Maybank GM Daily - 29 Feb 2016

FX

Global

       Broad USD strength into NY close last Fri, as 4Q GDP, core PCE, personal spending all surprised to the upside. NZD was down -2%, AUD was down -1.5%. USDAXJs were broadly higher, in particular USDSGD and USDKRW. Oil prices were slightly weaker but still managed to hold on to the week’s gains. There was little surprises out from G20 over the weekend - PBoC Governor Zhou assured that CNY has no basis for sustained depreciation; there is still room for monetary support for China given low inflation; acknowledged for the first time that China’s monetary policy is “prudent with slight easing bias”. G20 members said that monetary policy alone cannot lead to balanced growth; fiscal policy is key.

       Focus for the week ahead is whether China walks the talk (on fiscal policy, supply side reforms). China’s annual Chinese People’s Political Consultative Conference (CPPCC) starts on 3 Mar (concludes on 13 Mar) and National People Congress (NPC) starts on 5 Mar. China’s 5-year GDP target for 2016-2020 is expected to be released. We expect (risk) markets to be relatively stable during the meetings. Expect the China to tap on both demand and supply side measures to reduce excess production, maintain aggregate demand, reduce housing stocks, lower corporate and government debt as well as to ease existing bottlenecks. In particular, there are talks of lowering corporate tax and increasing fiscal deficit to 4% against the GDP.

       Data calendar is busy this week with a handful of CPI inflation data out from the region including Thailand, Indonesia (1 Mar); Korea (2 Mar) and Philippines (3 Mar). PMIs release from around the world will start coming on stream from 1 Mar. Other data we are also watching include Euro-area Feb core and estimate CPI (Mon); NZ 4Q terms of trade, GDT auction; Japan 4Q capex (Tue); Australia 4Q GDP; UK Feb construction PMI (Wed); US Feb payrolls (Fri). Day ahead could see a continuation of USD strength against AXJs, in particular SGD, KRW. GBP remains heavy amid Brexit concerns and USD strength.

Currencies

G7 Currencies

       DXY – Rate Hike Expectation Back on the Table? USD rebounded after 4Q GDP, core PCE, personal spending all surprised to the upside. 2Y UST was about 7bps higher; now back above 0.80%. Strong data seem to suggest that FOMC meeting in Mar could well be live. DXY was last seen at 98.10 levels. Daily momentum remains mild bullish but daily stochastics is showing tentative signs of turning from near oversold conditions. Resistance remains at 98.75 (76.4% fibo retracement of Jan high to Feb low). Support at 97.5 levels (50% fibo) before 97-levels (21, 200 DMA, 38.2% fibo). Failure to sustain any upside momentum could see a pullback below 97-handle. Week ahead brings Feb Chicago PMI, Dallas Fed Mfg activity; Jan pending home sales (Mon); Fed’s Dudley speaks; Feb Mfg PMI; Feb ISM (Tue); Feb ADP Employment change; Beige Book; Fed’s William speaks (Wed); Jan ISM non-mfg, durable goods, factory orders (Thu); Feb NFP, unemployment rate, hourly earnings (Fri).  

       EURUSD – Sell on Rallies. EUR fell amid broad USD strength. Bias to see EUR on rallies remain amid upcoming ECB meeting which we expect ECB to unleash further monetary easing. Inflation expectation remains subdued and achieving 2% medium term inflation target remains ECB’s chief mandate. 5y5y EUR inflation swaps (a measure of inflation expectations) remains on a downtrend, last seen around 1.39 levels – its lowest on record. Daily momentum remains bearish bias; stochastics near oversold conditions. Support at 1.0850 (61.8% fibo retracement of Dec low to Feb high). Resistance at 1.0950 (50% fibo), 1.1050 (200 DMA). Week ahead brings EC CPI core and estimate for Feb (Mon); EC, GE, FR Mfg PMIs; ECB’s Lautenschlaeger peaks (Tue); EC Jan PPI; ECB’s Coeure speaks (Wed); EC Jan retail sales; EC, GE, FR services and composite PMI for Feb (Thu); GE Feb construction PMI and retail PMIs from EC, GE, FR (Fri).

