Maybank GM Daily - 8 Mar 2016

FX

Global

      The overnight crude rally was the focus. Brent broke above USD40-level while WTI lagged at around USD38. In fact, ahead of the rise in oil prices, iron ore (with 62% content supplied to Qingdao) led the pact with a biggest ever 19% jump yesterday. US equities ended the session mixed with oil gains offsetting underlying cautiousness after China unveiled its 2016 work plan. Meanwhile, there were a couple of Fed speaks that caught our attention. While Fed Fischer warned of inflation after oil and the USD stabilized, Fed Brainard urged “patience” in rate hikes amid China’s slowdown, tightened financial conditions and soft inflation expectations.

      AUD was the outperformer, touching 0.7480 at one point overnight, underpinned by the iron ore rally. GBP and CAD were led higher by crude’s ascent. JPY strengthened, underscoring a sense of cautiousness that belies the commodity rally.

      China’s foreign reserves came in a tad above expectations at USD3.202trn, a USD 28.6bn fall for Feb. The day ahead has trade numbers and there is a lack of optimism in the consensus forecast of -11.3%y/y fall for exports, -11.7%y/y fall in imports (CNY terms). Just released, Japan’s 4Q GDP fell -0.3%q/q and the annualized measure was a decline of -1.1%. JPY strengthened this morning, up 0.2% against the USD. The other key event to watch is a speech by RBA Lowe. Expect a fair amount of consolidation in Asian currencies, underpinned by current risk appetite, ahead of key central bank meetings later this week including BNM, BOC, RBNZ, BOK and ECB.

Currencies

G7 Currencies

      DXY – Downside Pressure. Broad USD weakness continues. Fed’s Fischer said that US could see longer and more frequent periods of near-zero interest rates. He didn’t discuss this in relation to the upcoming FOMC meeting and didn’t comment on when these period may occur. More so that he was putting things in perspective that a lower equilibrium real interest rate (referring to the rate that would produce full employment while holding inflation in check) will likely force central banks to hold rates lower than previously and to resort to near-zero rates again at some point.   Fed’s Brainard added to the dovish tone – risks remain to the downside and caution is required for further policy easing. Implied probability of Fed to hike in Mar remains at all-time lows of 8%. Risk sentiment remain well supported overnight with oil, copper and iron ore prices firmer. DXY was last seen at 97.11 levels. Bullish momentum continues to wane and stochastics is falling from overbought conditions. Resistance remains at 98 (61.8% fibo retracement of Jan high to Feb low), 98.75 (76.4% fibo). Support at 97-levels (21, 200 DMA, 38.2% fibo) before 96.32 (23.6%). Week ahead brings Feb NFIB small business optimism (Tue); Jan wholesale inventories (Jan); initial jobless claims (Thu); Feb import prices (Fri).

      EURUSD – ECB a non-event or Markets Underpricing ECB Easing? EUR reversed initial losses and closed above 1.10 handle amid broad USD weakness. Last seen at 1.1020. Focus this week remains on ECB meeting on Thu. We expect further easing in the form of 10bps cut to -0.4% on the deposit rate and a further expansion of monthly asset purchase. Technical adjustment to the QE program is required (for details please refer to our tech weekly dated 4 Mar). Given that markets are largely expecting some form of ECB easing and how EUR has been trading (higher) ignoring widening yield differentials between 2Y EU-US, it does feel that ECB needs to surprise massively for EUR to react to the downside or markets are under-pricing ECB potential action. Bearish momentum continues to wane and stochastics is rising from oversold levels. We still look for opportunities to lean against strength. Resistance at 1.1050 (200 DMA) before 1.1070 (21 DMA), 1.11 (50% fibo). Support at 1.0950 (23.6% fibo retracement of Dec low to Feb high) before 1.0830(Mar low). Week ahead brings Euro-area 4Q GDP; GE Jan IP; FR Jan trade; EU Finance Ministers meet in Brussels (Tue); ECB Meeting; GE Jan trade; FR Jan IP (Thu); GE Feb CPI (Fri).

