Maybank GM Daily - 31 Mar 2016

FX

Global

      Dollar weakened at first before an eventual retracement towards the end of overnight session. US added 200K of hires in the private sector in Mar, 5K more than the average forecast of 195K. However, it was clear that Fed Yellen’s message of caution is still at the forefront of investors’ minds and that is a concoction for greater exuberance – that the Fed could hold rates at this level for a longer time even if the economy is strengthening because the Fed does not want to risk a scenario of backpedaling.

      In much of yesterday’s session, dollar fell against most currencies with the exception of the GBP which held steady ahead of the growth numbers due today along with a speech by BOE Carney. NOK and NZD led the pack of G10, up 1.1% against the greenback. In the region, MYR was the clear outperformer, up +1.6%, boosted by news that 1MDB will repay MYR6bn of debt within the next three weeks. The rest of the currencies also exhibited strength against the USD yesterday.

      We hold our view that 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. Data releases are also fewer out of the US. Fed Evans and Dudley will speak. In Europe, Mar inflation numbers are due along with Germany’s retail sales.

Currencies

G7 Currencies

      DXY – Possible Pause in Decline Today. Fed’s Evan echoed the dovish rhetoric set by Yellen - distribution of future shocks as skewed in the direction of output running somewhat softer and inflation somewhat lower than what I have written down in my baseline projection,…This tilting of the odds strengthens the rationale for shading policy in the direction of accommodation and provides additional support for a gradual path in normalizing policy ; he would be surprised if the US economy met conditions for a rate hike in Apr. USD remained under pressure, following Yellen and Evans comments. A better than expected ADP reading failed to lift the USD. We had said that 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 was last at 94.82 levels. Monthly, weekly momentum indicators remain bearish bias. Next support at 94.58 (Mar lows, was tested again last night before rebounded). Resistance at 95.52 (23.6% fibo retracement of Mar high to low, 21 DMA), 96.10 (38.2% fibo). USD decline may pause/consolidate today ahead of NFP tomorrow. Week remaining brings 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 – A Pullback Before Another Push Beyond 1.1380. Indeed EUR rose and hit a high of 1.1365 overnight (just 15 pips shy of our objective). Move higher came at the expense of weaker USD. Pair was last seen at 1.1340 levels. Daily momentum is mild bullish. Next level to watch at 1.1380 (2016 high) before 1.15 levels. Support at 1.1250 (76.4% fibo retracement of Feb high to low) before 1.1170 (61.8% fibo). EUR could consolidate gains and see a pullback intra-day ahead of US NFP tomorrow. Bias to buy on dips towards 1.1250. Week remaining brings 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 saw a move higher above the 1.44-handle; traded as high as 1.4459 amid USD weakness before ending the session where it opened. Last seen around 1.4375 levels. We reiterate that Brexit concerns should cap any excessive rise and while we respect the momentum, we look for rallies (above 1.45) to fade into. BoE Carney speaks later – could be dovish rhetoric and highlighting that UK exit from EU remains the biggest risk. Next resistance at 1.4470 (76.4% fibo retracement of Feb high to low) before 1.4570 (100 DMA). Support at 1.4250 (50% fibo, 21 DMA), 1.4150 (38.2% fibo). Week remaining brings Consumer confidence (Mar); BoE Gov Carney speaks; GDP (4Q) on Thu; House Price (Mar); PMI Mfg (Mar) on Fri.

      USDJPY – Range. USDJPY continued to inch lower on lingering effects of  Fed Chair Yellen’s dovish comments on Tue. The JPY was sold-off against the majors this morning. The pick-up in the Nikkei this morning though could cap the JPY’s climb. Despite his earlier comments to the contrary, PM Abe was reported in the press to have told his junior coalition party leader that he was mulling a new economic stimulus package ahead of the Upper House elections this Jul. This could also put into question his denial of plans to day the consumption sale tax hike and calling a snap election. The lack of clarity on these fronts could increase the risk ahead of rising doubts of the future of Abenomcis, which 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 seen  around 113.30 levels. Daily momentum showing waning bullish bias. Support remains around 111 (triple bottom formed in 2016). Resistance is around 113.30 (23.6% Fibo retracement of Jan high to Mar low) still. We have Tankan (1Q); Mfg PMI (Mar) tomorrow but before that BOJ governor Kuroda is set to appear before parliament in the afternoon.

      NZDUSD – Further Upside Not Impossible. NZD was an outperformer on this USD decline. Pair broke above triple top of 0.6880 and traded a high of 0.6965 overnight before easing towards 0.69-figure as we speak. We had said that a break of the triple top could see the pair testing 0.70 handle. May see some consolidation ahead of US NFP tomorrow. Support at 0.6880 (previous triple top now turned support), 0.6760 (76.4% fibo retracement of Dec high to Jan low), 0.6680 (61.8% fibo). Resistance at 0.70.

