Maybank GM Daily - 22 Mar 2016

FX

Global

      Equities were supported overnight despite weaker US data. Chicago Fed Nat Activity Index for Feb deteriorated -0.29. Noteworthy is the fact that the 3mma is in negative terrain. Existing home sales softened -7.1%m/m to 5.08m from previous 5.47mn. Earlier, European markets closed in mild red on news of a higher rig count in the US. That said, Brent and WTI still managed to end the session higher, underpinned by positive sentiments.

      Asia was a mixed bag yesterday. While STI and Nikkei were down by around 1%, Shanghai Comp and Shenzhen Comp rallied more than 2% on Mon after regulators relaxed the curbs on margin financing. In the FX space, dollar had a stronger session against most currencies with the exception of PHP. This week could be a week of retracements before dollar continues its medium term downtrend. The temporary respite for the USD also offers respite for USDCNY to allow the PBOC to adjust the RMB index higher.

      The day ahead has tier one data out of Europe – IFO expectations for Mar and ZEW survey expectations. RBA Stevens will speak and we expect some jawboning that could bring the AUD lower. Downsides might not sustain as any rate cut signals could increase the allure of Australian bonds. Asia does not have much key data due. In the US, Richmond Fed Mfg Index (Mar) and House Price (Jan).

Currencies

G7 Currencies

      DXY – Bounce. USD drifted higher amid Fed speakers’ comments overnight. Lacker said that upside risks to inflation have increased; Lockhart is encouraged by recent rise in inflation expectations but wage acceleration not convincing yet; Williams said Apr or Jun would definitely be potential times to have increase in interest rates if data meets expectations. DXY was last at 95.45 levels. Monthly, weekly, daily momentum indicators are bearish bias. We observed that stochastics is at oversold conditions on the daily chart and could possibly rise. 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 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 – Surveys on Tap. EUR fell amid mild USD rebound. Last seen around 1.1240 levels. Monthly, weekly, daily momentum continues to indicate a bullish bias; while daily stochastics is showing early signs of falling from overbought conditions. 4-hourly technical indicators suggest possible downside intra-day. Support at 1.1250 (76.4% fibo retracement of Feb high to Mar low), 1.1170 (61.8% fibo). 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. We are biased to buy on dips. Week ahead brings 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 – Focus on Inflation Data. GBP remains on a back foot as political concerns, Brexit and mild USD rebound weigh on the currency. Former Works and Pension Secretary Iain Duncan Smith (PM’s Cameron’s Conservative Party member) resigned last Fri and said that his resignation was not due to referendum but linked to decisions over the Budget. That said he is also a supporter of Brexit. GBP was last at 1.4370. 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 CPI, PPI, RPI (Feb); Public Finance (Feb) on Tue; Retail Sales (Feb) on Thu.

       USDJPY – Sell-On-Rally. Onshore markets returned after closing for a holiday yesterday with the USDJPY still bouncing away from the 111-support and back above the 112-levels, lifted by the resurgent USD due to hawkish Fed speaks and the sell-off in the JPY against the majors. As well, the gains in Nikkei futures should be supportive of the pair. Last seen around 112.15 levels, pair has lost most of its bullish momentum and stochastics is still bearish bias. Weekly charts are still bearish bias. Key support remains at 111 (double-bottom and potentially a triple-bottom if pair holds), before the 107-levels. We still 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).

       NZDUSD – Triple Top? NZD eased further amid a supported USD. Pair was last seen at 0.6760 levels. Daily momentum and stochastics are flat and not indicating a clear bias for now.  We observed a triple top appears to be in the making for NZD at 0.6880 levels. This could serve as a good resistance for now. 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 Trade (Feb)  on Thu.

       AUDUSD – Eye RBA Stevens. AUD is under pressure, weighed ahead RBA Glenn Steven’s speech. Last seen around 0.7570, this pair is poised for a near-term retracement and markets are expecting some  possibility of jawboning or threats of rate cut from the central bank governor. 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. House price index rose 0.2%q/q for 4Q, beating expectations.

