Maybank GM Daily - 6 Jan 2016

FX

Global

Risk appetite remained weak overnight with China still a focus. An unusually large amount (CNY130bn) of reverse repo injection as well as news of authorities’ support to equities and yuan restored some calm in China as well as to the rest of global equity markets. European bourses ended in moderate green. Benchmark indices on Wall Street weaved in and out of red throughout Tue and ended mixed.       Amid the calm, regional currencies found strength against the USD, led by offshore yuan this morning. MYR and KRW still trade on the backfoot with the former is still weighed by soft brent crude. AUD and CAD are stronger this morning as well but the same cannot be said for the NZD which was dragged by the modest decline in dairy auction prices.          The US data calendar gets busier today with durable goods order, trade figures for Nov, Dec ADP employment due today. Uk Halifax house prices are due anytime. Eyes are still on China’s stock markets. Domestic equities could see tentative stability in the next few sessions and that should shift the focus back on the US’ FOMC minutes tonight ahead of the Dec NFP due at the end of this week.

Currencies

G7 Currencies

      DXY – Data Calendar Intensifies. USD firmed across most currencies overnight amid some stabilisation in risk sentiment (after a dramatic sell-off on first day of trading). Data calendar gets heavier with ADP employment, trade, durable goods orders and FOMC minutes to focus on.  Dollar index was last seen at 99.40 levels this morning. We continue to reiterate that daily momentum and stochastics remain mild bullish bias. Next resistance at 99.7 (76.4% fibo retracement of Dec high to low). Break above this level sees little in between before another attempt at 100-levels. Support at 98.85 (50% fibo). Still see dxy index inching higher. Week ahead brings Fed’s Lacker and Evans speak (Thu); Dec NFP; Fed’s Williams, Lacker speak (Fri).

      EUR/USD – Downside Risks to Persist. EUR remained soft, as Euro-area and German CPI releases missed expectation – a reminder that deflation risks loom and ECB could do more, if need arises. EUR was last seen at 1.0745. Daily momentum and stochastics remain bearish bias. Next support at 1.0650 (76.4% fibo retracement of Dec low to high), before 1.0550 (trend-line support from the lows in 2015). Still favour selling on rallies, targeting those support levels above-mentioned. Meantime resistance at 1.0820 (50DMA). Week ahead brings EC Nov PPI (Wed); GE Nov factory orders; EC Nov retail sales (Thu); GE Nov industrial production and trade balance (Fri).

      GBP/USD – Getting Ready to Reload GBP Longs. GBP continued its decline to another fresh 9-month low of 1.4638 overnight amid broad USD strength. Still talks of Brexit weighing on sentiment. But is the worry a bit too early to anticipate at the start of 2016 when the referendum was scheduled to take place in early 2017?  GBP was last at 1.4670, daily momentum remains bearish bias but we caution that stochastics is suggesting some early signs of turning from oversold levels. But remains too soon to tell for now. We will continue to monitor this. Also we observed a potential falling wedge formation in the making – apex or turning point could be somewhere at 1.4570 levels – which is the level we are looking out to reload GBP longs.  Week remaining brings Nov trade balance (Fri).

      USD/JPY – Medium Term Bearish. Mild retracement on USDJPY yesterday (119.70) before the slump continues. Pair was last seen at 118.60 levels. Momentum on weekly and daily remain bearish. Favor selling on rallies targeting interim objective at 118.50 (Sep lows) before 116.40 (38.2% fibo retracement of). Week ahead brings Nov leading, coincident index (Fri).

      AUD/USD – Ascending Triangle. AUD touched the upward sloping trend line at around 0.7140 and hovered around 0.7170 as we write in Asia morning. Momentum indicators show little conviction at this point and we see limited downside pressure. We see risk of a turn higher here as we eye a tentative ascending triangle set up. Support is still seen at 0.7140. Barrier is seen at 0.7267 (23.6% Fibonacci retracement of the 0.6896-0.7382 range). AiG Perf of Services index deteriorated to 46.3 for Dec from previous 48.2.  Trade bal and building approvals for Dec are due on Thu, Dec construction index and Nov retail sales on Fri.

