Maybank GM Daily - 22 Feb 2016

FX

Global

      Markets remained visibly cautious on Fri. European bourses ended in red, weighed by fall in oil prices while those in New York flat-lined. US CPI came in flat, beating the consensus which looked for a 0.1%m/m decline. Year-on-year, CPI picked pace from 0.2% to 0.3%.

      The focus was perhaps, not in the US. UK’s EU Summit stole the thunder from the inflation prints. PM Cameron has reached a deal with the EU on the terms on remaining within the EU and a referendum is scheduled on the 23 Jun for a vote on whether UK will leave the EU. On Sunday however, Boris Johnson, the last senior figure in the Conservative Party declared that he will still campaign for “Brexit”, causing GBP to gap down back under the 1.43-figure this morning.

      The rest of the currencies were mixed against the USD. Risk sentiments seem to have improved this morning. USDAXJs were seen a tad lower this morning but we are wary of retracements in the region after having traded lower for the past few weeks. Key data we watch this week includes 4Q GDP data from Germany (Tue); Singapore (Wed); UK (Thu); US & France (Fri). There is also a handful of flash PMI dump on Mon for US and Europe. Other data of interest for the region includes Malaysia Feb FX reserves (Mon); Malaysia Jan CPI inflation; Philippines Dec trade (Wed); Australia 4Q capex (Thu); Singapore Jan industrial production; China Jan property prices (Fri). G20 Finance Ministers meeting takes place of 26-27 Feb in Shanghai. Agenda is expected to include China’s excess capacity, oil prices and US monetary policy. Onshore markets are away in Thailand today and those in Philippines are shut on Thu.

Currencies

G7 Currencies

      DXY – Mixed. USD was little changed. US CPI beats expectation. Fed’s Mester said she still expects gradual path of tightening.  DXY was last seen at 96.80 levels. Bearish momentum continues to show further signs of waning; daily stochastics is also rising. 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). Week ahead brings CFNAI (Jan); Markit Mfg PMI (Feb prelim); Fed’s Potter speaks on Mon; Case-Shiller house price index (Dec); consumer confidence (Feb); Richmond Fed Mfg (Feb); Existing home sales (Jan) on Tue;  New home sales (Jan); services PMI (Feb prelim); Fed’s Kaplan speaks on Wed;  Fed's Bullard, Lockhart, Williams speak; Durable goods order (Jan prelim) on Thu; GDP (4Q second print); Univ. of Mich. sentiment (Feb F); PCE Core (Jan) on Fri.

       EURUSD – Sell Rallies. EUR reclaimed 1.11-handle amid risk aversion. European equities were mostly in the red. We maintain our call to sell EUR on rallies into 10 Mar 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%. EUR was last seen around 1.1120 levels. Daily momentum is mild bearish bias while stochastics are falling. 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). Week ahead brings EC, GE, FR Markit PMIs (Feb flash); ECB Sabine speaks on Mon; GE GDP (4Q); GE IFO (Feb); ECB’s Daniele speaks on Tue; EC, GE, CPI (Jan Final) on Thu; FR GDP (4Q) FR CPI (Feb flash); ECB’s Praet speaks on Fri.

       GBPUSD – Obstacle after Another. GBP had a choppy session last Fri; closed above 1.44-handle as UK reached a deal with EU but opened lower (below 1.43-handle) on comments from London Mayor Boris Johnson that he supports Brexit campaign. This will continue to weigh on GBP strength. GBP was last at 1.4290. Daily momentum is flat while stochastics is falling.  Next support at 1.4270 (last week low) before 1.4080 (Jan low). Resistance at 1.4350 (23.6% fibo retracement of Dec high to Jan low), 1.4520 (50 DMA). Week ahead brings CBI Trends (Feb) on Mon; CBI Reported sales (Feb) on Wed; GDP (4Q prelim) on Thu.

       USDJPY – Looking Still For 110.99; then 101.10. USDJPY saw a large decline since the start of Feb  amid unwinding of USDJPY hedges as the Nikkei tanked, especially during the Lunar New Year period by nearly 12%. Also, there were concerns about the BOJ’s negative interest rate policies impacting banks’ profitability. Pair has since retraced some of its losses and was last seen around 112.69. Pair remains soft and further BOJ easing and/or acceleration of the other arrows of Abenomics is needed to boost USDJPY. Pair is exhibiting waning bearish momentum on the daily charts, though on the weekly charts pair remains bearish bias. Key support remains 110.55 (61.8% Fibo retracement of the 2014 to 2015 upswing). Beyond that sees 106.95 (76.4% Fibo) before 101.10 (2014 low). Resistance at 116.40 (38.2% Fibo). Week ahead BOJ Kuroda appearance in parliament (Mon);         PMI Mfg (Feb prelim); BOJ Kuichi speaks (Thu); Jan CPI (Fri).

       NZDUSD – Bearish. NZD was little changed from where it opened and closed last fri. Last seen at 0.6630 levels. 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. 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). Daily momentum is flat while stochastics is falling. Week ahead brings Finance Minister English speaks on Thu; Trade (Jan) on Fri.

