Maybank GM Daily - 15 Feb 2016

FX

Global

      Equities followed oil prices higher on Fri after a mixed session in Asia. Brent and West Texas added U$3 each that day as markets continued to trade on hopes that news of an OPEC meeting to cut production could come to fruit. In addition, US retail sales for Jan beat expectations with a print of 0.2%m/m, steady from the month prior which was also revised higher. Univ. of Mich. Sentiment dropped to 90.7 from previous 92.0. The survey revealed expectations for 1 year inflation remained unchanged at 2.5% for Feb.

      Over the weekend, PBOC Governor Zhou broke his silence with an interview with Caixin. He spoke of disallowing speculators to dominate market sentiments and renminbi internationalization to proceed “in waves”. Onshore markets in China are back from Lunar New Year break today.

      BOK and BI meet this week. BOK is unlikely to move tomorrow amid sustained improvements in domestic demand. Our Indonesia Chief Economist also expects no monetary action from BI on Thu though there are risks of another 25bps cut according to consensus. Risk sentiments in Asia, helped by PBOC Governor Zhou’s comments over the weekend which anchored CNY outlook. Other key data that we watch in the region includes GDP print from Thailand (today), Malaysia (thu) and Singapore (19-25 Feb). China has yet to release its liquidity numbers for Jan. Trade numbers are also due today, likely at 10am. Inflation prints are due tomorrow. AUD players will watch China’s import prints carefully along with Australia’s employment changes on Thu. NZD will watch the global dairy trade auction tomorrow night. In Europe, UK has Jan CPI due tomorrow, along with Germany’s ZEW survey for Feb. Wed has ILO unemployment rate out of UK. Thu has CPI from France. Fri has UK retail sales. In the US, empire manufacturing is due tomorrow before housing starts, PPI final demand and industrial production on Wed, Minutes of the Jan Fed Meeting on Thu (Asia morning) followed by Philly Fed, jobless claims  and leading index evening. Jan CPI will wrap up the week’s release on Fri.

Currencies

G7 Currencies

      DXY – Bearish Momentum Waning. USD was firmer against most currencies including EUR, JPY, SGD but slightly weaker against AUD, CNH. Sentiment was somewhat supported this morning, helped by PBoC Governor Zhou’s comments over the weekend which anchored some stability on CNY outlook – reduced market concerns of an imminent CNY devaluation in the near term. On Fed speaks Friday,  Dudley noted that “inflation is probably going to take a bit longer to get back to our 2% objective” – somewhat confirming market expectation that a rate hike next month is off the table. He also added that there is quite a bit of momentum in the US economy to offset some of the weakness relating to trade. DXY was last seen at 96.10 levels. Bearish momentum shows tentative signs of waning; daily stochastics is also showing signs of turning higher from oversold levels. Support remains at 95 levels (23.6% fibo retracement of May-2014 toMar-2015); resistance at 96.90 (200 DMA). US markets are closed for Presidents’ Day holiday today. Highlights of the week include Fed Empire Mfg (Tue); Jan housing starts, building permits; PPI; IP; FOMC Minutes (Wed); Jan CPI (Fri).

       EURUSD – Sell on Rallies. EURUSD continue to back off from its recent highs near 1.14-handle amid broad USD strength as sentiment stabilises. Pair was last seen around 1.1230 levels this morning. Bullish momentum continues to show signs of waning and daily stochastics are exhibiting signs of turning lower from overbought conditions. Support at 1.1175 (23.6% fibo retracement of Dec low to Feb high) before 1.1050 (38.2% fibo), 1.0950 (50% fibo). Resistance at 1.1370 (previous high). Market confidence appears to have stabilised this morning following comments from PboC Gov. Zhou over the weekend. Japanese equities are up 5% thus far. We like to fade rallies towards previous high, with s/l at 1.1520, targeting a move back towards 1.09 levels. Highlights of the week include EC, GE Feb ZEW survey (Tue); ECB minutes (Thu); GE Jan PPI; EU Summit; Euro-area Feb consumer confidence (Fri).

