Maybank GM Daily - 14 Mar 2016

FX

Global

      Stocks drifted higher last Fri on the back of higher oil prices in the absence of stronger market cues. The strong risk appetite was also reflected in the FX markets with only JPY, DKK and EUR on the backfoot against the greenback, in contrast to risk proxies including AUD and NZD which gained more than 1% last Fri. Similarly, USDAXJs were depressed. KRW led the pack with 0.9% gain vs. the USD, followed by the SGD.

      The week ahead has a few key central bank meetings that the world will watch closely. FOMC decision is on Thu Asian morning and we see scope for the Fed sound a bit hawkish on the statement and that could lift the USD. Focus will be on the statement and “dots projection”. The Fed’s 4 rate hike projection in Dec for 2016 is likely to be reduced to 2-3 hikes. Our bias remains for Fed to hike rates by 1-2 times this year. Meanwhile, BOJ meets on Tue. We expect this central bank to take a pause and take stock of the impact of negative interest rate policy on banks and the economy.

       Later into the week on Thu, BoE and BI will also take turns to make policy decisions. BoE is expected to stand pat while we expect BI to deliver a 25bps cut to reference rate to support the economy.

       Over the weekend, China’s activity data came in weaker than expected. That should set a cautious tone for Asian markets, especially with recent higher CPI leaving less room for PBOC to ease. Technically, we continue to favor playing AUD from the long bias. GBP-short squeeze could continue but we watch trend-line resistance at 1.43. USD/AXJs appear biased to the downside, in particular USDMYR, USDSGD. Key support at 4.07 and 1.3720, respectively.  Still bias to see SGDMYR cross heading lower. 1s KRW is bearish technically and could be poised to 1186, 1172 levels.

Currencies

G7 Currencies

      DXY – Focus on FOMC This Week. USD was lower against most currencies including AUD,EUR and AXJs. Risk sentiment was positive helped by ECB easing and IEA’s comments for a bottom in oil prices. This week’s focus on FOMC meeting (Thu 2am SG/KL time). Market implied probability from fed fund futures sees only a 4% probability of a rate hike in Mar. We pay attention to the dots projection for Fed’s guidance on rates, growth and inflation outlook. We believe Fed’s 4 rate hike projection (as per Dec FOMC) for 2016 is likely to be reduced to 2-3 hikes with focus on long-end rates to be shifted lower. Our bias remains for Fed to hike rates by 1-2 times in 2016. US Economic data continues to suggest a steady recovery and this supports our basis. There is certainly scope for Fed to sound a bit hawkish on the statement but question is will they do it? If they do, the USD could be subjected to upside risk given Fed’s dovish rhetoric, markets pricing of only 1 hike in 2016 and USD long reduction. DXY was last at 96.20 levels. Daily momentum and stochastics are indicating a bearish bias. Support at 95.20 (Feb lows). Resistance at 97 levels (21, 200 DMA, 38.2% fibo Jan high to Feb low) before 97.50 (50% fibo) and 98 (61.8% fibo). Week ahead brings Retail Sales, PPI (Feb); Empire Mfg, NAHB (Mar) on Tue; Housing starts, building permits, CPI, IP (Feb); FOMC Meeting on Wed; Jobless Claims, JOLTS job openings (Jan) on Thu;  Fed’s Dudley, Rosengren, Bullard speak; Univ. Michigan Sentiment (Mar) on Fri.

       EURUSD – Upside Bias. EUR remain supported above the 1.11-handle amid broad USD weakness. Markets appear to have digested recent ECB easing. Technically monetary easing should weigh on the currency, but the situation becomes less clear cut when the focus this round was on credit easing and that an interest rate “floor” was hinted. EUR was last seen at 1.1150 levels. EURUSD needs to break above 1.1490 (previous highs in Aug and Oct 2015) for further upside to gather momentum. A break above on weekly close could see the pair venture towards 1.18 levels (38.2% fibo retracement of 2014 high to 2015 low). Interim support at 1.1050 (21, 200 DMAs) before 1.0920 (100 DMA), 1.0820 (yesterday low). Daily momentum and stochastics are indicating a bullish bias. We are biased to buy on dips. Week ahead brings Euro-area IP (Jan) on Mon; EC Employment (4Q); FR CPI (Feb) on Tue;  EC trade, construction output (Jan); EC CPI (Feb) on Thu; GE PPI (Feb) on Fri.

       GBPUSD – Waning Momentum. GBP rose as high as 1.4437 amid broad USD weakness. BoE meets on Thu. We expect BoE to keep rates on hold at 0.50%. Sterling futures are suggesting that BoE rate hike may only come later in 3Q 2017. We remain cautious of GBP-short squeeze given record GBP short positioning and risk of USD downside risks. Pair was last at 1.4380. Resistance at 1.43 (trend line resistance) has been broken. Next resistance at 1.4472 (76.4% fibo retracement of Feb high to low).Daily momentum remains bullish bias. We remain cautious of further short squeeze. Support at 1.4350 (50 DMA) before 1.4250 (50% fibo). Week ahead brings Weekly Earnings, unemployment rate (Jan); Osborne Budget Speech on Wed and BoE Meeting on Thu.

