Maybank GM Daily - 1 Apr 2016

FX

Global

      Overnight US data was mixed with initial jobless claims a tad higher for the week ending on the 26 Mar at 276K vs. previous 265K. On the other hand, Chicago purchasing manager index jumped to 53.6 from previous 47.6.  Equities were little inspired as the event of NFP tonight eclipsed the data releases. The dollar was stronger against  CAD, AUD, NZD, JPY and GBP on the backfoot but weaker against the rest of the G10 currencies. Out of Asia, the usual month-end demand for the USD did not seem to provide much boost to USDAXJs. MYR led the pack at +1.0%, followed by KRW at +0.7% against the dollar.

      Earlier in Asia on Thu, Moody’s downgraded the credit rating outlook of Singapore banks from stable to negative while S&P downgraded the AA- rating outlook of China from stable to negative, citing slower-than expected pace of economic rebalancing. In news released this morning, the big release was Japan’s tankan. Big Mfg index deteriorated to +3 vs +6 expected while all big CAPPEX declined to -0.9% in 1Q vs previous -0.7%.

      All eyes are on China’s PMI-mfg for Mar, due later this morning. Industrial profits had shown a modest rebound in Jan-Feb from a year of contraction and an improvement in the PMI-mfg figure for Mar. That could be the key data to watch. An improvement in business ordered coupled with a reasonably decent US NFP print for Mar tonight could give a significant boost to risk appetite. 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, notwithstanding some correction.

Currencies

G7 Currencies

      DXY – Eye 94.30-support.  The initial jobless claims came in slightly higher for the week ending on the 26 Mar at 276K vs. previous 265K. On the other hand, Chicago purchasing manager index jumped to 53.6 from previous 47.6. USD remained heavy and we eye the support at 94.30-support, a break there could see further extensions towards the 93.85. We had said that 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 94.57. Monthly, weekly momentum indicators remain bearish bias. Interim support is still at 94.58 (Mar low) and the index has been sticky around this level. 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 in Asia ahead of NFP tomorrow. Today has NFP, hourly earnings, unemployment rate, ISM Mfg, PMI, Uni of Michigan Sentiment (Mar); Fed’s Mester speaks on Fri.  

      EURUSD – Needs a clean break of the 1.1380. EUR extended bullish bias to a fresh year high of 1.1410 before some retracements to levels at 1.1380. This pair needs a clean break beyond the 1.1380 for further extension towards the next barrier at 1.1490. Daily momentum is mild bullish, not showing clear bias. 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 EC, GE, FR PMI (Mar); EC unemployment rate (Feb) on Fri.

      GBPUSD – Mild bullish Bias. GBP eased from highs 1.4426 to levels around 1.4364 as we write. We hold the view that Brexit concerns should cap any excessive rise and while we respect the momentum, we continue to 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). 4Q GDP was reivsed a tad higher to 0.6%q/q from previous 0.5%. Week remaining brings House Price (Mar); PMI Mfg (Mar) on Fri.

      USDJPY – Inching Lower Within Range. USDJPY is on the slide but remains in consolidation around the 112-region. The JPY continued to be sold-off against the majors this morning except for the antipodeans. The start of the new fiscal year did not bring much cheer with the BOJ Tankan survey for 1Q16 disappointing. The Tankan for large manufactures fell to 6 against consensus’ 8 while that for small manufactures slipped to -4. This should see the MoF accelerate and front-load spending and maybe even increase the pressure on PM Abe to consider an additional stimulus package. There is increasing risk ahead of rising doubts of the future of Abenomics, which, if it happens, 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 113.40 levels. Daily momentum showing waning bullish bias. 111-levels (triple bottom formed in 2016) continues to be supportive. Resistance remains around 113.30 (23.6% Fibo retracement of Jan high to Mar low).

      NZDUSD – Bullish Risks. NZD failed to make further progress yesterday but MACD shows increasing bullish momentum. Last seen at 0.6920, we could see this pair testing 0.70 handle though perhaps not within this Asia session as we look for consolidative action to continue ahead of US NFP today. 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 – Potential Retracements. The pair made another new high for the year 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 our 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 House price, commodity index (Mar) on Fri.

