Maybank GM Daily - 2 Jun 2016

FX

Global

      The greenback softened on Wed, led by the fall in USDJPY in Asia. The fall in USDJPY underscored the disappointment felt by market players when PM Abe failed to announce the supplementary budget. The USD found some support in NY session at the release of decent data out of the US. PMI-mfg rose to 50.7 from previous 50.5. ISM manufacturing was strong at 51.3. The beige book was also released. Fed officials see upside pressure on wages as the labor markets tightened across US.

      Expect the USDAXJs to trade sideways though a likely lower USDCNY fixing could provide some anchor to the region. China’s Caixin PMI-mfg for May met expectations at 49.2, a drop from Apr’s 49.4. According to the report, output and new orders extended declines. Asia took the PMI-mfg numbers calmly with a mix of positive and negative equity benchmark indices seen by close. Elsewhere, after a series of attack on RBI Governor Rajan by a member of BJP Subramanian Swarmy, the central banker has told the government that he does not want another term according to the local press even though the Prime Minister wanted him to stay on. That had triggered a fall in the rupee towards the 67.40 before rebounding on rumours of central bank interventions. Expect the USDINR to keep an upside bias in the near-term.

      The day ahead has ECB meeting. We do not expect a move by the central bank. Thereafter, US ADP report may give a clue on the NFP print tomorrow. Expect the USD to remain sideways ahead of employment numbers.

Currencies

G7 Currencies

      DXY – Mixed. USD fell overnight but the decline was more felt against EUR, JPY and CHF. In data release overnight – Fed’s beige book reported modest growth and highlighted tight labour market. ISM manufacturing index was better than expected while construction spending was down. DXY was last seen at 95.30 levels. Bullish momentum on daily chart is waning and stochastics has fallen from overbought conditions. Support at 94.90 (38.2% fibo retracement of 2016 high to low), 93.80 (23.6% fibo). Resistance at 95.90 (100 DMA, 50% fibo retracement of 2016 high to low), 96.60 (200 DMA). Week remaining brings ADP (May); ISM NY (May); 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.

      EURUSD – ECB Meeting in focus. We expect ECB to keep monetary policy stance unchanged at its upcoming meeting today  – keeping rates unchanged as at last adjustment in Mar and keeping all parameters of the QE unchanged. We expect the press conference to be cantered on the effectiveness of recent easing measures, in particular the new corporate sector purchase programme (CSSP) and how intra-euro area government bond spreads may have narrowed. EUR rose amid USD weakness while European equities fell. Pair was last seen at 1.1190 levels this morning. Bearish momentum on daily chart is waning and daily stochastics is rising from oversold conditions. Support remains at 1.1090 (200 DMA) before 1.1070 (50% fibo retracement of 2016-low to high). Resistance at 1.1220 (50% fibo), 1.1310 (50 DMA). Week remaining brings ECB meeting; PPI (Apr) on Thu; EC retail sales (Apr); Services/Composite PMI (Apr) on Fri.

      GBPUSD – Brace for Swings. GBP fell for the 2^nd consecutive session amid swings in opinion polls favouring Brexit. We reiterate that GBP is expected to be caught up in 2-way directional swings in the lead-up to referendum day on 23 Jun. 1m vols have also hit  7-month of above 20 vols. The last time we came close to that was during the GFC. GBP was last at 1.4420 levels. Daily momentum and stochastics are indicating a mild bearish bias. Next support at 1.44 (50 DMA), 1.4330 (100 DMA). Resistance at 1.4520 921 DMA). Week remaining brings Construction PMI (May) on Thu; Services/Composite PMI (May) on Fri. We also like to express GBP bearish bias against EUR longs.

      USDJPY – Waning Bullish Momentum. USDJPY is struggling again this morning as the dollar remained soft. As well, the pair was weighed by some market disappointment that PM Abe did not announce a supplementary budget at the same time as his announcement about the sales tax hike delay which led to a sell-off in equities. This delay should be positive for the USDJPY as it should spur consumer confidence, boost consumption and lift equities. The Nikkei futures are lower again this morning, suggesting that downside pressure on the pair could continue. USDJPY was last seen below the 110 levels at 109.40. Daily momentum now shows waning bullish bias while stochastics is falling from overbought conditions. Pair is now back within the trench channel. Further dips could see pair find support around 105.60 (year’s low). Rebounds should meet resistance around 109.80 (upper bound of the trench); 111.70 (38.2% Fibo retracement of the Jan-Mar downswing); 112.30 (100DMA). We have BOJ Sato speaking today and Apr cash earnings, May Nikkei PMI Services on Fri.

