Maybank GM Daily - 18 Feb 2016

FX

Global

      Iran exercised EQ. Oil gained after Iran expressed support for the agreement to freeze crude production, albeit without making a commitment to it. Global equities were lifted by the overall optimism as well, in the absence of stronger market cues yesterday. In the meantime, Fed released Minutes of the Jan meeting and participants were increasingly apprehensive about the developments in commodity and financial markets that could weaken some foreign economies and weigh on domestic economic activity. The prospect of further delays in rate hike gave sufficient comfort for equity markets to rally overnight.

       The USD weakened against risk proxies with commodity-linked currencies benefiting the most. CAD, AUD, NOK and NZD were up around 1% each. The greenback showed more resilience against safe havens amid the risk-on mood. GBP swiveled in narrow range, uninspired by the mixed labour report yesterday. In Asia, the dollar performance was also mixed with MYR on the backfoot while PHP strengthened 0.3% against the buck. The former had rebounded in early trades this morning, catching up on the overnight action.  KRW was runner-up, last seen around 1220.  This morning, AUD was dragged by its labour report. Australia lost 7.9K of jobs last month, extending decline from its Dec prints. Jobless rate jumped to 6.0% from 5.8%.

       China CPI missed consensus with a print of 1.8%y/y, picking pace from previous 1.6%. Heartingly, PPI declined less than expected by -5.3%y/y. Day ahead has Malaysia’s 4Q GDP due as well as rate decision from Bank Indonesia. Our economist does not expect a rate move but this could be a very close call with around half of those surveyed expecting another 25bps cut. Beyond Asia, ECB releases Minutes today. UK’s EU Summit starts today.