       GBPUSD – Bearish Bias. GBP’s rise above 1.40-handle last Fri was short-loved as resurgence of USD strength brought GBP to multi-year lows. Last seen at 1.3850 levels this morning. Technically the pair remains bearish bias; stochastics at oversold conditions but yet to show any signs of turning. Support at 1.38, 1.35 levels. Resistance at 1.4080. Week ahead brings Jan consumer credit (Mon); Feb PMI Mfg (Tue); Feb construction PMI (Wed); Feb house prices, FX reserves, services and composite PMI (Thu).

       USDJPY – Interim Double-Bottom. The USDJPY ended three sessions of uptick towards the 114-levels. Pair is slipping below the 114-levels to around 113.80 following scrutiny of its monetary policy moves at the G20-meeting over the weekend. Downside today could be limited as daily chart is now showing bullish momentum, while stochastics is turning higher. On the weekly charts though pair remains bearish bias. There is a potential double-bottom after pair rebounded off 111-levels for the second time on 24 Feb (first was on 11 Feb), creating a potential interim base around those levels. A rebound could revisit 115-levels (38.2% Fibo retracement of the Jan-Feb downswing, 21DMA). Break above could challenge its 50% fib of 116.30 levels. Week ahead has BOJ governor Kuroda appearing in parliament (Mon); Jan jobless rate; 4Q15 capex spending; Feb PMI mfg (Tue); Feb monetary base (Wed); Jan labor cash earning (Fri). Data out this morning was mixed with industrial production falling by a preliminary 3.8% y/y in Jan from Dec’s 1.9%, though on a m/m basis it rebounded 3.7% from -1.7% in Dec. Retail sales fell 1.1% m/m in Jan, accelerating from Dec’s -0.2%.

       NZDUSD – Further Upside on the Break of 0.6760. NZD upside failed to gather momentum as broad USD strength saw NZD plunged from high of 0.6770s to 0.6570 levels this morning. We said last Fri that a clean break (on weekly close basis) above 0.6760 is needed to see a sustained move higher. This did not materialise. Daily momentum and stochastics have now turned bearish bias. Support at 0.6550 (38.2% fibo retracement of Dec high to Jan low), 0.6470 (23.6% fibo). Resistance at 0.6620 (50% fibo). We remain better sellers on rally. Maintain bearish outlook 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. Week remaining brings Jan building permits (Mon); 4Q ToT; GDT auction (Tue); Feb house prices (Wed); government finances (Fri).

       AUDUSD – Downside Pressure. AUD was caught on the back foot amid USD strength last Fri. Daily momentum and stochastics show signs on bearish bias. Support at 0.7080 (38.2% fibo retracement of Jan low to Feb high), 0.7035 (50% fibo). Resistance at 0.7150 (23.6% fibo). RBA the key focus on 1 Mar. We do not expect to cut cash rate. Prevailing interest rates have been supportive of consumption and borrowing, as evidenced by the stable retail sales and upticks in credit growth. Week ahead brings Jan building approvals; RBA meeting (Tue); 4Q GDP; Jan hone sales (Wed); Jan trade (Thu); Jan retail sales (Fri).

       USDCAD – Sell on Rally. The pair broke below the 1.36-figure and was last seen around the 1.35-figure. The breakout to the downside seems to be gaining steam and next bearish target is seen at 1.3270 ahead of the Oct low of 1.2830. With oil establishing a base around the USD30-figure and CAD having displayed tendency to be sticky to the downside even with crude volatility, we see upside risks to the oil prices translating to upside risks to CAD.

     Asia ex Japan Currencies

       The SGD NEER trades 0.93% below the implied mid-point of 1.3965. The top end is estimated at 1.3683 and the floor at 1.4247.

       USDSGD – Beyond 1.41 Eyed.  USDSGD is testing the 100DMA (1.4115), though it is currently hovering a tad off that level at 1.4110. Daily charts and stochastics suggest bullish momentum. Upside could visit 1.4150 (50% Fibo retracement of the Jan-Feb downswing); 1.4220 (61.8% Fibo). Downside could revisit 1.4050 (21DMA); 1.4000 (23.6% Fibo). Quiet week ahead with just Feb PMI on Wed and Feb Nikkei PMI on Thu.

