Maybank GM Daily - 29 Mar 2016

FX

Global

      US PCE Core came in at 1.7%y/y, steady from Jan. Personal income slowed to 0.2%m/m from previous 0.5%. Personal spending also decelerated to 0.1%m/m from previous 0.5%. The Jan print was also revised lower to 0.1%. The dollar fell below the 96-figure after the release, allowing most majors to strengthen (with the exception of safe haven JPY).

      Broad dollar weakness was exacerbated by the fact that Fed Chair Yellen was scheduled to speak tonight and she normally prefers to err on the side of caution. In spite of the softer data, market implied probability for an Apr or Jun rate hike only stand at 6% and 38%, respectively. That could change at the turn of the quarter and at the next release of the NFP on Fri. Our bias remains for Fed to hike rates by 2 times this year, with the next hike of 25bps likely to take place in Jun.

      Intraday, the overnight fall in the dollar could soften USDAXJs. However, beyond today, USD could still face some upside pressure, condition on Fed Yellen and NFP. We still hold our view for USDJPY resistance at 113.50 before 115 levels. Downside in USDMYR and USDSGD could stall; retracement could re-visit 4.08 and 1.38, respectively. Our SGDNEER model shows USDSGD is about +0.1% above our midpoint of 1.3700.    SGDMYR could see a retracement towards 2.9650; but bias remains for further downside. AUD’s golden cross could have started to play out yesterday. April is a seasonally strong month for the currency and its recent golden cross suggests that more upside could be only a matter of time.  

      Day ahead has little data out of Asia and eyes remain on the US. Fed William speaks out of Singapore. Later, ECB Makuch speaks followed by Fed Yellen and Kaplan, US consumer confidence for Mar is due.

Currencies

G7 Currencies

      DXY – Many Fed Speaks including Yellen Today. USD fell amid slightly softer than expected PCE core inflation (+1.7% m/m vs. +1.8% Expected). Focus today on Fed speaks including Yellen, Kaplan as well as Williams (who will speak from Singapore). In particular attention will be on Fed’s Yellen (1220am SG/KL time tonight) if she will take the opportunity to clarify her FOMC press conference, reiterate April meeting remains “live. DXY was last at 96 levels. Monthly, weekly momentum indicators remain bearish bias. Bearish momentum on daily chart is waning and stochastics is rising from oversold conditions. MACD is also showing some bullish divergence. More clarity could surface after Yellen speaks tonight and US payrolls on Fri. Some technical levels to watch - resistance at 96.57 (50% fibo retracement of Mar high to low, 21 DMA), 97 levels (200 DMA, 61.8% fibo). Support at 95.52 (23.6% fibo) and 94.58 (Mar low). Week ahead brings S&P/CS HPI (Jan); Consumer confidence (Mar); Fed’s Yellen, Kaplan, Williams speak on Tue;  ADP Employment (Mar); Fed’s Evans speaks on Wed; Chicago Purchasing Manager (Mar); Fed’s Evans, Dudley speak on Thu;  NFP, hourly earnings, unemployment rate, ISM Mfg, PMI, Uni of Michigan Sentiment (Mar); Fed’s Mester speaks on Fri.  

      EURUSD – Awaiting for Fresh Cues. Most European markets were closed yesterday and will return from long Easter weekend holidays today. EUR firmed amid broad USD weakness. Traded a high of 1.1220 before easing. Last seen at 1.12 levels. Bullish momentum on daily chart is waning and stochastics is falling from overbought conditions. EUR could consolidate in absence of fresh cues (or rather awaiting for USD cues from Fed speaks). Week ahead ECB Makuch speaks; ECB publishes weekly QE data on Tue; EC consumer confidence (Mar); GE CPI (Mar) on Wed; GE retail sales (Feb); EC CPI, core CPI estimate (Mar) on Thu; EC, GE, FR PMI (Mar); EC unemployment rate (Feb) on Fri.

      GBPUSD – Short Term Upside Risks. GBP rose amid broad USD weakness.  Should see Brexit concerns capping the rise. But short-term (intra-day) could see some GBP upside risk. 21DMA appears to cut 50 DMA to the upside.  GBP was last at 1.4250 levels. Resistance at 1.4250 (50% fibo), 1.4350 (61.8% fibo). Support remains at 1.4030 (23.6% fibo retracement of Feb high to low) before 1.3830 (Feb low).   Week ahead brings BoE Financial Policy Committee Statement on Tue; Consumer confidence (Mar); BoE Gov Carney speaks; GDP (4Q) on Thu; House Price (Mar); PMI Mfg (Mar) on Fri. UK is out for hols on Mon.  

