Maybank GM Daily - 21 Mar 2016

FX

Global

      US equities ended last week on a positive note despite slightly weaker data. Sentiments remained underpinned by a dovish Fed last week. Even the retreat in oil prices on Fri could not make a dent in the benchmark indices.

       The impact of Fed’s inaction is likely to linger and we project further USD downside against a backdrop of still-accommodative monetary conditions and supportive oil prices around $40/bbl ahead of the OPEC and non-OPEC meeting scheduled on 17 Apr. AUD is poised for higher gains towards 0.7850 whilst USDMYUUR and USDSGD could head towards 4.01 and 1.34 respectively. That said, we do not rule out the possibility of a near-term correction towards respective 4.08 and 1.3650-levels.

       CFETS reported that the RMB index came off to 98.05 as of 18 Mar. The USDCNY fixing today at 6.4824 corresponds to a slight rebound on our RMB index from the low end of 98, suggesting that central bank may want to slow the deterioration in the index below the key 98-level.

       The week ahead is quieter with onshore market in Japan out today. India is out on Wed and its Philippines’ turn from Thu onwards. Expect thinner liquidity on Fri as half the world celebrates Good Fri (including  Australia, NZ, HK, India, Indonesia, Philippines, Singapore, UK and US). 

       Some key data we watch for G7 includes Feb US home sales on Mon; Jan US house prices, Euro-area IFO expectations and ZEW Survey for Mar, Australia 4Q house price, RBA Stevens speech, UK Feb CPI, PPI, RPI on Tue;  US Feb new home sales, Fed Evans, Harker speech on Wed; US Feb durable goods orders, Fed Bullard speech, Euro-area, Germany, France, France Mar flash PMI and NZ Feb trade on Thu; US 4Q GDP, core PEC,  FR 4Q GDP; JP Feb CPI, PPI on Fri. In Asia, BSP and BOT will make policy decision. We expect both to stand pat. At home, Singapore’s 2016 Budget will be watched for cues on Apr MPC meeting.

Currencies

G7 Currencies

      DXY – Pullback Not Impossible. USD’s retreat paused last Fri, after declining by nearly 4% since the beginning of Mar. Fed’s Bullard said prudent monetary policy suggests edging policy rate and balance sheet towards more normal levels in a speech in Frankfurt early Sat. DXY was last at 95.10 levels. Monthly, weekly, daily momentum indicators are bearish bias. We observed that stochastics is at oversold conditions on the daily chart. That could suggest potential pullback from recent weakness (since beginning of Mar) and pullback could re-visit 95.60 levels (Feb low), 96.50 levels (50% fibo retracement of Mar high to recent low). Bias remains to sell USD on rallies. Support at 92.50 (Aug 2015 low).  Week ahead brings Fed’s Lacker, Lockhart speak; CFNAI; Existing home sales (Feb) on Mon; Richmond Fed Mfg Index (Mar); House Price (Jan) on Tue; New home sales (Feb); Fed’s Evans, Harker speak on Wed; Durable goods orders (Feb); Fed’s Bullard speaks on Thu; GDP (4Q Third reading); Core PCE (4Q) on Fri.

       EURUSD – Buy on Dips. EUR eased off its recent highs of 1.1340 levels as USD decline paused and ECB’s Praet reiterated Draghi’s comments that there is still scope to lower rates further. Last seen around 1.1280. Daily momentum continues to indicate a bullish bias; stochastics is entering overbought conditions. Resistance at 1.1380 (Feb high), before 1.1490 (previous highs in Aug and Oct 2015). EURUSD needs to break above 1.1490 (previous highs in Aug and Oct 2015) for further upside to gather momentum. Support at 1.1250 (76.4% fibo retracement of Feb high to Mar low), 1.1170 (61.8% fibo). We are biased to buy on dips. Week ahead brings EC Current Account (Jan) on Mon; IFO Expectations (Mar); ZEW Survey Expectations (Mar) on Tue; ECB Weidmann speaks; EC Consumer confidence (Mar) on Wed; EC, GE, FR PMI (Mar prelim) on Thu; FR GDP (4Q) on Fri.

