Maybank GM Daily - 11 Mar 2016

FX

Global

      ECB eased in ways more than one. The deposit facility rate was lowered by another 10bps to -0.4%, the main refinancing rate was cut to zero, quantitative easing was raised to EUR80bn/month with effect from next month and corporate bonds are now included. In addition, a second series of LTRO is announced to be launched in Jun. EUR fell towards the 1.08-figure at one point before spiking above the 1.12-figure shortly after ECB Draghi said he does not see a need for further rate cuts. Equities reversed out its gains to close in deep red.

      GBP joined EUR in its yo-yo and was last seen around 1.4280. USDJPY touched 114.50 before reversing lower towards 113 by early Asia trade. That sets a rather cautious tone for Asian equities today. We expect position adjustments ahead of the weekend before BOJ and FOMC meeting next week. In addition, China releases industrial production, retail sales, non-rural FAI tomorrow. PBOC Zhou’s press conference will also be closely watched. Morning trades see MYR and KRW on the backfoot.

      Data-wise, German CPI for Feb is due, US import price as well. UK has trade and construction output for Jan. Malaysia has industrial production and manufacturing sales today. Elsewhere, the oil ministers remain undecided on the venue or date for further discussion on output freeze. Still, oil was little moved with Brent at around USD40 and WTI at USD38.

Currencies

G7 Currencies

      DXY – Downside Could be Tested. DXY Index turned lower amid a resurgence of EUR strength. Initial jobless claims were down 18k to 259k, lower than market expectation. Implied probability of rate hike from fed fund futures continued to show only a 4% probability of a hike in Mar; and futures are now slowly suggesting Jul (vs. Sep previously) could be the earliest Fed could next hike rate (51% probability). Nevertheless USD was weaker against EUR, CHF and a touch firmer against AUD, CAD overnight. DXY was last seen at 96 levels. Daily momentum has turned bearish and stochastics is falling. Resistance at 97 levels (21, 200 DMA, 38.2% fibo Jan high to Feb low). Support at 95.20 (Feb lows). Price action does suggests that downside support at 95.20 could be tested. Day ahead brings Feb import prices (Fri).

      EURUSD – Consolidate. ECB eased further as widely expected but markets appear somewhat disappointed with ECB Draghi’s comments that there could be a “floor” in deposit rate. Briefly, the key measures introduced overnight were 10bps cut to deposit rate (now at -0.40%), 5bps cut to main refi (now at 0%), 5bps cut to marginal lending rate (now at 0.25%), and an additional of EUR20bn to monthly purchase (now at EUR80bn) starting Apr. Technical adjustment to QE program include raising the issue share to 50% from 33% - this means ECB can now own half of an entire bond issue and adding 1 more asset type eligible for ECB purchase – non-bank corporate debt (this means ECB can buy investment grade corporate bonds and corporates’ cost of borrowing could shift lower as a result. This is a strong indication that ECB is determined to lower borrowing cost and ensure the transmission mechanism for “cheap” funds go out to corporates). 4 new LTROs with interest rate no higher than the refi rate and as low as the deposit rate (-0.4%) to be introduced from Jun. This means banks could potentially be paid to borrow from the ECB in hope these banks lend the money out.  EUR had a volatile session overnight, falling on ECB easing decision before reversing initial losses and traded an overnight high of 1.1218 as ECB Draghi begun his press conference. Markets paid specific attention to this – ECB don’t anticipate it will be necessary to reduce rate further. European equities more than reversed initial gains to close in negative territories while EUR stays supported. Pair was last seen at 1.1180 levels. Daily momentum and stochastics are indicating a bullish bias. With the ECB excitement over, we think the pair could trade a range of 1.10 – 1.13 in the days ahead of FOMC meeting next week. Resistance at 1.1250 (76.4% fibo retracement of Feb high to Mar low) before 1.1380. Support at 1.11 (50% fibo) before 1.1040 (38.2% fibo, 21 and 200 DMAs). Day ahead brings GE Feb CPI.