      USD/CAD – Double Top? USDCAD attempted the 1.40-handle overnight and hovered just under the figure in Asia morning, underpinned by soggy oil prices and a fall in industrial product price for Nov. A failure to clear this level could mean a double-top formation for this pair which could see a retreat towards first target at 1.3725 (23.6% fib retracement of the Oct-Dec rally) and then at 1.3554 (38.2%). A break of the 1.40-figure exposes the pair to the next barrier at 1.4067 and then at 1.4115. Week ahead has Nov building permits and labour report on Fri.

      NZD/USD – Bearish NZD; Favor Long AUDNZD. NZD was one of the big losers yesterday (the other being EUR), driven by firmer USD and decline in dairy prices which was down 1.6% in GDT auction overnight. NZD was last seen at 0.6684 levels. On technicals, we reiterate that daily momentum and stochastics remain bearish. Support at 0.6660 (50% fibo retracement of Nov low to Dec high, 50 DMA), before 0.66 levels (61.8% fibo and 100 DMA). Still favour staying short Kiwi. We also like to reiterate our call for AUDNZD longs – base appears to have formed around 1.0580. Daily momentum and stochastics are also indicating a bullish bias. Next resistance at 1.0770 (38.2% fibo retracement of Nov high to Dec low), before 1.0830 (50% fibo).

Asia ex Japan Currencies

      The SGD NEER trades 1.12% below the implied mid-point of 1.4090 with the top end estimated at 1.3805 and the floor at 1.4375.

      USD/SGD – Next Resistance at 1.4360.  USDSGD stays supported amid broad USD strength. Pair was last seen at 1.4270 levels. 3m sibor stays elevated around fresh 90-month high of 1.19%; 3m SOR eased slightly at 1.66%. 3m SIBOR-SOR gap is narrowing slightly from its widest level; last seen around -47bps (vs -56 bps widest level). Spread widening could drive further SGD weakness. We still see further upside in USDSGD. Technicals remain consistent with further USDSGD upside. Daily momentum and stochastics continue to indicate a bullish bias. Next resistance at 1.4360 (Oct high). Support at 1.4215 (76.4% fibo retracement of Oct high to low).

      AUD/SGD – Ascending Triangle. AUD/SGD remained a tad offered overnight and was last seen around 1.0210. Bullish momentum has diminished completely but we see little conviction to the downside as well. Ichimoku cloud on the daily chart conveniently provides support on further dips around 1.0187, if not at 1.0120. Beyond the near-term, we still eye the ascending triangle that has formed since last Sep. A break of the 1.0350 barrier could expose first target level of 1.0750.

      SGD/MYR – 3.03 – 3.08 Range to Hold. SGD/MYR remains supported; last seen around 3.05 levels. 100 DMA appears to be supporting the cross for now. Daily momentum and stochastics are flat for now. We expect the cross to trade 3.03 – 3.08 for the week as MYR weakness is countered by SGD weakness.

      USDMYR – Upside Risk. USDMYR continued to push higher amid broad USD strength, oil price weakness and weakness in Renminbi which is somewhat a trigger to buy USD/AXJ and sell risk post-CNY fix – an observation for the past 3 trading days. Pair was last seen around 4.3530 levels. Daily momentum and stochastics are bullish bias. Key resistance at 4.35 (76.4% fibo retracement of Nov high to low). If broken above on daily close basis could see the pair push higher towards 4.3980 (Nov highs). Meantime support at 4.32 (61.8% fibo). Week ahead brings Nov trade; Dec FX reserves (Thu). 

      1s USDKRW NDF – Driven by Sentiment. Pair remains supported amid broad USD strength. Post-CNY daily morning fix (weaker CNY and widest CNH-CNY spread) also sent KRW weaker. Pair was last seen around 1194 levels this morning. Momentum is mild bullish. Next resistance at 1210 (Aug highs).

      USDCNH – Tempered. USD/CNH rebounded to levels around 6.6590 this morning. Recent FX intervention only breaks the bullish momentum of onshore yuan. Next barrier is seen at 6.6560 still holds. Uptrend is likely to continue at a moderate pace. CNH is trading at a record wide discount to CNY of 1400 pips against the USD. USD/CNY was fixed 145 pips higher at 6.5314 (vs. previous 6.5169). CNY/MYR was fixed 19 pips lower at 0.6626 (vs. previous 0.6645). There were reports of intervention in the forex markets as well as equity markets to prevent excessive volatility yesterday. We expect some sense of calm to be restored to the markets but trend of USDCNY is still up given the dollar dominance.

      USDINR – