Maybank GM Daily - 15 Mar 2016

FX

Global

      Oil was the party pooper overnight as the fall in WTI and Brent pared European equity gains. US stocks finished the session rather flat ahead of the FOMC meeting. In the FX space, the DXY index was against the G10 with the exception of the JPY. The picture is more mixed in the region with KRW and THB on the frontfoot while MYR,SGD and CNH clocked losses against the greenback.

      The day ahead has BOJ decision around Asia noon. We do not expect any action from them as the central bank takes the time to take stock of its newly imposed negative interest rates and its impact on the banks and the real economy.

      Yesterday, CFETS revealed a sub-99 reading for the RMB index for 11 Mar. That was right after EUR had a 4-figure rally post ECB and CNY had the strongest fixing since 2 Nov. This underscores our view that the CNY has been managed according to the dollar. The 14-day rolling correlation between the RMB index and the dollar index tends to strengthen in episodes of dollar weakness and weakens in times of dollar strength. As of 14 Mar, the 14-day rolling correlation is at the year high of 0.92 and seems to be at an inflexion point. This seems to suggest some expectations of dollar strength ahead. This comes ahead of FOMC, BOJ and as CNY depreciation expectations slipped to near year low according to the forward markets.

      Just releases, RBA Minutes revealed that fresh data is needed to help assess if jobs improvement continue. The central bank retains easing bias. Other data we watch includes employment in the Eurozone, France CPI, US retail sales, PPI for Feb, empire manufacturing and NAHB for Mar followed by NZ GDT auction tonight. In the region, Singapore retail sales, Philippines’ overseas remittances and Indonesia’s trade numbers are due.

Currencies

G7 Currencies

      DXY – Oversold Conditions. USD firmed ahead of FOMC meeting (Thu 2am SG/KL time). Market implied probability from fed fund futures continued to see 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 96.60 levels. Daily momentum is indicating a bearish bias but stochastics is rising from oversold conditions. 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 – Room for Retracement. EUR dipped amid broad USD strength. EUR was last at 1.11 levels. Bullish momentum is waning while stochastics is entering overbought conditions. There is room for retracement towards 1.1040 (200 DMA), before 1.0920 (100 DMA). Resistance at 1.1220 (Mar high). We reiterate 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). Week ahead brings 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 Bullish Momentum. GBP eased amid broad USD strength. Focus on Chancellor Osborne’s speech on Wed and BoE meeting Thu. Pair was last at 1.4380. Bullish momentum is waning while stochastics is turning lower from overbought conditions. Support at 1.4250 (50% fibo retracement of Feb high to low) before 1.4150 (38.2% fibo). Resistance at 1.4350 (61.8% fibo).  Week ahead brings Weekly Earnings, unemployment rate (Jan); Osborne Budget Speech on Wed and BoE Meeting on Thu.

      USDJPY – Consolidation. USDJPY continues to consolidate within its current trading range of 111-115 ahead of BOJ policy decision later today. 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 113.80 levels. Daily momentum continues to indicate a mild bullish bias. Unless the BOJ surprises today, we continue to expect the pair to trade range-bound within 111-115 towards FOMC meeting on Thu. Week ahead has Jan industrial production; Jan Capex, BOJ Meeting (Tue); Feb Machine Tool Orders (Wed); Feb trade; BOJ Kuroda speaks (Thu).

      NZDUSD – GDT Auction Tonight. NZD fell, taking its cues from AUD proxies while USD strength was broadly felt. Pair was last seen at 0.6660 levels. Daily momentum and stochastics are indicating a bearish bias. 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). Resistance at 0.6680 (61.8% fibo) before 0.6750 (76.4% 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 GDT Auction on Tue; Current Account (4Q) on Wed; GDP (4Q) on Thu.

      AUDUSD – Bulls In Control. AUD retraced towards the 0.75-figure by this morning but not without making a new high yesterday of 0.7594. Bulls are clearly still within control though stochastic indicates overbought conditions. Some retracements likely before next target at 0.7654 (61.8% Fibonacci retracement of the May-Jan). RBA released Minutes of the Mar meeting this morning. The central bank retained easing bias and noted that weak wage growth provides some scope to cut interest rate further. AUD made an attempt to break the 0.75-support after the release. A break here exposes the next support level at 0.7340. 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 Westpac Leading Index (Feb) on Wed; Employment (Feb); RBA’s Debelle speaks on Thu; RBA’s Ellis speaks on Fri.

      USDCAD – Bullish Divergence. USDCAD almost break above the 200-DMA and was last seen around 1.3280. We hold the view that the pair is running out of steam to continue its downtrend and continue to see a bullish divergence in this pair. MACD forest continues to hover closer to the zero line. Two-way trades are likely to dominate 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 0.20% below the implied mid-point of 1.3753 with the top end estimated at 1.3477 and the floor at 1.4029.

      USDSGD – Capped.  After touching a new low in 2016 at 1.3699, USDSGD has bounced higher as market readjust their positions ahead of FOMC this Thu. Pair is seen around 1.3784 currently with daily charts and stochastics mildly bearish bias. With risks still to the downside, further upticks could be capped. Resistance is at 1.3840 (11 Mar high) ahead of the next at 1.3875 (23.6% Fibo retracement of the Jan-Mar downswing). Support is around 1.3720. A weekly close below that level could see the pair headed towards 1.3650. Week ahead sees Jan retail sales (Tue); Feb NODX (Thu).

      AUDSGD – Shallow Retreats. AUDSGD was last seen at 1.0340 this morning, a sharp retreat from overnight highs of 1.0423. This cross continues to tracks the AUD and we expect retreats to be shallow ahead of MAS MPC in mid Apr in which we see some risks for easing. The first target at 1.0350 has been reached and we eye the next target is now within reach at 1.05 (our ultimate objective), underpinned by sufficient bullish momentum. Support is seen at 1.0250 (50% Fibonacci retracement of the May-Sep sell off).

      SGDMYR – Consolidate. SGDMYR inched higher amid MYR underperformance. Cross was last seen at 2.999 levels. Daily momentum and stochastics are indicating tentative signs of bullish bias. Resistance at 3.0090 (61.8% fibo retracement of Jan high to low). Support at 2.9690 (200 DMA). Pair could consolidate with mild upside bias intra-day; expect range of 2.98 – 3.0090 to hold intra-day.

      USDMYR – Range of 4.10 – 4.15. USDMYR rebounded amid USD strength and oil price weakness ahead of FOMC meeting (Wed-Thu). Pair was last seen at 4.1270 levels. Bearish momentum on daily chart is waning which stochastics is showing signs of rising from oversold conditions. Resistance at 4.15 (200 DMA). Support at 4.0710 (previous low). We see consolidation in the range of 4.10 – 4.15 ahead of FOMC meeting. No data for release this week.

      1s USDKRW NDF – Range-Bound. 1s USDKRW was slightly firmer amid cautious sentiment and broad USD strength.  Pair was last at 1190 levels. Daily momentum and stochastics remain bearish bias. We caution that stochastics are at oversold conditions. Next support at 1186 (100 DMA) before 1183 (50% fibo retracement of Oct low to Feb high) and 1172 (200 DMA). Resistance at 1198 (38.2% fibo). Could see range-bound price action 1185 – 1195 as we approach FOMC, BoJ meetings.  Week ahead brings Feb unemployment rate Wed) and Feb PPI (Fri).

