Maybank GM Daily - 18 Apr 2016

FX

Global

      Oil producers failed to agree on output freeze at Doha, spurring a tumble in WTI back under the USD40/bbl-level. Brent also gapped down, looks set to test the same USD40/bbl as well. That set a negative tone for commodity-linked currencies ahead. CAD and AUD are already down >1% against the dollar within the early Asian hours. Expect MYR to also take a hit when it opens. This could be the week for the DXY index to display further strength- an extension to the technical rebound that we have noted last week. Cautious risk appetite is likely to keep USDAXJs supported on dips.

      Looking ahead, there are three central bank meetings this week. We expect BOK to stand pat tomorrow though we see a higher possibility of a rate cut at least once within 2Q when the new MPC convene in May. For BI, the adoption of the new market-based policy framework could see the central bank keeping rates on hold for the time being. ECB meets on Thu and we do not expect further changes to its monetary policy as well.

      The key data we watch this week includes US NAHB housing market index; Fed’s Dudley, Kashkari, Rosengren to speak; NZ 1Q CPI; China property prices on Mon. For Tue, focus on US Mar housing starts, building permits; ZEW survey; RBA meeting minutes; RBA Stevens to speak and BoE Carney to speak. On Wed, focus on US existing home sales; UK labor report; Japan trade; Malaysia CPI inflation. For Thu, US Philly Fed; UK retail sales are on tap. For Fri, flash PMIs from US, Europe, Japan as well as Malaysia FX reserves are in focus.

Currencies

G7 Currencies

      DXY – Upside Risk. The DXY index ended the week a tad higher and we expect the greenback to extend its technical rebound this week on weaker risk appetite. Last seen around 94.70, daily momentum and stochastics continue to indicate mild bullish bias. We continue to see some upside risk towards 95.10 (21 DMA), before 96 (50 DMA). Support at 94 levels before 92.50.  Week ahead brings NAHB Housing Market Index (Apr); Fed’s Dudley, Kashkari, Rosengren speak on Mon; Housing starts, building permits (Mar) on Tue; Existing Home Sales (Mar) on Wed; CFNAI (Mar); Philly Fed (Apr); FHFA House Price (Feb) on Thu; PMI Mfg (Apr P) on Fri.

      EURUSD – Bearish. EUR made a small bounce towards the end of the week and was last seen around the 1.13-figure this morning. Momentum indicators still flag downside risks and support is seen around 1.1220 (38.2% fibo retracement of mar low to Apr high), 1.1180 (50 DMA). That said we remain bias to accumulate on dips targeting a move towards 1.15, 1.18.Week ahead brings ECB current account (Feb); ZEW Survey (Apr) on Tue; GE PPI (Mar) on Wed; ECB Meeting on Thu; EC, GE, FR Flash PMI (Apr) on Fri.

      GBPUSD – Sell on Rally. GBP eased off Fri highs, weighed around 1.4180. There were rumours of a tweet that had weighed on GBP prior to the BoE meeting (14 Apr) which flagged out that at least two members of the MPC are strongly considering a vote for a cut in interest rates. Brexit was warned to be the biggest risk to domestic financial stability; cited Deloitte’s survey of CFOs as a sign that referendum is weighing on demand; hiring and investment intentions may already be dipping. Daily momentum and stochastics indicators showed little clear bias. Resistance is seen at 1.4250 (50% fibo retracement of Feb high to low) before 1.4350 (61.8% fibo) and then, at 1.4480 (100 DMA). Support at 1.4150 (38.2% fibo retracement of Feb high to low), 1.4030 (23.6% fibo) before 1.3830 (Feb low). We reiterate that Brexit concerns should continue to weigh on the currency until referendum takes place on 23 Jun. Retain our bias to sell GBP on rally ahead of Referendum (23 Jun). Week ahead brings House Prices (Apr) on Mon; BoE Carney speaks in parliament on Tue; Labor Report (Feb) on Wed; Retail Sales, public finances (Mar) on Thu.