      NZDUSD – Sell on Rally. Kiwi rose amid the jump in GDT auction prices overnight.  GDT prices rose for a second back to back auction (+3.4%). NZD was last seen at 0.6820 levels. Daily momentum has turned bullish while stochastics is rising from oversold conditions – an indication of bullish bias. Resistance at 0.6840 (50 DMA). That said the bias remains to sell on rally. Support at 0.6730 (100 DMA), 0.6660 (200 DMA). Week remaining brings 10-month Government Financial Statement; ANZ Commodity Price (May) on Fri.

      AUDUSD – Death Cross. AUDUSD tested above the 200-DMA at one point, after the upside GDP surprise. The pair is back around the 200-DMA, last printed 0.7256. Still, there could be more upside. Bullish divergence is panning out now, notwithstanding the USD strength. Support is seen at recent low of 0.7145. The 200-DMA should continue to be retested on the way up towards the next barrier at 0.7340 (100DMA). We prefer to sell on rally for this pair as the 21-DMA is poised to cut the 200-DMA. Growth picked pace more than expected to 1.1%q/q from previous 0.7. Year-on-year, growth accelerated slightly to 3.1% from previous 2.9%, mainly underpinned by more positive net exports of goods and services. Household consumption grew just 0.7%q/q while that of government grew 0.6%y/y, underscoring the weak domestic demand. The latest print underscores the risk of another rate cut should AUD strength overextends itself and undermine currency-sensitive sectors like tourism, education and exports of business services. Week ahead has Trade (Apr) on Thu; Retail Sales (Apr) on Fri.

      USDCAD – Mini-Bearish Divergence. This pair did not move much, last seen around 1.3070. Overbought conditions are flagged by the stochastics and suggest that bias could be to the downside in the near-term. In additions, we see mini bearish divergence for this pair, adding to the risks to the downside. Resistance at 1.3312 (100-DMA). Support is seen at 1.2913 (50-DMA) before year low of 1.2460. Growth contracted more than expected by -0.2%m/m in Mar.

Asia ex Japan Currencies

      The SGD NEER trades 0.26% below the implied mid-point of 1.3801. We estimate the top end is at 1.3526 and the floor at 1.4076.

      USDSGD – Range Within 1.3650-1.3850.  USDSGD is little changed this morning, hovering just a tad below the 1.3770 levels.  USD softness as well as JPY strength should weigh on the pair this morning. Pair was last seen around 1.3765. Daily momentum is now showing very mild bearish bias and stochastics continue to fall from overbought levels. Expect the pair to trade range-bound within 1.3650-1.3850 intraday. The 100DMA resistance at 1.3805 continues to cap upside with a break here exposing the next barrier at 1.39-handle (50% Fibo retracement of the Jan-Apr downswing). Support nearby is at 1.3742; 1.3650 (38.2% Fibo). May PMI is on tap today and May Nikkei PMI on Fri.

      AUDSGD – Short-term Upside risks. AUDSGD was last seen around 0.9970 with momentum indicators turning higher. Similar to AUDUSD, daily MACD is near to zero and stochastics show tentative signs of climbing higher from oversold levels. Rebounds to meet first barrier around 1.0005 (21-DMA) before the next at 1.0150 (100-DMA). However, we still prefer to sell on rallies as the 21-DMA has cut the 50,100,200-DMA, keeping a lid on topsides. Support is seen at 0.9830.

       SGDMYR – Upside Pressure Continues. SGDMYR rose amid renewed weakness in MYR. Move remains well within the upward slopping trend channel (formed since mid-Apr 2016). Cross was last seen at 3.0160 levels. 21 DMA cuts 100 DMA to the upside. Bullish momentum on daily chart remains intact while stochastics is near overbought conditions. Resistance remains at 3.0230 (61.8% fibo retracement of 2016 high to low). Support at 2.99 (50% fibo), 2.98 (lower bound of the trend channel, 2.9570 (38.2% fibo, 100 DMA, lower bound of uptrend channel).

       USDMYR – Interim Upside Pressure but We Suggest Selling on Rally Soon. Ringgit remains modestly weak driven by investor sentiment. Pair was last seen at 4.1520 levels, well within the trend channel formed since Apr 2016. Bullish momentum on daily chart remains intact while stochastics is near overbought conditions. 21 DMA looks on track to cut 100 DMA to the upside in 1-2 days and could suggest interim upside pressure. But a rising wedge appears to be in the making – and is typically a bearish reversal. We look for opportunities on this run-up to fade into. Resistance remains at 4.1880 (200 DMA). Support at 4.14 (50% fibo retracement of 2016 high to low), 4.0720 (38.2% fibo), 3.9850 (23.6% fibo).

