Maybank GM Daily - 3 Feb 2016

FX

Global

       Oil was the culprit again, in the absence of stronger market cues. Both brent and WTI lost around USD1.5/bbl and WTI is back under the psychological USD30/bbl-handle. Moves overnight clearly indicated a fragile risk environment with DJI, S&P and NASDAQ around 2% lower. European equities also registered deep losses overnight. The only bourses that clocked gains were Shanghai Comp, Shenzhen and the CSI 300, boosted by the relaxation of the mortgage policies, announced by PBOC that should support China’s real estate sector.

       Dollar retained a soft bias overnight. The DXY was dragged by the firmer EUR amid weaker risk appetite. In early trades, the MYR, KRW, THB and SGD depreciated against the USD. Safe haven flows benefitted the JPY, last seen below the 120-figure.The rest of Asian currencies traded flat. The antipodes were mixed. The GDT price index fell 7.4% at the overnight auction from the previous event but a huge slide in unemployment rate from 6.0% to 5.3% lifted the NZD towards the 0.6540-level at one point this morning. Comments by RBNZ Wheeler that the central bank will not lower rates because of low inflation could have supported the kiwi as well. AUDNZD slipped below 1.08-figure.

       The day ahead has ADP report out of the US which should give a hint for the payroll number on Fri. Europe has retail sales due today.  Nearer to home BOJ speaks in Tokyo. BOT meets today and we expect the central bank to keep policy rates unchanged as fiscal stimulus provides support to the economy. However, expect the central bank to retain easing bias as headline inflation remains below the target range of 1-4%.

Currencies

G7 Currencies

       DXY – Mixed Outlook. USD was broadly firmer, tracking moves in other low-yielding currencies (JPY, EUR, GBP, CHF) as risk sentiment took a turn lower, dragged by lower oil prices. Fed’s George spoke yesterday – commented that US economy is in a “good spot” despite weakness in energy and manufacturing sectoes; market volatility should be monitored but monetary policy cannot respond to every “blip” in financial markets – somewhat striking a hawkish tone. That said markets’ bias remains for 1 cut this year and for markets’ implied probability for rate hike at next meeting in Mar has fallen to 12%. The mood remains for Fed to strike a dovish chord and even back off from their expectation in the Mar FOMC (where it releases its dots projection). DXY was last seen at 98.80 levels this morning. Daily momentum is flat while 4-hourly momentum and stochastics continue to indicate a bearish bias. Support at 98.70 (50 DMA) before 97 levels (38.2% fibo retracement of of Dec high to low). Resistance at 99.70 (76.4%). Key highlights of the week include Jan ADP employment; Dec durable goods orders (Thu); Jan NFP, wages; Dec trade balance (Fri).

       EURUSD – Managing Easing Expectations. EUR inched higher overnight amid softer risk appetite dragged by declining oil prices again. Hopes of further ECB QE in Mar somewhat took a hit as employment numbers in the continent showed an improvement; ECB Mersch said that a review a QE may not necessarily lead to another increase in stimulus. This contrasts with the lead up to Dec ECB meeting where expectations were running high for ECB to ease as ECB Board members have been talking about it and the resultant effect of ECB easing was met with disappointment. It appears that ECB may attempt to dampen easing expectation ahead of ECB meeting perhaps in hope that any further easing decision can be taken as a surprise (taking a leaf out of BoJ’s master of surprise Kuroda). EUR was last seen at 1.0925 levels at time of writing.  We continue to reiterate that EUR is trading in a triangle formation – horizontal trading pattern. Friday’s up-move failed and yesterday’s down-move failed as well. Pair is likely to trade in 1.0820 – 1.0960 until it breaks. Break above resistance at 1.0960 levels (100 DMA) finds 1.1060 (dec highs); while downside break below support at 1.0820 (upward sloping trend-line support from Dec to Jan lows) finds 1.0730 (61.8% fibo retracement of Dec low to high). We go with the former. Highlights of the week remaining include EC retail sales (Wed); GE Dec factory orders (Fri).