      USDJPY – Safe-Haven Plays Return. The rebound in the USDJPY last week was short-lived. The pair gapped lower this morning at the opening to 108.23 from last Fri’s close of 108.76 as risk sentiments soured following the break down in oil output talks in Doha, reviving safe-haven plays. Only last week did the BOJ governor comment that that was a correction in excessive JPY gains. This morning the Nikkei futures are down, signalling further downside pressure on the pair, while the majors were sold off against the JPY. Last seen around the 108-levels at 108.10, pair is showing mild bearish momentum and stochastics is showing tentative signs of turning higher from oversold levels. Monthly and weekly momentum indicators are all still bearish bias. Safe-haven plays could continue this week, putting downward pressure on the pair. Support is at 107.63 (2016 low); 106.73 (76.4% Fibo retracement of 2014-low to 2015-high). Resistance is around 109.73 (15 Apr high); 110.40 (61.8% Fibo). Week ahead has nationwide dept sales (Mar) on Tue; Trade, Machine Tool Orders (Mar) on Wed; PMI Mfg (Apr F) on Fri.

      NZDUSD – Remains Confined within the Trend Channel. NZD saw a pullback towards 0.6825 levels (14 Apr) on market talks that RBNZ could be cutting rates again. Pair was last at 0.6906 levels and remains confined to the upward sloping trend channel of 0.6680 (lower bound) – 0.7030 (upper bound). Daily momentum and stochastics are not indicating a clear bias. Resistance at 0.6930 (50% Fibo retracement of Apr 2015 high to low) before 0.7030 (upper bound resistance). Support at 0.6750 (50 DMA, 38.2% Fibo) before 0.6680 (lower bound of the trend channel). Week ahead brings CPI (1Q) on Mon; ANZ Consumer Confidence (Apr); credit card spending (Mar) on Thu.

      AUDUSD – Pullback? The pullback which we were looking for last week may be coming a week later. The close at 0.7734 on Fri, so close to the key barrier at 0.7720 strong suggest the investors were undecided on the direction ahead. The Doha meeting might trigger a pullback for bulls to consolidate and gain further steam. Support is seen around 0.75 (50% Fibonacci retracement of the May-Jan sell off) before the next at 0.7429(50DMA) and then at 0.7282 (100 DMA). Rebounds to meet the next bullish target at 0.7850 (76.4% Fibonacci retracement of the May-Jan sell off). Week ahead is quieter in terms of data with only the release of the Apr Minutes of note on Tue, followed by a speech by RBA Glenn Stevens that night. Week ahead brings RBA Meeting Minutes; RBA Stevens speaks on Tue; Westpac Leading Index (Mar) on Wed; NAB Business Confidence (1Q) on Thu; RBA FX Transactions (Mar) on Fri.

      USDCAD - Gap-Up. The pair gapped up after a rather a fruitless meeting at Doha. Last seen around 1.2980, this pair has little bias at this point. Support is seen at 1.2830 before the 1.2660 (5 Jun 2015). Support at 1.2830 is still being tested (again) and the next is seen at 1.2660. Week ahead has retail sales for Feb due on Fri, along with Mar CPI. Consensus expects a firmer print for the latter at 0.5%m/m vs. previous 0.2%.

     Asia ex Japan Currencies

      The SGD NEER trades 0.45% below the implied mid-point of 1.3536. We estimate the top end at 1.3264 and the floor at 1.3808.

      USDSGD – Upside Risk.  USDSGD rose towards 1.3650 levels after MAS surprised at MPC meeting with neutral policy stance. Pair attempted to break above the 1.3650 but failed. This morning, pair is back up above the 1.36-handle as risk sentiments soured following the failure of the Doh oil talks and the plunge in Mar NODX. NODX fell by 15.6% y/y in Mar – the most since Feb 2013 – from Feb’s 2% gain due to contraction in both electronic and non-electronic shipments. Electronics NODX fell 9.1% y/y in Mar (Feb: +0.7%).Non-oil re-exports (NORX) fell by 2.4% y/y in Mar vs. +1.8% in Feb due to declines in both electronic and non-electronic NORX. Pair was last seen at the 1.36-handle. Daily momentum and stochastics bullish bias. Next resistance at 1.3660 (23.6% Fibo retracement of 2014 low to 2016 high); 1.3760 (50 DMA). Support is around 1.3490 (14 Apr low) before1.3415 (2016 low).  No data of note for the rest of the week.