       GBPUSD – Retail Sales, Inflation a Focus This Week. GBP was a touch softer as market pares back position into the weekend. GBP was last at 1.4450. Bullish momentum remains intact while stochastics is at overbought conditions. Resistance at 1.4470 (76.4% fibo retracement of Feb high to low) before 1.4660 (Feb high, 100 DMA). Support at 1.43 (50 DMA) before 1.4250 (50% fibo). Week ahead brings CBI Trends Report (Mar) on Mon; CPI, PPI, RPI (Feb); Public Finance (Feb) on Tue; Retail Sales (Feb) on Thu.

       USDJPY – Sell-On-Rally. USDJPY tested below the 111-support and touched a new two-year low of 110.67 (17 Mar), dragged lower by weak USD due to dovish Fed. Pair was last seen around 111.40. Daily momentum and stochastics are bearish bias. Key support remains at 111 (double-bottom and potentially a triple-bottom if pair holds), before the 107-levels. Watch out though for official agents’ bids on downside to smooth volatility and the pace of JPY appreciation. Favor a sell-on-rally towards 113 (21DMA), 115-levels (50DMA). Week ahead brings Mar prelim. PMI mfg; Jan All Industry Activity Index (Tue); Cabinet Office Monthly Economic Report for Mar (Wed); Feb CPI (Fri). Onshore markets are closed today for a public holiday and re-opens tomorrow.

       NZDUSD – Triple Top?. NZD fell amid a supported USD. A triple top appears to be in the making for NZD at 0.6880 levels.   Pair was last seen at 0.6780 levels. Daily momentum and stochastics are mild bullish bias. Resistance at 0.6880 (potential triple top). We caution the pair could be at risk of re-visiting 70cent if 0.6880 breaks on daily close basis. This could be a real threat if USD decline resumes. Support at 0.6760 (76.4% fibo retracement of Dec high to Jan low), 0.6680 (61.8% fibo), 0.6620 (50% fibo). Week remaining brings Credit Card Spending (Feb) on Mon; Trade (Feb)   on Thu.

       AUDUSD – Eye RBA Stevens. AUD retreated from last week’s high of 0.7680 and was last seen around 0.7590 ahead of RBA Glenn Steven’s speech tomorrow. Expect the recent exuberance to be curbed ahead of his speech on possibility of jawboning or threats of rate cut. RBA Debelle actually voiced his preference for lower AUD last week. Even so, rate cut threats at this point may not cause a plummet in AUD as prospects of rate cut could boost AUD bonds even more. Support is seen at the 0.75-figure (50% Fibonacci retracement of the May-Jan fall), ahead of the next at 0.7340. The latter is unlikely to be tested. We continue to hold long bias with bullish target at 0.7850 (76.4% Fib) this week, before the 0.80-figure comes into view. The other data to watch is house price index (4Q) tomorrow.

       USDCAD – Retracements. USDCAD steadied around the 1.3060-level as we speak. Recent bearish momentum seems to have waned and we are wary of retracements towards the 200-DMA at 1.3335. Support is seen at 1.2832 (last Oct low) before the next at 1.2660. Last Fri saw stronger retail sales for Jan at 2.1%m/m, well above consensus of 0.6%. Feb CPI steadied at 0.2%m/m (below consensus at 0.4%). Finance Minister Bill Morneau will deliver the Federal Budget on Wed and this will be the key event this week.

     Asia ex Japan Currencies

      The SGD NEER trades 0.26% above the implied mid-point of 1.3635 with the top end estimated at 1.3363 and the floor at 1.3907.

       USDSGD – Sell Rally.  USDSGD slipped lower amid USD weakness, touching a new 2016 low of 1.3480 (18 Mar). Since then, pair has rebounded back towards the 1.36-levels at the point of writing. Weekly daily momentum indicators remain bearish bias. Next support at 1.3405 (50% Fibo retracement of the 2014 low to 2016 high). Resistance at 1.3650 (38.2% Fibo). Bias to sell on rally. Week ahead has Feb CPI (Wed) and Feb industrial production (Thu). Singapore’s 2016 budget will be announced on Thu at 3.30pm. Onshore markets will close on Fri for a public holiday and re-opens on Mon.

       AUDSGD – Shallow Retreats. AUDSGD continued to lose bullish momentum and was last seen around 1.0320, hardly changed. We expect the cross to drift lower towards 1.0250 (23.6% fibo retracement of Feb low to Mar high) and 1.0170 (38.2% fibo).  Rebounds are likely to reach our ultimate target at 1.0540.

