Friday, January 29, 2016

Maybank GM Daily - 29 Jan 2016

*      Oil led the way again on comments from Russian Energy Minister of potential discussions by OPEC and other producers to lower supply. The OPEC delegates later denied any meeting planned but crude prices remained a tad higher, last seen around USD33/bbl. US equities were also led higher. Benchmark indices spent the first half of the session
*      Weaker data affected the dollar more than equities. DXY slipped to 98.50 by Thu close. That benefitted the rest of the majors, aided also by better risk appetite. GBP touched a high of 1.44 before easing off into Asia morning. Antipodes were higher as well with AUD and NZD last seen at 0.7080 and 0.6480 as we write. EUR bounced to highs of 1.0960 before easing off. USDJPY hovered around 118.90 as we write, unwilling to commit ahead of the BOJ meeting.
*      Looking ahead, Asian equities could be cautiously optimistic, underpinned by recent rally in the oil prices. Eyes are on US GDP and PCE number. Recent speculations on possible actions from BOJ may lay the pressure on the central bank to act. We anticipate promises but not deliveries today. That should keep USDJPY supported on dips. The currency that benefits the most is MYR, up 0.9% against the USD.

G7 Currencies
*      DXY – Rising Wedge Formation Playing Out. USD was broadly softer overnight amid disappointing durables goods report and pending home sales data. DXY was last seen at 98.51 levels. We had  earlier cautioned that a rising wedge formation is possibly in the making, and this is typically a bearish reversal. Daily momentum and stochastics are indicating a mild bearish bias. Support at 98.85 (50 DMA, 50% fibo retracement of Dec high to low) has now been broken; next support at 98.50 levels (38.2% fibo) before 98 levels (23.6% fibo). Week remaining brings GDP Annualized QoQ (4Q A), Core PCE (4Q A), U. of Mich. Sentiment on Fri.
*      EURUSD – Breaking Higher? EUR grinded higher amid broad weakness in the USD. Pair was last seen around 1.0930 levels this morning. On technicals, we continue to reiterate there is a triangle formation – horizontal trading pattern. Directional bias is gradually shifting to mild upside bias as indicated by daily momentum. Interim resistance at 1.0970 levels (100 DMA), before 1.1060 (200 DMA). Near term support at 1.0850 (50 DMA). Day ahead brings EC Jan CPI estimate (Fri).
*      GBPUSD – Watch the Break of 1.4350. GBP recovered back above 1.43-handle levels as 4Q GDP met expectations. We reiterate that daily momentum has turned bullish bias; weekly stochastics is also showing early signs of turning around from oversold levels. Pair was last seen at 1.4360. Resistance is at 1.4350/60 levels (23.6% fibo and downward sloping trend-line resistance from Dec to Jan) before 1.4520 (38.2% fibo). Break above 1.4350/60 could see weak GBP-shorts (positions) getting flushed further. Support remains at 1.4080 (Jan lows).
*      USDJPYAwaiting BOJ. USDJPY is climbing higher towards the 119-levels at 118.88 this morning on increasing speculation that the BOJ will move at its meeting later today on the back of a larger-than-expected dip of 1.4% m/m (cons.: -0.3%) in Dec industrial production retracing mildly this morning, core inflation still hovering flat at 0.1% y/y and household spending fell 4.4% y/y in Dec. However a BOJ move is not our base scenario, nor is it consensus view. We do not think that the BOJ will act at this point but is expected to do so in the near future. Presser by BOJ Kuroda following the announcement will be closely watched for directional clues. We expect the uncertainties of the BOJ’s next move to keep the USDJPY in range. Daily charts are still showing bullish momentum, though weekly technicals continue to exhibit bearish conditions. Should BOJ disappoint and hold steady, we could see a retracement back towards support at around 117.77 (23.6% Fibo retracement of the Dec-Jan sell-off). In the off-chance that BOJ adds to its easing measures, a knee-jerk jump in the pair is likely with the topside capped by 119.77 (50% Fibo), though pair could settle back around 118.88 as market has priced additional easing.
*      NZDUSD – Short Squeeze. NZD was supported, tracking other risk proxies. But up move pales in comparison to AUD as RBNZ explicit easing bias kept Kiwi bears alive. On technicals, daily momentum and stochastics are turning mild bullish bias which could suggest some short squeeze, possibly towards 0.6550 (38.2% fibo retracement of Dec high to Jan low), 0.66 levels (100 DMA). We remain better sellers on rally.  Support at 0.6430 levels (lows in Nov and Jan) before 0.6350 (Jan low).
*      AUDUSD Upside Bias. AUD touched a high of0.7129 before easing back to levels around 0.7080 as we write. Bullish momentum is increasing and the 50-DMA beckons around 0.7150 ahead of the next at 0.7210. Support is seen around 0.7020. 4Q PPI slowed to 0.3%q/q from previous 0.9%. Year-on-year, PPI quickened to 1.9% from previous 1.7%. Private sector credit accelerated to 0.5%m/m in Dec from previous 0.4%.
*      USDCAD – Heavy. USDCAD touched a low of 1.3948 before rebounding to levels around 1.4000, dragged by usual suspects – crude. Support is seen at 1.3878 (50-DMA), ahead of the next at 1.3800. Resistance at 1.4141 (61.8% Fibonacci retracement of Dec-Jan rebound) should deter aggressive bids. MACD still flags increasingly bearish conditions for this pair. Key data due this week is Nov GDP tonight. Consensus expects growth to pick pace to 0.3%m/m from a flat growth in the month prior.

