Maybank GM Daily - 30 Mar 2016

FX

Global

      “Caution” is the word stressed by Fed Chair Yellen when she made her address titled “The Outlook, Uncertainty, and Monetary Policy” to the Economic Club of New York. She opined that caution is needed because of the “asymmetric” effect of conventional monetary policy on economic disturbances – that the FFR could be raised readily should the economy strengthen more than expected but cutting the FFR would only be able to provide a “modest degree of additional stimulus” in an environment of weak economic growth and inflation.

      The dollar fell on her dovish tone, sending the NZD on its way towards the 0.69-figure as we write. GBP hovers just a touch under the 1.44-figure and USDJPY, was last seen around 112.50. Stock markets bounced in reaction. NASDAQ outperformed at +1.7%. The UST curve hardly budged. Softer dollar supported crude prices around USD39/bbl.

      Still, eyes are on the Mar NFP this Fri but it would take an exceptionally strong print for dollar to sustain any rally. As we move into April, a seasonally weak month for the greenback, the current risk-on trade could continue.  With that, we see USDMYR and USDSGD lower. AUD is likely to head higher after its recent golden cross towards our target 0.80.

      The data calendar for Asia remains light today. Beyond the region, US ADP employment is due and Fed Evans speaks today. In Europe, consumer confidence for the Euro-area is due as well as Germany’s Mar CPI.

Currencies

G7 Currencies

      DXY – Dovish Yellen Sets the Tone. Fed Chair Yellen’s speech yesterday to the Economic Club of NY was perceived as dovish. She said it is appropriate for the FOMC to proceed cautiously in adjusting policy. Elaborating on caution is especially warranted because FOMC’s ability to use conventional monetary policy to respond to economic disturbances is asymmetric, with fed fund rate so low. She also said that the Fed is not short of non-conventional measures to respond to downside surprises and  noted the continued scope to issue forward guidance on interest rates, or increase the size or duration of Fed’s holdings of long-term securities. She also reiterated that the FOMC remains wary of potential additional weakness in China and oil prices. She believes that recent rise in core PCE may be a normal fluctuation and that she expects it to remain below 2% through 2016. She added that current neutral rate is near zero but can rise if inflation picks up. She almost clarified and elaborated further on most items but she made no mention of April being a live meeting. This week’s ADP and NFP numbers may need to be exceptionally strong for USD to reverse weakness, otherwise it may well just be sell-on-rally. USD dived to 95 levels (from above 96 levels). Monthly, weekly momentum indicators remain bearish bias. Next support at 94.58 (Mar low). Resistance at 95.52 (23.6% fibo retracement of Mar high to low, 21 DMA), 96.10 (38.2% fibo). Week remaining brings 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 – En-Route to 1.1380? EUR took the cue from dovish Yellen, rising briefly above 1.13-handle. Last seen at 1.1295 this morning. Daily momentum is turning mild bullish. Next level to watch at 1.1380 (2016 high). Support at 1.1250 (76.4% fibo retracement of Feb high to low) before 1.1170 (61.8% fibo). Barring surprises, EUR dips (if any) is likely to be shallow. Bias to buy on dips. Week remaining brings 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 – Sell Above 1.45. GBP turned around amid broad USD weakness. Yesterday we highlighted that GBP could see some upside in the short term. 21DMA appears to cut 50 DMA to the upside, soon. GBP was last at 1.4380. Next resistance at 1.4470 (76.4% fibo retracement of Feb high to low) before 1.4580 (100 DMA). Support at 1.4250 (50% fibo, 21 DMA), 1.4150 (38.2% fibo). Respect the upside momentum; bias to sell above 1.45 as Brexit concerns should cap any excessive rise. Week remaining brings 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 – Downside Pressure. USDJPY continued its downslide on the back of a dollar retracement following Fed Chair Yellen’s dovish comments overnight. Industrial production slumped 6.2% m/m - the most since 2011 – as external demand stalled and one-off factors like the Toyota steel-mill explosion halted domestic car production, but additional fiscal help for the economy is unlikely to be forthcoming for now. The much anticipated PM Abe news conference yesterday evening had failed to sizzle as no new stimulus package or delay in the consumption sales tax was announced. Instead, PM Abe directed the Finance Ministry to “front-load spending as far as possible” and he also reiterated his plans to increase the sales tax in 2017, barring a major economic shock. Also he dismissed rumours that he planned to call a snap lower house lection to coincide with the upper house polls in Jul. The risk ahead is that rising doubts of the future of Abenomcis could lead to a collapse in confidence and trigger a sell-off in the Nikkei and force large unwinds of JPY-hedges and risk USDJPY falling further. USDJPY was last around 113.40 levels. Daily momentum and stochastics are still bullish bias. Support for the pair remains around 111 (triple bottom formed in 2016). New resistance is around 113.30 (23.6% Fibo retracement of Jan high to Mar low). Remaining week has Tankan (1Q); Mfg PMI (Mar) on Fri.

