Maybank GM Daily - 24 Feb 2016

FX

Global

       Global equities tracked oil prices lower, weighed after Saudi Arabia said it will not reduce its oil supply as it does not believe other countries would enter the pact. The soured risk sentiments spurred demand for JPY and CHF yesterday while most of other G10 majors weakened against the USD. GBP continued to languish in the fear of Brexit. NZD, CAD and AUD traded on the back foot on weaker risk appetite. EUR slipped below 1.10 against the USD in early European hours after the German IFO survey showed deterioration in business climate, current assessment as well as expectations of the economy.

       Most of Asian currencies strengthened against the USD. SGD was the outlier, undermined by the softer-than-expected inflation numbers. Core inflation ticked higher to 0.4%y/y in Jan from previous 0.3%, albeit missing the consensus of 0.5%. Year-on-year, the headline met expectations of another 0.6% decline, steady from the month prior. What moved the SGD the most was the downward revision of 2016 inflation forecast to -1% to 0% that was attributed to expectations for oil prices to remain low in 2016. USDSGD jumped 40pips towards the 1.41-figure before tapering off. Pair resumed up-move this morning before the 4Q GDP print dragged it towards the mid-1.40 levels again. Growth in the past quarter met expectations at 1.8%y/y. Along with the release, MAS said that its policy stance remain appropriate and unchanged. Policy review will be in April as scheduled.

       Key data we watch today includes Philippines’ trade numbers, Malaysia’s CPI as well as Vietnam’s CPI. Beyond Asia, US has new home sales, services PMI and a number of Fed speaks. Expect most of the G10 currencies to remain in consolidation with respective directional bias. The current negative risk sentiments favor JPY, CHF and EUR.  As for the Asian currencies, we remain wary of rebounds in the USDMYR and USDSGD. Eyes on BOJ Kuroda that could swing the JPY as he speaks at Parliament for a number of times today.

Currencies

G7 Currencies

       DXY – Upside Risk. USD was firmer against risk proxies, but softer against CHF and JPY as risk sentiment turned softer. Global equities closed in negative territories while oil prices fell following comments from Saudi (rules out oil production cuts) and Iran (calling the oil production freeze “ridiculous”). Fed’s Fisher spoke this morning, as we write – reiterated that he can’t answer question of what policymakers may do at Mar FOMC meeting; too early to judge impact of increase market volatility; rate hikes not pre-determined. DXY was last seen at 97.50 levels. Daily momentum remains mild bullish; daily stochastics is also rising. Resistance at 97.50 (50% fibo retracement of Jan high to Feb low) before 98 levels (50, 100 DMAs). Support at 97 (200 DMA). Week remaining brings New home sales (Jan); services PMI (Feb prelim); Fed’s Lacker, 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 – Cautious of Technical Rebound. EUR’s move below 1.10-handle overnight was short-lived. Price action remains muted, with topside capped at 1.1050 as worries over UK exit from EU also weighed on the EUR. German headline IFO index fell.  We maintain our call to sell EUR on rallies into 10 Mar ECB meeting but caution for risk of technical rebound. EUR was last seen around 1.1030 levels. Daily momentum remains bearish bias while stochastics are falling. Intra-day, 4-hourly stochastic is showing tentative signs of turning bullish. Resistance at 1.1050 (200 DMA). 1.11 (21 DMA), 1.1160 (38.2% fibo). Support at 1.0950 (76.4% fibo retracement of Feb low to high). Week remaining brings EC, GE, CPI (Jan Final) on Thu; FR GDP (4Q) FR CPI (Feb flash); ECB’s Praet speaks on Fri.

       GBPUSD – Under Pressure Amid Brexit and BoE Speaks. GBP continues to trade on a back-foot amid ongoing debate on UK’s future and the possible repercussions it could have on the economy. BoE Governor said BoE has considerable room to ease monetary policy if needed but it is not yet their judgement that policy rate could go negative. BoE MPC member Vlieghe said he has little tolerance for further downside surprises (to both growth and inflation) and should downside surprises continue then he will get relatively quickly to a point where he find it appropriate to respond to it. GBP saw a fresh 7-year low of 1.3986 earlier this morning; last seen at 1.4006. Daily momentum remains 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 remaining brings CBI Reported sales (Feb) on Wed; GDP (4Q prelim) on Thu.

       USDJPY – Eyeing 110.99 First; then 101.10. USDJPY continues to soften below the 112-levels on risk aversion following the Chinese moves to fix the yuan at its lowest in six weeks as well as comments by BOJ governor Kuroda on the limits of its present approach to monetary policy. The governor had commented in Parliament yesterday that “…the monetary base alone will not pull up inflation or inflation expectations promptly”.  Instead, the BOJ “aim(s) to raise prices through an increase in inflation expectations and a tighter gap in supply and demand under QQE”. This suggested that expanding the monetary base might no longer be the focus of QQE down the road but could target interest rates. Pair was seen around 111.97 with daily chart now showing steady bearish, 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 113.95 (23.6% Fibo). Remaining week has BOJ’s governor Kuroda appearing in parliament yet again today; BOJ Kuichi speaks (Thu); Jan CPI (Fri).