     Asia ex Japan Currencies
*      The SGD NEER trades 1.69% below the implied mid-point of 1.4028. The top end is estimated at 1.3743 and the floor at 1.4313.
*      USDSGD – Limited Downside.  USDSGD briefly climbed to an intraday high of 1.4286 before sliding lower towards the 1.4260-levels currently on the back of dollar softness. Further downside could be limit given that BOJ meeting and US GDP are just round the corner. Pair was last seen around 1.4267 with daily MACD and stochastics still exhibiting bearish bias. With risks still to the downside, further downmoves are likely to find support nearby around the new weekly low of 1.4234 before the next at 1.4183 (50DMA). Barrier is still at 1.4324-support turned resistance ahead of the next at 1.4368 (Oct 2015 high).
*      AUDSGD – Firm. AUD/SGD touched a high of 1.0148 before retracing towards 1.0100 as we write in early Asia morning. This cross was lifted by AUD strength and positive risk sentiments. MACD forest continues to rise. Barrier at 1.0150 (50-DMA) had deterred bids. Next resistance is seen at 1.0188 (200-DMA). Support is seen around 1.0040.
SGDMYR – Where Next? SGDMYR fell to lows of 2.90-handle (levels not seen since last Aug). Move came amid MYR outperformance. This is in line with our call to stay short in the cross, looking for objective around 2.92 levels (200 DMA). Where then is the next level? We think the cross is still biased for further downside – weekly and daily technicals remained aligned for further downside. Next support at 2.90 levels (61.8% fibo retracement of the run up from Aug low to Dec high) before 2.85 levels (76.4% fibo). Short-term profit-take could see a pullback towards 2.95 levels (50% fibo). We maintain our call for further downside.
*      USDMYR – More Downside to Come. USDMYR traded with a heavy bias amid a combination of positive drivers including, gradually dissipating domestic issues, a positive recalibrated budget (maintaining fiscal deficit at 3.1% of GDP), relative stability in oil prices (which are helping to support sentiment), and to some extent, less impetus for Fed to tighten.  Weekly, daily momentum and stochastics are bearish bias. Near term support at 4.20 has given way and has now turned resistance, before 4.22 (38.2% fibo). Next support at 4.1420 (61.8% fibo retracement of the run-up from Jul low to Sep high) before 4.0650 (200 DMA, 61.8% fibo).
*      1s USDKRW NDF – Tactical Sell on Rallies. 1s USDKRW closed largely unchanged overnight. Data released this morning was mixed - Both Business survey mfg and non-mfg were a touch weaker than previous month; while IP was better than expected. Pair was last seen around 1209 levels. 4-hourly momentum remains biased for some upside. Day ahead could see range of 1206 – 1215. We remain cautious if the pair is overdone to the upside. Still suggesting a tactical sell on rallies towards 1215 levels with a tight stop-loss at 1225, targeting objective at 1185.
*      USDCNH – Capped. USDCNH was little moved overnight and softer dollar tones are likely to keep USDCNH capped. Resistance is seen at 6.6215. Last seen around 6.6161, this pair has been showing little momentum. 6Pair seems to be settling into 6.60-6.62 range for now. Gap with USDCNY has widened to 400 pips at last sight. USD/CNY was fixed 12 pips lower at 6.5516 (vs. previous 6.5528). CNY/MYR was fixed 103 pips lower at 0.6346 (vs. previous 0.6449). The RMB index based on the basket of currencies was last at 100.84 as of 22 Jan, according to CFETS. PBOC Zhengzhou training school Professor urged the central bank has to “pay attention to yuan stability when managing liquidity”. In other news, China plans to spend USD2.3trn on renewable energy over the next 5 years.
*      SGDCNY – Sideways. SGDCNY tested the resistance at 4.6192 at one point before tapering off to close at 4.6090. Action is still trapped within the 4.5590-4.6200 range. Support is seen at 4.5827 ahead of the 200-DMA at 4.5655. Momentum is mildly bullish and we see upside risks. Eye the 4.6192 that has been a strong barrier for this cross since last July. A break there opens the way towards the next at 4.6700.
