Maybank GM Daily - 19 Jan 2016

FX

Global

      With US markets away for Martin Luther King Day, there was little action overnight. Oil remained soft under the USD30/bbl. EUR and JPY were stuck in narrow ranges. Risk appetite did not improve. AUD, NZD, GBP declined in European session before edging higher in early Asia this morning, awaiting China’s growth number for the last quarter.

      Earlier in Asia, the announcement of the reserve requirement on offshore participant banks’ deposit in onshore financial institutions triggered bids for CNH. USDHKD touched 7.80, the first time since Sep 2011 and remains on the upmove, spurred also by bets that the currency board will end. HKMA Chief Executive Norman Chan had assured last month that the peg had been the cornerstone of financial and monetary stability in the city and there were no plans to amend it. This had been their stance in all the years that the stronger bound of the peg at 7.75 were tested and we believe that this will be their stance should the weaker bound of trading band at 7.85 be tested.

      China’s 4Q GDP will be released soon along with the activity numbers (IP, FAI, retail sales) for Dec. Consensus expects a rather decent number at 6.8-6.9% for China growth last quarter. Philippines’ exports for Nov will also be released. Beyond Asia, Germany has its ZEW survey and Dec CPI. Europe also releases its current account for Nov. In the US, NAHB housing market index is due.

Currencies

G7 Currencies

      DXY – In Want of Cues. The dollar index was little moved yesterday, still seen at 98.96 as markets were off for MLK day. Momentum is still lacking for the DXY and US starts the week tonight with a rather data-light session. We watch Dec CPI due tomorrow. Consensus expects price pressure to be flat last month. Beyond the near-term, we hold our view of an ascending wedge formation that started since Dec. It is still early days yet for the reversal but a double top formation on the weekly chart, coupled with a bearish divergence suggests that risks are to the downside. Support is seen at 97.9640 (38.2% Fibonacci retracement of the (Oct-Nov rally), before the next at 97.1775 (50% fib). The latter could be a particularly strong support level as it is also marked by the lower bound of the daily ichimoku chart as well as the 100-DMA. Week ahead starts from Tue which has NAHB Housing Market Index; Wed has Housing Starts (Dec), Building Permits (Dec), CPI (Dec); Thu has Philadelphia Fed Business Outlook.  Existing Home Sales (Dec); Leading index (Dec) wraps up the week on Fri.

      EURUSD – Neutral. EUR edged lower to levels around 1.0885 as we write this morning. Cautious risk sentiments could keep the pair supported on dips. We hold our view that benign inflation and risks of ECB doing further easing should keep the EUR heading lower. However, weak risk appetite slows its downward pace (inverse correlation between EUR and risk assets). This week, ECB meets but we think the current level of EUR does not require much jawboning from the central bank. In addition, a government council member said that discussions of further ECB action will only start in Mar. On the charts, momentum indicators are still flat, underscoring a rather neutral position for the EUR. There is no real trend at the moment though recent terror attacks, oil slump and jittery equities could render support for the currency. Resistance at 1.1010 (50% fibo retracement of Oct high to Dec low) still holds, also marked by the upper bound of the daily ichimoku cloud. Support is seen at 1.0750 (23.6% fib). Week ahead brings GE CPI (Dec F); EC Current Account (Nov); GE ZEW (Jan) on Tue; Thu has EC CPI (Dec F); ECB Meeting; Fri has FR, GE, EC PMI Mfg (JanP)

      GBPUSD – Bearish. GBPUSD did not move much overnight though the pair retained a heavy tone, last seen around 1.4260. Brexit kept the lid on the pair amid recent poll by a local press revealed a surge for the “out” vote in poll after the Paris and Syria terror crisis. Last seen at 1.4260, support is seen next at 1.4230 ahead of the next at 1.4090. Rebounds to meet barrier at 1.4350 ahead of the next at 1.4566. Week ahead brings CPI, RPI, PPI (Dec) on Tue; Wed has ILO Unemployment rate (Nov); Fri has Retail Sales (Dec).