      NZDUSD – Will Triple Top be Tested? NZD drifted higher amid broad USD weakness (as a result of dovish Yellen). Last at 0.6850 levels. Daily momentum and stochastics are showing signs of bullish bias. Resistance at 0.6880 (Dec high and triple top). Pair could be at risk of testing 0.70 should triple top gives way. Support at 0.6760 (76.4% fibo retracement of Dec high to Jan low), 0.6680 (61.8% fibo). Week remaining brings Business Confidence (Mar) on Thu.

      AUDUSD – Bulls Gain Momentum. The pair rallied to levels around 0.7630. Base on Fed Yellen’s overnight dovish tone, the dollar is unlikely to be in the way of AUD bulls. The rebound is likely to sustain into Apr towards out key 0.80 target. Supports are seen around 0.7500 (21 DMA), 0.7350. Interim 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 slumped on dollar weakness and was seen around 1.3070. Bullish momentum is waning though stochastics is rising from oversold conditions. Bias is weak at this point. Bears have to break the support at 1.2980 for further extension before 1.2832 (last Oct low). The 200-DMA at 1.3335 caps topside. Week ahead brings Jan GDP on Thu before Mar PMI on Fri.

     Asia ex Japan Currencies

      The SGD NEER trades 0.52% above the implied mid-point of 1.3617 with the top end estimated at 1.3346 and the floor at 1.3888.

      USDSGD – Rangy.  USDSGD is mildly rebounding, probably on possible profit-taking, after the overnight drop on a dollar reversal following Fed Chair Yellen’s dovish comments. Last seen around 1.3550 levels, pair has lost most of its mild bullish momentum. We observe a death cross in the making where 50DMA cuts 200 DMA from the top. This typically signals bearishness. With risk to the downside, a move towards the year’s low of 1.3480 (18 Mar) is a possibility. Resistance is around 1.3700 (23.6% Fibo retracement of Jan high to Mar low).

      AUDSGD – Rangy. AUDSGD remain around the 1.03-figure, last printed 1.0340 as we write. We continue to see two-way trades within 1.0250-1.0400 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 remains near its recent lows at 2.9250. While the Ringgit managed to clock gains, SGD managed to provide an equivalent strength to buffer. 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. Resistance at 2.9650 (38.2% fibo of Jan high to low). Remain better sellers on rally.

      USDMYR – Continue to Look for Clean Break Below 4. USDMYR gapped lower in the open amid weaker USD thanks to a dovish Fed. Other factors such as supported oil prices, improved investor sentiment and decent interest in local currency bonds continue to provide a conducive environment for Ringgit gains. Pair was last at 3.9720 levels. We watch price action this week. A sustained close below 4-figure this week could suggest sustained gains ahead. Next support at 3.90 levels. Resistance at 4.07 (21 DMA).We reiterate our technical observation that a death-cross was seen in the pair, 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. 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 – Watching 1150 Support. 1s USDKRW continued to fall amid broad USD weakness. Pair was last at 1155 levels. Bearish momentum on daily chart remains intact. Technically the 1150 levels is a key support. Should this support be taken out, the pair could possibly head lower towards 1126 levels (50% fibo retracement of the up-move from 2014 low to 2016 high). Resistance at 1175 (200 DMA) before 1190 (100 DMA).  Week remaining brings Mar Feb IP (Thu).