      GBPUSD – Waning Momentum. GBP followed EUR moves overnight – trading lower on ECB decision before trading as high as 1.4317 overnight. Pair was last seen at 1.4270 levels. Bullish momentum on daily chart remains and stochastics is entering oversold conditions. We remain cautious of GBP-short squeeze given record GBP short positioning. We look for opportunities to sell towards 1.4250 (50% fibo retracement of Feb high to low) - 1.4350 (50 DMA, 61.8% fibo) range. Support at 1.4150 (38.2%) before 1.4030 (23.6%) levels. Day ahead brings Construction output (Jan).

      USDJPY – Rangy. USDJPY is whippy this morning after the failure of the ECB easing move to gain traction sent global equities including the Nikkei futures lower and pressured the JPY higher as investors fled to quality assets. BOJ meets on 14-15 Mar but no further easing is expected as the central bank pauses to evaluate the impact of the negative interest rate policy on banks and the economy. As well, we have US FOMC on 17 Mar. These central bank meetings next week should keep cautious and see range-bound trades until then. Pair was last seen around 113.15 though it remains within its familiar ranges of 111-115. Daily charts continue to exhibit bullish momentum though stochastics is still bearish bias. Support is seen around 122.23 (9 Mar). Immediate resistance is around 113.50 (23.6% Fibo retracement of the Jan-Feb downswing) ahead of 114.45 (yesterday’s high).

      NZDUSD – Range of 0.6550 – 0.6750 Expected. NZD traded in less volatile range after the RBNZ move yesterday morning. Our bearish outlook on NZD remains 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. That said price action has to be respected amid possible USD weakness. Daily momentum is flat while stochastics is falling. We watch key support at 0.6620 (50% fibo retracement of Dec high to Jan low, 50, 100, 200 DMAs). Expect the pair to trade 0.6550 (38.2% fibo) – 0.6750 (76.4% fibo) range as markets digest recent RBNZ and ECB moves overnight.

      AUDUSD – Upside Bias. AUD held fast on its upside bias even as trades in the past week has been rather choppy. The 0.75-figure was tested again overnight after ECB eased but tapered along with risk appetite back to mid-0.74-levels as we write in Asia morning. This pair remains in tentative retracements for this pair but with bullish momentum on the weekly and monthly chart, it is only a matter of time before new longs are established again. Resistance is still seen at 0.75-figure. A break there exposes the next target at 0.7654 (61.8% Fibonacci retracement of the May-Jan). Support is at 0.7340 (38.2% fib).

      USDCAD – Bullish Divergence. USDCAD rebounced above the 200-DMA and MACD forest continues to hover closer to the zero line. Last seen around 1.3340, pair could waffle around current ranges as Saudi Arabia and Russia waffle on the date and venue for further discussion on the crude output freeze. Resistance is seen at 1.3540 (61.8% Fibo of Oct low to Jan high)before the 100-DMA at 1.3645. Support is seen at 1.3157. Jobless numbers are due tonight.

     Asia ex Japan Currencies

      The SGD NEER trades 0.35% below the implied mid-point of 1.3757. The top end is estimated at 1.3481 and the floor at 1.4069.

      USDSGD – Heavy.  USDSGD was whippy this morning as markets adjust their positioning following the ECB move and ahead of the PBOC governor Zhou’s press conference tomorrow morning. But a lower USDCNY fixing pressured the pair lower pass the 1.38-handle. Pair was last seen around 1.3780 with bearish momentum still on the wane, while stochastics is fast approaching oversold levels. Still an interim double-bottom around the 1.3730-levels has formed and should remain key support for now. Rebounds should meet barrier around 1.3895 (4 Mar high) ahead of the 1.3950-levels (38.2% Fibo retracement of the Jun 2015-Jan 2016 upswing).

      AUDSGD – Maintain Long Bias. AUDSGD softened from recent highs to levels around 1.0290 as we write. This cross tracks the AUD retracement and we expect retreats to be on short leashes ahead of MAS MPC in mid Apr in which we see some risks for easing. We eye a clean break of the barrier seen at 1.0350 (double top in Nov and Dec) before 1.05 (our ultimate objective). Support is seen at 1.0250 (50% Fibonacci retracement of the May-Sep sell off).