*      1s USDINR NDF – Correction Ahead. This pair edged lower this morning, last seen around 68.40.  Support is seen around the 68-figure. Expect this pair to remain within 67.60-68.60 today but risks are tilting lower as we note bearish divergence in this pair. Pullbacks could bring this pair towards the 67.6565 (38.2% Fibonacci retracement of the Jan rally) and then towards 67-figure. We see bearish divergence on the spot prices on the daily, weekly and monthly chart. Correction could thus be sharp. Foreign investors sold USD25.0mn of equities and bought USD6.5mn of debt on 27 Jan.  At home, Finance Minister Jaitley has awarded 6800km of road project tenders in the hope that these projects can boost the steel, cement and auto sectors.
*      USDIDR – Mild Downside. USDIDR is on the downswing this morning, helped by the softer dollar tone overnight. Pair is currently seen around 13827 with daily technicals mildly bearish bias, suggesting downside pressures on the pair in the near term. Still, with BOJ policy decision and US GDP just round the corner, market cautiousness may reign and limit downside moves intraday. Support is now seen around 13782 (year’s low so far). Immediate barrier is seen around 13853 (50DMA) ahead of the next around 13895 (100DMA). The JISDOR was fixed higher at 13889 yesterday from 13871 on Wed. Risk appetite again improved with foreign funds buying a net USD0.63mn of equities yesterday. They however removed a net IDR0.35tn from their outstanding holding of government debt on 27 Jan (latest data available). In the news, it was reported that BI and Financial Services Authority (OJK) are meeting President Jokowi to discuss interest rates and banking liquidity. Moody’s affirmed Indonesia’s sovereign rating of Baa3 with a stable outlook yesterday, underpinned by its strong balance sheet against the current backdrop of widening fiscal deficits; and the effective management of risks (from lower commodity prices and weaker growth) to  ensure sustainability of its external payments position.
*      USDPHP – Bearish Bias.  USDPHP gapped lower at the opening this morning to 47.675, playing catch-up with its regional peers. Last seen around 47.720, pair has lost most of its bullish momentum and stochastics is falling from overbought levels. However, market cautiousness ahead BOJ meeting and US GDP later today could limit downsides. Further slippages ahead should find support nearby around 47.548 (21DMA). Resistance is at 47.840. Risk appetite continued to improve with foreign funds buying a net USD16.35mn in equities yesterday. GDP rose at its fastest pace of 6.3% y/y in 4Q15 (3Q: 6.1%; cons.: 5.9%) on the back of strong private consumption and investment spending (up 6.4% and 13.5% y/y respectively). For the full-year, the economy expanded by 5.8% lower than 2014’s 6.1%, dragged lower by weak external demand. Our economic team maintains its GDP growth forecast of 7% for 2016 underpinned by election-related spending, front-loading of government projects and continuing improvement in external demand.
*      USDTHB – Whippy. USDTHB is whippy this morning, pulled in one direction by a softer dollar tone and the other by rising oil prices. Moreover, there is also some market cautiousness ahead of the BOJ policy decision and US GDP later today. Pair is currently oscillating within 35.780-35.860 with daily and weekly technicals. Though risks are to the downside in the near term, pair is still trapped within an ichimoku cloud, suggesting moves within range in the near term are likely. Support remains around 35.718 (38.2% Fibo retracement of the Oct high to low). Immediate resistance is still around 35.900 (50% Fibo) ahead of the next at 35.974 (top of the cloud). Investor sentiments were mixed with foreign funds selling a net THB3.91mn of equities and buying a net THB10.41bn of government debt yesterday. We have Dec mfg production; Dec BoP current account balance; Dec trade; and 22 Jan foreign reserves on tap later this afternoon.