      USDCNH – Back to Consolidation. The pair retreated back within the 6.4200-6.5200 along with the dollar weakness and stronger yuan fixing this morning, last seen around 6.4925. CNH trades back at a premium to CNY against the USD ahead of onshore open. Range of 6.4200-6.5200-should hold in the near-term. USD/CNY was fixed 219 pips lower at 6.4841 (vs. previous 6.5060). CNY/MYR was fixed 26 pips lower at 0.6122 (vs. previous 0.6182). Finance Chiefs and central bankers from G20 will discuss crisis planning in Paris on Thu (BBG).

      SGDCNY – Range. This cross closed higher at 4.7632 yesterday. Range-trading is likely to continue within 4.7400-4.8000. Uptrend is still intact. 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. Pair pulled back towards the 66.70 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 24 Mar with foreign investors buying USD337.4mn of equities and selling USD46.9mn of debt. RBI announced that the cap for foreign portfolio investors in government securities will be raised by INR105bn from 4Apr and by another INR100bn by 5 Jul. Unutilized limits of government securities could be made available to open category in the next half of the year. In separate news, FinMin Jaitley said that India needs a lot of foreign investment in manufacturing and infrastructure.

      USDIDR – Limited Downside. USDIDR is bouncing lower this morning, playing catch-up with the rest of its regional peers. A more gradual Fed fund rate hike is likely to support risk sentiments and we could see a reversal of yesterday’s outflows from equities.  Foreign funds had sold a net USD57.36mn in equities yesterday. They had also removed a net IDR1.09tn from their outstanding holding of government debt on 28 Mar (latest data available). Pair was last seen around 13360 levels. Daily momentum and stochastics remain bullish bias. This suggests that further downside moves could be limited. Support is around 13225 levels (23.6% Fibo retracement of the Jan-Mar downswing). Immediate resistance is around 13375 (38.2% Fibo) and then 13420 (50DMA). The JISDOR was fixed higher for the third straight session at 13363 on Tue from Mon’s 13323. Risk sentiments remained weak with Remaining week has Mar PMI; Mar CPI (Fri).

      USDPHP – Gapped Lower.  USDPHP gapped lower at the opening again to 46.195 this morning from yesterday’s low of 46.325, tracking the USD/AXJs broadly lower. Pair touched a new low for the year at 36.133 before bouncing higher to around 46.175 currently. Still, pair continues to trade in a tight range within 46.160-46.600. Pair has lost most of its momentum and stochastics continues its slow climb higher from oversold levels. Further slippages should find support around 46.035 (8 Oct 2015 low). Rebounds should meet resistance around 46.610 (23.6% Fibo retracement of the Jan-Mar downswing). Weak risk sentiments continued yesterday with foreign funds selling a net USD8.63mn of equities. No data of note for the week ahead.

      USDTHB – Consolidation Mode. USDTHB remained in consolidative mode even as the pair slipped lower following the dovish comments of the Fed Chair. Continued inflows into Thai assets should also help on risk-supported sentiments. Foreign funds had purchased a net THB0.72bn and THB2.69bn in equities and government debt yesterday. Pair was last seen around 35.300 levels. Daily chart and stochastics are 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. Further downmove could find support around 35.120 (23.6% Fibo retracement of the Jan high to Mar low). Resistance remains around 35.480 (50DMA); 35.570 (50% Fibo). Week ahead brings Feb trade; Feb BoP current account (Thu); 25 Mar foreign reserves; Mar CPI (Fri). In the news, the finance ministry intends to cut its 2016 GDP forecast from its current 3.7%, which will be released in late Apr. More importantly, the proposed new charter was unveiled yesterday. The new constitution continued to place power in the hands of the military, allowing it to appoint all members of the Senate and a vague provision that could allow for an appointed prime minister.