       SGDMYR – Sell Rallies. SGDMYR continues to consolidate  in  a tight range of 2.98 – 3.00 in absence of fresh impetus. Cross was last seen at 2.9950. We observed that price action continues to show a potential bearish flag formation in the making. This is defined as an initial decline from 3.08 high to 2.89 low in Jan-2016; then comes the flag which is identified in the upward sloping channel (period of consolidation) before the breakdown (which we think could be a possibility). The end-target should see 2.82-2.84 lows. We remain biased to lean against strength. Resistance remains at 3.0090 (61.8% fibo retracement of Jan high to low) before 3.0180 9100 DMA). Bias to sell rallies towards 3.0180, targeting a move towards 2.89 (Jan low) first objective before 2.82-2.84 levels. S/L at 3.04.

       USDMYR – Retracement Possible. USDMYR was a touch firmer this morning amid the pause in USD retreat. Pair was last seen at 4.0750 levels. Monthly, weekly momentum remain bearish bias. We think the pair has further downside to go. Next support at 4.01 (50% fibo retracement of May 2015 – 2015 high) before 3.90 levels (61.8% fibo). Pullback towards 4.12 remains a sell.  This week brings FX reserves (Tue) and Feb CPI inflation (Fri).

       1s USDKRW NDF – Oversold Conditions. 1s USDKRW bounced off 3-month low of 1153 amid mild USD strength. Pair was last at 1169 levels. Daily momentum remains bearish bias but stochastics is showing signs of rising from oversold conditions. Resistance at 1173 (200 DMA), 1183.50 (50% fibo retracement of Oct low to Feb high). Support remains at 1153 (Mar low), 1150 (76.4% fibo retracement of Oct low to Feb high). Week ahead brings 4Q GDP (final reading) on Fri.

       USDCNH – Downside Risks. The pair bounced from lows of 6.4443 and was last seen around 6.4720. CNH trades on par CNY against the USD ahead of onshore open. We see range-trading within 6.4200-6.5200. USD/CNY was fixed 196 pips lower at 6.4824 (vs. previous 6.4628). CNY/MYR was fixed 15 pips higher at 0.6244 (vs. previous 0.6229). Our RMB index shows a slight rebound, suggesting that PBOC does not want the RMB index to deteriorate too much below the 98-level. Over the weekend, PBOC Zhou acknowledged that debt to GDP ratio is too high, especially corporate debt. He also acknowledged that China’s problem of fundraising and financial services. IMF Lagarde said that the yuan is broadly in line with fundamentals.

       SGDCNY – Bullish. This cross retreated sharply to close at 4.7692 last Fri. Uptrend is still intact though retracements towards the support at 4.7400 cannot be ruled out. Bullish momentum is likely to keep this cross supported and next barrier is seen at 4.8100.

       1s USDINR NDF – Turning Lower. Pair rebounded this morning and was last seen around 66.90. Prices are bearish bias still and we look for further pullbacks in this weak dollar environment towards the next support at 66.64.  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 was good on 17 Mar with foreign investors buying USD140.4mn of equities and USD172.9mn of debt on 17 Mar. Domestic banks demand for RBI to leave the government’s cash surplus with them to prevent liquidity squeeze (Economic Times). They have also asked for 100bps cut in CRR during a meeting with Governor Rajan. 4Q BOP current account balance is due anytime before the end of the month.

       USDIDR – Choppy. USDIDR was choppy last week pull in one direction by USD weakness and the other by BI concerns of IDR strength and weak oil prices. Pair was last seen around 13130 with daily momentum and stochastics bullish bias. Still, improving macroeconomic fundamentals, political stability, and the Jokowi government’s push for infrastructure building and investment amid supportive monetary policy should keep the IDR supported and cap upside. Support remains around 12980 (2016 low). Resistance is around 13225 (23.6% Fibo retracement of the Jan-Mar downswing; 21DMA). The JISDOR was fixed lower at 13048 on Fri from Thu’s 13166. Positive risk sentiments saw foreign funds buying a net USD67.42mn in equities last week. They had also added a net IDR5.38tn to their outstanding holding of government debt on 14-17 Mar (latest data available). There are no data of note next week. BI governor said that the central bank still sees room to ease the policy rate though any further moves would be data-dependent and cautious.