      GBPUSD – Sell Rallies. GBP continued to inch higher amid broad USD weakness overnight. CFTC positioning continues to show leveraged and asset managers continued to add to GBP shorts while speculative GBP shorts saw a pause in extending their shorts positioning. We reiterate that GBP downside risk appears to have been priced in to some extent - Brexit risks are somewhat priced in (although not entirely as a real exit could see a larger sell-off) while BoE rate hike expectations have been pushed back further 2017. Broad USD weakness could continue to see weak GBP shorts getting squeezed. That said we continue to caution that the pair remains biased to the downside amid Brexit concerns over the next few months. Pair was last seen at 1.4260 levels.  Daily momentum is mild bullish and stochastics is rising from oversold conditions. We look for opportunities to sell towards 1.4250 (50% fibo retracement of Feb high to low), 1.4350 (50 DMA, 61.8% fibo). Support at 1.38, 1.35 levels. Week ahead brings BRC Sales (Feb) on Tue; IP, Mfg Production (Jan); NIESR GDP Estimate (Feb) on Wed; RICS House Price Balance (Feb) on Thu; Trade, Construction output (Jan) on Fri.

      USDJPY – Bouncing Within Range. USDJPY remained pressured lower on the back of soft dollar overnight, drop in the Nikkei futures and the sell-off it the majors against the JPY but still well-within familiar ranges of 110.99-115.10. Also helping was the persistent current account surplus as reflected in the recently released Jan print. Pair is seen around 113.40-levels. Daily charts continue to show mild bullish momentum, though stochastics is showing tentative signs of turning lower.  Look for the pair to remain range-bound for now. Any moves lower should continue to find support around 111-region. Further upmoves could revisit 115 levels (38.2% Fibo retracement of the Jan-Feb downswing) and then towards 116.30 levels (50% Fibo, 50DMA). Week ahead has final 4Q GDP; Jan current account (Tue); Feb machine tool orders; Feb money stock (Wed); Feb PPI (Thu). BOJ governor Kuroda continued to reiterate the central bank’s commitment to add more easing to any of the three elements of its policy if needed. Final GDP print showed the economy slipping 1.1% annualized, beating market estimates of -1.5%. This painted a weak outlook for the economy and increases the pressure on the PM Abe to implement a supplementary budget to support the economy. Also, the current account remained in surplus, raising by JPY520.8bn in Jan, though more moderate than Dec’s JPY960.7 on the back of a trade deficit.

      NZDUSD – Focus on RBNZ (Thu). Kiwi reversed early weakness and turn higher into NY close amid broad USD weakness. Pair then turned lower again into the Asian session as 4Q Manufacturing activity slumped (-1.9% q/q vs. +4.2% in 3Q). NZD was last seen at 0.6780 levels. Bullish momentum is showing signs of slowing while stochastics is entering near-overbought conditions. Bias remains to sell rallies towards 0.68, 0.6880 (Dec high). Support at 0.6650 (50, 100, 200 DMAs), 0.6620 (50% fibo of Dec high to Jan low, 21 DMA), before 0.6550 (38.2% fibo). Focus this week on RBNZ meeting (Thu). We do not expect RBNZ to cut rate below historical low of 2.5% at the upcoming meeting. We believe RBNZ will adopt and wait and watch approach – for more data flows and what other central banks may do. Expect RBNZ to talk down NZD. Our bias remains for RBNZ to cut policy rate by 25bps at the Apr or Jun meetings, should growth momentum fails to pick up.  Maintain bearish outlook due to a combination of factors including RBNZ explicit bias for further easing and weaker NZD (as export prices remain soft), benign inflation outlook, challenging dairy market dynamics, high risk of current account deficit widening, further downside risk to growth outlook. Week remaining brings Feb card spending (Wed); RBNZ meeting; RBNZ Wheeler speaks (Thu); Feb BusinessNZ Mfg PMI; Feb food prices (Fri).