      1s USDKRW NDF – Range. 1s USDKRW was slightly softer this morning due to lower than expected USDCNY fixing which saw USD/AXJ modestly lower (could be knee jerk reaction). Pair was last at 1190 levels. Daily momentum remains bullish bias. Stochastics is nearing overbought conditions. Resistance at 1200 (61.8% fibo retracement of 2016 high to low). Support at 1185 (50% fibo), 1177 (200 DMA). Still expect 1185 – 1195 range intra-day. Data released this morning – 1Q GDP was better than expected (2.8% y/y vs. 2.7% Expected).  Week remaining brings May FX reserves (Fri).

      USDCNH – Upside Bias. USDCNH remained elevated around 6.5840-level, still within the 6.55-6.60 range. This pair is stubbornly elevated despite the downside surprise in the USDCNY fixing. Expect any correction to 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 201 pips lower at 6.5688 (vs. previous 6.5889). CNYMYR was fixed 62 pips higher at 0.6296 (vs. previous 0.6234). China’s Caixin PMI-mfg for May met expectations at 49.2, a drop from Apr’s 49.4. According to the report, output and new orders extended declines. Caixin PMI-services is due on Fri.

      SGDCNY – Upside Risks. This cross closed at 4.7774, little moved on Wed. This cross could head further north, beyond the 50-DMA at 4.7801. Next barrier is seen at 4.8101.  Stochastics indicate oversold conditions 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 – Trend is Up.  A local press reported that RBI Governor does not want to a second term. USDINR rallied to highs of 67.40. Whispers of RBI intervention in the forex markets could not surppress the sell off for long as USDINR crept back towards the 67.4538 by close. The bond markets saw renewed selling pressure on 31 May as foreign investors sold USD37.4mn of debt. SENSEX flat-lined on Wed (1 Jun). 1M NDF hovered around 67.80 as we write this morning, holding steady as dollar traded on the backfoot. Stochastics indicate overbought conditions. However, any retracements could be shallow as next support is seen at 67.175 ahead of the next at 66.94.  Barrier is seen at 68.36 (23.6% Fibonacci retracement of the Oct – Feb sell off).

      USDIDR – Capped. USDIDR is bouncing higher this morning despite the softer dollar overnight and the lower-than-expected USDCNY fixing. Softer headline inflation print yesterday (see below) is adding to speculation that the central bank could cut its policy rate as soon as its next meeting on 16 Jun. Pair was last seen around 13670 levels. Daily momentum continues to show waning bullish bias and stochastics remains at overbought levels. This suggests that further upside moves could be capped. Pair has taken out the 200DMA resistance at 13660, which has capped upside so far, but we await a close on a weekly basis to confirm bullish extension towards 13760 (76.4% Fibo retracement of the Jan-Mar downswing). Support is at 13615 (61.8% Fibo). The JISDOR was again fixed higher at 13671 yesterday from 13615 on Tue. Positive risk sentiments saw foreign investors purchased USD2.48mn in equities yesterday. They also added IDR2.73tn to their outstanding holding of government debt on 31 May (latest data available). Headline inflation rose 3.33% y/y in May (Apr: 3.6%), coming in in-line with our economic team’s and consensus expectations of 3.28% and 3.30% respectively. Driving consumer prices lower were food prices (May: 7.75% y/y vs. Apr: 8.92%) and housing cost (May: 1.26% vs. Apr: 1.45%), while transport cost held steady at -1.5%. Core inflation rose 3.41% in May, the same pace as in Apr and within market’s expectations.

      USDPHP – Turning Bearish Again.   USDPHP gapped lower at the opening to 46.560 this morning as it track its regional peers broadly lower. The lower-than-expected USDCNY fixing this morning is also adding downside pressure to the pair. Pair was last seen around 46.560 levels. Daily chart is showing mild bearish bias and stochastics is turning lower. Pair is now testing the 50DMA support at 46.540 and a break here on a weekly close could expose the next support at 46.410 (23.6% Fibo retracement of the Jan-Mar downswing). Resistance is at 46.730 (38.2% Fibo). Risks sentiments remained positive with foreign funds buying USD10.0mn in equities yesterday.