       AUDSGD – Downside Pressure Intra-day. AUDSGD fell, dragged by AUD. Technically pair could be subjected to downside pressure. Daily momentum and stochastics are bearish bias. Support at 1.0020 (38.2% fibo retracement of Feb low to high) before 0.9960 (50% fibo). Resistance at 1.0090 (23.6% fibo).  Bias remains to buy on dips towards 0.9960.

       SGDMYR – Rising Wedge in the Making? SGDMYR was a touch softer overnight, as ringgit was broadly resilient while SGD underperformed. Price action appears to suggest a rising wedge in the making. This is typically a bearish reversal. Cross was last seen around 2.9970 levels. Daily momentum remains mild bullish bias. Stochastics is at overbought conditions. We continue to watch further price action.  Resistance at 3.0090 (61.8% fibo retracement of Jan high to Jan low), 3.03 (50 DMA). Key support remains at 2.9550 (200 DMA). A break below this is needed for further downside move to materialise. Next support level at 2.8940 (previous low).  

       USDMYR – Sell on Rallies. USDMYR inched higher this morning, amid USD strength but pair was relatively resilient as compared to USDSGD, USDKRW. Relatively stable oil prices continue to keep MYR relatively firmed. Last seen at 4.2290 levels. Momentum remains bullish bias but stochastics shows signs of turning lower. Resistance at 4.2680 levels (50% fibo of Jan high to Feb low, 50, 100 DMAs). Support at 4.1770 (23.6% fibo) before 4.1270 (200 DMA). Bias to sell on rallies towards 4.27 levels. Focus for the week on Jan trade data (Fri).

       1s USDKRW NDF – Upside Pressure. 1s USDKRW resumed its move higher amid USD strength. Last seen at 1244 levels this morning. Daily momentum remains bullish bias; while stochastics is entering into overbought conditions. Resistance remains at 1250 levels (yest high). Support at 1228 (23.6% fibo retracement of 1188 – 1240), 1220 (38.2% fibo). Week ahead brings Feb trade (Tue); Jan IP (Wed); Feb CPI (Thu).

       USDCNH – Pressure Still To The Upside. Chinese officials including PBOC chief, Finance Minister and Premier Li managed to convince the G20 meeting over the country’s policies and growth trajectories. Focus will now be on reform measures especially with the NPC/CPPCC meeting this week. Offshore yuan slipped lower underpinned by a firmer dollar with USDCNH hovering around 6.5520. Gap between the CNH and CNY has diminished. USD/CNY was fixed 114 pips higher at 6.5452 (vs. previous 6.5338). CNY/MYR was fixed 31 pips higher at 0.6434 (vs. previous 0.6404). The RMB index based on the basket of currencies was last at 99.29 as of 26 Feb, according to CFETS. China’s annual Chinese People’s Political Consultative Conference (CPPCC) starts on 3 Mar (concludes on 13 Mar) and National People Congress (NPC) starts on 5 Mar. China’s 5-year GDP target for 2016-2020 is expected to be released. We expect (risk) markets to be relatively stable during the meetings.  Expect the China to tap on both demand and supply side measures to reduce excess production, maintain aggregate demand, reduce housing stocks, lower corporate and government debt as well as to ease existing bottlenecks. In particular, there are talks of lowering corporate tax and increasing fiscal deficit to 4% against the GDP.

       SGDCNY – Upside Bias. This cross has broken above its trading range of 4.6260-4.6700. Downside momentum is waning and this cross seems to be regaining an upside bias. Support is still at the 50-DMA around 4.6185. Further upside to meet barrier at 4.7000 and then at 4.7500.

       1s USDINR NDF – Uptrend Intact Ahead of Budget. Pair inched higher as the Budget approached today, touching a high of 69.43 before tapering off to below the 69.30 levels currently. Upside pressure is fanned by month-end oil importers’ demand. The slight bullish momentum is still mild, though stochastics is at overbought levels. A revisit of 69.43 (25 Feb high) cannot be ruled out before the next barrier at 70.05. Uptrend in tact but we still hold our view that there is still 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 today. Support is seen at 68.60 (21DMA) before 67.90 (50DMA). All eyes are on the budget later today with the focus on whether the government chooses to boost growth or continue its fiscal consolidation efforts. Foreign investors sold USD154.94mn of equities and USD152.35mn of debt on 25 Feb.