      AUDUSD – Bulls Gain Momentum. The pair touched a new high yesterday but momentum indicators flag out a slight bearish divergence. Retracements cannot be ruled out and we see support at 0.7496 (61.8% fibonaccci retracement of the May-Jan sell-off). With Fed Yellen’s dovish message still at the forefront of investors’, the dollar is unlikely to be in the way of AUD bulls or at least not for a sustained period. Barring shallow retracements flagged by the momentum indicators, the rebound is likely to sustain into Apr towards out key 0.80 target. Beyond the 0.75-figure, we see the next support at 0.7350 which we expect to hold. 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 – Bullish divergences. USDCAD extended its down-move,  guided by the dollar weakness and firmer oil. This pair was last seen at 1.2980. 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 today before Mar PMI on Fri.

     Asia ex Japan Currencies

      The SGD NEER trades 0.40% above the implied mid-point of 1.3560. We estimate the top end at 1.3291 and the floor at 1.3831.

      USDSGD – Rangy.  USDSGD is rebounding after touching a new low for 2016 at 1.3463 on possible profit-taking and on the back of a rebound in the dollar. Higher yuan fixing pressured the pair lower but was short-lived. Last seen around 1.3510 levels, pair has lost most of its mild bullish momentum and stochastics is turning lower. We observe a death cross in the making where 50DMA cuts 200 DMA from the top. This typically signals bearishness. With risk tilted to the downside, further upmoves could be capped around yesterday’s high of 1.3585. Any retracement could find support around the new low for 2016 at 1.3463.

      AUDSGD – Rangy. AUDSGD extended its swivels around the 1.03-figure, last printed 1.0340 as we write. We still 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 extended its decline amid a strong Ringgit. Cross was last seen at 2.9040 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. Resistance at 2.9650 (38.2% fibo of Jan high to low). Remain better sellers on rally.

      USDMYR – Bearish but Cautious of Pullback ahead of US Payrolls. USDMYR continued to trade near more-than-7-month low of 3.9240 levels. Move lower remains driven by softer USD (due to dovish Yellen and Evans) as well as relatively lower oil price volatility. There was also strong demand for MYR bonds, following strong bid-to-cover ratio on 15Y issuance the day before. Pair was last at 3.9230 levels. We continue to watch price action this week. A sustained close below 4-figure this week could suggest further gains ahead. Next support at 3.90 levels before 3.80. Resistance at 4.00, 4.06 (21 DMA) – We won’t be surprised of any technical pullback given recent moves and ahead of US Mar payroll data tomorrow. 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.

      1s USDKRW NDF – Downside Risks. 1s USDKRW broke below 1150 key support amid weaker USD and supported risk sentiment. Pair was last at 1145 levels. Bearish momentum on daily chart remains intact. We said yesterday that 1150 levels is a key technical support. Should this support be taken out, the pair could possibly head lower towards 1120 levels (Oct lows). Resistance at 1150 (76.4% fibo retracement of Oct low to Feb high), before 1168 (61.8% fibo).

      USDCNH – The 98-floor Holds. The pair slipped for another session before steadying around the 6.48-figure this morning. Markets were pricing in a steady yuan fix to our surprise as the RMB index reads around 98.19, close to the lower bound. This morning’s fixing at 6.4612 took some by surprise but reaffirmed our stand that the RMB index of 98 is the line in the sand. We continue to expect USDCNH to remain within the 6.4200-6.5200 range. CNH trades at a discount to CNY. We suspect some expectations for USD resurgence. USD/CNY was fixed 229 pips lower at 6.4612 (vs. previous 6.4841). CNY/MYR was fixed 45 pips lower at 0.6077 (vs. previous 0. 6122). President Xi said that China is still an important engine for economic growth. 

      SGDCNY – Range. This cross closed higher at 4.7897 yesterday and we expect this cross to inch back within the range of 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 before 4.8500.

      1s USDINR NDF – Rebounds. Pair touched the 200-DMA and hovered around 66.50 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. The 200-DMA at 66.20 is a key support for this pair. Risk appetite scaled back a little on 29 Mar with foreign investors buying USD96.3mn of equities and selling USD653.9mn of debt. Finance Minister Jaitley has resumed his call for an interest rate cut ahead of the Apr RBI meeting. We too expect a 50bps rate cut on 5Apr. He also highlighted the need for more competitive cost of capital whilst expressing confidence that India will surpass 7.5% growth with better monsoon and other tailwinds. 