      USDJPY – Two Way Trades. USDJPY climb higher continues as the more stable yuan as well as the firmer dollar tone. Also helping was the sell-off in the JPY against the other majors, including the EUR and AUD. Choppy week ahead is expected as risk appetite wax and wane over concern about global growth amid oil prices oscillations. Last seen around 117.43, daily technicals are now exhibiting waning bearish conditions, though weekly technicals remain bearish. Resistance is still seen around 118.85. New support is seen around 116.40 (38.2% Fibo retracement of the Jul 2014 lows to 2015 highs). A clean break here is likely to see bearish extension towards 115.57 (16 Dec 2014 low). Remaining week has Dec F machine tool orders (Tue); Jan prelim. Nikkei PMI Mfg (Fri). In the news, BOJ Kuroda again expressed his commitment to adjust policy as needed even though the BOJ continues to see the economy recovering moderately and the CPI likely to remain flat because of falling oil prices. He also reiterated that the BOJ will continue to ease until 2% inflation stabilizes. The governor is due in Parliament this afternoon but we do not expect him to veer away from the current rhetorics.

      AUDUSD – Tilting higher. AUD rebounded from recent low of 0.6827 and was last seen around 0.6890. TD Securities inflation measure rose 0.2%m/m in Dec from previous 0.1%. Year-on-year, TD Securities rose 2.0%y/y quickening from the previous 1.8%. Conditions are still quite bearish in this pair though RSI is rising from oversold conditions. Barrier is seen at 0.6896 (Sep low) ahead of the next at 0.6050 (23.6% fib retracement of the Jan sell off) and then at 0.7018 (38.2%).Week ahead has Westpac Consumer Conf (Jan) on Wed; Consumer Inflation Expectation (Jan); HIA New Home Sales (Nov) on Thu. Eyes are also on China’s GDP on Tue.

      NZDUSD – Retracement. NZD also edged higher, but to a lesser extent compared to AUD and was last seen around 0.6450. The pair found support around 0.6420 (61.8% Fibonacci retracement of the Aug-Oct rally). Eyes are on China trade. Daily momentum is still strongly bearish.  Resistance remains at 0.6510 (50% fib) ahead of the next at 0.6580 (100-DMA). Support at 0.6420 remains intact ahead of next support level at 0.6310. Week ahead brings REINZ House Sales (Dec) (Due 19-20 Jan); CPI (4Q) on Wed; Business Manufacturing PMI (Dec) on Thu

      USDCAD – Bullish. USDCAD saw some retracement towards 1.4530 in the absence of US markets. Recent high of 1.4660 could form a barrier for further bids and the next resistance is seen at 1.4770 and then at 1.4814. MACD is still bullish. The trend is your friend. Week ahead has BOC meeting on Wed, unlikely to act. Retail sales for Nov and Dec CPI are due on Fri. At home, former BOC Governor urged Trudeau to increase stimulus spending to spur growth. 

     Asia ex Japan Currencies

      The SGD NEER trades 1.46% below the implied mid-point of 1.4166. We estimate the top end at 1.3878 and the floor at 1.4453.

      USDSGD – Risks Turning Lower.  USDSGD is back below the 1.44-figure, aided by possible expectations of a more stable Chinese economy in 4Q which lends credence to a more stable yuan. Pair is stuck within its current 1.274-1.4444 range at around 1.4376 currently with daily MACD exhibiting waning bullish momentum and stochastics showing tentative signs of falling from overbought conditions. This suggests the potential for further downmoves in the near term. We continue to expect some retracement towards the 1.4320-support and then perhaps 1.4240-50 (21DMA). Recent highs of 1.4444 should continue to cap topside. No other data of note for the week ahead.

      AUDSGD – Below Parity. AUDSGD retraced from recent lows in locksteps with AUD though a surge in SGD bids this morning limited bullish progress in this cross. Last seen at 0.9900. Bearish momentum is still strong though RSI is rising from oversold condition. There is still no trend in sight and we prefer to play within range. This cross should remain volatile at the softer end of this 0. 98-1.04 range for a while. Support at 0.9830 remains. Barrier is seen at 1.0030.

      SGDMYR – Edging Lower. SGDMYR is finding some relief this morning from the relative strength of the MYR as oil prices rebounded back above USD28/bbl as well as continued stability in the yuan. Cross is seen around 3.501 currently with daily technical showing little directional cues. Cross remains supported by the 100-DMA. We continue to await the next trigger for the cross to breakout of the current 3.0300-3.0800 range. We see a symmetrical triangle forming and should this play out, cross could reach a target of around 3.2250. Near term support is seen around 3.0464 (23.6 Fibo retracement of the Jul-Sep rally; 50 & 100DMAs) before the next at 3.0305 (2016 low so far). Any rebound should meet resistance around 2015 high of 3.1299.

