Maybank GM Daily - 23 Feb 2016

FX

Global

      Global equities traded higher on the back of firmer crude prices. WTI came within striking distance of the USD34 while Brent closed USD1.7 higher at USD34.69, boosted by the IEA expectations of oil recovery. Gold lost 1.5% as investors flocked to riskier assets.

      In the FX space, AUD and NZD outperformed, buoyed by firmer metal prices. CAD lagged with a gain of 0.4% against the USD. Unsurprisingly, JPY, EUR, and CHF weakened in good times. The GBP stuck out like a sore thumb, hammered by more “Brexit” fears towards mid-1.40 before bouncing. Asia was mixed against the greenback. IDR, SGD and MYR strengthened yesterday. On the other end, INR weakened a tad by 0.2% ahead of the Union Budget on 29 Feb. This morning, risk sentiments continued to favour the KRW and the MYR, boosted by overnight crude moves.

      Key data we watch today includes Singapore’s CPI for Jan which could swing the SGD ahead of the bi-annual MAS policy meeting in Apr.  Beyond Asia, Germany GDP and IFO are due. In the US, Feb consumer confidence and Jan existing home sales are scheduled for release. Expect most of the G10 currencies to remain in consolidation with respective directional bias. Positive risk sentiments favour AUD, NZD over funding currencies JPY, CHF and EUR.  As for the Asian currencies, we are wary of retracements in the USDMYR, USDSGD and USDIDR once risk sentiments shift.

Currencies

G7 Currencies

      DXY – Mixed. USD remains mixed – firmed against lower-yielding currencies (EUR, CHF, JPY) but soft against risk proxies including AUD, NZD, IDR, AXJs amid an environment of accommodative monetary conditions (pare back of US rate hike expectation) and less fragile risk sentiment (oil, equities were firmer). DXY was last seen at 97.40 levels. Daily momentum has turned mild bullish; daily stochastics is also rising. Resistance at 96.90 (200 DMA), 97.50 (50% fibo retracement of Jan high to Feb low). Support remains at 95.30 levels (previous low). Week ahead brings 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 fell amid supported risk sentiment. 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 1.1030 levels. Daily momentum is bearish bias while stochastics are falling. Support at 1.1030 (61.8% fibo retracement of Feb low to high) before 1.0950 (76.4% fibo). Resistance at 1.1160 (38.2% fibo), 1.1240 (23.6% fibo retracement of Feb low to high) before 1.1370 (previous high). Week ahead brings 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 – Uncertainty Driving Weakness. GBP tumbled to fresh 7-year low of 1.4058 into NY open yesterday as uncertainty over UK’s future in EU weighs on sentiment. London Mayor Boris Johnson and a few heavyweights including former Tory Chancellor Lord Lawson have joined the Leave EU campaign. This is seen as a significant blow to PM Cameron’s campaign to remain in EU, especially when the London Mayor is a prominent member of the Conservative Party. Ongoing campaign and debate to remain or leave the EU will dominate headlines and sentiment; GBP vols are expected to remain elevated; GBP should remain highly volatile. Moody’s had mentioned yesterday that they could downgrade UK credit rating in the event of Brexit. GBP was last seen at 1.4140 levels. Daily momentum is bearish bias. Support remains at 1.4050-80 levels; if broken on daily/weekly close, we could see a potential break of 1.40 handle towards 1.38. Meantime resistance at 1.43 levels. Week ahead brings CBI Trends (Feb) on Mon; CBI Reported sales (Feb) on Wed; GDP (4Q prelim) on Thu.

       USDJPY – Still Eyeing 110.99; then 101.10. USDJPY is soft this morning, slipping back below the 113-levels despite dollar strength overnight. Likely lifting the JPY this morning is the sell-off in the EUR, GBP and AUD against the JPY. Continuing concerns about the BOJ’s negative interest rate policies impacting banks’ profitability could also weigh on the USDJPY. Pair remains soft and further BOJ easing and/or acceleration of the other arrows of Abenomics is needed to boost USDJPY. Pair continues to show 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). Remaining week has PMI Mfg (Feb prelim); BOJ Kuichi speaks (Thu); Jan CPI (Fri). BOJ’s governor Kuroda and Iwata appears in parliament later this morning.