      USDIDR – Capped. USDIDR is inching higher this morning following the rebound in the dollar. Pair was last seen around 13270 levels with daily momentum and stochastics showing waning bullish bias. This suggests that further up moves could be capped. It was announced yesterday that regulated fuel prices will be cut by an average 8% effective 1 Apr given the drop in global oil prices. This could be supportive of the IDR. Resistance is around 13375 (38.2% Fibo retracement of the Jan-Mar downswing). Support is around 13225 levels (23.6% Fibo); 13185 (21DMA). The JISDOR was fixed lower for the first time in four sessions at 13359 on Wed from Tue’s 13359. Risks sentiments improved mildly yesterday with foreign funds buying a net USD0.41mn in equities yesterday. Mar PMI and CPI are on tap tomorrow.

      USDPHP – Bearish Bias.  USDPHP is slipped lower lower this morning to touch a new low for the year at 45.900, possibly on improving risk sentiments.  Comments by the BSP governor were also supportive of the PHP. He had warned against any unwarranted market exuberance, threatening to make adjustments if necessary. He did not see any need to change the current monetary stance in light of the dovish US Fed Chair comments. Pair was last seen below the 46-handle at around 45.980. Pair is very mildly bearish and stochastics is again approaching oversold levels. Further slippages should find support around 45.900. Rebounds should meet resistance around 46.610 (23.6% Fibo retracement of the Jan-Mar downswing). Risk sentiments rebounded yesterday with foreign funds buying a net USD6.61mn of equities. No data of note for the week ahead.

      USDTHB – Bullish Within Range. USDTHB is inching higher possibly on profit-taking activities after slipping lower yesterday. As well, rising political uncertainty in the run-up to the referendum in Aug could also be supportive of the pair. Pair was last seen around the 35.250 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. Immediate resistance is around 35.370 (38.2% Fibo); 35.460 (50DMA). Support is still seen around 35.120 (23.6% Fibo retracement of the Jan high to Mar low). Foreign funds continued their purchase of Thai assets yesterday, purchasing a net THB8.55bn and THB11.94bn in equities and government debt. Key event to watch this afternoon is BoT’s expected revision to economic forecasts aside from Feb trade; Feb BoP current account later in the afternoon and 25 Mar foreign reserves; Mar CPI on Fri.

Rates

Malaysia

      Local government bond market was active as MYR strengthen against USD after Fed Yellen’s dovish statement. Bonds were bought up in sizeable volumes as the market saw a strong bid/cover of 2.37x on the 15y MGS 6/31 reopening auction which averaged 4.20% in yield. Post auction, the bond rallied 4bps to end at 4.16%. Good amounts were also done on the 30yr MGS benchmark that -3bps to end at 4.68%.

      Fed Yellen’s comments drove down global yields/rates and MYR IRS market saw panic receiving interest from foreign banks. But nothing traded amid the volatility. 3M KLIBOR stayed the same at 3.71%.

      In PDS market, Plus 37 traded 2bps tighter at 4.98% (G+60bps/Z+54bps), which seems fairly cheap, and Putra 23 traded 4bps tighter to 4.34% (G+64bps/Z+44bps), offering some upside. In the GG space, Prasa 41 also did well tightening 2bps to 4.95% (G+44bps/Z+65bps). The spreads are trading at AAA levels, but we think there could be some upside even after adding 20bps for liquidity. The AA space was quiet with largely month-end rebalancing.

Singapore

SGS yields were down 9-12bps across the board, taking cue from the strong rally in UST and dovish comments from Fed Yellen. There was strong interest on long duration as funding rates are likely to stay low for a prolonged period. SGD IRS also fell by 6-8bps.       Asian credits and CDS rallied on the back of USD weakness across the board. In addition to RM buying, there was also short covering in IGs driving demand. In EM sovereign cash space, INDONs outperformed UST as the price of the 26 and 46 rose by 25-50cents and 1pt respectively. China HK IG spreads were 3-5bps tighter. Oil and internet names’ 10y papers traded 2-3bps tighter and demand was also seen in the 3y-5y space.

 Indonesia

      Indonesia bond market closed with IGS prices higher compared to yesterday close. Dovish Fed Yellen speech at the Economic Club of New York has dismissed the probability of FFR hike in April. Thus, IGS price hiked. Indonesia government decides to cut RON88 and Diesel fuel price by Rp500/ L each respectively. The expectation of a lower inflation rate ahead may have also fuelled the strengthening of IGS price yesterday. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 7.366%, 7.636%, 8.127% and 8.149% while 2y yield shifts down to 7.466%. Trading volume at secondary market was seen heavy at government segments amounting Rp18,570 bn with FR0056 as the most tradable bond. FR0056 total trading volume amounting Rp3,233 bn with 143x transaction frequency and closed at 105.250 yielding 7.636%.

      Corporate bond trading traded heavy amounting Rp756 bn. BIIF02A (BII Finance II Year 2013; A serial bond; Rating: AA+(idn)) was the top actively traded corporate bond with total trading volume amounted Rp120 bn yielding 7.730%.