       NZDUSD – Watch 21 DMA. NZD’s move high above 0.64-handle was short-lived as it traded softer amid negative risk sentiment into NY close overnight. 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. NZD was last seen at 0.6635 levels. Mild bullish momentum on daily chart is showing signs of waning. Support at 0.6620 (50% fibo of Dec high to Jan low, 21 DMA), if broken, could see further downside towards 0.6550 (38.2% fibo). Resistance at 0.6680 (61.8% fibo), 0.6760 (76.4% fibo retracement of Dec high to Jan low).  Week remaining brings Finance Minister English speaks on Thu; Trade (Jan) on Fri.

       AUDUSD – Buy on Dips. AUD drifted yesterday as risk sentiments soured, last seen at the 0.72-figure this morning.  Technically, daily momentum is still bullish and uptrend is still intact. The 0.7254-resistance (76.4% fib retracement of the Dec-Jan sell off) is the next barrier to break, 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. Data-wise today has wage price index which softened to 0.5%q/q for 4Q from previous 0.6%. Construction work done also slipped -3.6%q/q. Week ahead brings Capex (4Q) on Thu.

       USDCAD – Flat. The pair hovered around the 1.37-figure. This pair has been dictated by the crude prices and the move overnight was also  due to softer oil. 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 1.00% below the implied mid-point of 1.3929. The top end is estimated at 1.3648 and the floor at 1.4211.

       USDSGD – Limited Downside.  USDSGD is retracing mildly this morning after bouncing higher yesterday despite the firmer dollar overnight. Yesterday softer-than-expected inflation print and downward revision to full-year headline inflation forecast for 2016 had pressured the SGD lower. This morning though there was a mild relief rally in the SGD as 4Q15 GDP met expectations at 1.8% y/y. On a SAAR-basis though, GDP accelerated by 6.2% q/q, beating both market expectations and advance estimates. Breakdown suggests that services sector growth underpinned the headlines. Pair is seen around 1.4059 currently with daily charts showing no strong momentum, though weekly charts are bearish bias. In the near term, further downside could be limited given that risks remain tilted to the upside. Further slippages are likely to find support around 1.4000 (23.6% Fibo retracement of Jan-Feb downswing). Rebound should meet resistance around 1.4115 (100DMA) ahead of 1.4150 (50% Fibo). Remaining week has Jan industrial production on Fri. Headline CPI fell by -0.6% y/y in Jan (Dec 2015: -0.6% y/y) while core inflation accelerated mildly by +0.4% y/y (Dec 2015: +0.3% y/y). Given the weakness in headline inflation so far, the MAS adjusted their headline inflation forecast for 2016 to -1.0%-0.0% (from -0.5%-0.5% previously) while maintaining the core inflation forecast at +0.5-1.5%. Our economic team maintains their headline inflation forecast at +0.5% for 2016.

       AUDSGD – Upside Bias. AUDSGD took  a peek above the 1.02-figure at one point yesterday and a sharp reversal left this cross around 1.0120. Uptrend is still intact for this pair, underpinned also by SGD weakness ahead of the MAS policy in Apr. 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. 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 call for further upside towards our first objective at 1.0350, before 1.0500.

       SGDMYR – Sell on Rallies. SGDMYR was little changed from yesterday levels. Last seen around 2.9930 levels. Daily momentum remains mild bullish bias. Resistance at 3.0090 (61.8% fibo retracement of Jan high to Jan low). Key support remains at 2.95 (200 DMA). A break below is needed for further downside move to materialise. Next support level at 2.8940 (previous low).

       USDMYR – Upside Risk. USDMYR gapped higher this morning tracking oil price weakness and negative risk sentiment. Last seen at 4.22. Daily momentum and stochastics indicators continue to signal a bullish bias. Support at 4.1770 (21 DMA, 23.6% fibo retracement of Jan high to Feb low). Resistance at 4.27 (50, 100 DMAs). Day ahead brings CPI inflation (Wed). Fitched affirmed Malaysia’s ‘A-’ rating yesterday.

       1s USDKRW NDF – Bias to Buy Dips. 1s USDKRW remained well bid on dips around 1230 levels overnight as risk sentiment turned negative following higher USDCNY fixing, global equities in the red overnight. 1s KRW was last seen at 1236 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.