Rates

Malaysia

      In the government bond market, some trades went through on the 7y and 10y MGS benchmarks, but more were done on MGIIs with the 3y MGII 5/18 down 1bp. The 15y MGS 6/31, which reopens on Wednesday, did not see WI trades and was last quoted at 4.30/20% level.

      Nothing was dealt in the IRS market, though firmer paying interest was seen across the curve. 3M KLIBOR remain unchanged at 3.71%.

      PDS market largely saw crosses. For AAA, some short-end Cagamas papers traded, with Caga 17 tightening 11bps to 3.65% (G+15bps/Z-1bp) which seems very tight. Aman 29 tightened 1bp to 4.72% (G+58bps/Z+56bps) but the spread has room to compress. The GG space was slightly more active. Long-dated Prasarana papers were taken 1bp tighter. We reiterate that the long end of the GG curve currently offers more value. In the AA space, TBEI 22 traded at 4.85% (G+126bps/Z+101bps) and TBEI 30 at 5.20% (G+89bps/Z+92bps).

Singapore

      SGS was firmly bid driven by lower funding. Prices largely higher amid light trading with the 5y benchmark outperforming, while the 2y underperformed. The benchmark yield curve lowered 4-8bps. SGD IRS curve also ended lower by 5-8bps in a steepening bias.

      CDS tightened slightly across the board, but cash bonds struggled to do so. EM sovereign cash space was still muted, with new INDOI 26 trading down to 99.60, while PHILIP 41 traded up. TMB 21s continued to perform, despite UST yields a touch lower from re-offer, due to scarcity value and for diversification. Yunnan 19’s loose bonds were snapped up by onshore buyers, mainly PB.

 Indonesia

      Indonesia bond market closed lower during the day trading as awarded yield during the auction was slightly higher compared to previous day close. However, the upward movement of yield were contained and was not significantly changed. This would indicate that bond player was being cautious ahead of Fed Yellen speech post market close as well as U.S. March Job data. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 7.463%, 7.841%, 8.286% and 8.292% while 2y yield shifts up to 7.530%. Trading volume at secondary market was seen heavy at government segments amounting Rp13,877 bn with FR0072 as the most tradable bond. FR0072 total trading volume amounting Rp3,527 bn with 161x transaction frequency and closed at 103.943 yielding 7.286%.

      Indonesian government conducted their conventional auctions yesterday and received incoming bids of Rp16.05 tn bids versus its target issuance of Rp12.00 tn or oversubscribed by 1.4x. Incoming bids during the auction was lower by approx. 27% compared to the last conventional auction last two weeks. The incoming bids were significantly below the YTD average incoming bids during conventional auction amounting Rp26.53 tn. However, DMO only awarded Rp10.00 tn bids for its 9mo, 10y, 15y and 20y bonds. Incoming bids were mostly clustered on the long end tenor offered series. 9mo SPN was sold at a weighted average yield (WAY) of 6.39211%, 10y FR0056 was sold at 7.86973%, 15y FR0073 was sold at 8.30215% while 20y FR0072 was sold at 8.31994%. No series were rejected during the auction. Bid-to-cover ratio during the auction came in at 1.07X – 2.18X. Till the date of this report, Indonesian government has raised approx. Rp128.6 tn worth of debt through bond auction which represents 132.8% of the 1Q 16 target of Rp97.33 tn.

      Corporate bond trading traded thin amounting Rp593 bn. MEDC01CN2 (Shelf Registration I Medco Energi International Phase II Year 2013; Rating: idA+) was the top actively traded corporate bond with total trading volume amounted Rp88 bn yielding 12.646%.