       NZDUSD – Upside Risk. NZD traded higher overnight, tracking its risk proxies (AUD, CAD) higher.. We maintain our sell NZD on rally. 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. Last seen at 0.6705 levels. Daily momentum and stochastics are indicating a mild bullish bias. Resistance at 0.6760 (76.4% fibo retracement of Dec high to Jan low), before 0.6880.  Support at 0.6620 (50% fibo). Week ahead brings Finance Minister English speaks on Thu; Trade (Jan) on Fri.

       AUDUSD – Buy on Dips. AUD broke above the 0.72-figure overnight and was last seen around 0.7240 this morning, extending its uptrend. Pair is buoyed by firmer iron or prices and positive risk appetite. Technically, daily momentum is gaining bullish momentum. This cross is within striking distance of 0.7254-resistance (76.4% fib retracement of the Dec-Jan sell off), ahead of the 0.7380 (2015 double top). Support is seen at 0.7157 (100-DMA) ahead of the next at 0.7106 (50% fib). 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. Week ahead brings RBA’s Richards speaks on Tue; Wage price index, construction work done (4Q) on Wed; Capex (4Q) on Thu.

      USDCAD – Rangy. The pair slipped back towards the 1.37-figure. This pair has been dictated by the crude prices and the move overnight was no different, dragged by firmer Brent. We had mentioned 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). Week ahead has no tier one data of note.

     Asia ex Japan Currencies

      The SGD NEER trades 0.81% below the implied mid-point of 1.3890. We estimate the top end at 1.3609 and the floor at 1.4169.

       USDSGD – Bullish.  USDSGD is inching higher back towards the 1.40-levels as global risk appetite takes a turn for the worse this morning. Last seen around 1.4016, 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; 21DMA) ahead of 1.4150 (50% Fibo). With our support at the 1.40-level taken out overnight, new support at the 200DMA around 1.3950 is eyed before next at the year’s low of 1.3861. Jan CPI (Tue) is on tap later today and market is expecting a firmer core inflation of 0.5% y/y in Jan vs. Dec’s 0.3%, though headline inflation remains under pressure and is likely to have slipped 0.1% y/y in Jan (Dec: 0%). Tomorrow has final 4Q15 GDP, which is expected to rise by just 1.8% y/y compared to the advance estimates of 2.0%. Jan industrial production is due on Fri.

       AUDSGD – Upside Bias. AUDSGD broke the 1.01-figure overnight and was last seen around 1.0120. We maintain the upside bias with the 0.97-figure seen as a key support (double bottom – lows of Sep 2015 and Feb 2016). Daily momentum and stochastics continue to exhibit increasing bullish bias and we see a bullish divergence. This cross is close to the 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 maintain our upside bias as well as our target at 1.0350, before 1.0500, with a stop loss of 0.9680 (below double-bottom).

       SGDMYR – Sell on Rallies. SGDMYR was a touch softer amid firmer Ringgit as oil prices remain supported. Monthly and daily momentum indicators are showing signs of bearish bias. Key support remains at 2.95 (200 DMA). A break below is needed for further downside move to materialise. Next support levels at 2.8940 (previous low). We set our sights on 2.80.

       USDMYR – Sell on Rallies. USDMYR remains highly volatile and driven by oil prices. Last seen at 4.1770 (yest high was 4.2180 levels). Bullish momentum on daily is showing signs of waning; stochastics is showing tentative signs of turning lower. Support at 4.1770 (23.6% fibo retracement of Jan high to Feb low, 21 DMA), before 4.1170 (200 DMA). Resistance at 4.2275 (38.2% fibo). FX reserves (data released yesterday) continues to hold up at over US$95bn. FX reserves to retain imports stood at 8.2months and is 1.2x of external debt. This is an encouraging improvement from previous prints. Our Economists noted that portfolio flows are less of a pressure point amid sustained current account surplus and indication of repatriations, especially by government-linked investment funds. Week remaining brings CPI inflation (Wed).