      USDJPY – Consolidating. USDJPY continues its climb higher after a brief retracement earlier in the morning. Downside pressures is possibly coming from the sell-off in the JPY against most of the majors. Market is still awaiting confirmation of a stimulus package as well as the delay the planned consumption tax hike. Rising doubts of the future of Abenomcis could lead to a collapse in confidence and trigger sell off in Nikkei and force large unwind of JPY-hedges and risk USDJPY falling further. USDJPY was last around 113.40 levels. Daily momentum and stochastics are still bullish bias. Next resistance at 114.60 (50 DMA), 115 (38.2% Fibo retracement of Jan high to Mar low). Support remains around 111 (triple bottom formed in 2016). Week ahead has industrial production (Feb) on Wed; Tankan (1Q); Mfg PMI (Mar) on Fri.

      NZDUSD – Range. NZD rebounded amid broad USD weakness in quiet trade overnight. NZD was last at 0.6730 levels. Daily momentum and stochastics are not indicating a clear bias. Pair could consolidate in absence of fresh catalyst. Support at 0.6680 (61.8% fibo retracement of Dec high to Jan low ), 0.6620 (50% fibo), before 0.6550 (38.2% fibo). Resistance at 0.6680 (61.8% fibo), 0.6760 (76.4% fibo) before 0.6880 (triple top).  Week ahead brings Building Permits (Feb) on Wed; Business Confidence (Mar) on Thu.

      AUDUSD – Consolidate; Downside Risks. AUD bulls were given a little encouragement overnight by USD bears and the pair was last seen around 0.7550. We suspect that the retracement is not done yet but look for dips to buy towards the key 0.80-figure. Supports are seen around 0.7500 (21 DMA), 0.7350. Beyond the near-term, we take note of the golden cross and expect retracements to remain shallow. Resistance at 0.7680 (Mar high) before 0.7850 (38.2% fibo retracement of Jun 2014 – 2016-low). Week ahead brings New home sales, private sector credit (Feb) on Thu; House price, commodity index (Mar) on Fri.

      USDCAD – Bulls Gain Momentum. USDCAD retreated overnight and was last seen around 1.3180, weighed by the overnight dollar retreat. This pair retains bullish momentum despite the fall and the 200-DMA at 1.3335 beckons. Support is still seen at 1.3159 (Mar low), 1.2978 (61.8% Fibonacci retracement of the May-Jan rally) before 1.2832 (last Oct low). Week ahead brings Jan GDP on Thu before Mar PMI on Fri.

     Asia ex Japan Currencies

      The SGD NEER trades around the implied mid-point of 1.3681. The top end is estimated at 1.3408 and the floor at 1.3955.

      USDSGD – Bearish.  USDSGD slipped lower on the back of a softer dollar overnight. Pair was last seen around 1.3686. Daily momentum and stochastics are showing mild bullish bias. With risks to the downside this morning, support remains at 1.3480 (Mar low). Immediate barrier is around 1.3740 (21DMA) ahead of the next at 1.3850 (38.2% Fibo retracement of Jan high to Mar low). We observe a death cross in the making where 50DMA cuts 200 DMA from the top. This typically signals bearishness. Until then, we could see the pair hover range-bound intraday.

      AUDSGD – Rangy. AUDSGD’s swivels around the 1.03-figure have not end and to be more specific, much of its action dominate within the 1.0250-1.0400. We continue to see two-way trades for the rest of the week. Beyond the 1.03-figure, lies the 1.0250-support (23.6% fibo retracement of Feb low to Mar high). We do not rule out deeper retracements towards next support at 1.0170 (38.2% fibo).  These are taken as shallow retracements before our ultimate target at 1.0540 to be reached.

      SGDMYR – Bearish Bias. SGDMYR inched lower this morning. Cross was last at 2.9250 levels. Daily momentum and stochastics remain bearish bias. 21 and 50 DMAs have cut 200 DMA to the downside – a death cross formation typically associated with bearish bias. We continue to see further downside. First objective at 2.90 before 2.82-2.84 levels. Retracement may revisit 2.9650 (38.2% fibo of Jan high to low). Remain better sellers on rally.