      AUDSGD – Upside Momentum. This cross was last seen around 1.0430, recoverying from a gap-down this morning. Weekly momentum indicators continue to exhibit bullish signals. Next resistance at 1.0510 (23.6% Fibonacci retracement of 1.18-double top in 2014 to double bottom formed at 0.97 levels). A weekly close above this should see the cross going higher towards 1.0760 (50% fibo). A word of caution - weekly stochastics is entering into overbought conditions – that may suggest some pullback towards 1.04 levels. We maintain our call to hold long AUDSGD  and to buy AUDSGD on dips

      SGDMYR – Retracements. SGDMYR bounced this morning, on the back of myr weakness as oil prices tumbled after the Doha meeting. Last seen around 2.90, bearish pressure has waned for this cross and could test the 21-DMA at 2.9054. A break there could lift the pair towards the 50-DMA at 2.9495. Support is seen at 2.8466 (61.8% fib retracement of the Apr-Sep rally).

      USDMYR – Upside Risk in the Short Term. USDMYR bounced this morning and held steady around the 21-DMA, last printed 3.9460. Upside momentum is gaining for this pair on softer prices. Stochastics is showing signs of rising from oversold levels. Resistance at 3.9470 levels (21 DMA) is being tested befor the next at 4.00. Support is seen at 3.80-figure, before 3.7670 (76.4% fibo of 2015 low to high) and 3.54 (May 2015 lows). That said, we reiterate the USDMYR downtrend is far from over.

      USDCNH – Upside Bias within 6.45-6.54. Pair steadied this morning at 6.4880, capped by the 50-DMA at 6.5055. We see upward momentum gaining for this pair. Barrier at 6.5080 (50-DMA) ahead of the next at 6.5370 (50-DMA). We continue to observe that PBOC uses the DXY index and the RMB index to guide the USDCNY. USDCNY was fixed 121 pips higher at 6.4787 (vs. previous 6.4908). CNYMYR was fixed 67 pips higher at 0.6049 (vs. previous 0.5982). Despite the stronger fixing against the USD, it is notable that the RMB index strengthened from our estimate of 97.60 to 97.72. We think there that given the primary concerns on capital outflows had ebbed and an outstanding overvaluation of its REER, PBOC would be less concern of a weaker RMB against the basket and seek to adjust the fixing in order for its REER lower in episodes that the dollar is weak. This is again, in line with our observations that the RMB index is positive correlated to the dollar. Activity data for Mar came in firmer than expected. Mar industrial production surprised to the upside at 6.8%y/y vs. consensus at 5.9%. Retail sales beat expectations marginally with a print of 5.8%y/y. Urban FAI also beat expectations at 10.7%y/y compared to the previous 10.2%. Just in, new home prices rose year on year in 40 out of 70 cities in Mar.

      1s USDINR NDF – Bullish Divergence. 1M NDF inched higher and was last seen around 66.93. The 200-DMA at 66.53 is still the viable support that has been intact for the past couple of weeks.  Immediate barrier at 67.175 before the next at 67.50 (100-DMA). Should the 200-DMA (66.56) break, the next support is seen at 65.98 (76.4% Fibonacci retracement of the Oct-Mar rally). Foreign investors bought U$64.4mn of equities and U$10.9mn of bonds on Apr 12th. Onshore markets take a break tomorrow.

      USDIDR – Mild Bullish Bias. USDIDR bounced higher, tracking the rebound in commodity-linked currencies. Pair was last seen around 13200-levels. Daily momentum is showing mild bullish bias and stochastics has continues to climb higher from oversold levels. Immediate esistance is around 13225 (23.6% Fibo retracement of the Jan-Mar downswing) ahead of 13270 (50DMA). Support is seen around the 1300-handle. The JISDOR was fixed lower on Fri at 13166 from Thu’s 13238. Risks sentiments were weak last week with foreign funds selling a net USD34.79mn in equities. They had however added a net USD2.29mn to their outstanding holding of debt on 11-13 Apr (latest data available). Week ahead has just BI meeting on Thu. In the news, the BI confirmed news report that it was adopting the 7-day reverse repo as a new policy rate effective 19 Aug. With this new market-based policy framework, we could see the BI keeping rates on hold for the time being. The objective is to allow for a more effective transmission of monetary policy to market interest rates.