       USDIDR – Rangy. USDIDR slipped lower the last week but has since regained some ground on the back of a firmer dollar tone and on month-end dollar demand. Pair was last seen around 13400. Pair has lost most of its bearish momentum. IDR continues to be supported by improving macroeconomic fundamentals, political stability, and the Jokowi government’s push for infrastructure building and investment amid low oil prices and supportive monetary policy. Support is seen around the year’s low 13295, while resistance is around 13500 (22 Feb’s high). The JISDOR was fixed lower at 13400 on Fri from 13416 on Thu. Sentiments were negative last week with foreign funds selling a net USD22.25mn of equities. They had also removed a net IDR0.68tn from their outstanding holdings of government debt on 22-24 Feb (latest data available).

       USDPHP – Upside Bias Within Range.  USDPHP has been hovering within familiar ranges of 47.500-47.860. Pair is currently on the uptick, playing catch-up with its regional peers. Last seen around 47.597, pair has lost most of its bearish momentum, and stochastics is bullish bias. With risks still to the upside, a move towards 9 Feb high of 47.860 is possible. Any slippages should find support around 47.200 (100DMA). Investor sentiments soured last week with foreign funds selling a net USD24.29mn in equities.

       USDTHB – Testing 100DMA. USDTHB was range-bound for most of the week, capped by the 100DMA around 35.840. Pair has since tested the 100DMA but is now hovering around 35.745. Daily momentum remains bullish bias, though stochastics is now tentatively turning lower. Weekly charts remain bearish bias. A clean break of the 100DMA-levels would expose the next barrier around 35.960 (61.8% Fibo retracement of the Jan-Feb downswing). Further slippages should find support around 35.675 (38.2% Fibo). Investment sentiments was mixed last week with foreign funds buying a net THB1.05bn in equities but selling a net THB3.08bn in government debt yesterday. Week ahead brings Jan trade; Jan current account; Jan mfg production index (Mon); Feb CPI (Tue); 26 Feb foreign reserves (Fri).

Rates

Malaysia

§  MGS mostly ended unchanged as buyers lined up at last done levels. On the other hand, MGIIs saw buying with the curve ending 1-4bps lower and most trades centered upon the newly issued 5.5y MGII 8/21.

§  Local IRS market continued to see receiving interest, with long end rates down about 3bps. The 5y IRS dealt at 3.78% and 3.77%. 3M KLIBOR remained the same at 3.74%.

§  In PDS, quasis focused on the long end and AAAs on the belly. Cagamas 11/20 was given 0.5bp tighter from last done at 4.175% (MGS+68bps/z+39bps). Dana 22s traded 2bps wider at 4.25% (MGS+56bps/z+33bps), which is around AAA levels. The AA space was rather active on YTL, Ranhill and UEM. The belly widened 1-3bps, while the short end tightened 1bp as they were better bid. AEON Co (M) Bhd is planning a MYR1b IMTN programme rated AA2 by RAM.

Singapore

§  The selling in long end SGS continued at market open with yields up by 7bps at one point. But bottom fishers came out and yields retraced back to close +1-2bps. SGS look cheap, but sentiment remains erratic. SGD IRS curve lowered 3bps at the front end.

§  Asian credits 3-5bps better across the board, with some tech names outperforming such as TENCNT 24 better by 8bps. China CDS saw some reprieve from the paying and managed to accede to a little profit taking, perhaps taking cue from the drop in CNH forwards as risk sentiment and outlook on China improved. Sovereigns had very small amounts being traded, generally on the offer side.

 Indonesia

§  Indonesia’s government bonds prices were slightly firmer during the back of positive global sentiments on the last Friday. It brought the yield rates to drop by around 1-3 bps across the curve. However, the upside movement on Indonesia’s government bonds prices was capped by some selling activities from some major market players. It has been seen by reducing their inventories on the last few days, ahead of the next auction. Market players are now focusing to the real demand that will be seen on the next auction.