       USDCAD – Retracements Ahead of Budget. USDCAD rose to levels around 1.3080. Recent bearish momentum have waned and we are wary of retracements towards the 200-DMA at 1.3335. Interim barrier is seen around 1.3157 (Conversion line of the daily ichimoku cloud). Support remains at 1.2832 (last Oct low) before the next at 1.2660. Finance Minister Bill Morneau will deliver the Federal Budget on tomorrow and this will be the key event this week. Yesterday, WSJ had cited the Head of the Offiec of the Superintendent of Financial Institutions saying that local banks should review accounting practices and their capacity to absorb losses with oil and gas companies.

     Asia ex Japan Currencies

      The SGD NEER trades 0.19% above the implied mid-point of 1.3647. We estimate the top end at 1.3375 and the floor at 1.3920.

       USDSGD – Bouncing Higher.  USDSGD continues its climb higher from its new 2016 low of 1.3480 (18 Mar), supported by a resurgent USD following hawkish Fed speakers. Pair was last seen around 1.3631 with daily momentum showing waning bearish bias and stochastics climbing higher from oversold levels. Weekly daily momentum indicators remain bearish bias. Immediate resistance is around 1.3650 (38.2% Fibo retracement of the 2014 low to 2016 high) ahead of the next around 1.3730. 2016 low of 1.3480 remains supportive. 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 was a touch softer this morning but still within its recently defined range of 2.98 – 3.00 as the pair continues to trade in absence of fresh impetus. Cross was last seen at 2.98. 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 – Range. USDMYR was little changed this morning (vs. yest. close). Pair was last seen at 4.0620 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). But intra-day pair could consolidate in 4.05 – 4.08 range amid fresh impetus. This week brings FX reserves (Tue) and Feb CPI inflation (Fri).

       1s USDKRW NDF – Consolidate. 1s USDKRW consolidated after recent decline. Pair was last at 1163 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). Day ahead could see 1160 – 1168 range in absence of fresh impetus. Week ahead brings 4Q GDP (final reading) on Fri.

       USDCNH – Upside Retracements. The pair was last seen around 6.4885. CNH trades on par with CNY against the USD ahead of onshore open. We see range-trading within 6.4200-6.5200. Noteworthy was the dollar rebound yesterday and a dollar retracement could provide PBOC an opportunity to fix the yuan stronger against the basket. That further underscores our view for range-trading for USDCNH within 6.4200-6.5200. As of 21 Mar, 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). Yesterday, the authorities loosen control over margin financing, spurring a rally in the equity markets. Just released, local press Caixin said that China may lower bad-loan coverage ratio at 7 major banks. In other news, IMF has urged PBOC to release details on its holdings of derivatives that could reveal its intervention methods in the FX market.

       SGDCNY – Bullish. This cross closed a tad higher at 4.7734 yesterday. 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 – Mild Rebounds. Pair is still on a small rebound 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. That said, recent retracements in the dollar could guide the pair on a temporary retracements as well.  A break of the support at 66.64 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 18 Mar with foreign investors buying USD283.4mn of equities and USD18.5mn of debt on 18 Mar. India may extend the wheat import tax beyond Mar (Reuters).

       USDIDR – Still Choppy. USDIDR is likely to open higher this morning, tracking the USD/AXJs broadly higher, even though 1s USDIDR NDF is edging lower currently. The 1s NDF is seen around 13205 with daily momentum and stochastics bullish bias. Still upside in the USDIDR could be capped given the firmer oil prices this morning. Moreover, 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. Resistance remains around 13225-30 (23.6% Fibo retracement of the Jan-Mar downswing; 21DMA). Support is seen around 13100 before 13000. The JISDOR was fixed higher at 13160 on Mon from Fri’s 13048. Risk sentiments remained positive with foreign funds buying a net USD28.12mn in equities yesterday. They had also added a net IDR3.17tn to their outstanding holding of government debt on 18 Mar (latest data available). There are no data of note next week and onshore markets are closed on Fri.