      USDMYR – Range Trade. USDMYR is on the retreat below the 4.39-levels, underpinned by firmer global oil price back above USD28/bbl as well as continued yuan stability. Seen around 4.3855 currently, pair has lost of its bullish momentum and stochastic continues to retreat from overbought conditions as reflected in daily technical. This suggests risks are now turning to the downside in the near term and pair could see some retracement towards 4.3280 (61.8% Fibo retracement of the Oct sell-off). Recent high of 4.4415 should cap topside intraday. We expect range trades in the near term. With MYR still vulnerable, we do not expect BNM to move to support growth when it meets on Thu (21 Jan). Aside from BNM meeting, we have Dec CPI (Wed) and 15 Jan foreign reserves (Fri).

      1s USDKRW NDF – Downside Moves Within Range. Pair continues on its retreat after touching a new 5-year high of 1223 on Fri underpinned by a more stable yuan.  Daily MACD is showing waning bullish momentum and stochastics tentatively turning lower from overbought conditions. This suggests risks are turning lower and that further retracement towards the 1200-figure is possible. Rebounds should meet resistance around the multi-year high of 1223. There are no data of note this week.

      USDCNH – Drifting Lower. USDCNH edged higher from low of 6.5730 to levels around 6.5930 at last seen. Momentum is still bearish and we suspect this pair could remain in choppy trades within 6.5650-6.6300. Gap with USDCNY has widened again to 150pips at last sight. USDCNY was fixed 6 pips higher at 6.5596 (vs. previous 6.5590). CNYMYR was fixed 88 pips lower at 0.6753 (vs. previous 0.6740). Dec activity numbers will be released and consensus expects subdue numbers. Industrial production is expected to slow to 6.0%y/y from previous 6.2%. Retail sales are expected to quicken only a tad to 11.3%y/y from previous 11.2%. Urban FAI should remain steady at 10.2%y/y. What is watched more closely would be GDP for 4Q. Consensus expects the number to come in around 6.9%y/y, just under the 7.0% target for the year. At home, CSRC denied news of Xiao Gang’s resignation. PBOC conducted CNY55bn SLO operations late Dec.

      CNYSGD – Choppy. SGDCNY has not moved much since the start of the year, preferring to remain choppy within the 4.5590-4.6200 range.  The 200-DMA supports at 4.5655 and this level is eyed. A break here could bring the pair towards the 4.5220 (61.8% fib retracement of the Nov-Dec rally). Rebounds likely capped at 4.6190.

      1s USDINR NDF – Choppy. This pair softened to around 68.00, still underpinned by the weak risk appetite. Immediate barrier is still seen at recent high of 68.32. Next barrier is seen at 69.15. Support is seen around 67.62, ahead of the next at 67.23. Foreign investors sold USD37.4mn of equities and USD40.6mn of debt on 18 Jan.

      USDIDR – Grinding Higher. USDIDR is edging higher this morning, lifted by the firmer dollar overnight amid a more stable yuan. Pair was last seen around 13922. Daily MACD is still exhibiting waning bullish momentum, suggesting that the move higher could remain a slow grind. Barrier at 14030 (50.0% Fibo retracement of the Oct downswing) should cap upside. Support is seen around 13840 (38.2% Fibo retracement). 1s USDIDR NDF continues to hover above the 14000-levels at 14039 even as it ticks lower this morning with daily MACD still showing mild bullish momentum. The JISDOR was fixed higher at 13931 on Mon from 13886 on Fri. Risks aversion saw foreign funds selling a net USD37.40mn of equities yesterday. They added a net IDR1.09tn to their outstanding holding of government debt on 15 Jan (latest data available). There is little data of note for the week ahead.

      USDPHP – Downside Bias.  USDPHP edged lower to 47.665 currently, tracking its regional peers broadly lower this morning. Daily MACD is showing waning bullish momentum, though stochastics is at overbought conditions. This suggests the potential for a further retracement in the near term towards 47.530-support. Any rebound is likely to be capped by 14 Jan’s fresh multi-year high of 47.890 ahead of the next at the 48-figure. 1s USDPHP NDF is a tad off the 48-figure this morning at 47.990 with daily technicals still showing bullish bias. Risk aversion yesterday led foreign funds to sell a net USD9.82mn in equities. Quiet week ahead with just Dec BoP data later today.

