Maybank GM Daily - 6 May 2016

FX

Global

      Equities closed flat overnight in absence of fresh data to drive direction. Oil prices held above $44-handle as wildfires in Canada curb supply of oil sands. EIA data overnight also showed US crude output fell by most in 8 months. In Fed speaks overnight, Fed’s Bullard repeated that Jun FOMC is “live”; Williams says still see 2 – 3 hikes this year and Lockhart said he is optimistic that US economy will perform better after 1Q. 

      In FX markets, USD was broadly firmer for the 3rd consecutive session as markets head into US payrolls tonight. With ADP disappointing expectation (Wed), markets could be expecting a softer NFP tonight (consensus +200k). We think wage growth data will be of equal importance, if not more (Consensus +0.3%). A stronger number will reinforce the PCE core data (2.1% released last week) that price pressures are building and Fed could hike earlier than expected. Implied probability from Fed fund futures sees only 10% chance of Fed hike in Jun. A re-adjustment of market expectation may add to USD strength. USDAXJs may have scope to rise further.

      In RBA’s SoMP released this morning, RBA cut CPI forecast to 1-2% for 2016; inflation expectations may be persistently lower for longer; reiterated it cut its rates by 25bps on Tue because prospects for sustainable economic growth, with inflation returning to target over time, would be improved by further easing of monetary policy. Day ahead focus on Malaysia trade and FX reserve data; China 1Q current account for Asia. For US, focus on Fed's Bullard, Kaplan, Lockhart, Williams speaks; NFP, unemployment, wages (Apr) today. Into the weekend, China release FX reserves on Sat and Apr trade data on Sun.

Currencies

G7 Currencies

      DXY – Eyes on NFP, Wage Growth. 3 consecutive sessions of gains in Dollar index as markets head into US payrolls tonight. With ADP disappointing expectation (Wed), markets could be expecting a softer NFP tonight (consensus +200k). We think wage growth data will be of equal importance, if not more (Consensus +0.3%). A stronger number will reinforce the PCE core data (2.1% released last week) that price pressures are building and Fed could hike earlier than expected. Implied probability from Fed fund futures sees only 10% chance of Fed hike in Jun. A re-adjustment of market expectation may add to USD strength. Fed’s Bullard repeated that Jun FOMC is “live”; Williams says still see 2 – 3 hikes this year and Lockhart said he is optimistic that US economy will perform better after 1Q.  DXY was last seen at 93.80 levels. Bearish momentum on daily chart is waning while stochastics is rising. Resistance at 94.10 (21 DMA), 95.30 (50 DMA). We remain cautious of USD at oversold conditions and reiterate that support at 92.20 (38.2% fibo retracement of 2014 low to double top in 2015) should hold. Week remaining brings Fed's Bullard, Kaplan, Lockhart, Williams speak; NFP, unemployment, wages (Apr) today.

      EURUSD – Waning bullish Momentum. EUR fell amid broad USD strength. European equities closed in positive territories for the first time yesterday. EUR’s inverse correlation to risk assets (i.e. DAX) remains fairly strong (correlation coefficient at -0.62). EUR vs. AXJs and risk proxies (AUD) have also seen some pullback overnight. Focus today on US payrolls which could provide cues for the pair. EUR was last seen at 1.1400 levels. Bullish momentum on daily chart is waning; stochastics is showing signs of falling. Support at 1.1250 (50 DMA), 1.1100 (100, 200 DMAs). Resistance at 1.16 levels (2016 highs). Day ahead brings GE, FR Retail PMI (Apr).

      GBPUSD – Waning Momentum Continues. GBP was little changed from where it opened and closed yesterday. Services PMI was weaker than expected, but in line with our expectation that data in the coming weeks are expected to show a deceleration in momentum weighed by Brexit fears. Pair was last seen at 1.4480 levels. Bullish momentum on daily chart is waning and stochastics is turning lower. Support at 1.4470 (76.4% fibo retracement of 2016 high to low), 1.4350 (61.8% fibo), 1.4250 (50% fibo). Resistance at 1.4670 (2016 high).

      USDJPY – Supported Amid Intervention Concerns. Onshore markets re-opened this morning with the USJPY still inching mildly higher above the 107-handle amid a firmer dollar overnight. Since then, pair has slipped lower amid a sell-off in the majors against the JPY. As well, Nikkei futures are in the red this morning, and given the positive correlation between the USDJPY and the Nikkei futures, likely weighing on the pair intraday. However, PM Abe added his voice to the possibility of intervention when he commented that he was ready to respond to excessive currency moves if needed. Continued speculations of intervention should continue to provide some support for the pair and limit the pair’s downside moves. Pair was last seen around 107.10 levels. Monthly, weekly, daily momentum indicators remain bearish bias, though bias appears to be waning on a daily basis. Support remains at the year’s low of 105.55. Resistance is around the 108.80 levels (21DMA).