       GBPUSD – Data Heavy Week. GBP continued to consolidate in recent range of 1.43 – 1.46 as markets watch the EU summit on 18-19 Feb for hints of when a deal between UK and EU may be reached. If a deal is reached, the earliest date the EU referendum could take place is in Jun (possibly 23 Jun). Our base-case scenario is for UK to vote to remain in EU. We continue to caution that uncertainty around the EU referendum date and ongoing negotiations of UK’s relationship with EU will add to volatility and weigh on GBP. We expect GBP to consolidate in recent ranges in the days ahead leading to EU Summit. On technicals, daily momentum remains mild bullish bias. Still see range of 1.4350 (23.6% fibo retracement of Dec high to Jan low) – 1.4660 (50% fibo). Highlights for the week ahead include Jan CPI, PPI, RPI (Tue); job numbers (Wed); Jan retail sales, public finances (Fri).

       USDJPY – Upside Bias Intra-day. USDJPY turned higher, tracking Nikkei. Japanese equities are up 5% this morning, thanks to PBoC comments over the weekend that supported market sentiment. There were market talks of authorities on the bid on USDJPY last Fri. On technicals, pair is showing signs of rebound – bearish momentum   on daily chart is waning while stochastics shows signs of rising from oversold levels. Resistance at 113.50 (23.6% fibo retracement of Jan high to Feb low) before 115 (38.2% fibo), 116.30 (50% fibo). Support at 111 (previous low) before 110 levels. Just released this morning – 4Q GDP was weaker than expected, dragged by private consumption and business spending. Other data on tap this week includes Dec IP (Mon); Dec machine orders (Wed); Jan trade (Thu).

       NZDUSD – Bullish Momentum Waning. NZD turned lower despite broad USD strength. We maintain our bearish call on the NZD. This is due to a combination of factors including RBNZ explicit bias for further easing and weaker NZD (as export prices remain soft), benign inflation outlook, challenging dairy market dynamics, high risk of current account deficit widening, further downside risk to growth outlook. On technicals, bullish momentum and stochastics on daily chart is waning. Still holding to our NZD shorts (established on 5 Feb at 0.6720). First support at 0.6620 (50% fibo retracement of Dec high to Jan low) before 0.6550 (38.2% fibo). Resistance at 0.6680 (200 DMA). Highlights of the week include GDT auction; 4Q retail sales; 2-year inflation expectation (Tue); 4Q PPI (Thu).

       AUDUSD – Volatile Range. AUD has been retaining an upside bias in the past week though upmove has been a grind. With PBOC signaling yuan stability in the near-term, this pair has some room for further upmoves though China’s trade numbers will be closely watched, in particular the imports leg. Barrier at 0.7140 (61.8% Fibonacci retracement of the Jan sell off) ahead of the next at 0.7210 (76.4% fib). Support is seen at 0.7050 ahead pf the next at 0.6980. In the medium term, the lack of rate cut threats could continue to keep the air supported on dips in a world of easing monetary policy though global (or rather China) headwinds would see eager sellers on the topsides as well. The result is volatile range trading as we had seen in the past six months. The week ahead has minutes of the RBA meeting tomorrow which should see little variation from the post-meeting statement, the SoMP as well as Glenn Stevens’ speech. Thu has labour report.

USDCAD – Range. The pair slipped into the daily ichimoku cloud and was last seen around 1.3830. Next support is pencilled in at 1.3760 (50% Fibonacci retracement of the Oct-Jan rally) ahead of the next at 1.3600(100-DMA) if there are more details on the reported potential cooperation among the OPEC members. We continue to expect the pair to hover sideways as news like these have been denied before. On the technical charts, this pair shows signs of waning bearishness, noted on the MACD and RSI but needs a clean break of the barrier at 1.3980 before the next resistance level at 1.4165 comes into view. For now, range-trading is more likely within 1.3600-1.4050. The week ahead has manufacturing sales tomorrow, retail sales and CPI on Fri.

     Asia ex Japan Currencies

      The SGD NEER trades 0.92% below the implied mid-point of 1.3861. The top end is estimated at 1.3581 and the floor at 1.4141.