       GBPUSD – Still Tracking the EUR. GBP turned higher overnight, tracking other low-yielding currencies (i.e. EUR, JPY, CHF) as oil prices were once again dictating sentiment. There were reports of proposal from EU for a renew relationship for the UK recognizing the special status of UK within EU, covering migration, protection for the city of London, sovereignty and competitiveness. These could prevent a Brexit from happening but some points still require further negotiations. The proposal will be presented to the EU Summit in 18-19 Feb. Should a deal be reached, the referendum can be held as early as Jun and this could bring forth some stability in the pair.  GBP was last seen at 1.44 levels this morning. Focus on BoE meeting this Thu. We expect BoE to maintain its dovish stance and expect the Quarterly inflation report to show a downward revision to near term growth and inflation. Expect BoE Carney to reiterate that conditions for rate increase are not yet in place due to slower than expected wage growth and benign inflation outlook. BoE can still hold off rate increase till 2017. But we caution against excessive pessimism at current levels, given the massive sell-off and short positioning since Dec last year. Break above 1.4350 sees GBP short squeeze towards 1.4550. Weekly stochastics continues to show signs of turning around from oversold levels. Daily momentum and stochastics are indicating a mild bullish bias. Resistance at 1.4450 levels (previous high this week) before 1.4520 (38.2% fibo of Dec high to Jan low). Support at 1.4350 (23.6% fibo) before 1.4080 (Jan lows). Highlights of the week include BoE Super Thu which include the release of Quarterly inflation report, BoE meeting decision and minutes.

       USDJPY – Pull Back. The BOJ’s bazooka on Fri was quickly forgotten with a reversal in risk sentiments (renewed concerns about global growth amid falling oil prices) sending the USDJPY lower. Pair is now below 120-levels currently at 119.81 with daily charts showing bullish momentum, though stochastics remains at overbought levels, which suggests a further pullback could be in the making. With our 120.90-support level (50% Fibo retracement of the Jun 2015 high to Jan 2016 low) taken out yesterday, new support is around 118.31 (23.6% Fibo). Resistance is around 120.60 (00 DMA). Watch for BoJ Kuroda speaking today in Tokyo.

       NZDUSD – Short Squeeze. NZD was a touch softer amid weaker GDT (-7.4%; 3^rd consecutive decline) but a solid rebound in 4Q employment data (unemployment rate fell to 7-year low of 5.3% from 6.1% expected) saw a resurgence of NZD strength. Pair was last seen at 0.6537, despite other risk proxies underperforming. On technicals, we reiterate that daily momentum and stochastics are mild bullish bias which could continue to suggest some short squeeze, possibly towards 0.6550 (38.2% fibo retracement of Dec high to Jan low), 0.66 levels (100 DMA). We remain better sellers on rally.  Support at 0.6430 levels (lows in Nov and Jan) before 0.6350 (Jan low).

       AUDUSD – Bearish. Support for this pair at 0.7020 has served us well for a day. Pair was last seen at 0.7010, on its way towards the next support at 0.6945 (23.6% Fibonacci retracement of the Jan sell off). Bullish momentum is waning and the 50 and 100-DMA continues to cap at 0.7150. RBA kept rates unchanged yesterday and tone of the statement was one of cautious optimism, noting stronger expansions in non-mining sectors of the economy while contraction in mining investment persists. CPI is expected to remain low over the next couple of year, albeit “close to target”. The central bank also acknowledged adjustments in the AUD to “the evolving economic outlook”. RBA is still data-dependent – one jobs data and  global and domestic demand. Easing bias is retained given subdued inflation outlook. AUD was indeed, sold on fact and downside momentum was encouraged by the fall in base metals and oil. Eyes on more details of RBA’s assessment of the economy on Fri in the SoMP. Trade deficit widened on Dec to A$3.5bn from [previous A$2.7bn. Building approvals rebounded to 9.2%y/y from previous -12.4%. Dec retail sales and RBA’s Statement on Monetary Policy (SoMP) are due on Fri. 

       USDCAD – 50-DMA Supports. USDCAD rebounded from the 50-DMA at 1.3920 and hovered around 1.4090 as we write, underpinned by the slide in crude. Resistance is still seen at 1.4141 (61.8% Fibonacci retracement of Dec-Jan rebound), ahead of the next at 1.4246. Bearish conditions for this pair have waned and we see more room for bids.

