall from overbought conditions. Any dips should find support around the 1.37-handle (21DMA). Expect pair to trade range-bound within 1.3650-1.3850 this week. Quiet data week ahead with just May PMI on Thu and May Nikkei PMI on Fri.

      AUDSGD – Heavy. AUDSGD was last seen around 0.9908, 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 0.9830.

       SGDMYR – Upside Pressure Within the Trend Channel. SGDMYR continues to trade well-within the upward slopping trend channel (formed since mid-Apr 2016). Cross was last seen at 2.9680 levels.  Bullish momentum on daily chart remains intact but is showing signs of waning while stochastics is at overbought conditions. 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). Break outside of range on weekly close puts next support at 2.92 levels (50 DMA). But short-term could see upside pressure (21 DMA about to cut 100 DMA to the upside) towards 2.99 levels.

       USDMYR – Interim Upside Pressure. USDMYR was a touch firmer off the back of broad USD strength (on Yellen’s speech on Fri) and slightly softer oil prices. Pair was last seen at 4.0950 levels. Bullish momentum on daily chart remains intact but shows signs of waning while stochastics is falling from overbought conditions. Resistance remains at 4.0960 (100 DMA), 4.14 (50% fibo retracement of 2016 high to low). Support at 4.0720 (38.2% fibo). A break below that on weekly close puts 4.03 (21 DMA) in focus.

      1s USDKRW NDF – Upside Risk.  1s USDKRW rose in response to broad USD strength (led by Yellen’s speech last Fri), the rise in USDJPY this morning as well as cautious risk sentiment onshore (KOSPI is down -0.6%). Pair was last at 1191 levels. Daily momentum remains bullish bias. Resistance 1200 (61.8% fibo retracement of 2016 high to low). Support at 1185 (50% fibo), 1177 (200 DMA). Expect 1185 – 1195 range intra-day.

      USDCNH – Upside Bias. USDCNH remained stuck around the 6.5810-level, within the 6.55-6.60 range. Bullish momentum on the wane and stochastics shows signs of turning lower from overbought levels. Still correction could be shallow as this pair seems more determined to keep an upside bias. Eye the break of the 6.5912 (38.2% Fibonacci retracement of the Oct-Jan rally). A failure to break there could mean a potential mini double top there. Support is at 6.5590 (100-DMA). Resistance is at 6.5820 (19 May high). USDCNY was fixed 294 pips higher at 6.5784 (vs. previous 6.5552). CNYMYR was fixed 1 pip higher at 0.6193 (vs. previous 0.6192). Week ahead has the NBS PMI-mfg and PMI non-mfg on Wed along with Caixin PMI-mfg and PMI-services.

      SGDCNY – Sideways. This cross closed around 4.7730, hardly changed on Fri. This cross could head further north, beyond the 50-DMA at 4.7801. Next barrier is seen at 4.8101.  Stochastics indicate oversold conditions though so initial bias should be to the upside before the bearish reversal of the 2015-2016 rally resumes. Next support is seen at 4.6960.

      1s USDINR NDF - Retracements.  1M NDF was last seen around 67.35 after a significant fall despite dollar strength. Stochastics indicate overbought conditions are pressure is to the downside for now with next support at 67.175 ahead of the next at 66.94.  Barrier is seen at 67.59. The week ahead has 1Q GDP, May PMI-mfg on Wed, and current account balance sometime in Jun.

      USDIDR – Rangy. USDIDR gapped higher at the opening to 13628 this morning from Fri’s close of 13587 amid hawkish comments by Fed Chair Yellen on Fri. As well, the possibility of further BI easing (not our base case) following the dovish comments after the BI meeting on 19 May is also adding upside pressure on the pair. This has led to continued unwinding of carry trades amid soft risk sentiments that is mitigating some of this downside pressure on the pair. Pair was last seen around 13630 levels. Daily momentum shows waning bullish bias and stochastics remains at overbought levels. Upside continues to be capped by 200DMA resistance at 13670 levels. Support is at 13490 (50% Fibo retracement of the Jan-Mar downswing). Expect the pair to trade in a wide range within 13500-13710 this week. The JISDOR was fixed lower yesterday at 13575 on Fri to end the week from 13615 on Thu. Sentiments were mixed last week with foreign investors buying a net USD88.57mn in equities. They had however removed a net IDR4.83tn from their outstanding holding of government debt on 23-26 May (latest data available). Quiet data week with just May CPI on tap on Wed. Our economic team expects headline inflation to climb slightly higher m/m ahead of Ramadan in May. As in previous years, foodstuffs prices rose ahead of Ramadan. But on a y/y basis, base effects are likely to see headline inflation moderate to 3.28% y/y. Core inflation is expected to increase m/m as well in May due to rising gold jewellery prices, car prices, and housing rent but remain relatively unchanged in May at 3.37% y/y (Apr: 3.41%).