*      The 20y MGII 10/35 re-tap auction saw a healthy bid/cover of 1.915x with yield averaging 4.647%. In secondary, trading centered on the belly of the MGS curve, with custodian banks seen buying on dips. 7y MGS benchmark ended –3bps to 3.64%. MGII space was active at the front-end as 3y MGII 5/18 closed -3bps with MYR822m done.
*      IRS levels marginally up by 1-2bps, with the 2y IRS being dealt at 3.65% and 3.66%. Market is still pricing in one rate cut. 3M KLIBOR unchanged at 3.79%.
*      PDS market turned better bid as yields shifted lower, with volume increasing significantly to MYR923m. The AAA space tightened 2-5bps at the belly, with the most active ones being Telekom, KLCC, Rantau and Aman. The GG space was relatively muted, with Prasarana’22 trading at 4.27% and JCORP’22 at 4.29%. G-spreads in the AAA space range 65-80bps, while z-spreads range 33-45bps. Relative to this, the GG space looks attractive, despite the rally, given G-spreads of 60-69bps and z-spreads of 28-34bps.

*      SGS saw strong demand at the belly, with the new 5y benchmark well supported. However, long-dated bonds were better offered and yields rose 3-4bps after the 10y point. Selling was also seen on short-dated bonds after the 6m MAS bill auction cut-off at 1.2% with the 2y ending +4bps. SGD IRS was aggressively paid up with the curve bear steepening; 10y +5bps and 2y +1bp. Swap spreads widened sharply at the belly.
*      Asian credit space firmer with oil prices back up to around USD32-33/bbl at the close. O&G names rallied 5-8bps, and so did Chinese property names. DALWAN’24 eased 35-40bps to trade below the 500 handle again. NOBLSP was up about 1.5pts on news of bond buybacks. Liquidity, however, remains thin. INDON sovereigns continued to be strong, higher by 0.5-1pt across the curve. In CNH space, buyers emerged at the short-end as CNH funding rates have somewhat stabilized, but sellers still dominated the space.

*      Indonesia bond market continues booking gain as statement post FOMC meeting was rather dovish. During the day, there were meeting between central bank and government to discuss on rates. Thus, this became a positive sentiment as bond investor may be assuming that there might an easing of Indonesia monetary policy in the future. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 8.237%, 8.372%, 8.721% and 8.715% while 2y yield shifts up to 8.145%. Trading volume at secondary market was seen thin at government segments amounting Rp10,026 bn with FR0071 as the most tradable bond. FR0071 total trading volume amounting Rp1,324 bn with 54x transaction frequency and closed at 101.586 yielding 8.792%.
*      Corporate bond trading traded thin amounting Rp593 bn. BMRI01 (Subordinated Bank Mandiri I Year 2009; Rating: idAA+) was the top actively traded corporate bond with total trading volume amounted Rp100 bn yielding 8.878%.

CIMB Fixed Income Updates 29 Jan 2016 - Budget recalibrated/Maintaining supply outlook

Malaysia’s Budget 2016 recalibrated
  • The Prime Minister yesterday presented a revised fiscal budget for 2016 as it faced challenges of weak global growth, pressure on the Ringgit, and slump in crude oil prices. The major feature of the revised budget encompassing impact on revenue is assumption of crude oil price (Brent) at $30-35 per barrel. However, the 2016 GDP growth projection is brought down to a range of 4.0-4.5% from 4-5% previously. The PM said the government will keep up with fiscal consolidation measures for 2016, which is to hit its 3.1% of GDP fiscal deficit target, adding that country's debt will be reduced and will not exceed 55% of the GDP. The government will also maintain the 6% GST rate.
  • We view the recent budget recalibration positively as it tries to balance the need to tighten spending and still be able to act counter-cyclically to prevent a sharper economic slowdown. The government realistically assumes a bigger shortfall to incorporate the need for relief measures for rakyat to support growth and did not again, for second consecutive year, attempt to cut back devex as significantly as it always did in the past whenever faced with an unexpected revenue shortfall or increase in spending. The pro-growth measures support our economist’s GDP growth projection of 4.6% this year.
  • We view the recalibrated Budget having little impact on Ringgit bond market trading sentiment. Based on numbers presented at the initial 2016 Budget presentation back in Oct last year, the 3.1% deficit was equivalent to an overall deficit (revenue minus expenditure) of RM38.8 billion. After the recalibrated budget announcement, the deficit target is maintained at 3.1% though the difference is the 2016 GDP target range has been cut to 4.0-4.5%. We maintain our current estimated gross domestic government bond offerings of RM87.0-87.5 billion in 2016, assuming little change in estimated fiscal financing of up to RM38.8 billion and refinancing of RM48.1 billion of maturing MGS and GIIs this year.

Fixed Income Daily Pulse, 28 Jan 2016

Today’s trade recap by our trading desk:-

·         The FED kept rates unchanged as expected and its statement was slightly dovish, pushing rate hike expectations towards next quarter. The govvies market opened with a bullish tilt, especially on the GII space, with buying concentrated on the 7-10 yr bonds. There was also the 20Y GII reopening with RM2bio issued today at a BTC of 1.915x; Hi 4.678; Lo 4.625; Avg 4.647. The BTC was well within expectation, seeing strong interest from real money accounts in this bond as its yield is still attractive at current levels. PM Najib also announced a budget revision today to optimize the country’s expenditure in the face of a slower economic growth. The revised budget will enable the government to save RM9bil and maintain a fiscal deficit target at 3.1% of GDP. Post announcement, MYR strengthen towards the 4.20 level. Bond yields remained largely unchanged for the day as the market has somewhat priced in this budget revision already.  

Malaysia Government Bonds Benchmark Issues
Closing Level (%)
Change (bp)
Volume (RM m)
Source: BondStream, AmBank

Interest Rate Swap Closing Rates
Closing Yield (%)
Change (bp)
Source: Bloomberg, AmBank

Local News:
·         None.
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