       USDPHP – Gapping Higher.  USDPHP gapped higher at the opening to 46.400 from Fri’s high of 46.385, playing catch-up with its regional peers. Pair had touched a 2016 low of 46.160 (18 Mar) before bouncing higher. Pair was last seen around 46.568 with daily chart showing waning bearish momentum and stochastics tentatively climbing higher from oversold levels. Markets are also closed from Thu for public holidays and re-open the following Mon. Before that, we have BSP meeting on Wed and market and ourselves are not expecting BSP to adjust rates given the strength of the economy amid stable inflation. Resistance is around 46.6600 (200DMA) ahead of 46.755 (50% Fibo retracement of the Oct 2015 low to Jan 2016 high). Support is at the year’s low of 46.160 before 46.060 (76.4% Fibo). Foreign investors bought a net USD93.38mn in equities last week as sentiments improved. Week ahead has Jan imports and trade balance; BSP meeting (Wed).

       USDTHB – Sell-On-Rally. USDTHB slipped below the 35-handle last week and touched a new 2016 low of 34.720 (17 Mar). The move lower was on the back of weak USD due to dovish Fed. Last seen around 34.900-levels, pair is bearish bias on the daily chart and stochastics remaining at oversold levels. Weekly charts are still bearish bias. The 2016 low of 34.720 remains supportive before the next around the 34.500 levels. Favour selling on rally towards 35.120-levels (23.6% Fibo retracement of the Jan high to Mar low). BoT meets on Wed but our economic team is expecting the central bank to stand pat on policy rate as monetary policy remains accommodative and fiscal policy is the preferred tool for boosting growth. Sentiments were mixed last week with foreign funds selling a net THB0.34bn of equities, but which were more than offset by their purchased of a net THB32.90bn in government debt. Week ahead has BoT policy meeting (Wed); Feb Customs trade; 18 Mar foreign reserves (Fri).

Rates

Malaysia

      Government bonds continued to rally on the back of broad USD weakness, with foreign buying seen on bonds at the belly amid good trading volume. Trading was heaviest on the 7y benchmark MGS. This week will see the auction on new 10.5y MGII 9/26 which we anticipate a size of MYR4b.

       MYR IRS levels moved lower, down by another 1-3bps on extended risk-on sentiment. The 5y IRS traded at 3.69% and 3.685%, while 3M KLIBOR remain unchanged at 3.71%.

       PDS remained active as spreads compressed in the AAA and GG curves, especially at the belly. In GG space, PASB 23 tightened 2bps to 4.17% (G+52bps/Z+33bps) with MYR70m done, and Prasa 2/23s tightened 1bp to 4.16%. Prasa 20 and PASB 21 also tightened about 1bp. There could be some potential upside as spreads against MGS still look decent. In AAA space, Telekom 24s and Suria 24 tightened 2-3bps to 4.45% level. We expect this space to continue to do well. AA space was muted again with crosses and prices unchanged.

Singapore

      SGS saw follow through buying at the start, but selling later dominated as USDSGD ticked up after the CNY fixing. Yields largely unchanged, with the 5y benchmark continuing to underperform. SGD IRS curve remained top heavy and ended 2-3bps lower, while swap spreads narrowed across the board.

       Asian credit stayed firm, though with mixed results. China benchmark papers sustained the rally as RM and shorters were still buying. Tech names stabilized, while oil names remained in demand as Moody’s affirmed the ratings of PETMK, PTTEPT, ONGCIN, OINLIN and PERTIJ amid oil prices trading around USD40/bbl. This market rally prompted UOB to re-tap its newly launched issue. Shinhan Bank issued T2 bonds at Ct10+205 which tightened to +192 before settling around +195. It seems the premium that T2 bonds command over senior bonds erodes with each subsequent issue. In the sovereign space, INDONs moved a leg higher as the 2026/2046 section continued to bull flatten with the spread down to 114bps.

 Indonesia

      Indonesia bond market closed slightly lower amid central bank on the previous day cut the BI rate by 25bps to 6.75%. Profit taking may have occurred during the trading day. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 7.256%, 7.615%, 8.029% and 8.130% while 2y yield shifts up to 7.545%. Trading volume at secondary market was seen heavy at government segments amounting Rp19,858 bn with FR0053 as the most tradable bond. FR0053 total trading volume amounting Rp4,203 bn with 75x transaction frequency and closed at 104.313 yielding 7.256%.

       Corporate bond trading traded heavy amounting Rp633 bn. SMFP03ACN4 (shelf registration III SMF Phase IV Year 2016; A serial bond; Rating: idAA+) was the top actively traded corporate bond with total trading volume amounted Rp155 bn yielding 8.600%.