      USDPHP – Still Trapped Between 50- and 100-DMAs.   USDPHP gapped higher at the opening to 46.750 this morning from Fri’s close of 46.655 amid hawkish comments by Fed Chair Yellen on Fri. Renewed hawkish expectations of a rate hike in Jun could see foreign investors flee the equity market and reverse the gains seen last week where the return of investor confidence saw foreign funds purchasing a net USD210mn in equities. Last seen around 46.780, pair has lost most of its bearish momentum, while stochastics continues to climb higher.  Still, even with the jump higher, we expect pair to remain hovering within the 50DMA support at 46.520 and 100DMA and 50% Fibo of the retracement of the Jan-Mar downswing resistance at 46.970. Data-quiet week ahead.

      USDTHB – Side-Ways.  USDTHB traded range-bound (35.540-35.800) last week. Pair continues its bounce higher on the lingering effects of Fed Chair Yellen’s hawkish comments on Fri. Pair was last seen around 35.590 levels. Daily momentum still shows waning bullish bias and stochastics remains at overbought levels. Continue to expect range bound trades this week. Resistance is at 35.850. Support nearby is at 35.670 (200DMA); 35.570 (50% Fibo retracement of Jan-Mar downswing). Foreign investors brushed off concerns about US Fed fund rate hike and purchased a net THB3.63bn and THB18.52bn in equities and government debt last week. Week ahead brings Apr trade, Apr BoP current account balance

Rates

Malaysia

      Government bond prices ended marginally higher last Friday with yields lower by 1-2bps. Market was overall subdued and trades centered on the 10y MGS benchmark. Players will look closely at the bidding for the new 5y MGS benchmark auction today.

      IRS rates were rather well bid despite lower global yields and firmer MGS prices. Few banks were looking to take profit after a balanced MPC statement diminished foreign receiving interest. The 3y traded at 3.605% and 5y dealt twice at 3.71%. 3M KLIBOR unchanged at 3.67%.

      PDS market was fairly active. AAA curve felt better buying especially at the front end and belly. Manjung was active but levels unchanged and Plus 29s dealt at 4.60% (G+59bps/Z+42bps). At the front end, Rantau 20s widened 1bp to 4.08% (G+59bps/Z+36bps), while Manjung 20s tightened 1bp to 4.04% (G+55bps/Z+33bps) on strong demand for IPP bonds. Muted GG space saw PASB 26s tighten 2bps to 4.32% (G+45bps/Z+25bps). AA space saw long IPP bonds being sought after for yield pick-up. There was buying on Sarawak Energy, TBEI and JEP but levels were flat to 1bp wider.

Singapore

      SGS opened on a positive note tracking the UST rally and lower USDSGD overnight, with strong buying seen in long SGS especially the 30y. The new 10y SGS auction cutoff at 2.15% vs average yield of 2.09% and slightly tailed market expectation as implied by the SGD IRS curve. Sentiment turned sour pushing the entire SGS yield curve up to close 2-4bps higher amid thin liquidity. SGD IRS moved up 1-2bps, and swap spreads narrowed.

      Asian credits had a slow day. Interest mainly focused on the new HRAM 19s, 21s and 26s. The bonds opened wider from re-offer due to FM accounts but closed tighter by 3-5bps on onshore buying and short covering, we suspect. INDON sovereign bonds up about 20cts.

Indonesia

      Indonesia bond market closed with prices of long tenor bond slightly inclining. Most of the investor were waiting for Fed Yellen to speak at the Radcliffe Institute for Advance Study Harvard University which occurred post market close. We see that her remarks would result in bond prices to move slightly lower today. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 7.492%, 7.800%, 8.025% and 8.022% while 2y yield shifts up to 7.266%. Trading volume at secondary market was seen heavy at government segments amounting Rp9,231 bn with FR0056 as the most tradable bond. FR0056 total trading volume amounting Rp3,025 bn with 142x transaction frequency and closed at 104.002 yielding 7.800%.

      Corporate bond trading traded heavy amounting Rp875 bn. BFIN02CCN3 (Shelf registration II BFI Finance Indonesia Phase III Year 2016; C serial bond; Rating: A+(idn)) was the top actively traded corporate bond with total trading volume amounted Rp200 bn yielding 10.694%.