Currencies

G7 Currencies

DXY – Mixed. USD was mixed overnight – underperformed against the risk proxies (i.e. AUD, AXJs firmer) and firmed marginally against the lower yielding currencies (EUR, CHF, JPY) as risk sentiment was supported. US equities gained more than 1.5%, helped by energy sector. In oil talks overnight, Kuwait and Iraq agreed to hold production at January levels. Although Iran did not join the pact, they sounded less defiant than thought, saying that they expressed support for the deal to stabilise oil markets but added that they are still in process of increasing production back up to pre-sanction levels. A coherent message from both OPEC and non-OPEC members was positively perceived as an act to stabilise oil market. Oil prices may face another hurdle later tonight with DOE and EIA report on oil, gasoline and natural gas inventories. FOMC minutes (released last night) was broadly in line with recent Fed speakers’ comments. Noted that “… developments in commodity and financial markets as well as the possibility of a significant weakening of some foreign economies had the potential to further restrain domestic economic activity, partly because the large cumulative declines in energy and other commodity prices could have pronounced adverse effects on some firms and countries that are important producers of such commodities …waiting for additional information regarding the underlying strength of economic activity and prospects for inflation before taking the next step to reduce policy accommodation would be prudent.” Minutes suggested that most FOMC members believe there were not enough evidence to indicate if balance of risks to the medium-term outlook had changed materially; some judged that recent developments had increased the level of downside risks. In a speech early this morning, Fed’s Bullard said that tightening is unwise as inflation expectations fade. DXY was last seen at 96.90 levels. Bearish momentum continues to show further signs of waning; daily stochastics is also turning higher from oversold levels. Key support remains at 95.30 levels (previous low). Resistance at 96.90 (200 DMA), 97.50 (50% fibo retracement of Jan high to Feb low). Highlights of the week remaining include Jan CPI (Fri).        EURUSD – Bearish Bias. EUR fell amid supported risk sentiment overnight. Inverse correlation between EUR and risk asset prices continues to hold, with its coefficient at -0.71. We maintain our bearish EUR outlook over the next few weeks leading into ECB meeting. We do not think the ECB is done with monetary easing. ECB Draghi is determined to preserve ECB credibility and is expected to do whatever it takes to get inflation back to 2%. We believe further adjustment to QE program – to buy securities, lengthen QE program and/or further rate cut are among some of the tools available.  EUR was last seen around 1.1140 levels. We maintain our bias to sell on rallies, targeting a move back towards 1.09 levels. Daily momentum has turned mild bearish bias while stochastics are turning lower from overbought conditions. Support at 1.1050 (38.2% fibo retracement of Dec low to Feb high) before 1.0950 (50% fibo). Resistance at 1.1240 (23.6% fibo retracement of Feb low to high) before 1.1370 (previous high). Highlights of the week remaining include ECB minutes (Thu); GE Jan PPI; EU Summit; Euro-area Feb consumer confidence (Fri).        GBPUSD – Retail Sales Data Today. GBP traded 1.4240 – 1.4330 range yesterday. Labor report was mixed – job growth slowed; unemployment rate steady while weekly earnings (ex-bonus) rose to 2% (better than expected).   Focus for the week  remains on 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. On technicals, bullish momentum is waning and stochastics is falling from overbought conditions. Next support at 1.4080 (previous low). Resistance at 1.4350 (23.6% fibo retracement of Dec high to Jan low). Highlights for the week remaining include Jan retail sales, public finances (Fri).        USDJPY – Range-Bound. After ending the previous session almost unchanged at 114.10, USDJPY is on the slide this morning helped by the sell-off of the majors against the JPY amid dollar softness overnight and a recovery in oil prices. Jan trade print out this morning disappointed with exports falling for a fourth straight month by 12.9% y/y and imports slumping by 18% y/y. The trade balance slipped into a deficit of JPY645.9bn as a result. Pair is currently seen around 114.00 with daily chart is still showing waning bearish momentum while stochastics continues to rise from oversold levels. In the absence of directional catalyst, range trading is still expected in the near term. Barrier remains around 115.10 (38.2% Fibo retracement of Jan high to Feb low), 116.30 (50% Fibo). Support continues to be seen around 113.50 (23.6% Fibo).        NZDUSD – Maintain Bearish Bias. NZD rose above 0.66-handle overnight, tracking other risk proxies higher. 4Q PPI data released this morning was worse than prior quarter (PPI input fell -1.2% q/q vs. +1.6% in 3Q). 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. NZD was last seen at 0.6630 levels this morning. Technically, on intra-day NZD could be biased to the upside. 4-hourly momentum and stochastics are mild bullish bias. We still hold on to our NZD shorts (established on 5 Feb at 0.6720). Looking to add to shorts on rallies. Resistance at 0.6680 (200 DMA). Next support at 0.6620 (50% fibo retracement of Dec high to Jan low), before 0.6550 (38.2% fibo), 0.6470 (23.6% fibo).        AUDUSD – Bad Jobs Drag. AUD pared mid-week’s gains and was last seen around 0.7150 after Australia released a poorer-than-expected labour report.  Australia lost 7.9K of jobs last month, extending decline from its Dec prints. Jobless rate jumped to 6.0% from 5.8%. Much of the jobs lost was due to fall in full time hires by 40.6K while that of part-time employment rose 32.7K. This print, whilst notoriously volatile, underscores the fragility of the economy though the rise in part-time hires reflects the flexibility of the labour market. On the charts, retracements have met support around 0.7140 and further retreats could meet support at 0.7080. Near-term uptrend still intact and next barrier to clear is seen at 0.7210 (76.4% Fibonacci retracement of the Jan sell off). The latest print is part of a volatile series and RBA is unlikely to act on two data points. In the medium term, the lack of rate cut threats could continue to keep the AUD 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.

USDCAD – Downside Bias. The pair slumped to levels around 1.3680 as we write in early Asia.  This pair is weighed by the oil gains and positive risk sentiments. Focus is now on 1.3600(100-DMA). Technically, the pair lacks downside momentum even as it retains downside bias. A failure to break the 1.36-figure could leave the pair in sideway trades within 1.3600-1.4050. Retail sales and CPI are due on Fri.