       USDJPY – Rangy. Focus this week is on BOJ policy decision on Tue, where we do not expect further easing as the central bank pauses to evaluate the impact of the negative interest rate policy on banks and the economy. Interim bottom around 111-levels continues to hold well. Pair was last seen around 113.76 levels. Daily momentum continues to indicate a mild bullish bias. Further upside could revisit the 115 levels (38.2% Fibo retracement of the Jan high to double-bottom in Feb). Break above could challenge its 50% Fib retracement of 116.30 levels. Support remains at 111 levels. Week ahead has Jan industrial production; Jan Capex, BOJ Meeting (Tue); Feb Machine Tool Orders (Wed); Feb trade; BOJ Kuroda speaks (Thu).

       NZDUSD – Sell on Rally. NZD rose amid broad USD weakness. Last seen at 0.6750 levels. Daily momentum is showing mild bullish bias. Resistance at 0.6820 (previous high). Key support remains at 0.6620 (50% fibo retracement of Dec high to Jan low, 50, 100, 200 DMAs) before 0.6550 (38.2% fibo). Bias remains to sell on rally. 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.  Week ahead brings RBNZ Wheeler speaks (not public) on Mon; GDT Auction on Tue; Current Account (4Q) on Wed; GDP (4Q) on Thu.

       AUDUSD – Bulls In Control. AUD surged well above the 0.75-figure and was last seen around 0.7570 this morning. Next target at 0.7654 has been revealed (61.8% Fibonacci retracement of the May-Jan). Momentum indicators point north and a break of the 0.7654-resistasnce brings the next bullish target at 0.7849 (76.4% Fibonacci) into view. Support is seen around the 0.74-figure. RBA releases the minutes of its Feb meeting on Tue. We doubt there will be any fresh cues. Any jawboning may have to be in Apr. Labour report is the next data to watch, due on Thu. Consensus forecast is at 12K and jobless rate steady at 6.0%. That sets a positive tone for AUD as well and underscores our short-term view for upside risks to the AUD. Week ahead brings RBA Minutes on Tue; Westpac Leading Index (Feb) on Wed; Employment (Feb); RBA’s Debelle speaks on Thu; RBA’s Ellis speaks on Fri.

      USDCAD – Bullish Divergence. USDCAD ended last week, well under the 200-DMA, weighed by higher oil prices. Jobless rate crept higher in Feb to 7.3% from 7.2% and Canada lost 2.3K of employment in the month. We think there is little steam for USDCAD to continue its downtrend and continue to see a bullish divergence in this pair.  MACD forest continues to hover closer to the zero line. Last seen around 1.3230, we continue to see two-way trades within 1.3157-1.3460 in the near-term. Week ahead has existing home sales for Feb on Tue, Jan retail sales and Feb CPI on Fri.

     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 – Downside Pressure.  USDPHP has been on the slide the past few sessions and has gapped lower at the opening this morning to 46.540 from Fri’s low of 46.605. Pair is seen around 46.470 with daily charts showing bearish bias and stochastics at oversold levels. Further downticks should find support around 46.600. Upmoves should meet resistance around 47.300. Investor sentiments improved last week with foreign funds buying a net USD39.91mn in equities.

      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

      Local government bond market was lackluster post-ECB as yields largely ended unchanged. Most trades centered upon the 3y MGII which had a total of MYR360m trades done. Market awaits the next auction which is the 10.5y MGII 9/26 new issue at an estimated size of MYR4b.

      MYR IRS was largely muted despite the choppy MYR and UST markets. There were no trades reported with the curve ending unchanged. 3M KLIBOR stayed the same at 3.71%.

      Another muted day for PDS space with low trading volume and trades mainly on long duration AAA bonds. AAAs and GGs were mostly quoted wider despite still strong buying interest, especially in the 5y-10y bucket. Rantau 22 and Aman 5/21 were given at 4.30% (MGS+59bps/ Z+41bps) and 4.24% (MGS+78bps/Z+44bps) respectively, both 1bp wider than last done level. We reckon this may be a slight retracement given the strong buying move before MPC. We believe there is more value in 7y AAAs quoting around 4.45% (MGS+75bps/Z+45bps).

Singapore

      The selloff in UST post-ECB overnight led to a rise in SG rates. SGS opened lower with selling interest in the 30y benchmark, the fall in price exacerbated by thin liquidity and lack of interest in the bond. Other issues, especially around 10y-15y, saw intermittent buying. The yield curve steepened with the 10y-30y +3-4bps while the rest of the curve closed unchanged. SGD IRS curve remained top heavy and ended 2-3bps higher on lower USDSGD and well offered short-dated forwards.

      Asian credit market opened solid post-ECB, with Financials 3-5bps tighter and Corporates anywhere up to 8bps better. CDS lowered by a few bps on fast money inflows. In EM sovereign cash space, 10y benchmarks were down by about 25cts, no motivation to cheapen further for the upcoming INDOIs. The new INDOI tenors will be of interest to the market. It may be better to buy existing 10y INDOI (INDOI 4.325% 08/25) if the spread to INDON cheapen further.

 Indonesia

      Indonesia bond market booked gains on the final day of last week trading. This is mostly due to ECB decision for cutting rates while increasing monthly purchase. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 7.398%, 7.725%, 8.167% and 8.170% while 2y yield shifts down to 7.516%. Trading volume at secondary market was seen heavy at government segments amounting Rp12,833 bn with FR0070 as the most tradable bond. FR0070 total trading volume amounting Rp2,665 bn with 105x transaction frequency and closed at 103.500 yielding 7.779%.

      Corporate bond trading traded thin amounting Rp629 bn. BEXI02BCN1 (Shelf Registration II Indonesia Eximbank Phase I Year 2014; B serial bond; Rating: idAAA) was the top actively traded corporate bond with total trading volume amounted Rp116 bn yielding 8.480%.