      AUDUSD – Upside Bias. AUD rallied to a high of 0.7485 before retreating on profit-taking this morning. This pair retains an upside bias, underpinned by the recent commodity rally. Next resistance to watch is still seen at 0.75-figure. A break there exposes the next target at 0.7654 (61.8% Fibonacci retracement of the May-Jan sell off). Support is now seen at 0.7340 (38.2% Fibo). Week ahead brings Feb NAB Business Conditions; RBA’s Lowe speaks (Tue); Westpac consumer confidence; Jan investment lending (Wed); consumer inflation expectations (Thu). 

      USDCAD – Bearish. USDCAD closed below the 200-DMA and hovered thereabouts, last seen around 1.3290. The strong bounce in crude prices kept the pressure on the pair ahead of the Bank of Canada’s meeting tomorrow. Markets do not see a move by the central bank. Daily momentum and stochastics remain bearish bias. We still favor USDCAD shorts. Support at 1.33 (200 DMA) has been broken  and focus is now on the next bearish target at 1.2830. Resistance at 1.3540 (61.8% fibo of Oct low to Jan high), 1.3677 (100 DMA). Week ahead brings Feb housing starts, building permits on Tue, BOC Rate decision (Wed), jobless numbers on Fri.

     Asia ex Japan Currencies

      The SGD NEER trades 0.29% below the implied mid-point of 1.3771 with the top end estimated at 1.3495 and the floor at 1.4047.

      USDSGD – Interim Double-Bottom.  USDSGD is back above the 1.38-handle despite the softer dollar overnight but supported by a sense of cautiousness. The pair has rebounded off the 1.3730-levels for the second time, creating a potential interim base around that level. Pair is seen around 1.3807 with daily chart very mildly bearish bias and stochastics fast approaching oversold levels. Further upside could see the pair revisit the 1.3950-levels (38.2% Fibo retracement of the Jun 2015-Jan 2016 upswing), especially as the 2016 Budget and MAS Apr meeting approaches. In the interim, immediate resistance is around 1.3840 (yesterday’s high) and then around 1.3900-region (4 Mar high).

      AUDSGD – Maintain Long Bias. AUDSGD bounced on the back of strong commodity rally and was last seen close to the 1.03-figure. AUD strength will still continue to underpin this cross. Next barrier is seen at 1.0350 (double top in Nov and Dec) before 1.05 (our ultimate objective).

      SGDMYR – Still Watching 200 DMA. SGDMYR continued to trade near the 200 DMA at 2.9630 levels. We have reiterated that the 200 DMA remains key. A break lower could see a move towards next support level at  2.9380 (23.6% fibo retracement of Jan high to low) before 2.8940 (previous low).   Daily momentum is flat while stochastics is falling. We are biased for further downside. Resistance at 2.9870 (50% fibo retracement of Jan high to low) before 3.0090 (61.8% fibo retracement of Jan high to Jan low).

      USDMYR – Bearish Bias. USDMYR continued to trade lower amid broad USD weakness, firm oil prices, supported risk sentiment and continued interest in longer-dated bonds. USDMYR saw an intra-day low of 4.0730; last seen around 4.0980 levels. Daily momentum remains mild bearish with stochastics falling.  Key support at 4.08 (Oct low) before 4.05. Resistance at 4.14 (200 DMA). Week ahead brings BNM meeting (Wed); IP, manufacturing sales (Fri). We see risk of SRR 50bps cut and maintain our stand for OPR to be held steady at 3.25%. FX reserves (released yesterday) was stable during Feb. Latest numbers put FX reserves to retained imports at 8.3x and to short-term external debt at 1.2x.

      1s USDKRW NDF – Downside Pressure. 1s USDKRW continued to inch lower amid risk supported sentiment and broad USD weakness. Pair was last seen at 1204 levels. Daily momentum and stochastics are bearish bias. Next support at 1183 (100 DMA). Resistance at 1208 (50 DMA). Day ahead could see the pair trade 1197 – 1208 range. BoK meets on Thu. We expect BoK to keep policy rate on hold at record lows of 1.5% while waiting for Fed meeting in mar (week later) and further domestic data before making the decision to ease further or not.  