     Asia ex Japan Currencies

      The SGD NEER trades 1.08% below the implied mid-point of 1.3895. We estimate the top end at 1.3614 and the floor at 1.4176.

       USDSGD – Bullish Bias.  USDSGD is supported this morning despite dollar softness overnight as investors sold off government debt as reflected in the drop in 2-10Y yields by 0.57-2.25bp from yesterday. This could be due to market focus on the possibility of a slope adjustment to the SGD NEER following the weak economic data so far, though this is not our base scenario for now. Last seen around 1.4050, pair has lost most of its bearish momentum, and stochastics is still rising from oversold conditions. This suggests risks remains on the upside for the pair in the near term. Pressure thus appears to remain on the upside for the near term. Immediate resistance is still around 1.4085 (38.2% Fibo retracement of Jan high to Feb low) ahead of 1.4120 (100DMA). Support remains around 1.4000 (23.6% Fibo).

       AUDSGD – Weakened by Jobs. AUDSGD slipped from mid-week high to levels around 1.0040 as we write. There could be an interim peak at this point as the cross is dragged by Australia’s labour report which turned out weaker than expected. Upmove is stalled for now and next support is seen at 0.9960. We still see a double bottom for this cross with the 0.97-figure seen as a key support (double bottom – lows of Sep 2015 and Feb 2016). Daily momentum and stochastics are showing signs of bullish bias. First level of resistance at 1.0150 levels (200 DMA). Break above on daily close could see an extension of the rally towards 1.0350 (previous area of resistance that has kept the cross from going higher). Further moves beyond those levels see 1.0500 (38.2% fibonacci retracement of Sep 2014 high to double bottom), 1.0740 (50% fibonacci retracement). We see further upside in AUDSGD cross and suggest buying AUDSGD on dips towards 0.9960 – 1.0000 levels, targeting first objective at 1.0350, before 1.0500, with a stop loss of 0.9680 (below double-bottom).

       SGDMYR – Bounded by 50 and 200 DMA. SGDMYR was a touch softer as Ringgit reversed some of yesterday’s losses (thanks to oil prices). Cross was last seen at 2.99 levels. Daily momentum and stochastics remain bullish bias. Next resistance at 3.0090 (61.8% fibo retracement of Jan high to low), 3.02 (50 DMA). Support remains at 2.9430 (200 DMA).

       USDMYR – Oil to Dictate. USDMYR eased off highs this morning, helped by supported sentiment arising out of oil talks. Kuwait and Iraq joined Saudi, Russia, Qatar, Venezuela to freeze oil production at Jan levels. While Iran did not agree, they were less defiant than expected. They expressed support for the deal to stabilise oil markets but added that they are still in process of increasing production back up to pre-sanction levels. A coherent message from both OPEC and non-OPEC members was positively perceived as an act to stabilise oil market. Oil prices may face another hurdle later tonight with DOE and EIA report on oil, gasoline and natural gas inventories. USDMYR was last seen at 4.1750 levels. Resistance at 4.2275 (38.2% fibo retracement of Jan high to Feb low). Support at 4.1770 (23.6% fibo) before 4.1080 (200 DMA). Expect choppy price action today as we await Malaysia 4Q GDP (12 noon) and oil inventory data (between 1130pm and 12 midnight).

       1s USDKRW NDF – Shooting Star Candlestick? 1s USDKRW traded an overnight high of 1232.50 before retracing some of its gains towards 1225. Yesterday’s price action suggests a shooting star candlestick (opens higher, traded much higher before closing near its open) but it remains too soon to conclude if this is a reversal of recent trend. If the pair does closes below 1220 today, we could see further downside.  We watch further price action today. Suggest a tactical short at current levels {1s krw ref at 1225}, targeting a move towards 1210 (50% fibo retracement of 1188 – 1232), before 1200 (50 DMA). Stop-loss above yest high of 1233.