      USDMYR – Looking for Clean Break Below 4. USDMYR drifted lower amid broad USD weakness. We reiterate our technical observation that a death-cross is in the making where 50 DMA cuts 200 DMA to the downside. This is typically bearish in nature. The last time when 50 DMA cuts 200 DMA was in Nov-2014 and that time 50 DMA cuts 200 DMA to the upside (golden cross – bullish), and the pair rose from 3.30 levels to above 4.40. This death cross should be respected, in our opinion. Short-term, there appears to be a falling wedge in the making – this suggests potential upside risk and upside could re-visit 4.08 levels (21 DMA). We remain bearish bias in the medium term. While a positive correlation exists between oil prices and Ringgit (vs the USD), our simple regression analysis found out that an asymmetric relationship exists when oil prices rise and fall. When oil is rising, MYR rises faster as compared to when oil prices were falling. Previously when oil prices were falling, we shared that a 10% move lower in oil prices corresponded with about 1.5% move lower in the MYR (against the USD). This time round in the episode of oil prices rising, we saw a 10% move in oil prices being translated into 2.6% move higher in Ringgit. To put that in perspective, if oil rises from $40 to $48 (representing a 20% rise), USDMYR could potentially fall to 3.82 levels. Our recent fair value estimate which takes into account interest rate differential, inflation differential, current account differential and reflation variables shows USDMYR at 3.52 levels.

      1s USDKRW NDF – Consolidation. 1s USDKRW fell amid broad USD weakness. Pair’s inverse correlation with equities appears to have seen a breakdown for the time being. Talks of 1Q dividend repatriation nearing an end – should lend see some support for the pair. Pair was last at 1165 levels. Bearish momentum on daily chart is waning but stochastics is not providing much indication. Pair could consolidate 1155 – 1175, with short term bias to the downside (21dma cuts 100dma to the downside) in absence of fresh cues. Some technical levels to watch - resistance at 1175 (200 DMA), support remains at 1153 (Mar low). Week ahead brings Mar consumer confidence (Tue), Feb IP (Thu).

      USDCNH – Upside Risks. The bullish divergence has played out and the pair was last seen around 6.5150. CNH trades at a discount to CNY against the USD ahead of onshore open. The upper bound of the 6.4200-6.5200-range is being tested. A break there exposes the next barrier at 6.5452(50-DMA). USD/CNY was fixed 9 pips higher at 6.5232 (vs. previous 6.5223). CNY/MYR was fixed 16 pips higher at 0.6182 (vs. previous 0.6166). The local state press Xinhua reported that SAFE will increase supervision and punitive measures on any “violations that interfere the forex market”.

      SGDCNY – Short-term Downside. This cross higher from its close at 4.7533 yesterday. Uptrend is still intact though this cross has been retracing towards the support at 4.7400. Range-trading is likely to continue within 4.7400-4.8000, biased to the downside. Bullish momentum on the weekly chart suggests that the cross could be supported on dips and next barrier is seen at 4.8100.

      1s USDINR NDF – Rebounds. Onshore markets re-opened after closing for a long weekend.  Pair hovered around 67.00 as we write this morning, softening in tandem with broad dollar weakness. There is still little bias at this point on the daily chart but weekly chart shows more bearish momentum. At this point, the 100-DMA at 67.50 seems to have deterred aggressive bulls, ahead of the next at the 68-figure. Weekly momentum is still bearish. A break of the support at 66.64 opens the way towards the 200-DMA at 66.20. Risk appetite was good on 23 Mar with foreign investors buying USD159.5mn of equities and USD83.7mn of debt. In news, Prime Minister Modi highlighted that foreign direct investment in 3Q was at an all-time record and that the improvement in economic performance was due to “good policy and not good fortune”. He also highlighted that “Make in India’ policy to promote the manufacturing sector is “working”. The week ahead has no tier-one data of note but second half of the parliamentary session will start on 1 Apr.

      USDIDR – Rangy. USDIDR is little changed this morning despite a softer dollar overnight as market re-adjust their positions ahead of US NFP and on month-end dollar demand. We can expect range-bound trades intraday. Pair was last seen around 13350 levels. Daily momentum and stochastics remain bullish bias. 13225 levels (23.6% Fibo retracement of the Jan-Mar downswing) should remain supportive. Any rebound should meet resistance around 13375 (38.2% Fibo); 13430 (50DMA). The JISDOR was fixed higher for the second straight session at 13323 on Mon from Fri’s 13250. Risk sentiments deteriorated yesterday with foreign funds selling a net USD36.74mn in equities. They had however added a net IDR0.41tn to their outstanding holding of government debt on 24 Mar (latest data available). Week ahead has Mar PMI; Mar CPI (Fri). The government is poised to announce its 11^th economic package later today. This package will focus on improving efficiency at Indonesian ports with an eye to cutting dwelling time.