       USDCNH – Settling Into Range. USDCNH sprung into action after the higher fixing yesterday and remained elevated around 6.5350 as we write in early trades. We continue to look for range-trading within 6.4850-6.5780 range now. Beyond the near-term, we expect USDCNH to see further upside along with higher dollar. A big break to the upside could be triggered by further easing by ECB on 10 Mar which roughly coincides with the NPC and CPPCC that is held from 3-13 of Mar. CNH trades at a discount to CNY against the USD of around 80pips. USD/CNY was fixed 29 pips higher at 6.5302 (vs. previous 6.5273). CNY/MYR was fixed 16 pips higher at 0.6429 (vs. previous 0.6413). 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. NDRC said it will continue to increase direct financing and scale of company bond sales. PBOC was said to inject CNY40bn yuan via 7-day reverse repo today.

       SGDCNY – Bearish. This cross slipped and closed at 4.6329 yesterday. 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 69.08. Trend is up ahead of the budget, fanned also by month-end oil importers’ demand. We note a slight bullish momentum in this p air. 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. At home, India says future disinvestment will depend on market environment (BBG).

       USDIDR – Upside Tilt Within Range. USDIDR climbed higher this morning, playing catch-up with its regional peers amid a dip in oil prices and concerns about global growth. Last seen around 13453, 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 higher. Barrier is at 13500 (22 Feb’s high) ahead of 13610 (23.6% Fibo retracement of the Sep-Oct 2015 downswing). Support is around the year’s low 13295. The JISDOR was fixed lower again at 13397 on Tue from 13397 on Mon. Sentiments improved yesterday with foreign funds buying a net USD33.69mn of equities. They had added a net IDR1.89tn to their outstanding holding of debt on 19 Feb (latest data available). There is no data of note this week.

       USDPHP – Bullish Bias.  USDPHP is on the uptick this morning, tracking its regional peers broadly higher. Pair is seen around 47.682 with daily chart still showing waning bearish momentum and stochastics bullish. With risks remaining to the upside in the near term, 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 turned positive yesterday with foreign funds buying a net USD1.05mn of equities. Onshore markets are closed tomorrow to mark 30th of democracy in the Philippines and will re-open on Fri.

       USDTHB – Still Capped By 100DMA. The 100DMA continues to cap upside to the USDTHB. Pair remains in choppy trades and is currently seen hovering around 35.730-region. Daily chart still shows bullish momentum and weekly charts bearish bias. Any should find support around 35.495 (23.6% Fibo). For bullish extension, we need to see a break of the 100DMA at around 35.835, exposing the next barrier at 35.900 (50% Fibo retracement of the Jan-Feb downswing; 50DMA); 36.080 (61.8% Fibo). Investor sentiments were mixed yesterday with foreign funds buying a net THB0.95bn in equities but selling a net THB7.03bn in government debt.

Rates

Malaysia

§  MGS softened slightly, with pressure seen at the front end. Bonds ended mixed with the belly closing 1bp higher. The new 5.5y MGII 8/21 issue size was announced at a lower than expected MYR3.5b. WI was last quoted at 3.765/715% though nothing dealt.

§  Local IRS market very quiet. Although foreigners had interest to push up rates, there was no follow through onshore. Nothing traded in the market. 3M KLIBOR was unchanged at 3.74%.

§  PDS levels were largely unchanged on the back of good 2-way flow. In GG space, Dana’34 widened 1bp to 4.80% (MGS+39bps/z+25bps) while Dana’45 tightened 1bp to 5.04% (MGS+34bps/z+79bps). The AA space saw good demand for long dated project financing papers. EKVE’32 tightened 5bps to 5.43% (MGS+123bps/z+101bps) and may still have value considering the underlying bank guarantee. TBEI’31 traded at a high of 5.34% (MGS+113bps/z+94bps). MMC Corp tightened about 1bp across the belly.

Singapore

§  SGS market opened with support seen and yields lower, though trading volume was low as primary dealers stay sidelined ahead of the 30y auction. In late afternoon, SGD IRS saw strong paying interest on higher USDSGD and the support in SGS gave way with yields ending 1-3bps higher.

§  Asian credit space saw good buying interest on IGs, with investors picking up cheap O&G names as well as tech and property. New NTPC ended slightly wider than reoffer. CKI was 50cts higher on retail support. HY space also saw retail buying and closed about 25cts higher. The USD and EUR spaces have a heavy pipeline, namely KEXIM, IsDB, Temasek and Khazanah. Khazanah plans to sell 5y USD bonds guiding for T5+190bps, which look generous being about 20bps and 50bps wider than PETMK and MALAYs respectively. Fitch reaffirmed Malaysia’s rating at A-/stable, same with Moody’s and S&P.

 Indonesia

§  Indonesia’s government bond was closed by mixed results yesterday. The government bond’s long tenor yield was higher, while the short tenor yield was relative lower. Furthermore, the Ministry of Finance has successfully held a sukuk auction yesterday. Total incoming bid was Rp9.85 trillion and bid awarded was Rp5.075 trillion. Rupiah appreciation, stronger oil prices and the Brexit issue were the main themes for Indonesia’s bond market yesterday. Those issues are expected to give positive influences for Indonesia’s government bond market today.