      SGDMYR – Consolidate with Upside Risk. SGDMYR remained well supported. Cross was last seen at 2.9840 levels. We reiterate that the 200 DMA remains a key support level. Daily momentum is flat and stochastics is showing tentative signs of rising. This could suggest some upside risk in the interim. Resistance at 2.9870 (50% fibo retracement of Jan high to low) before 3.0090 (61.8% fibo retracement of Jan high to Jan low). Key support at 2.9670 (200 DMA) before 2.9380 (23.6% fibo retracement of Jan high to low), 2.8940 (previous low)

      USDMYR – Consolidate in 4.08 – 4.15 Range. Ringgit strength into Asia close due to decent interest in 30Y bond issuance yesterday. Pair closed at 4.0960. There was decent demand from retail, lifers and foreign real money. Pair was last seen at 4.11 levels. Daily momentum is flat and stochastics is near oversold conditions. Key support at 4.08 (Oct low) before 4.05. Resistance at 4.15 (200 DMA), 4.16 (23.6% fibo retracement of Jan high to Mar low). We expect the pair to consolidate 4.08 – 4.15 range.

      1s USDKRW NDF – Downside Pressure. 1s USDKRW continued to trade with a heavy bias post-BoK no move yesterday. Press conference saw BoK Lee saying that benchmark rate at 1.5% is accommodative enough. A sign that further easing could be ending for the time being (given limited ammunition). That said we believe monetary conditions are expected to remain easy for longer. Pair was last at 1202 levels. Daily momentum and stochastics are bearish bias. Next support at 1196 (Mar low) before 1186 (100 DMA). Resistance at 1211 (50 DMA).  

      USDCNH – Bullish Divergence. The pair slipped below the 100-DMA, last seen at 6.5050 after another whippy night. CNH is almost on par with CNY against the USD. Next support for the USDCNH is seen at 6.4858 (61.8% Fibonacci retracement of the Oct – Dec rally, Feb low).  We think this pair could remain in consolidation within 6.48-6.58 given the lack of momentum. USD/CNY was fixed 222 pips lower at 6.4905 (vs. previous 6. 5127). CNY/MYR was fixed 22 pips lower at 0.6289 (vs. previous 0.6311). Feb inflation numbers were firmer than expected, at +2.3%y/y vs. the consensus 1.8%, underpinned by the jump in food costs. That narrows the room for PBOC to ease.  Monetary data may be released anytime from today and markets will also watch the industrial production, retail sales and FAI ex rural due tomorrow. In addition, PBOC Zhou will also hold a press conference at 10am. In news, PBOC was said to allow commercial banks to directly swap NPL with firms for shares in their company.

      SGDCNY – Bearish. This cross edged higher yesterday and closed around 4.7165. We still maintain that apart from the double topped formation, bearish divergence suggests that risks are to the downside for this cross. We anticipate a sharp reversal towards the 4.6260 (50-DMA). Rebounds need to test the barrier targeted at 4.7400 for the next barrier at 4.7600.

      1s USDINR NDF – Narrow Consolidation. Pair swivelled within the 50 and 100-DMA and was last seen around 67.75. Bearish pressure seems to be waning on the MACD and pair seems to be settling into consolidative range for the near-term. The 100-DMA at 67.25 supports downside and a break there opens the way towards the 200-DMA at 66.20. Bounces in the 1s USDINR NDF could meet barrier around the 68-figure (50DMA). Risk appetite has been positive at home with foreign investors purchasing USD133.1mn of equities and selling USD63.2mn of debt on 9 Mar. In news, RBI wants states to trim their borrowings on high yields for the rest of FY16.   

      USDIDR – Capped. USDIDR is back on the uptick this morning, lifted by a firmer dollar following the ECB moves overnight. Pair was seen around 13075. Momentum remains bearish. Improving macroeconomic fundamentals, political stability, and the Jokowi government’s push for infrastructure building and investment amid low oil prices and supportive monetary policy though remains supportive of the IDR and could cap the pair’s upside. Resistance is seen around 13230 ahead of 13335 (61.8% Fibo retracement of the Jan-Sep 2015 upswing). Support is seen around 13050 (4 and 11 Mar lows) before the year’s low of 12980 (7 Mar). The JISDOR was fixed higher for the second straight session at 13149 yesterday from Tue’s 13128. Foreign investors sold a net USD41.66mn in equities yesterday. They however added a net IDR1.80tn to their outstanding holding of government debt on 8 Mar (latest data available). The central bank governor commented that the large FX supply should promote a more stable IDR exchange rate.