     Asia ex Japan Currencies

       The SGD NEER trades 1.60% below the implied mid-point of 1.4062. The top end is estimated at 1.3776 and the floor at 1.4348.

       USDSGD – Grinding Higher.  USDSGD continues its climb higher, lifted by waning risk appetite following the drop in oil prices overnight. Pair is back above the 1.43-levels at around 1.4309. Daily MACD though is showing waning bearish bias but stochastics is turning higher, suggesting that further upmoves could be potentially be a grind. Barrier is around 1.4325 (50% Fibo retracement of the Jan downswing) ahead of the next at1.4350 (61.8% Fibo). New support is around 1.4260 (23.6% Fibo). In the news, Jan mfg PMI and electronics PMI both fell to 49.0 and 48.5 from 49.5 and 48.9, suggesting no quick rebound in sight for Singapore’s manufacturing sector.

       AUDSGD – Stuck In Two Way Trade. AUD/SGD slid to levels around 1.0030 as we write this morning, tracking the AUD lower. On the charts, bullish momentum has decelerated and risks are tilted to the downside. Support at 1.0040 has been broken and this cross could head towards the next support at 0.9960. Barriers are seen at 1.0104(100-DMA) before 1.0130 (50-DMA).

       SGDMYR – Retracement Underway. SGDMYR continued to move higher amid a weaker MYR driven by oil prices and weak sentiment (our Maybank idiosyncratic index saw an increase again). We reiterate our caution that the cross is at oversold levels (as indicated by stochastics). Bearish momentum (on daily chart) is also waning. Short-term profit-take could see a pullback towards 2.9870 levels (50% fibo of Jan high to low). Support remains at 2.93 levels (200 DMA) before 2.8940 levels (previous low).

       USDMYR – Pull-back on Renewed Oil Weakness. USDMYR turned higher amid renewed oil price weakness, softer sentiment. Our Maybank idiosyncratic index (a proxy indication of domestic risk sentiment) which fell over the past week saw a turn-around yesterday. This proxy tends to move in positive correlation with USDMYR. Last seen around 4.23 levels. We continue to reiterate our caution that the pair is at oversold conditions. Technically, daily stochastics is showing signs of rising from oversold levels. Further pullback can re-visit 4.24, before 4.2760 (50% fibo of the recent down-move), 4.2980 (50, 100 DMAs). Daily bearish momentum is also showing signs of waning. We expect oil price to continue to dictate the fate of the MYR. Key highlights of the week include De trade data and Jan FX reserves on Fri.

       1s USDKRW NDF – Bias to the Upside. 1s USDKRW traded well bid amid softer risk appetite overnight. Last seen around 1215 levels. Daily/ 4-hourly momentum is turning bullish bias. We remain cautious of risk sentiment that could see the pair turn up very quickly. Day ahead could see 1210 – 1220 range, with bias to the upside. Geopolitical tension in the peninsula (N.Korea planning rocket launch between 8-25 Mar) could also weigh on sentiment. Week remaining brings FX reserves (Wed).

       USDCNH – Capped. USDCNH retains a bid tone and was last seen around 6.6250. Pair is bid within the 6.59-6.64 range. Beyond the near-term, we see some downside risks but trend at the moment is still up and could hold until Lunar New Year. Gap with USDCNY was last seen around 450 pips. USD/CNY was fixed 11 pips higher at 6.5521 (vs. previous 6.5510). CNY/MYR was fixed 75 pips higher at 0.6422 (vs. previous 0.6348). The RMB index based on the basket of currencies was last at 100.15 as of 29 Jan, according to CFETS. PBOC announced slight relaxation of the mortgage policies, allowing banks to cut minimum required mortgage down payment to 20% from 25% for first home purchases in areas without the purchase restrictions. The minimum down payment for second home purchases was cut to 30% from 40%.