       USDSGD – Buy on Dips.  USDSGD touched and rebounded off 200 DMA (now at 1.3930 levels). Move higher was due to broad USD strength and stabilisation of market sentiment,. Pair was last seen atr 1.3990 levels. Bearish momentum is waning, and stochastics is rising from oversold conditions. Next resistance at 1.40 (23.6% fibo retracement of Jan high to Feb low), before 1.4080 (38.2% fibo) and 1.4120 (100 DMA). Support at 200 DMA before 1.3860 (previous low). Highlights of the week include Dec retail sales (Mon); Jan NODX (Wed). 

       AUDSGD – Bullish Divergence. AUDSGD ground higher to 0.9950 as we write in early Asia. This cross is losing bearish momentum and we see bullish divergence. This cross needs to get past the 0.9964-barrier for further upside extension towards 1.0103.  Support is seen at 0.9840 before the 0.97-figure. Watch China’s trade numbers.

       SGDMYR – Watch 200 DMA. SGDMYR edged lower amid a softer SGD while MYR held ground. Cross was last seen at 2.9740 levels. Daily momentum is mild bullish bias but stochastics show signs of falling from oversold conditions. Support at 2.9650 (38.2% fibo retracement of Jan high to low) before 2.9410 (200 DMA). If pair breaks below 200 DMA on daily close again, cross could re-visit below 2.90 levels. Resistance at 2.9870 (50% fibo), 3.0090 (61.8% fibo). 

       USDMYR – Also Watching 200 DMA. USDMYR was stable around 4.16 levels this morning, helped by sentiment (PBoC Gov comments over the weekend). On technicals, 200 DMA had served as strong support thus far. Bearish momentum on daily chart is showing signs of waning and stochastics shows signs of rising from near-oversold levels. Put together, there could be some upside bias in the pair. Resistance at 4.1770 (23.6% fibo retracement of Jan high to Feb low), before 4.2275 (38.2% fibo). Support remains at 200 DMA. Highlights of the week include 4Q GDP (Thu).

       1s USDKRW NDF – Risk is to the Upside. 1s USDKRW was last seen around 1210. Clearing the barrier there could give way towards the 1222.74. Momentum is upside bias. A break to the downside could see support at 1182 (2 Feb low). 

       USDCNH – Settling Into Range. USDCNH rebounded and was last seen around 6.5280. Onshore markets in China return today. This pair has risen from oversold conditions and may trade within 6.4850-6.5780 range now. USD/CNY was fixed 196 pips lower at 6.5118 (vs. previous 6.5314). CNY/MYR was fixed 70 pips lower at 0.6338 (vs. previous 0.6268). The RMB index based on the basket of currencies was last at 100.15 as of 29 Jan, according to CFETS. Over the weekend, PBOC Governor Zhou broke his silence with an interview with Caixin. He spoke of disallowing speculators to dominate market sentiments and renminbi internationalization to proceed “in waves”. He also hinted that Renminbi internationalization may wait for speculative pressure to settle before proceeding into the next phase. China has yet to release its liquidity numbers for Jan. Trade numbers are also due today, likely at 10am. Inflation prints are due tomorrow.

       1s USDINR NDF – Correction Ahead. This pair retreated from its high of 68.95 last week and was last seen around 68.50 this morning. We continue to note a lack of momentum in this pair. We hold our view that there is bearish divergence in this pair and spot prices on the daily, weekly and monthly chart. Correction could thus be sharp. Support is seen at 68.25 before 67.80. Resistance is still seen at the 69-figure now before 69.15. Over the weekend, FinMin Jaitley told the press that the government will announce banking reforms. He also assured that focus is also on the agriculture sector and will channel savings from cheap oil prices to boost rural demand.  Foreign investors sold USD177.9mn of equities and USD86.8mn of debt on 11 Feb. The week ahead has WPI and trade numbers due today.

       USDIDR – Oversold. USDIDR steadied around 13470 this morning. Daily charts still show mild bearish bias and stochastics and RSI suggest near oversold positions. Support is still seen at the 0ct 2015 low of 13230. Any rebounds should meet resistance around 13610 (23.6% Fibo retracement of the Sep-Oct 2015 downswing). The JISDOR was fixed higher at 13471 on Fri from 13369 on Thu. Risk sentiments were positive with foreign funds buying a net USD1.8mn of equities. They sold a net USD50.1mn of debt on 11 Feb (latest data available). Week ahead has trade numbers for Jan due today before BI makes rate decision. We anticipate at least one more rate cut before the first half of the year is up but not today, according to our Economic Team. Still, consensus expects another 25bps cut on Thu.