      USDCNH – Bullish Divergence. The pair edged higher yesterday and was last seen around 6.4980, still under the 100-DMA. CNH trades with a slight premium to CNY against the USD ahead of onshore open. 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. Bullish divergence on the daily chart suggests that USDCNH could take a upside bias. USD/CNY was fixed 166 pips higher at 6.5079 (vs. previous 6.4913). CNY/MYR was fixed 19 pip higher at 0.6307 (vs. previous 0.6288). Yesterday, CFETS revealed a sub-99 reading for the RMB index for 11 Mar. That was right after EUR had a 4-figure rally post ECB and CNY had the strongest fixing since 2 Nov. This underscores our view that the CNY has been managed according to the dollar. The 14-day rolling correlation between the RMB index and the dollar index tends to strengthen in episodes of dollar weakness and weakens in times of dollar strength. As of 14 Mar, the 14-day rolling correlation is at the year high of 0.92 and seems to be at an inflexion point. This seems to suggest some expectations of dollar strength ahead. This comes ahead of FOMC, BOJ and as CNY depreciation expectations slipped to near year low according to the forward markets. Week ahead has Feb property data due on Fri.

      SGDCNY Eyes on 4.74. This cross slid and closed at 4.7213. We continue to eye the barrier at 4.7400 that defines the double top formation. A break there could mean a continuation of the uptrend. Momentum indicators suggest mild upside bias at this point. We break of the barrier exposes the next at 4.7600. If not, we anticipate a sharp reversal towards the 4.6260 (50-DMA).

      1s USDINR NDF – Narrow Consolidation. Pair touched a low of 67.15 before reversing sharply higher this morning, still within the 50 and 100-DMA and was last seen around 67.40. Bearish pressure is still 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 USD65.4mn of equities and selling USD14.8mn of debt on 11 Mar.  Feb inflation came in favourable. WPI fell -0.91%y/y in Feb, more than the expected -0.2%. CPI also eased to 5.18%y/y from previous 5.69%. Soft cost pressure provides room for RBI to ease should the central bank choose to do so on 5 Apr. FinMin  Jaitley spoke at the parliament, highlighting that inflation is under control and India‘s FX reserves is in a good position. Feb trade numbers should be released by Tue.

      USDIDR – Upside Bias. USDIDR gapped slightly higher at the opening this morning to 13072 from its low of 13066 yesterday as the pair plays catch-up with it regional peers. BI meets on 17 Mar and market now expects a 25bp rate cut, in line with our expectations. We believe that BI will front-load its support for the economy. Last seen around 13076, pair is exhibiting waning bearish momentum. Improving macroeconomic fundamentals, political stability, and the Jokowi government’s push for infrastructure building and investment amid stable oil prices and supportive monetary policy should keep the IDR supported and cap any upside to the pair intraday. Support around the year’s low of 12985. Further upticks should meet resistance around 13165 (10 Mar high) ahead of 13225 (23.6% Fibo retracement of the Jan-Mar downswing). The JISDOR was fixed lower at 13020 on Mon from Fri’s 13020. Positive risk sentiments saw foreign funds buy a net USD0.65mn in equities yesterday. They however removed a net IDR1.83tn from their outstanding holding of government debt on 14 Mar (latest data available). We have Feb trade due later today and BI is expecting the trade surplus to widen to USD1.1bn in Feb, which is even more optimistic than consensus’ forecast range of –USD176mn to +US640mn.

      USDPHP – Capped.  USDPHP is climbing higher, tracking the USD/AXJs broadly higher. Last seen around 46.747, pair is exhibiting bearish bias on the daily charts showing bearish bias and stochastics remains at oversold levels, though it is showing signs of a tentatively turning higher. With risks still to the downside, further upmoves could be capped today. Resistance is around 46.890 (10 Mar high) ahead of 47.065 (38.2% Fibo retracement of the Oct 2015 low to Jan 2016 high). Support is around 46.445 (61.8% Fibo). Investor sentiments remained positive with foreign funds buying a net USD24.67mn in equities yesterday.

      USDTHB – In A Tight Range. USDTHB bounced off the 35-handle yesterday but appears to be stuck in a tight range underpinned by mild dollar strength on one side and continued inflows into Thai assets on the other. Foreign investors had purchased a net THB2.05bn and THB5.77bn in equities and government debt yesterday. There are market rumours of official agents in the market to temper the gains in the THB. Pair was last seen around 35.105 with daily charts exhibiting bearish momentum but weekly charts remain bearish bias. Stochastics remains at oversold levels, suggesting a possible rebound in the near term. Support remains around the 35-figure before the next at 34.870 (30 Jul 2015 low). Rebounds should meet resistance around 35.335 (23.6% Fibo retracement of the Jan-Mar downswing). Quiet week with just 11 Mar foreign reserves on Fri.