      USDCNH – Pivoting around the 100-DMA. The pair pivoted around the 100-DMA, last seen at 6.5105. Intra-day action has been choppy as initial gains in the pair were reversed out in overnight session. FX Reserves dropped slightly less than expected in the quiet month of Feb. CNH is now trading at a slight premium to the CNY against the USD before onshore markets open. Next support for the USDCNH is seen at 6.4858 (61.8% Fibonacci retracement of the Oct – Dec rally, Feb low).  We think this pair could remain in consolidation within 6.48-6.58 given the lack of momentum. Stochastic is also rising from oversold conditions. As of 7 Mar, USD/CNY was fixed 171 pips lower at 6.5113 (vs. previous 6.5284). CNY/MYR was fixed 8 pips lower at 0.6300 (vs. previous 0.6308). Feb trade numbers are due today, normally released at 10am. There is a clear lack of optimism in the consensus forecast of -11.3%y/y fall for exports, -11.7%y/y fall in imports (CNY terms). In news, whilst there were plans to clear housing stocks, there seem to be plans to also increased supervision on loans for downpayments for homes. Greater scrutiny is expected on developers, housing agencies, small loan companies and P2P networks (BBG).  In other news, Finance Minister assured curbs on local government debt risk. There will be tax cut for emerging industries, tax deductibles for  education and child raising. He also warned of trimming infrastructure expenditure on small projects, overcapacity reduction for central SOEs.

      SGDCNY – Pressured Higher. This cross hovered and closed around 4.7225 on Mon. This cross has made a double top and a failure to breach the 4.75-figure could see a sharp reversal towards the 4.6260 (50-DMA). However, a break there could see next barrier targeted at 4.7600.

      1s USDINR NDF – 100-DMA eyed. Pair hovered above the 100-DMA and seems supported thereabouts, last printed 67.50. India was away for a break yesterday and markets will resume operations today. Pressure is still to the downside though MACD shows some signs of waning. The 100-DMA at 67.25 supports downside and a break there opens the way towards the 200-DMA at 66.20. Our target for USDINR to correct towards the 67-figure has been met last Fri, re-initiated on 18 Feb. Bounces in the 1s USDINR NDF could meet barrier around the 68-figure (50DMA). Foreign investors bought USD164.7mn of equities but sold USD19.4mn of debt on 3 Mar. 

      USDIDR – Gapped Higher. USDIDR gapped higher at the opening to 13130 from yesterday’s high of 13097, playing catch-up with its regional peers. Pair was last seen around 13115 with daily charts showing bearish momentum and stochastics at the oversold levels. This suggests the potential for a rebound ahead. Still, further upside moves could be capped given improving macroeconomic fundamentals, political stability, and the Jokowi government’s push for infrastructure building and investment amid low oil prices and supportive monetary policy. Support remains around 12980 (76.4% Fibo retracement of the Jan-Sep 2015 upswing). Barrier is around 13230 ahead of 13335 (61.8% Fibo). The JISDOR was fixed lower at 13029 yesterday from 13159 on Fri. Risk sentiments continued to be positive with foreign funds buying a net USD38.65mn in equities yesterday. They had also added a net IDR0.46tn to their outstanding holdings of government debt on 4 Mar (latest data available). Quiet week ahead with just Feb foreign exchange reserves on tap later today.

      USDPHP – Capped By 100-DMA.  USDPHP is bouncing higher, tracking the USD/AXJs broadly higher this morning. Pair was last seen around 46.980 with daily chart showing bearish momentum still and stochastics at oversold levels. This suggests the potential for a rebound ahead. Further upmoves should be capped around 47.065 (38.2% Fibo retracement of the Oct 2015-Jan 2016 upswing) ahead of 47.285 (100DMA). Support is seen around 46.755 (50% Fibo) before the next at 46.590 (200DMA). Remaining week has Jan exports (Thu); Jan unemployment rate (Fri). Investor sentiments improved with foreign funds buying a net USD5.68mn in equities yesterday.