      USDPHP – Bouncing Higher.  USDPHP is bouncing higher this morning, playing catch-up with its regional peers. Pair is seen around 46.700 with daily charts showing bearish bias and stochastics at oversold levels. Upticks today should be capped around 47.065 (38.2% Fibo retracement of the Oct 2015-Jan 2016 upswing). Slippages should find support around 46.620 (200DMA) before 46.445 (61.8% Fibo). Investor sentiments improved with foreign funds buying a net USD11.09mn in equities yesterday.

      USDTHB – Bearish. USDTHB remains heavy, hitting a new low for the year at 35.205 before rebounding. Pair was pressured lower by the continued inflows into Thai assets. Foreign funds had purchased a net THB0.21bn and THB12.30bn in equities and government debt yesterday. However, mild risk-off sentiments today on weak global equities could limit further gains in Thai assets and downside moves to the pair. Pair was last seen around 35.213 with exhibiting increasing bearish momentum, though stochastics remains at oversold levels. Weekly charts remain bearish bias. There is thus a potential for a rebound in the near term. We need to see a daily break of the 35.210-levels for further bearish extension towards 35.125 (15 Oct 2015 low) before the 35-handle. Upside continues to be capped by 200DMA at 35.450. 4 Mar foreign reserves print is on tap later today.

Rates

Malaysia

      In the government bond market, new 30y MGS 3/46 had a good auction as it garnered a bid/cover of 2.60x. Demand primarily came from pension funds and lifers with some foreign interest. The rest of the MGS curve ended 1-2bps higher.

      IRS market was better bid on reversal of dovish trades after the non-eventful MPC decision. There was some receiving interest following the good MGS auction, but no trades were reported. The IRS curve closed 1-3bps higher. 3M KLIBOR remained at 3.71%.

      PDS was muted awaiting the benchmark curve’s reaction. Bids widened slightly, while offers remained firm at previous levels. In the GG space, Prasa 3/19 traded at 3.87% (MGS+36bps/Z+20bps) and Dana 4/25 traded at 4.40% (MGS+53bps/Z+35bps). The 7y-10y tenors seem to offer more value as it currently lags the benchmark curve. In AAA space, Caga 11/20 tightened 4bps to 4.10% (MGS+61bps/Z+33bps) and Danga 20 widened 1bp to 4.11% (MGS+62bps/Z+39bps) which seems fair. For AA, BGSM 8y and 10y notes tightened 3bps and 6bps respectively.

Singapore

      In SGS market, the 30y benchmark got sold-off dragging down the price of other issues, but those that were in short supply continued to see buying interest on dips. Market sentiment turned around in the afternoon and along with short covering, the front end and belly yields ended flat to -2bps. The long end, however, was 1-4bps higher. SGD IRS curve steepened with the 2y -3bps and unchanged elsewhere.

      Asian credit market seemed to favor duration as Ausnet 03/76 (Baa2) and AIA 03/46 (A3) rallied 1pt and 1.25pts respectively, whereas UOB 03/26 T2 traded around re-offer spreads. In EM sovereign cash space, INDON 26 +38-50cents, INDON 46 +1pt and PHILLIES 41 +50-75cents. Elsewhere, Japanese TLAC widened slightly despite continued onshore buying.

 Indonesia

      Indonesia bond market closed higher amid minimum market sentiment. Buying appetite was seen noted during the day probably on the expectation of ECB for launching new stimulus measures. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 7.440%, 7.810%, 8.234% and 8.251% while 2y yield shifts up to 7.569%. Trading volume at secondary market was seen heavy at government segments amounting Rp14,922 bn with FR0053 as the most tradable bond. FR0053 total trading volume amounting Rp2,013 bn with 70x transaction frequency and closed at 103.507 yielding 7.440%.

      Corporate bond trading traded thin amounting Rp483 bn. ISAT08B (Indosat VIII Year 2012; B serial bond; Rating: idAAA) was the top actively traded corporate bond with total trading volume amounted Rp185 bn yielding 9.750%.