      USDPHP – Tight Range.  USDPHP gapped slightly lower at the opening to 46.325 this morning from yesterday’s low of 46.326, tracking its regional peers broadly lower. Still, pair continues to trade in a tight range within 46.160-46.600. Last seen around 36.320, pair has lost most of its momentum and stochastics continues its slow climb higher from oversold levels. Further slippages should find support around 46.160 (Mar low). Rebounds should meet resistance around 46.610 (23.6% Fibo retracement of the Jan-Mar downswing). Risk sentiments were positive yesterday with foreign investors buying a net USD1.84mn in equities. As expected, the BSP stood pat on rates given the strength of the economy amid stable inflation. Risk sentiments soured yesterday with foreign funds selling a net USD6.45mn of equities. No data of note for the week ahead.

      USDTHB – Still Consolidating. USDTHB remains in consolidative mode even as the dollar softened overnight. Market appears to be adjusting their positions ahead of US NFP later this week after the bullish run over the past week or so. Pair was last seen around 35.355 levels. Daily chart and stochastics are now bullish bias. Weekly charts remain bearish bias. A death cross appears to be in the making with the 50DMA cutting the 200 DMA on the downside, which typically signals bearishness. Resistance remains around 35.570 (50% Fibo retracement of the Jan high to Mar low). Support remains at 35.120 (23.6% Fibo). Investment sentiments rebounded with foreign funds purchasing a net THB0.34bn and THB1.20bn in equities and government debt yesterday. Week ahead brings Feb trade; Feb BoP current account (Thu); 25 Mar foreign reserves; Mar CPI (Fri).

Rates

Malaysia

      A quiet start to the week for government bonds with hardly any trades done. Off-the-run MGS 3/20 and 7/24 saw small buying in the morning, likely from weekend covering. Issue size for the 15y MGS 6/31 reopening is MYR2.5b as expected. WI was quoted at around 4.30/20% but nothing dealt.

      In the IRS market, 1y and 3y rates closed marginally higher by 1bp. Interest mainly concentrated on the 1y as good volume was seen. The 1y traded at 3.62-3.63%, while 5y dealt at 3.74%. 3M KLIBOR unchanged at 3.71%.

      Muted day in the local PDS market. There was some light buying of AAAs at the front end. Aman 5/20 traded 2bps tighter to 4.13% (G+65bps/Z+40bps) and Telekom 12/24 was taken at 4.40% (G+58bps/Z+39bps). In GG space, Prasa 31 tightened 2bps to 4.71% (G+40bps/Z+39bps). We think long-end GGs currently offer more value, but real money accounts’ interest continued to be at the belly.

Singapore

      SGS sustained buying interest, especially for issues in short supply. Short coverers bought on dips and SGS remain firmly bid. The yield curve flattened slightly as the front end rose 1-2bps, likely cheapening ahead of the 2y SGS reopening on Tuesday, while elsewhere was unchanged to -1bp. SGD IRS curve ended higher by 1-3bps.

      With the Easter holiday in HK and London, not many real trades were seen in Asian credit market. CDS broadly unchanged as well. There were bid side enquiries of MALAYs possibly to make room for Malaysia’s new USD sukuk.

 Indonesia

      Indonesia booked losses during the first trading day post a long weekend due to Good Friday. The decline in IGS prices occurred ahead of the bond auction today and ahead of U.S. March Job data release. There will be an announcement of the 11th economic package today by the government. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 7.408%, 7.788%, 8.242% and 8.234% while 2y yield shifts up to 7.469%. Trading volume at secondary market was seen thin at government segments amounting Rp8,811 bn with FR0056 as the most tradable bond. FR0056 total trading volume amounting Rp1,711 bn with 29x transaction frequency and closed at 104.146 yielding 7.788%.

      DMO will conduct their weekly auction with four series to be auctioned which are SPN12170302 (Coupon: discounted; Maturity: 3 Feb 2017), FR0056 (Coupon: 8.375%; Maturity: 15 Sep 2026), FR0073 (Coupon: 8.250%; Maturity: 15 May 2031) and FR0072 (Coupon: 8.250%; Maturity: 15 May 2036). 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: 6.25% – 6.40%), FR0056 (range: 7.80% – 7.90%), FR0073 (range: 8.30% – 8.35%) and FR0072 (range: 8.20% – 8.35%).

      Corporate bond trading traded heavy amounting Rp684 bn. IMFI02ACN3 (Shelf Registration II Indomobil Finance Phase III Year 2016; A serial bond; Rating: idA) was the top actively traded corporate bond with total trading volume amounted Rp88 bn yielding 9.597%.