       SGDCNY – Upside Risks. SGDCNY slipped to close at 4.6090 yesterday, weighed by the weaker SGD amid soured risk sentiments and as CNY is kept steady.  Bullish momentum is mild and we continue to see upside risks though up-move has clearly been a grind. A break at the 4.6192 (that has been a strong barrier for this cross since last July), opens the way towards the next at 4.6700.

       1s USDINR NDF – Correction Ahead. This pair edged higher after RBI kept rates unchanged and was last seen around 68.40.  Barrier is seen around 68.60. Support is seen around the 68-figure, tested once yesterday as we expected and a clean break of the 68-figure exposes the next support at 67.6565 (38.2% Fibonacci retracement of the Jan rally). We hold our view that there is bearish divergence in this pair. We see bearish divergence on the spot prices on the daily, weekly and monthly chart. Correction could thus be sharp. Foreign investors bought USD59.8mn of equities and bought USD238.7mn of debt on 1 Feb. RBI kept rates unchanged yesterday, restrained by uptick in CPI. The central bank seems to be on a wait and see mode ahead of the Budget delivery on 29 Feb. That said, RBI will continue to keep monetary conditions accommodative by providing liquidity support through open market operations. We see risks of another cut as growth momentum has not gained as much as desired and that could come on 5 Apr when there is more clarity on inflation, oil situation and the monsoon predictions. RBI Governor mentioned that the RBI has intervened on both sides of the FX market.

       USDIDR – Capped. USDIDR is bouncing higher this morning in tandem with its regional peers as risk appetite weakened with the drop in oil prices. Last seen around 13718, pair is still exhibiting bearish bias as reflected in the daily charts, while stochastics now showing signs of turning higher, suggesting the possibility of the pair grinding higher in the near term. Upside though continues to be capped by the ichimoku cloud forming above price action with barrier around 13775 (bottom of the cloud) ahead of the next at 13840 (38.2% Fibo retracement of the Sep-Oct 2015 downswing). Any dips should find support nearby around 13685 (200DMA). The JISDOR was fixed lower again at 13621 yesterday from 13699 on Mon. Risk aversion yesterday led foreign funds to sell a net USD14.53mn of equities. They however added a net IDR1.40tn to their outstanding holding of government debt on 1 Feb (latest data available). 4Q15 GDP is due sometime towards the end of the week.

       USDPHP –  Gapping Higher.  USDPHP gapped slightly higher at the opening this morning to 47.825 from yesterday’s close of 47.790, playing catch up with its regional peers overnight. Pair was last seen around 47.855 with daily charts still showing little directional clarity ahead. Stochastics though continues to fall, suggesting that further upmoves could be a slow grind. Upticks should meet resistance around the 48-figure (last week’s high) ahead of the next at the multi-year high of 48.069 (26 Jan). Any slippages should find support nearby around 47.710. Positive risk appetite lifted foreign funds purchases of equities yesterday with a net USD9.89mn in equities bought. Highlight this week is Jan CPI due on Fri.

       USDTHB – Whippy. USDTHB is whippy again this morning on the back of poor risk sentiments overnight, pulled by the fall in oil prices reignited concerns about global growth and also by the BoT first policy meeting later today. BOT should be a non-event as fiscal policy continues to keep the economy supported and policy rates are already near historic lows. Pair is seen around 35.810 currently with daily MACD still showing downside bias. Technicals flag oversold conditions and we see potential rebound in the near term. Upticks should meet resistance around 35.900 (50% Fibo retracement of the Oct 2015 downswing) ahead of the next at 36.033 (50DMA). Support is seen around 35.720 (3 8.2% Fibo). Risk sentiments were mixed again yesterday with foreign investors selling a net THB0.63bn in equities but continued to purchase a net THB3.93bn in government debt.

Rates

Malaysia

       Local government bond prices softened against a backdrop of sliding MYR and oil prices. Yields ended higher by 1-7bps. Trades were mostly centered at the belly of the curve as foreign real money taking profit led players scrambling to on-sell amid poor liquidity.

       A very quiet day for IRS and nothing was reported to have dealt in the market. Rates were quoted higher aided by the softer MYR and MGS prices. 3M KLIBOR stayed at 3.79%.