       USDCNH – Settling Into Range. USDCNH was still on a gradual upmove yesterday and was last seen around 6.5245. This pair has risen from oversold conditions and may trade within 6.4850-6.5780 range now. CNH trades at a discount to CNY against the USD of around 40pips. USD/CNY was fixed 85 pips lower at 6.5152 (vs. previous 6.5237). CNY/MYR was fixed 15 pips lower at 0.6401 (vs. previous 0.6416). The RMB index based on the basket of currencies was last at 100.15 as of 29 Jan, according to CFETS. CPI and PPI for Jan in focus today. China CPI missed consensus with a print of 1.8%y/y, picking pace from previous 1.6%. Hearteningly, PPI declined less than expected by -5.3%y/y.  Elsewhere, there are talks of PBOC injecting CNY80bn with 7-day reverse repos.

       SGDCNY – Rangy Trades Ahead. This cross remained heavy this week, slipping from its open to close at 4.6305. This cross sees increasing downside momentum at this point. Next support is seen at 4.6065 (50-DMA) ahead of the next at 4.5830. Rebounds to meet barrier at 4.6700.

       1s USDINR NDF – Uptrend ahead of Budget. This pair touched a high of 69.11 before reversing lower. Trend is up ahead of the budget. Last seen around 68.75, we continue to note a lack of momentum in this pair. However, uptrend seems to be holding up and next barrier is seen at 69.15. We hold our view that there has been 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. At home, Revenue Secretary Hasmukh Adhia said that India will miss FY16 direct tax target though overall tax target will be met. Foreign investors sold U$115.4mn of equities and bought U$45.3mn of debt on 16 Jan. The budget for the next financial year will be delivered on 29-Feb.

       USDIDR – Downticks Within Range. USDIDR is back below the 13500-levels this morning, helped by dollar softness overnight and an rebound in oil prices. Pair is currently seen around 13461. Daily chart is still showing bearish momentum, while stochastics is exhibiting signs of turning higher. Continued positive sentiments over improving macroeconomic indicators including the current account, and political stability, and the Jokowi government’s push for infrastructure building and investment amid low oil prices also remains supportive of the IDR for now. Still, the lack of directional clarity should see moves with its current trading range of 13295 (year’s low) - 13610 (23.6% Fibo retracement of the Sep-Oct 2015 downswing) for now. The JISDOR was fixed higher at 13504 yesterday from  13333 on Tue, but a lower fixing is likely today given the spot’s softness this morning. Sentiments for equities continued to be positive with foreign funds buying a net USD42.26mn of equities yesterday. They however had removed a net IDR1.13tn from their outstanding holding of debt on 16 Feb (latest data available). BI rate decision is due later today and our economic team is not expecting a rate cut at this meeting, though they still looking for at least one more rate cut before end-1H 2016. Instead, our economic team is expecting BI to cut its primary reserve requirement by 50bp to further ease monetary conditions and to inject liquidity into the banking system. Consensus though is looking for another 25bp cut to 7.0%.

       USDPHP – Bearish Bias.  USDPHP is on the slide this morning, tracking its regional peers broadly lower against the USD.  Pair was last seen around 47.550 with daily MACD still showing waning bearish momentum, while stochastics is still tentatively turning higher. 47.450-47.570 (23.6% Fibo, 50DMA) continues to provide support intraday. Any upticks should be capped by 47.710 (21DMA). Risk aversion continued yesterday with foreign funds selling a net USD13.21mn in equities.

       USDTHB – Whippy. USDTHB continues to trade within its recent trading range of 35.500-35.820 as risk appetite improved slightly amid an oil rebound and overnight dollar softness. Pair was last seen around 35.590 this morning with daily chart still exhibiting mild bullish momentum, while stochastics remains on the uptick. Immediate resistance is around 35.675 (38.2% Fibo retracement of the Jan-Feb sell off) ahead of the next around 35.815 (50% Fibo).  Support is still seen around 35.500 (23.6% Fibo). Sentiments were mixed yesterday with foreign investors purchasing a net THB2.91bn in equities but selling a net THB1.76bn in government debt.