Rates

Malaysia

      MGS softened as players reduce risk ahead of the FOMC meeting on 15-16 Mar. Yields rose 4-5bps higher at the belly of the curve, and MGIIs followed suit. Players are also making way for the upcoming supply of the new 10.5yr MGII 9/26 auction.

      Local IRS market was quiet and no trades were reported. IRS levels were quoted higher with the curve moving up by 1-2bps. 3M KLIBOR was unchanged at 3.71%.

      In PDS, better buying was seen on belly GGs and long end AAAs. Dana 2/23 and 10/23 tightened 1-2bps to 4.21% (G+52bps/Z+31bps) and 4.27% (G+49bps/Z+30bps) respectively. PASB 26 also tightened 2bps to 4.46% (G+51bps/Z+34bps). HG credit spreads tightened despite the weaker benchmark curve. For AAA, long-dated Plus papers such as Plus 29 tightened 3bps to 4.71% (G+51bps/Z+46bps), which looks somewhat attractive on z-spread basis, not including liquidity premium. Other short-dated AAA papers traded weaker. Rantau 20s were given to the bid at 4.13% (G+64bps/Z+35bps). Although there is some value, better bids may be hard to come by. Activity in the AA space was light with some crosses seen.

Singapore

      SGS market opened weaker taking cue from UST. Amid low liquidity, SGS 9/24 was sold off 9bps higher which resulted in panic selling of other issues. Yields mostly ended 7-9bps higher. The indigestion of the 30y SGS seems to continue weighing on interbank players and is likely to underperform against UST and SGD IRS despite the low funding rate and sovereign risk.

      In Asia credit market, most tightening moves were matched by higher UST rates, leaving net yield and price almost unchanged. Spreads across various sectors were 3-8bps better, with the new UOB 21 and 26 better by 5bps. EM sovereign cash space was muted, the belly up slightly by about 15cents, while the long end was better up by 35-50cents. Activity was heavier in the CDS market.

 Indonesia

      Indonesia bond market continued recording gains despite ahead of the bond auction today. Motorcycle sales in February was recorded higher 524,864 unit or higher compared to Jan sales of 416,263 unit. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 7.271%, 7.665%, 8.140% and 8.152% while 2y yield shifts down to 7.434%. Trading volume at secondary market was seen heavy at government segments amounting Rp15,285 bn with FR0053 as the most tradable bond. FR0053 total trading volume amounting Rp3,295 bn with 39x transaction frequency and closed at 104.250 yielding 7.271%.

      DMO will conduct their weekly auction with five series to be auctioned which are SPN12170302 (Coupon: discounted; Maturity: 3 Feb 2017), FR0053 (Coupon: 8.250%; Maturity: 15 Jul 2021), FR0073 (Coupon: 8.250%; Maturity: 15 May 2031), FR0072 (Coupon: 8.250%; Maturity: 15 May 2036) and FR0067 (Coupon: 8.750%; Maturity: 15 Feb 2044). We believe that the auction will be oversubscribe by 1.50x – 2.50x from its indicative target issuance while our view on the indicative yield are as follows SPN12170302 (range: 6.75% – 6.90%), FR0053 (range: 7.90% – 8.05%), FR0073 (range: 8.15% – 8.25%), FR0072 (range: 8.20% – 8.30%) and FR0067 (range: 8.20% – 8.30%).

      Corporate bond trading traded heavy amounting Rp1,680 bn. APLN02 (Agung Podomoro Land II Year 2012; Rating: idA-) was the top actively traded corporate bond with total trading volume amounted Rp501 bn yielding 14.100%.