      NZDUSD – Consolidate; Downside Risk. NZD was little changed in absence of fresh catalyst. Rise above 0.69-handle was capped at 21DMA (0.6920). Pair was last seen at 0.6880 levels; still trading well-within the upward sloping trend channel - lower bound at 0.6820; upper bound at 0.7130. Daily momentum is turning mild bearish and stochastics is falling. Could see an extension of the decline given the break below 0.69 (21 DMA) towards 0.6820 (50 DMA) intra-day.

      AUDUSD – Further Downside to Go. AUD fell post RBA’s Statement of Monetary Policy. RBA cut CPI forecast to 1-2% for 2016; inflation expectations may be persistently lower for longer; reiterated it cut its rates by 25bps on Tue because prospects for sustainable economic growth, with inflation returning to target over time, would be improved by further easing of monetary policy. AUD was last at 0.7420 levels. Bearish momentum on daily chart remains intact. We reiterate that a break below the key support at 0.7550 (50 DMA, upward-sloping trend-line support from Jan and Mar lows) on daily close basis could open doors for further downside towards 0.7450 (38.2% Fibonacci retracement of Jan low to Apr high), 0.7330 (50% fibo, 100 DMA). Firmer support seen near 0.7260 (200 DMA). Resistance remains at 0.7720 before 0.7835 (2016 high).

Asia ex Japan Currencies

      The SGD NEER trades 0.14% below the implied mid-point of 1.3582. The top end is estimated at 1.3310 and the floor at 1.3854.

      USDSGD – Capped By 50DMA.  USDSGD briefly re-tested the 1.36-handle again this morning amid a firmer dollar overnight. Also, the SGD was sold off against the MYR which is weighing on the pair. Pair was last seen around 1.3590 levels with daily momentum indicators still bullish bias.  With risks still to the upside, a re-visit of the 1.36 levels is likely with upside still capped by the 50 DMA at 1.3615 levels. A break of this level on a daily and weekly basis could see the pair headed towards the 1.3650 levels (38.2% Fibo retracement of 2014 low to 2016 high). Support remains around 1.3500 (21DMA).

       AUDSGD – En-route to Parity. AUDSGD broke below 1.0150 (200 DMA) - 1.0180 (23.6% fibo retracement of 2014 high to 2015-16 double bottom) area of support this morning post-SOMP. This temporarily negates our long bias (previously looking for a move towards 1.05, 1.07). Next support is at parity. Daily momentum Is indicating a bearish bias for now while stochastics is entering oversold conditions. Cross was last seen at 1.0095.

       SGDMYR – Nearing Overbought Conditions. SGDMYR was little changed from yesterday’s closing levels; last seen at 2.95 levels. While we shared that price action shows a potential rising wedge in the making (bearish reversal), the cross appears to have broken above the wedge. We continue to watch price action today – if cross breaks higher – negating our rising wedge call. That said stochastics shows the pair at overbought conditions. Momentum is bullish bias. Resistance at 2.95, 2.98 levels (100 DMA). Support at 2.90 (21 DMA), 2.85 (2016 lows).

      USDMYR – Technical Rebound Underway. USDMYR continues to push higher amid USD strength. Last seen at 4.0170 levels. Daily momentum and stochastics continue to indicate a bullish bias. Break above next resistance puts 4.1420 (50% fibo, 100 DMA) in focus. Support remains at 3.91 (21 DMA), 3.8440 (2016 low). Day ahead brings trade and FX reserves data on Fri.

      1s USDKRW NDF – Bullish Bias. Local markets returned from holidays today. 1s USDKRW NDF maintained its mojo, rising amid broad USD strength. Pair was last seen around 1171 levels. Bullish momentum on daily chart remains intact. Resistance at 1171 (38.2% fibo retracement of 2016 high to low, 50 DMA) before 1176 (200 DMA), 1185 (50% fibo). Support at 1153 (23.6% fibo), 1148 (21 DMA).

      USDCNH – Upside Risk. USDCNH was just a touch higher despite higher than expected USDCNY fix this morning. USDCNY fix was adjusted higher by 74pips today (6.5202 vs. 6.5128). USDCNH was last seen at 6.5195 levels. Daily momentum remains bullish bias. Next resistance at 6.5370 (100 DMA). Support at 6.4690 (200 DMA) should continue to hold firm. Day ahead brings Current account (Fri). Into the weekend, China release FX reserves on Sat and Apr trade data on Sun.