      USDTHB –  No Strong Momentum.  USDTHB is slipping lower this morning amid a softer dollar overnight and a lower than-expected USDCNY fixing. Pair was last seen around 35.670. Daily momentum is showing no strong bias and stochastics is tentatively falling from overbought levels.  Range-bound trade within a wide range of 35.540-35.800 is at 35.570 (50% Fibo retracement of Jan-Mar downswing). Resistance is at 35.770 (61.8% Fibo). Dips continue to be opportunities to buy. Risks sentiments turned for the worst yesterday with foreign funds selling THB0.43bn and THB2.29bn in equities and government debt. Tomorrow has 27 May foreign reserves. Headline inflation stayed positive for the second straight month, rising by 0.46% y/y in May, a faster pace than Apr’s 0.07%. The fast pick-up in consumer prices was due to due higher food prices because of the drought, though lower energy prices and transportation cost mitigated some of this overall price increases. Our economic team continues to expect inflation to pick-up ahead on the low base effect, improving domestic demand, the impact of drought on raw food prices, and the THB weakness. In the news, the BoT governor commented in a speech that the economy is only recovering gradually through government spending and a boost from tourism, though external demand remains week. He was confident that the government infrastructure spending would be felt in 2H 2016. The BoT expects GDP growth to come in at 3.1% this year.

Rates

Malaysia

      Local government bond received strong buying interest in the new 5y benchmark MGS 11/21s throughout the day despite MYR weakening against the USD. Good volumes went through on the MGS 11/21 on the back of foreign name buying. The belly of the curve ended 3-4bps lower while longer end from 10y point onward was unchanged.

      IRS market was quiet. Paying interest receded as strong foreign buying flows were seen at the new 5y MGS benchmark. 5y IRS traded at 3.76%. Onshore IRS curve was overall quoted lower. 3M KLIBOR remained unchanged at 3.67%.

      PDS market was quiet. In AAA, Danga 26 widened 3 bps to 4.48% (G+57.4/Z+32.7 bps) while Telekom 24s got given to the bid at 4.41%. (G+54.5/Z+34.4 bps). Front end AAA was unchanged. GGs saw some trades done at the long end and belly but levels were unchanged but bids were a tad wider. AA curve was largely quiet today and most names traded in a range. Kesturi at the belly was trading in a range of +2 to -2 bps.

Singapore

      SGS market started the day under-performing the UST and SGD IRS market, with bond yields opening 1bp lower and traded higher to +0.5bp despite the SGD IRS market opening at 3bps lower from previous close. Subsequently SGD IRS from 5 to 20 years were paid up higher but SGS started to see buying interest as short covering and rebalancing saw strong bids in the SGS. At close the SGS curve shifted 2-5bps lower. The market seems to be underinvested and looks likely to stay biddish for the moment at the back of still reasonable funding costs.

      In Asian credit, Starhub’s SGD 10y opened muted but followed with steady buying throughout the day and closed at 65 cts premium/9bps gain. Overall SGD markets seemed insulated from the higher IRS and the SGS received strong buying across the board. In USD markets, spreads opened wider by 1-2 bp before some lifts bringing it to almost unchanged. Indian credit suffered from negative watch as well as news that RBI’s Governor Rajan will not be seeking a second term. Rajan was believed to be the real architect behind the country’s stability and growth over the last few years. CDS markets were marked a touch higher in the high beta countries but street reported no real volumes nor interest.

Indonesia

      Indonesia bond market closed higher supported by a year on year disinflationary. Indonesia statistics release May inflation which came in at 0.24% MoM or 3.33% YoY while core inflation came in at 3.41% YoY. This release was actually predicted by us during our weekly report release. The released number caused bond yield to move lower during the day. However, we remain to see a potential of IGS yield to incline ahead of U.S. labour data release. S&P rating agency affirms Indonesia BB+ rating with positive outlook. This rating was released post market close. We do see that today, IGS prices may move lower. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 7.494%, 7.808%, 8.018% and 8.009% while 2y yield shifts up to 7.238%. Trading volume at secondary market was seen thin at government segments amounting Rp5,889 bn with FR0056 as the most tradable bond. FR0056 total trading volume amounting Rp990 bn with 36x transaction frequency and closed at 103.937 yielding 7.808%.

      Corporate bond trading traded thin amounting Rp487 bn. ADMF03BCN3 (Shelf registration III Adira Finance Phase III Year 2016; B serial bond; Rating: idAAA) was the top actively traded corporate bond with total trading volume amounted Rp90 bn yielding 8.605%.