      USDPHP – Upside Risks In the Near-term.  USDPHP inched higher this morning as caution seeped back into the market. Last seen at 46.18, near-term risks are to the upside given oversold stochastics and bullish momentum on the MACD. Barrier is seen around 46.37 before the next at 46.78 (200-DMA). Beyond the near-term, the 50-DMA has crossed the 200-DMA lower and we see more risks to the downside. Support remains around the year’s low of 45.900. Weak risk appetite continued with foreign investors selling a net USD8.2mn of equities on 15 Apr.Quiet week ahead has just BOJ overall (Mar) on Tue.

      USDTHB – Range-Bound. Onshore re-opened this morning after closing for holidays since Wed. USDTHB trades had been relatively muted last week as a result. Pair is climbing higher this morning amid weak risk appetite following the failure of the Doha oil talks. Pair was last seen around 35.087 levels. Daily chart is showing no strong directional bias. This suggests that range-bound trades could continue ahead. Resistance is around 35.150 (21DMA); 35.00 (50DMA). Support is seen around 34.950 (13 Apr low).

Rates

Malaysia

      Light activity in the government bond market with yields +2bps/-2bps at the belly of the curve. Trading was heaviest on the 7y MGII 7/23 which saw MYR460m trades done. Market’s tone this week will take some cue from the OPEC meeting on Sunday.

      The rebound in IRS rates was short-lived as last Friday saw mostly receivers and the absent of foreign-driven paying. Rates were down by 1-3bps, but nothing traded in the market. 3M KLIBOR was unchanged at 3.70%.

      PDS space was quiet again, with mostly crosses seen. The AAA space felt well offered. But long-dated Plus traded tighter as Plus 33 and 34 tightened 2bps to 4.78% (G+60bps/Z+40bps) and 4.81% (G+57bps/ Z+38bps) respectively. In GG space, Dana 21s tightened 1bp to 4.00% (G+43bps/Z+20bps) with MYR50m done. We think market may stay quiet unless new issuances such as the upcoming Danainfra provide some boost to the secondary market.

Singapore

      SGS market opened with continued bearish undertone, tracking the softer UST and higher USDSGD, while SGD IRS market was subdued. As USDSGD met resistance and traded lower, SGS prices rebounded with buyers pushing yields down to end 2-3bps lower. The strong paying interest in front end IRS also ebbed and rates fell back to end flat at the front end and about -2bps from the 5y onwards.

      In Asian credit market, REPHUN 19s (Hungary’s CNH paper) was well sought after. Another performer is the newly minted Kia Motors as the 5y paper rallied 12bps and the 10y paper tightened 17bps on better demand. Woori Bank had some buyers after widening the previous day following the downgrade by Moody’s. WOORIB 24s trading around CT10+244bps level. Maybank will be going on a roadshow starting Monday for USD B3 T2 bond.

 Indonesia

      Indonesia bond market closed with IGS prices moving higher thus recording a weekly gain last week. The 2y IGS yield dropped the most as its price was relatively undervalued and supported by central bank decision to change their reference rate reference from current 6.75% (1y policy rate) to 5.5% (1w policy rate). Aside from that, expectation of MoF that would address higher 2016 budget deficit through loans instead of additional sovereign issuance had boosted buying appetite during Friday’s trading session. Indonesia bond market remains to look attractive especially with expectation of investment grade rating by S&P rating agency, low inflation, fund shift from banking sector to bond market if OJK applies BI Rate 1w Reverse Repo plus spread as a reference for the highest deposit rate given by bank buku 3 and 4, additional flow from insurance companies and pension funds. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 7.219%, 7.366%, 7.602% and 7.683% while 2y yield shifts down to 7.111%. Trading volume at secondary market was seen thin at government segments amounting Rp10,803 bn with FR0056 as the most tradable bond. FR0056 total trading volume amounting Rp2,062 bn with 70x transaction frequency and closed at 107.238 yielding 7.366%.

      Corporate bond trading traded heavy amounting Rp1,497 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 Rp550 bn yielding 9.534.