      USDTHB – Bearish Bias. USDTHB is currently bouncing around the 35.400-levels underpinned by a softer dollar overnight on one hand and cautious risk appetite on the other. Last seen around 35.439, pair has lost most of lost most of its bullish momentum, and stochastics is approaching oversold levels. Weekly charts remain bearish bias. With the 200DMA-support taken out, new support is now around the year’s low of 35.210 and then 35.130 (Oct 2015 low). Any rebound should meet resistance around 35.500 (23.6% Fibo retracement of the Jan-Feb downswing); 35.560 (21DMA). Foreign funds continued to buy Thai assets with a net THB0.94bn and THB6.58bn in equities and government debt.  Quiet week ahead with just 4 Mar foreign reserves on tap on Fri.

Rates

Malaysia

      The stronger MYR lent support to govvies. Foreigners continued to focus on short-dated govvies, while locals took profit as yields approached recent YTD lows. Good interest was seen on long-dated MGIIs as that part of the curve still offers decent yield pick-up over MGS. The language in the MPC meeting on 9 Mar will be closely watched as it will set market tone.

      MYR IRS better offered on the back of stronger govvies and MYR, coupled with lower KLIBOR fixings. 3M KLIBOR declined 1bp to 3.72%. There were no trades reported but IRS levels ended 1-3bps lower.

      Very quiet PDS space, with 2-way quotes unchanged from last close. Bids on 7y GGs and 10y AAAs tightened 1-2bps, but offers remained about 3bps lower. MYR100m BGSM 17 traded at 4.40% (MGS+89bps/ z+77bps) which looks a tad tight. JEP 22 tightened 5bps to 4.84% (MGS+120bps/ z+97bps) and 23 tightened 4bps to 4.89% (MGS+121bps/ z+99bps), the former seems relatively more attractive. We expect market to stay quiet before the upcoming MPC meeting.

Singapore

      Long duration SGS was well bid, with long end yields declining 1-3bps, but the front end underperformed ending flat to +1bp. SGD IRS levels unchanged despite biddish short-dated forwards after USDSGD climbed higher and hence, swap spreads widened at the long end.

      The rally in Asian credit IG continued as spreads tightened about 2-4bps with the buying coming from RM on the back of higher yields following the UST selloff. Sectors that did well include China O&G SOE and TMT. EM cash bonds also rallied following the rates move, with INDON sovereign higher by 12.5-25cents on average across the curve.

 Indonesia

      Indonesia bond market started this week with a full throttle following a weekly gain last week. Inflows continue to occur which have forced IGS prices to move higher. During the day, central bank published Feb FX reserve which came in higher at $104.5 bn. According to central bank release, the hike was attributable to foreign exchange receipts, among other from government oil and gas revenues and foreign debt withdrawals as well as auction result of Bank Indonesia foreign exchange bills. The reserve asset position at the end of February 2016 can adequately cover 7.6 months of imports or 7.3 months of imports and servicing of government external debt repayment. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 7.442%, 7.762%, 8.145% and 8.180% while 2y yield shifts down to 7.660%. Trading volume at secondary market was seen heavy at government segments amounting Rp15,117 bn with FR0056 as the most tradable bond. FR0056 total trading volume amounting Rp2,449 bn with 93x transaction frequency and closed at 104.352 yielding 7.762%.

      Indonesia DMO issues SR-008 (Indonesia sukuk retail) worth of Rp31.5 tn which is the largest since the first sukuk retail issuance (year 2012). SR-008 pay 8.30% coupon rate which is 130bps higher compared to BI Rate. Indonesia western area retail investors was noted to be the largest buyer as their purchase accounts for 88.84% of total SR-008 issuance.

      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: 5.60% – 5.75%), PBS006 (range: 8.15% – 8.30%), PBS009 (range: 7.80% – 8.95%), PBS011 (range: 8.35% – 8.55%) and PBS012 (range: 8.55% – 8.70%).

      Corporate bond trading traded thin amounting Rp422 bn. BFIN02ACN3 (Shelf registration II BFI Finance Indonesia Phase III Year 2016; A serial bond; Rating: A+(idn)) was the top actively traded corporate bond with total trading volume amounted Rp112 bn yielding 9.747%.