       AUDUSD – Buy on Dops. AUD made a rather sharp rebound on Fri and was last seen around 0.7160 this morning. Uptrend is still intact and we like to buy on dips. 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. Technically, daily momentum is exhibiting tentative signs of waning. Downside moves not unexpected, especially when sentiment remains fragile. Support is seen at 0.7035 (50% Fibonacci retracement of the Jan low to Feb high), 0.6990 (61.8% fibo), 0.6925 (76.4% fibo). Key resistance remains at 0.7240 (Feb highs) before the 0.7380 (2015 double top). Week ahead brings RBA’s Debelle speaks on Mon; RBA’s Richards speaks on Tue; Wage price index, construction work done (4Q) on Wed; Capex (4Q) on Thu.

      USDCAD – Rangy. The pair has settled into range trades, last seen at 1.3780. This pair has been lifted by the retreat in crude prices. We had said that the pair lacks downside momentum even as it retains downside bias. The failure to break the key 1.36-figure has left the pair in sideway trades within 1.3600-1.4000 (the upper bound marked by the 50-DMA). Dec retail sales slipped more than expected by -2.2%m/m in Dec vs. expected -0.9%. Jan CPI rebounded by 0.2%m/m from the previous fall of -0.5%, firmer than the expected 0.0%. Week ahead has no tier one data of note.

     Asia ex Japan Currencies

      The SGD NEER trades 0.99% below the implied mid-point of 1.3913. The top end  is estimated at 1.3632 and the floor at 1.4194.

       USDSGD – Buy On Dips.  USDSGD headed to a low of 1.3861 (11 Feb) before rebounding back above the 1.40-levels. Last seen around 1.4052, pair has lost most of its bearish momentum and stochastics is climbing higher. Resistance is around 1.4085 (38.2% Fibo of Jan-Feb downswing) ahead of 1.4150 (50% Fibo). Suport remains at 1.4000 (23.6% Fibo) before 1.3950 (200DMA). Week ahead has Jan CPI (Tue); final 4Q15 GDP (Wed) and Jan industrial production (Fri). 4Q15 GDP is expected to rise by just 1.8% y/y compared to the advance estimates of 2.0%.

       AUDSGD – Bullish Divergence. AUDSGD rebounded from lows of Fri to levels around 1.0060 on Fri. The strong reversal underscored our view that greater upside extension is likely for this cross. We had pointed out 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 and we see a bullish divergence. 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 – Range; Upside Bias. SGDMYR continues to firm, amid a weaker MYR. Cross was last at 2.9980. Daily momentum and stochastics remain bullish bias. Resistance at 3.02 levels (50, 100 DMAs). Support should remain firm at 2.95 (200 DMA).

       USDMYR – Supported. USDMYR was a touch higher amid oil price weakness. USDMYR was last seen at 4.2160 levels. Daily momentum and stochastics are bullish bias. Resistance at 4.2275 (38.2% fibo retracement of Jan high to Feb low), 4.27 levels (50% fibo, 50, 100 DMAs). Beyond this sees 4.30. Support remains firm at 4.11 levels (200 DMA). We look for opportunities to sell on rallies towards 4.27 – 4.30 levels, targeting 4.10 objective. S/L at 4.35. Week ahead brings FX reserves (Mon) and CPI inflation (Wed).

       1s USDKRW NDF – Upside Bias. 1s USDKRW was a touch softer this morning, tracking risk sentiment (KOSPI notching small gains, Japanese equities are up nearly 1%). 1s KRW was last seen at 1232 levels (vs. overnight high of 1240).  Daily momentum and stochastics remain bullish bias. Resistance at 1240. Support at 1228 (23.6% fibo retracement of 1188 – 1240), 1220 (38.2% fibo). Expect 1225 – 1240 range to hold intra-day.

       USDCNH – Settling Into Range. USDCNH remains steady and was last seen around 6.5220. 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 10pips. USD/CNY was fixed 21 pips higher at 6.5165 (vs. previous 6. 5186). CNY/MYR was fixed 43 pips higher at 0.6435 (vs. previous 0.6392). The RMB index based on the basket of currencies was last at 99.23 as of 5 Feb, according to CFETS. Our estimate of the RMB index is seen around 99.88 base on its latest fixing.

       SGDCNY – Bearish. This cross was little moved and closed at 4.6337 on Fri. Still, increasing downside momentum for this cross and we think it is a matter of time before the pair falls towards the 50-D<A at 4.6119. Break there exposes the next support at 4.5830. Rebounds to meet barrier at 4.6700.

       1s USDINR NDF – Uptrend ahead of Budget. This pair remained bullish this morning and was last seen around 69.12. Trend is up ahead of the budget, fanned also by oil importers’ demand. We note a slight bullish momentum in this pair. 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 and may have to wait until after the Union Budget on 29 Feb. Support is seen at 68.25 before 67.80. There is no tier one data of note this week.