      USDCAD – Bullish divergences. USDCAD touched a low of 1.2858 before retracing to levels around 1.2985. 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. Momentum indicators suggest a rebound ahead towards the 1.33-figure (near 200-DMA) before the 1.3460 (last Oct high) which could potentially form a head and shoulders formation. Jan growth was firmer than expected at 0.6%m/m from previous +0.2%. Year-on year, Jan GDP is seen at 1.5%y/y from previous 0.6%.

     Asia ex Japan Currencies

      The SGD NEER trades 0.41% above the implied mid-point of 1.3516. We estimate the top end at 1.3247 and the floor at 1.3785.

      USDSGD – Bearish Bias.  USDSGD briefly touched a new low for 2016 of 1.3415 overnight before rebounding towards the 1.3480-levels. Pair is back on the slide this morning on expectations that the Fed will only hike rates gradually and of an improvement in China PMI is weighing on the pair. Last seen around 1.34560-levels, pair has lost most of its mild bullish momentum and stochastics is turning lower. The death cross where 50DMA cuts 200 DMA on the downside, typically signalling bearishness, appears to be playing out. We need to see a clean break of yesterday’s low of 1.3415 for a move towards the 1.34-handle. Rebounds should meet resistance around 1.3660 (23.6% Fibo retracement of the Jan-Mar downswing). Moody’s downgraded the rating outlooks for the three local banks yesterday to negative from stable on the back of a more challenging operating environment.

      AUDSGD – Rangy. AUDSGD extended its swivels around the 1.03-figure, last printed 1.0360 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 – Gapped Lower. SGDMYR gapped lower at the opening this morning to 2.8885 from yesterday’s low of 2.8920 amid a still strong MYR. Cross was last seen at 2.8867 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. With our support at 2.90 taken out yesterday, new support is around 2.82-2.84 levels. Resistance at 2.9290 (23.62% Fibo of Jan high to Apr low). Remain better sellers on rally.

      USDMYR – Bearish but Cautious of Pullback ahead of US Payrolls. USDMYR broke below the 3.90-levels and touched a near more-than-7-month low of 3.8842 levels. Move lower remains driven by softer USD (due to dovish Yellen and other Fed speakers) as well as relatively lower oil price volatility. Pair was last at 3.8853 levels. We continue to watch price action this week. A sustained close below 4-figure this week could suggest further gains ahead. New support at 3.80 levels. Resistance at 3.9760 (30 Mar high), 4.00 (50% Fibo retracement of the Apr-Sep upswing). 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 continues to slide lower amid softer USD and supported risk sentiment. Pair was last at 1145 levels. Bearish momentum on daily chart remains intact. Key technical support at 1150 levels has been taken out and 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 and hovered around 6.4670. Markets were pricing in a steady yuan fix to our surprise as the RMB index reads around 98.18, retracing from the previous 98.44. We continue to expect USDCNH to remain within the 6.4200-6.5200 range. USD/CNY was fixed 29 pips lower at 6.4585 (vs. previous 6.4612). CNY/MYR was fixed 75 pips lower at 0.6002 (vs. previous 0. 6077). S&P downgraded the AA- rating outlook of China from stable to negative, citing slower-than expected pace of economic rebalancing.  Eyes on PMI-mfg from NBS and Caixin that could indicate potential improvement in the secondary sector after industrial profits rebounded from a year of contraction.

      1s USDINR NDF – Supported by 200-DMA, bank holiday. Pair remained underpinned by 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 was good on 30 Mar with foreign investors buying USD229.1mn of equities and USD273.1mn of debt.

      USDIDR – Bearish. USDIDR remains on the slide, tracking the USDAsians broadly lower. Pair was last seen around 13195 levels. Mar CPI is on tap later this afternoon and market and our economic team are expecting inflation to tick higher to 4.5% y/y from Feb’s 4.42%. There could be cautiousness ahead of the US NFP print later this evening. Daily momentum showing waning bullish bias and stochastics bearish bias. Support is around the 13000-handle; 12984 (2016 low). Resistance is at 13225 levels (23.6% Fibo retracement of the Jan-Mar downswing); 13315 (31 Mar high). The JISDOR was again fixed lower at 13276 on Thu from Wed’s 13359. Risks sentiments improved yesterday with foreign funds buying a net USD31.05mn in equities yesterday. They had also added a net IDR0.27tn to their outstanding holding of government debt on 29 Mar (latest data available).