Rates

Malaysia

      Local government bonds traded mixed with buyers still seen on dips. The new 7y MGS 8/23 ended -2bps from previous close, with ample volume dealing in the market. All eyes turn to Malaysia’s 4Q15 GDP to be released at noon today.

       In the MYR rates market, a foreign receiver was selling a sizeable amount of 2y IRS and was met with quite a few local payers. The 2y was dealt at 3.58% and 3.57%. 3M KLIBOR remained at 3.75%.

       Firmer PDS market with Prasarana opening books for 7y, 10y, 15y, 20y and 25y sukuk guiding at 50-60bps above MGS. Final price came in at 4.29%, 4.47%, 4.75%, 4.97% and 5.07% respectively. The bulk of the issuance was heavier at the long end, which is also preferred by pension funds and insurance. Decent volume of long-end JEP traded, with ’31 done at 5.50% (MGS+129bps; IRS+120bps) and ’32 at 5.55-60% (MGS+130bps; IRS+120bps), looking rather attractive. Market is still net buyer of JEP and EKVE for yield pickup. GG and AAA spaces were still active, but given the new Prasarana levels, the recently issued PASB offers few bps pickup over Prasarana for the same tenor. RAM downgraded Golden Agri-Resources’ funding conduit, Golden Assets, to A1 from AA3 due to continued worsening of credit metrics and high debt levels, and kept the outlook at negative due to weak debt coverage concerns.

Singapore

      SGS opened weaker in tandem with the higher IRS rates, but buying interest emerged after UST rebounded intraday. Benchmark SGS yields ended unchanged to 1-2bps lower in a quiet market with thin liquidity. SGD IRS saw some paying interests with the higher USDSGD and weaker than expected NODX giving some support. The IRS curve bear flattened with the 2y +3bps while elsewhere relatively unchanged.

       Asian credits opened fairly strong before investors began taking profit after 2 days of spreads rallying. In CDS, shorts were taken back as well, pushing majority of them higher. Philippines is issuing a 25y global USD bond with Initial Price Guidance at 4%, likely to come in at 3.60-65%. At the same time, it is offering to buy selected bond series in the 2016-2037 range. The high cash price bonds is an effort to reduce coupon payable by offering a premium. PHILLIES which was initially sold off rallied back on those premiums. But the laggard, PHILLY’40 was down 25cts as it was not on the list. INDON sovereigns were also constructive with the ’26 and ’46 up 25-50cts. Chinese AT1s about 50cts lower on selling by PB accounts. Moody’s is reviewing CNPC, SINOPEC and CNOOC for downgrade which widened their spreads by about 10bps. The oil production freeze did not lent any support to oil prices.

 Indonesia

      Indonesia bond market corrected backed by expectation that state budget revenue may decline with revision of oil price assumption while on the other hand might increasing the bond supply to finance widening state budget deficit. Reducing infrastructure expenses to maintain 2016 initial budget deficit percentage of GDP is another option but would lead slower growth of the economy. S&P rating agency during the day also stated that they may delay upgrading Indonesia’s rating which have also given negative implication towards the IGS prices. BI Governor of Boar meeting will decide today whether they will continue easing the monetary policy or leave the reference rate at current level. However, economist consensus sees a 25bps cut to 7.0%. Surely, a cut would be positive for the bond market. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 7.794%, 8.021%, 8.368% and 8.407% while 2y yield shifts up to 7.593%. Trading volume at secondary market was seen heavy at government segments amounting Rp17,530 bn with FR0056 as the most tradable bond. FR0056 total trading volume amounting Rp3,858 bn with 105x transaction frequency and closed at 102.483 yielding 8.021%.

       Corporate bond trading traded heavy amounting Rp945 bn. ADMF02CCN1 (Shelf registration II Adira Finance Phase I Year 2013; C serial bond; Rating: idAAA) was the top actively traded corporate bond with total trading volume amounted Rp158 bn yielding 7.483%.