       USDPHP – Bearish.  USDPHP hovered around 47.495 this morning, likely settling into range. Momentum is still showing bearish bias and pair is about to test the 50-DMA at 47.45. A clearance there would open the way towards rcent low of 47.36 (11 Feb low). Risk appetite remained lacking on Fri with foreign funds selling a net USD13.5mn. Government economic managers were reported to meet to review target. Full year overseas remittances due today.

       USDTHB – Rebounds. USDTHB made a strong rebound from the 200-DMA last Fri and was last seen around 35.67 this morning. Bearish momentum is waning. The barrier at 35.49 has been cleared and the next is being tested at 35.67 (38.2% Fibonacci retracement of the Jan-Feb sell off). A clearance here opens the way towards the next at 35.82 (50% fib, base line of the daily ichimoku chart). Foreign investors sold a net USD27.9mn in equities and USD361.7mn in debt on Fri. In news, BOT said that banks’ NPL may see further increase this year. 4Q and 2015 full year GDP is due today. No other tier one data for the rest of the week.

Rates

Malaysia

      Government bond prices softened as MYR weakened against USD, with the belly of the yield curve up 1-2bps. However, 30y MGS 9/43 traded 3bps lower than the previous done level. Issue size of the new 7.5y MGS 8/23 was announced at MYR4.0b. The WI last quoted at 3.84/81% though nothing traded.

      Nothing was dealt in the IRS market as rates were volatile, swinging up and down intraday. Market remains uncertain, and seems that trades are done only when foreigners take aggressive action. 3M KLIBOR down another 1bp to 3.76%.

      In PDS market, Cagamas 3/19 surprisingly traded at a loss, 1bp wider than the 4.10% issued level. Telekom 3/24 was taken at 4.52% (G+69bps; z+52bps) which could have some upside if expectations of a rate cut continues to be priced in. Rantau’19 exchanged hands flat at 4.06% (G+81bps; z+38bps) with minor upside. In the GG space, both Prasa’25 tranches dealt at 4.45%. With Prasa 12/25 at G+53bps; z+33bps and Prasa 3/25 at G+57bps; z+38bps, we think the March tranche has more value to offer. We continue to like the GG space and prefer Prasa, Dana and PASB for better liquidity.

Singapore

      SGS pared previous day’s gains as selling interest dominated amid higher USDSGD and softer UST. In addition, primary dealers were also lightening their books. Yields ended 3-10bps higher, while biddish SGD IRS closed 9-12bps higher. We expect volatility to persist, and suggest paying long-end IRS on dips ahead of the 30y SGS supply.

      Asian credit market had a quiet end to the week as global markets saw some retracement after the risk-off sentiment led to a sell-off of risky assets last week. There was slight consolidation on small buying. Chinese banks’ AT1 clawed back some previous day losses with BChina AT1 rising back up to 103.125, and oil names saw some short covering with benchmarks 3-5bps better. But IG spreads still traded wider and Indian credits remain soft as USDINR hit an all-time high. Market remains defensive with bids hard to come by, but players will look to market reaction this week as most return from the CNY holiday.

 Indonesia

      Indonesia bond market corrected post a significant hike in previous day. The correction was also supported by worsening 4Q15 current account number which came in deficit of -$5,115mn compared to 3Q15 which came in deficit of -$4,190mn as well as a relatively quiet market. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 7.817%, 7.932%, 8.260% and 8.319% while 2y yield shifts down to 7.600%. Trading volume at secondary market was seen heavy at government segments amounting Rp13,468 bn with FR0056 as the most tradable bond. FR0056 total trading volume amounting Rp2,531 bn with 74x transaction frequency and closed at 103.125 yielding 7.932%.

      Corporate bond trading traded heavy amounting Rp1,025 bn. BACA02SB (Subordinated Bank Capital II Year 2015; Rating: idBBB-) was the top actively traded corporate bond with total trading volume amounted Rp250 bn yielding 12.057%.