       USDIDR – Risks Turning Higher. USDIDR gapped lower at the opening to 13479 from Fri’s low of 13501 as sentiments improved. Last seen around 13470, pair has lost most of its bearish momentum, while stochastics continues to climb higher. Improving macroeconomic fuandmentals, political stability, and the Jokowi government’s push for infrastructure building and investment amid low oil prices and supportive monetary policy is boosting investor sentiments and should be supportive of the IDR for now, providing support for the IDR. Barrier remains around 13610 (23.6% Fibo retracement of the Sep-Oct 2015 downswing), and support around 13230 (15 Oct 2015 low). The JISDOR was fixed higher at 13549 on Fri from 13479 on Thu. Sentiments were positive last week with foreign funds buying a net USD23.10mn of equities. They also added a net IDR1.27tn to their outstanding holding of debt on 15-17 Feb (latest data available). There is no data of note this week.USDPHP – Bullish Bias.  USDPHP bounced higher this morning, tracking its regional peers’ broad climb against the USD.  Pair was last seen around 47.650. Daily MACD continues to show waning bearish momentum, while stochastics is climbing higher. Immediate resistance is around 47.700 (21DMA) ahead of 47.885 (9 Feb high). Support is seen around 47.480 (50DMA). Investor sentiments failed to improved and foreign funds continued their sell-off of equities to a tune of a net USD16.82mn yesterday. Overseas remittances is due today and market expects only a 0.5% gain in Dec, largely a result of the weaknesses in the oil-producing and major economies.

       USDPHP – Upside Bias.  USDPHP slipped to a recent low of 47.357 (11 Feb) amid an improvement of risks but has since rebounded back above the 47.600-levels. Pair was last seen around 47.645 with daily chart showing waning bearish momentum and stochastics bullish. Resistance is around 48.069 (year’s high). Support is around 47.450 (23.6% Fibo retracement of the Oct 2015-Jan 2016 upswing). Investor sentiments soured last week with foreign funds selling a tune of a net USD24.52mn of equities. Only Dec imports and trade balance data of note on Wed.

       USDTHB – Range. USDTHB saw slippages towards the year’s low of 35.210 (11 Feb) amid inflows into the bond market. Pair has since retraced some of its losses. Last seen around 35.730, pair is showing bullish momentum on the daily chart, and remains bearish bias on the weekly charts. Resistance is around 35.815 (50% Fibo retracement of the Jan-Feb downswing); then 35.945 (61.8% Fibo; 50DMA). Further slippages should find support around 35.675 (38.2% Fibo) before the next at 35.495 (23.6% Fibo). Sentiments were mixed last week with foreign investors selling a net THB5.80bn of equities but purchasing a net THB15.09bn in government debt.

Rates

Malaysia

      Government bond market was lackluster with yields inching higher on the back of MYR weakness. Players will look to the next auction which is the new issue of 5y MGII 8/21 for more leads. We expect a size of MYR4b on this issuance.

      For the local IRS market, there was some profit taking seen on the 5y IRS which traded at 3.75%. 3M KLIBOR remained the same also at 3.75%.

      PDS market was active and continued to focus on AAAs and GGs, with sellers seen on long-end GGs. PASB’2/26 traded again at 4.49% (MGS+59bps; IRS+40bps), the same level which old Prasarana’8/26 is being offered at. Short end papers of Cagamas and Putrajaya were sought after as the 3y-5y still seem attractive at MGS+85bps/IRS+50bps. Likely to see more stability in prices after the new Prasarana is issued.

Singapore

      The new 30y SGS benchmark announcement, with a smaller-than-expected but still sizeable SGD1.8b net, had little impact on the market. SGS rallied tacking the overnight UST movement and yields ended 1-7bps lower in a flattening bias. The long-end outperformed particularly the current 30y benchmark which continued to see short covering. SGD IRS was muted with the curve ending 1-4bps lower.

      Most Asian credits ended flattish as the overnight rally in rates made investors cautious. We think there could be more selling and spreads could go wider. Oil names widened 2-3bps, while Malaysia, Thailand and Singapore names were mostly muted. INDON sovereigns saw some selling, closing 25-50cts lower. New PHILIP’41 traded flat to previous close. For Chinese High Yields, property names were slightly more active. Prices rose 0.2-0.5pts despite thin liquidity.

 Indonesia

      Indonesia bond market closed with a slight loss post BI rate cut announcement. We see this as a situation of buy on rumours and sell on facts. However, the decline in IGS was minimal as supported by demand from local banks. The decision of cutting banks RRR to 6.5% would add liquidity into the market by Rp34 tn thus in the short run, banks would invests their fund in the bond market before disbursing it as loans which is positive sign for the bond market. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 7.787%, 8.026%, 8.365% and 8.430% while 2y yield shifts down to 7.530%. Trading volume at secondary market was seen heavy at government segments amounting Rp11,581 bn with SR006 as the most tradable bond. SR006 total trading volume amounting Rp1,614 bn with 37x transaction frequency and closed at 101.632 yielding 7.123%.

      Corporate bond trading traded heavy amounting Rp849 bn. SMRA02CN1 (Shelf registration II Summarecon Agung Phase I Year 2015; Rating: idA+) was the top actively traded corporate bond with total trading volume amounted Rp180 bn yielding 11.248%.