      1s USDINR NDF – USDINR NDF – Still Capped By 50DMA. 1s USDINR NDF slipped lower after briefing touching a weekly high of 67.07 yesterday, and is now inching back towards the 67-handle this morning amid a firmer dollar overnight. Pair was last seen at 66.97 levels. Daily momentum indicators remain bullish bias. Pair continues to be capped by the 50 DMA at 67.06 and a break here could see bullish extension towards 67.45 (100DMA). Downside continues to find support around 66.80 levels (21, 200 DMAs) before 66.25 (Apr lows).

      1s USDIDR NDF – Consolidation. Onshore markets are closed for public holidays and re-opens on Mon. 1s USDIDR NDF appears to be in consolidation mode around the 13400-levels after spiking back those levels on 4 May. Trade remains quiet as onshore markets are out. Pair was last seen around 13430 levels with daily momentum indicators bullish bias. Upside continues to be capped by the 100DMA at 13520. Support remains around the 14240 levels (21, 50 DMAs).

      USDPHP – Focus Remains on Presidential Elections.  USDPHP gapped higher at the opening to 47.295 from yesterday’s close of 47.255 amid overnight dollar firmness and ongoing political jitters with the presidential elections just round the corner on 9 May. There remains increasing uncertainty regarding the economic positions of presidential candidates particularly that of the front runner Davao Mayor Rodrigo Duterte that is weighing on foreign investment decisions and on the PHP as well. Last seen around 47.310 levels, daily momentum is bullish bias and stochastics remains at overbought levels. Weekly momentum indicators are also bullish bias. With our resistance levels at 47.240 (61.8% Fibo retracement of 2016 high to low) taken out yesterday, new resistance is at 47.560 (76.4% Fibo). Support is now at resistance-turned-support level at 47.240 ahead of 47.030 (100DMA). Risk sentiment deteriorated yesterday with foreign funds selling a net USD13.04mn in equities. CPI rose by 1.1% y/y in Apr, the same pace as in Mar, lifted by food prices and transport cost. Core inflation rose 1.5% y/y in Apr, the same pace as in the previous two months. In the news, the BSP is to adopt the interest-rate corridor on 3 Jun according to news reports. The operational adjustments have supposedly begun with the 1-month reverse repurchase (RRP), special deposit account (SDA) facilities closed on 4 May. This is to be followed by the closure of the 2-week RRP, SDA facilities and opening of 1-week SDA for trust on 23 May. Then, 1-week SDA facility will be closed and overnight SDA for banks, non-bank financial institutions and trusts will be opened on 30 May. On 3 Jun, the overnight SDA and RRP will be closed. The BSP has declined to confirm the news reports.

      USDTHB – Consolidating.  Onshore markets remain close for a super long weekend and re-opens on Mon. USDTHB remains in a holding pattern around the 35.180 levels amid quiet trades after climbing back above the 35-figure on 4 May. Pair was last seen around 35.180 levels with daily momentum indicators still mildly bullish. Pair should continue to oscillate within 35.035 (21DMA) - 35.370 (38.2% Fibo retracement of the 2016 high to low) intraday.

Rates

Malaysia

      MGS yields up by 1-3bps from the front end to the belly of the curve. The 15y MGII 9/30 re-opening auction posted a strong bid/cover of 2.62x, indicating healthy demand for long duration. Next auction will be the new 10.5y benchmark MGS 11/26 which we reckon a size of MYR4b.

      IRS rates down 1-4bps on heavy receiving interest at the offset, with the 5y trading at 3.69% and 3.695% in the morning. The receiving interest diminished as payers appeared. 3M KLIBOR remained at 3.68%, but appears biased to the downside.

      In MYR PDS market, there was buying interest for short-dated AAAs and GGs, which were offering 65-75bps over govvies. Newly issued MEX ll was sold at 15-20bps below coupons. We think selling interest is likely to persist this week with the weak global sentiment on the credit front.

Singapore

      SGS market was on a cautious tone as USDSGD continued rising. Trading volume was thin amid narrow price range and little buying interest. SGS yields ended mixed, with the front end slightly supported while the 15y region underperformed. SGD IRS curve closed lower by about 1bp.

      Better tone in Asian credit market as bonds that traded wide previously turned around with spreads moving tighter on the back of bottom fishers. Tech names recovered 2bps, with JD.com moving in 8bps from the morning wides and Huawei 26s and 25s better by 2-3bps. O&G names were also better by 2bps. EM sovereigns held on flat to a small upside seen in INDONs and PHILIPs.