      USDPHP – Capped.  USDPHP is bouncing higher this morning ahead of US payrolls later this evening, possibly on profit-taking activities following the drops over the past few sessions. Pair was above the 46-handle at 46.045 currently. Daily momentum remains very mildly bearish and stochastics is just a tad off oversold levels. This suggests that further upticks could be capped. Resistance is around 46.262 (30 Mar high); 46.410 (23.6% Fibo retracement of the Jan-Mar downswing). Support is around this year’s low of 45.900. Rebounds should meet resistance around 46.610 (23.6% Fibo). Risk sentiments remained supported yesterday with foreign funds buying a net USD13.87mn of equities.

      USDTHB – Bullish Tilt. USDTHB is bouncing mildly higher, possibly due to the BoT Assistant Governor’s comments yesterday that it could ease monetary policy should the global economy worsens. As well, rising political uncertainty in the run-up to the referendum in Aug could also be supportive of the pair. The wider current account surplus of USD7.40bn in Feb though could help cap upside. Pair was last seen around the 35.140 levels. Daily chart and stochastics are waning bullish bias. Weekly charts remain bearish bias. A death cross (where the 50DMA cuts the 200 DMA on the downside and which typically signals bearishness) appears to be playing out though. Resistance is around 35.370 (38.2% Fibo retracement of the Jan high to Mar low). Support is still seen around 34.910 (23 Mar low). Foreign funds continued their purchase of Thai assets yesterday, purchasing a net THB1.79bn and THB6.57bn in equities and government debt. We have 25 Mar foreign reserves and Mar CPI today. In the news, recent data released by BoT showed that household debt rose by 5.2% y/y in 4Q, just slightly off 3Q’s pace of 5.4%.

Rates

Malaysia

      Government bonds continued to see strong interest as foreigners were buying on the back of the strengthening MYR. Trading was heavier at the belly of the MGS curve, which is likely to flatten further as end investors roll into the very long-end of the curve.

      MYR IRS saw heavy receiving interest, led by foreign players and partly by stops being triggered. The 1y IRS traded at 3.59%, 2y at 3.58%, 3y at 3.60% and 5y at 3.66%. These levels are YTD low for IRS. 3M KLIBOR unchanged at 3.71%.

      PDS market remained active. Bids in the AAA space focused on the short-end of Cagamas with the 2020 and 2022 tightening 4bps to 4.05%% (G+56bps/Z+35bps) and 4.21% (G+57bps/Z+38bps) respectively. Other AAA names remained well bid and mostly tightened 2-3bps. The GG curve also saw plenty of trades at the front end. This curve has rallied significantly in Mar which may lead to profit taking. That said, sentiment is still biased to the bullish side. We suggest to buy on dips. AA space was quiet, with YTL Power 18 trading 3bps tighter at 4.26% (G+76bps/Z+63bps), offering some value over the credit curve.

Singapore

      SGD IRS opened lower but paying interest later came in and the curve ended 1-2bps higher. SGS remained well bid with the 5y and 30y benchmarks seeing aggressive buying. Yields at the front end lowered 4bps, while the belly to back end was -1bp to unchanged. Swap spreads continued to widen particularly at the short end.

      In Asian credit market, the 3 major Singapore banks – DBS, UOB and OCBC – had their outlooks revised to negative by Moody’s which drove spreads wider by 2-4bps. Dalian Wanda announced the possibility of delisting/privatizing its HK listed entity, Dalian Wanda Comm Properties Ltd, sparking a 2pt selloff in its bonds on concerns of lack of transparency in an unlisted vehicle, but the bonds later recovered. Elsewhere, INDON 26 +25cents, while the long end -12.5cents.

 Indonesia

      Indonesia bond market continued its rally move yesterday. The market players came to the local bond market due to lingering positive sentiments from both global and domestic sides. Recent dovish Fed’s Governor Yellen speech at the Economic Club of New York sent the foreign investors to come back to the emerging markets, such as Indonesia. S&P’s decision to change China’s AA- rating outlook from stable to negative didn’t give side effects to Indonesia’s bond market yesterday. Meanwhile, the positive local sentiments are dominated by recent government’s measures to release new fiscal stimulus and to cut local fuel prices. Other local sentiment that will potentially sustain the local bond market’s rally is the announcement of Mar-16 inflation data. Inflation is expected to remain benign in Mar-16. We expect the benign inflation result will create more opportunity for Bank Indonesia to apply more accommodative monetary policy. The more accommodative monetary policy is needed to be a booster for the national economic growth.