      USDTHB – Bearish Bias. USDTHB  is inching lower this morning as risk appetite improved on the continued stability in the yuan. Pair is last seen around 36.280 with the pair losing most of its bullish momentum, and stochastics is now turning lower. This suggests that risks are beginning to turn to the downside ahead. Support nearby is seen around 36.180 (21DMA) before the next at 36.080 (61.8% Fibo retracement of the Oct high to low). Resistance is around 36.423 (2016 high) ahead of the next at 36.670 (multi-year high seen in Oct 2015). Investor sentiments were weak yesterday with foreign funds selling a net THB2.15bn and THB2.0bn in equities and government debt. Quiet data week with just 15 Jan foreign reserves and Dec customs trade data on tap sometime this week.

Rates

Malaysia

      Local government bonds started the week on a bullish note with yields being taken down 3-5bps earlier in the day. Despite profit taking, bonds remained well bid and the MGS curve ended 1-6bps lower at the belly.

      IRS curve was quoted 1-3bps lower, but nothing traded. We still think it is favorable to take a pay position at 3.90% levels as the spread from KLIBOR is low, no rate cut expected in 1H16 and the MGII 20y may possibly tail next week. 3M KLIBOR unchanged at 3.83%.

      In the PDS market, only the 5y-7y tenors were active with GGs better bid, while elsewhere was quiet. We reiterate our favor for AAA and GG in the same maturity bucket. Bids for Prasa 12/2022 tightened 2bps but unchanged for MDV 22 and Dana 22. Rantau 20 posted the highest traded volume at MYR825m, tightening 1bp to 4.29% (G+86.2bps; z+32.4bps). In the AA space, JEP papers, whose credit benefits from parental support from TNB, were actively dealt with the 29 and 30 tightening 2-3bps.

 Singapore

      Selling was seen in SGS as risk sentiment recovered with Dow futures up and USD/Asia declined. The SGS yield curve ended 3-4bps higher. SGD IRS curve bear steepened with rates up 2-6bps, underperforming at the back end.

      Asian credits mostly widened amid a muted day, the illiquidity a result of the US holiday and tumble in oil price over the weekend. Chinese IGs and O&G names widened 2-3bps and 5bps respectively. While AT1s saw two-way interest, it was still heavier on the selling side. With the imposition of reserve requirement ratio on yuan deposits from offshore participant banks in China and tight CNH funding persisting, prices for short term papers shot up, with some 2016 papers dealing at above 10%.

 Indonesia

      Indonesia bond market closed with a loss ahead of weekly bond auction. We see that IGS prices this week would move sideways as bond investor would be waiting for U.S. CPI data publication, China GDP data publication as well as the result of today’s bond auction. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 8.545%, 8.605%, 8.799% and 8.745% while 2y yield shifts down to 8.271%. Trading volume at secondary market was seen thin at government segments amounting Rp5,815 bn with FR0070 as the most tradable bond. FR0070 total trading volume amounting Rp964 bn with 47x transaction frequency and closed at 98.456 yielding 8.639%.

      DMO will conduct their weekly auction today with four series to be auctioned which are SPN12170106 (Coupon: discounted; Maturity: 8 Jan 2017), FR0056 (Coupon: 8.375%; Maturity: 15 Sep 2026), FR0073 (Coupon: 8.750%; Maturity: 15 May 2031) and FR0072 (Coupon: 8.250%; Maturity: 15 May 2036). We believe that the auction will be oversubscribe by 1.5x – 2.5x from its indicative target issuance while our view on the indicative yield are as follows SPN12170106 (range: 7.50% – 7.70%), FR0056 (range: 8.60% – 8.80%), FR0073 (range: 8.80% – 8.95%) and FR0072 (range: 9.00% – 9.20%). On total, Indonesian government has successfully raised approx. Rp91.7 tn worth of debt through domestic and global issuance which represent 17.2% of this year target of Rp532.0 tn.

      Corporate bond trading traded thin amounting Rp565 bn. BACA02SB (Subordinated Bank Capital II Year 2015; Rating: idBBB-) was the top actively traded corporate bond with total trading volume amounted Rp250 bn.