       USDPHP – Range-Bound.  USDPHP should open higher this morning, playing catch-up with its regional peers. 1s USDPHP NDF is edging lower this morning though, hovering around 46.400, with daily momentum showing waning bearish bias and stochastics climbing higher. Markets are 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. Look for the pair to trade range bound ahead. Resistance is around 46.6600 (200DMA) ahead of 46.755 (50% Fibo retracement of the Oct 2015 low to Jan 2016 high). Support remains 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 continues its bounce off its 2016 low of 34.720 (17 Mar) on the back of a USD resurgence. Last seen around 34.940-levels, pair is bearish bias on the daily chart and stochastics is turning higher from oversold levels. Weekly charts are still bearish bias. The 2016 low of 34.720 continues to be supportive. Still favour selling on rally towards 35.120-levels (23.6% Fibo retracement of the Jan high to Mar low). BoT meets on Wed and 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. The BoT though stands ready to move on the policy rate if needed. Sentiments continued to be mixed with foreign funds selling a net THB0.10bn of equities, but purchased a net THB1.96bn in government debt. Week ahead has BoT policy meeting (Wed); Feb Customs trade; 18 Mar foreign reserves (Fri).

Rates

Malaysia

      Local government bonds traded softer amid thin trading volume as the 10.5y new MGII 9/26 auction size was announced at an expected MYR4b. The auction is slated for Wednesday. WI was dealt at the 4.10% level with MYR60m done, and last quoted at 4.12%/08%.

       Local IRS market was quiet. Levels largely unchanged and nothing traded in the market. 3M KLIBOR stayed at 3.71%.

       Muted PDS market as MGS softened. In AAA space, Putrajaya 9/23 exchanged hands at 4.39% (G+68bps/Z+49bps), with rumors of an upcoming new issuance. Putrajaya 7/23 and Rantau 20 tightened 1bp to 4.37% (G+65bps/Z+47bps) and 4.11% (G+62bps/Z+39bps) respectively. The GG space was largely quiet, with interest seen on 10y PASB but nothing traded, last quoted of 4.44/42%. Dana 10/28 traded unchanged at 4.56% (G+38bps/Z+38bps), looking decent on z-spread basis. Prasa 31 widened 2bps to 4.73% (G+42bps/Z+47bps). The long end of the GG curve still lags the rally seen at the belly. Elsewhere, some crosses on banks’ sub-debts at the long end and AA names.

Singapore

      SGS market was quiet and prices largely lower as dealers remained better sellers. The benchmark yield curve higher by 1-4bps. The intraday rise in USDSGD pushed short-dated forwards further to the right. SGD IRS curve got bumped up by 3-6bps and the curve flattened.

       Light start for Asian credit market, which was busy rolling CDS into the new contracts, with the new AsiaS25 rolling at +20pips. INDON benchmark prices lowered a touch, by 25-37cents at the belly, as new 5y and 10y INDOIs were announced. CNOOC spreads were pushed 1-2bps wider on slightly lower oil prices. Spreads elsewhere were largely unchanged.

 Indonesia

      Indonesia bond market closed slightly lower on the first trading day. There won’t be any economic data publication this week. Hence we see that IGS prices would move sideways while may book a healthy correction this week. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 7.324%, 7.685%, 8.105% and 8.185% while 2y yield shifts up to 7.441%. Trading volume at secondary market was seen moderate at government segments amounting Rp11,618 bn with FR0056 as the most tradable bond. FR0056 total trading volume amounting Rp2,257 bn with 85x transaction frequency and closed at 104.908 yielding 7.685%.

       DMO will conduct their bi-weekly sukuk auction today with five series to be auctioned which are SPN-S09092016 (Coupon: discounted; Maturity: 9 Sep 2016), PBS006 (Coupon: 8.250%; Maturity: 15 Sep 2020), PBS009 (Coupon: 7.750%; Maturity: 25 Jan 2018), PBS011 (Coupon: 8.750%; Maturity: 15 Aug 2023) and PBS012 (Maturity: 15 Nov 2031). We believe that the auction will be oversubscribe by 2.0x – 3.0x from its indicative target issuance of Rp4 tn while our view on the indicative yield are as follows SPN-S09092016 (range: 5.70% – 5.80%), PBS006 (range: 7.80% – 7.90%), PBS009 (range: 7.65% – 7.75%), PBS011 (range: 8.10% – 8.20%) and PBS012 (range: 8.30% – 8.40%).

       Corporate bond trading traded heavy amounting Rp726 bn. MEDC01CN2 (Shelf registration I Medco energy International Phase II Year 2013;; Rating: idA+) was the top actively traded corporate bond with total trading volume amounted Rp200 bn yielding 11.203%.