       PDS market was also quiet. Rantau’20 were given 1bp wider than MTM at 4.14% (G+81bps; z+29bps), while MACB’22 tightened 1bp to 4.53% (z+55bps; G+92bps). We think both still look attractive in terms of spreads, though MACB would require few bps premium for illiquidity and perceived weaker credit. In the quasi sector, JCorp’22 widened 3bps to 4.29% (G+73bps; and z+33bps), which is similar to AAA levels. Other trades were mostly crosses in odd amounts, especially in the AA sector.

Singapore

       SGS continued to see good interest as BoJ’s action fueled demand for highly rated government bonds. A foreigner was aggressively buying up 4y-5y bonds. Elsewhere had sporadic support, especially in the 5y-10y sector. Yields mostly flat to +1bp, except for the biddish front-end which ended -1bp. With easy money, we think SGS would continue to outperform SGD IRS and UST over the near term.

       Asian credit space was muted. The IG space saw some small buyers, while oil & gas sector widened 2-3bps on lower oil prices. PETMK took a hit and Malaysia CDS widened ~10bps on negative headlines on Malaysia again. In the primary space, KEXIM is issuing 5y USD green bond with price guidance around T5+105bps. Rating changes: 1) S&P cut China Fishery’s rating to D after it missed a bond coupon payment, 2) Anton Oilfield rating was downgraded to CCC from B- by Fitch on refinancing risk concerns, and 3) Fitch upgraded China State Construction International to BBB+/stable after reassessing the parent companies.

 Indonesia

       IGS prices continue to rise backed by a large demand during the auction which was conducted by DMO. The result of the auction sets the course that IGS may continue to accelerate with an expectation of the 10y IGS to reach somewhere around 7.8% - 7.9% level. However, we see that the chances for further acceleration from that point might be stranded as most of the benchmark series IGS yield will be reaching their supporting level. At such level, either a chance of profit taking or continuation of IGS price acceleration may occur. Yet in our view, the acceleration seems logical if it is supported by something more fundamental rather than just market sentiments. It can either be better data release of upcoming publication of 2015 Indonesia GDP growth, sluggish U.S. labour market, further BI rate cut, S&P rating agency increasing Indonesia rating to investment grade or a huge foreign inflow. The last reasoning needs a special attention as it may turn direction at any time causing a slump in IGS prices. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 7.950%, 8.009%, 8.367% and 8.348% while 2y yield shifts down to 7.811%. Trading volume at secondary market was seen heavy at government segments amounting Rp23,899 bn with FR0073 as the most tradable bond. FR0073 total trading volume amounting Rp7,295 bn with 208x transaction frequency and closed at 103.927 yielding 8.367%.

       Indonesian government conducted their conventional auctions yesterday and received incoming bids of Rp34.64 tn bids versus its target issuance of Rp12.00 tn or oversubscribed by 2.9x. Incoming bids during the auction was higher by aprrox. 39% compared to the last conventional auction last two weeks. It’s also the highest incoming bids since the start of this year. However, DMO only awarded Rp15.00 tn bids for its 3mo, 1y, 6y, 11y and 16y bonds. Incoming bids were mostly clustered on the belly till long end tenor series. 3mo SPN was sold at a weighted average yield (WAY) of 5.58925%, 1y SPN was sold at 6.81600%, 6y FR0053 was sold at 7.97286%, 11y FR0056 was sold at 8.07759% while 16y FR0073 was sold at 8.41984%. No series were rejected during the auction. Bid-to-cover ratio during the auction came in at 1.36X – 3.82X. Till the date of this report, Indonesian government has raised approx. Rp49.1 tn worth of debt through bond auction which represents 50.4% of the 1Q 16 target of Rp97.33 tn. On total, Indonesian government has raised approx. Rp124.7 tn worth of debt through domestic and global issuance which represent 23.4% of this year target of Rp532.4 tn.

       Corporate bond trading traded heavy amounting Rp809 bn. BNII01BCN1 (Shelf registration I Bank BII Phase I Year 2011; B serial bond; Rating: idAAA) was the top actively traded corporate bond with total trading volume amounted Rp187 bn yielding 8.715%.