       1s USDKRW NDF – Bias to Buy Dips. 1s USDKRW eased, following supported risk sentiment overnight. Talks of authorities planning foreign currency coverage ratio to ensure financial companies have enough liquidity to manage external shocks. 1s KRW was last seen at 1230 levels.  Daily momentum and stochastics remain bullish bias. Support at 1228 (23.6% fibo retracement of 1188 – 1240), 1220 (38.2% fibo). Resistance at 1240. Expect 1225 – 1240 range to hold intra-day.

       USDCNH – Settling Into Range. USDCNH remains steady and was last seen around 6.5270. We continue to look for range-trading within 6.4850-6.5780 range now. CNH trades at a discount to CNY against the USD of around 40pips. USD/CNY was fixed 108 pips higher at 6.5273 (vs. previous 6.5165). CNY/MYR was fixed 22 pips lower at 0.6413 (vs. previous 0.6435). 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 99.83 base on its latest fixing. According to the local media, China will focus on growth quality in the five-year plan. There are also plans to revise securities law, begin SOE reform and approve the third tranche of FTZs after NPC. We continue to maintain our call-spread strategy that we initiated last Nov to buy a 6-month USDCNH 2:1 call ratio spread for a zero-cost strategy. 

       SGDCNY – Bearish. This cross was a tad firmer and closed at 4.6540 yesterday. Still, we see increasing downside momentum for this cross and we think it is a matter of time before the pair falls towards the 50-DMA at 4.6119. Break there exposes the next support at 4.5830. Beyond the near-term, the uptrend is still intact. A failure to break below the 50-DMA could easily see a reversal 4.6700.

       1s USDINR NDF – Uptrend ahead of Budget. This pair remained in tight swivels yesterday and was last seen around 69.00. 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. Focus is still on the budget due on 29 Feb. Eyes are on whether the government chooses to boost growth or continue its fiscal consolidation efforts.

       USDIDR – Gapping Lower. USDIDR gapped lower at the opening this morning to 13410 from yesterday’s low of 13417 as the pair played catch-up with the rest of its regional peers. Last seen around 13400, pair has lost most of its bearish momentum, while stochastics continues to climb higher. Improving macroeconomic fundamentals, 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 remains supportive of the IDR for now, pressuring the USDIDR. Support is around 13230 (15 Oct 2015 low). Barrier is at 13500 (yesterday’s high) ahead of 13610 (23.6% Fibo retracement of the Sep-Oct 2015 downswing). The JISDOR was fixed lower at 13460 on Mon from 13549 on Fri. Sentiments soured yesterday with foreign funds selling a net USD39.69mn of equities. They had removed a net IDR0.16tn from their outstanding holding of debt on 18 Feb (latest data available). There is no data of note this week.

       USDPHP – Bullish Bias.  USDPHP is mildly bid this morning, lifted by deterioration in risk appetite. Last seen around 47.618, pair is exhibiting waning bearish momentum and stochastics bullish. With risks to the upside in the near term, look for Resistance is around 47.855 ahead of 48.069 (year’s high). Support remains around 47.450 (23.6% Fibo retracement of the Oct 2015-Jan 2016 upswing). Investor sentiments failed to improve on Mon with foreign funds selling a net USD1.72mn of equities yesterday. Only Dec imports and trade balance data of note on Wed.

       USDTHB – Capped By 100DMA. Onshore markets re-open after a long weekend with any relief for the USDTHB short-lived as the pair bounced higher as risk appetite deteriorated. Pair was last seen around 35.770 with daily chart still showing bullish momentum and weekly charts bearish bias. In the near term, risks remains to the upside with the 100DMA at around 35.835 likely to cap upticks. A clean break of the 100DMA should expose the next at 35.940-60 (61.8% Fibo retracement of the Jan-Feb downswing; 50DMA). Any slippages should find support around 35.675 (38.2% Fibo) before the next at 35.495 (23.6% Fibo).

Rates

Malaysia

      Government bond market had a slow start to the week with prices trading mixed around last done levels. Most trades centered upon the 7y benchmark MGS 8/23. We expect levels to be little changed ahead of the next auction which is a new 5y GII. We expect a size of MYR4b on the issuance.

       In the IRS market, levels were quoted higher but no trade was reported. 3M KLIBOR dropped by 1bp to 3.74%.

       PDS market was quiet. Front end Caga tightened 1-2bps with Caga 20s tightening 2bps to 4.16% (MGS+72.5 and Z+37.1bps) and Caga 21s tightening 2bps to 4.26% (MGS+82.8 and Z+41bps). Both still offer decent pick up. Front-end AAAs like Putra 19s closed tighter by 6bps at 4.06% (MGS+80.3 and Z+37.1). GG curve was pretty muted with 10y GGs like Dana 25s and JKSB 25s being traded 3-5 bps wider at 4.43% (MGS+51.3 bps and Z+32.1) and 4.48% (MGS+ 58.6bps and z+35.9bps) respectively. In comparison, the newer 10 year GGs like PASB 26s and Prasa 26 WI were quoted at similar levels on the offer side.

Singapore

      SGS market opened with a whimper despite softer UST opening and market generally turned risk on. A lack of interest is apparent with few calls and mostly from one local bank. Overall the SGS curve closed about 1-3bps higher from previous day close.

       Asian credit space was muted. Buying sentiments turned stronger with some buying in the IG space and spreads tightening 5-10bps on average. Names like HRAM tightened almost 15bps. Buyers emerged on the long end Malays 45s and PETMK 45s since last week. With thin liquidity, the focus of the day is on two major primary issuances. The announcement came for book opening of Cheung Kong Infrastructure for its USD PerpNC5 with price guidance at 6%. NTPCIN has also announced USD issuance for its 10y bond with guidance of T10+275bps. CKI pricing looks fair, but we believe it should be able to garner decent secondary interest given the scarcity of Hong Kong corporate issuances. NTPC on the other hand seems to be attractive as we are looking at fair value of T10+255bps level.

 Indonesia

      Indonesia bond market recorded loss during the beginning of the week as there were minimal market sentiments. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 7.809%, 8.130%, 8.444% and 8.480% while 2y yield shifts up to 7.552%. Trading volume at secondary market was seen heavy at government segments amounting Rp11,023 bn with FR0056 as the most tradable bond. FR0056 total trading volume amounting Rp1,628 bn with 55x transaction frequency and closed at 101.707 yielding 8.130%.

       DMO will conduct their bi-weekly sukuk auction today with five series to be auctioned which are SPN-S10082016 (Coupon: discounted; Maturity: 10 Aug 2016), PBS006 (Coupon: 8.250%; Maturity: 15 Sep 2020), PBS009 (Coupon: 7.750%; Maturity: 25 Jan 2018), PBS011 (Coupon: 8.750%; Maturity: 15 Aug 2023) and PBS012 (Maturity: 15 Nov 2031). We believe that the auction will be oversubscribe by 2.0x – 3.0x from its indicative target issuance of Rp4 tn while our view on the indicative yield are as follows SPN-S10082016 (range: 6.40% – 6.50%), PBS006 (range: 8.30% – 8.45%), PBS009 (range: 8.20% – 8.35%), PBS011 (range: 8.50% – 8.65%) and PBS012 (range: 8.80% – 8.95%).

       Corporate bond trading traded heavy amounting Rp875 bn. ASDF01CCN1 (Shelf registration I Astra Sedaya Finance Phase I Year 2012; C serial bond; Rating: idAAA) was the top actively traded corporate bond with total trading volume amounted Rp235 bn yielding 8.578%.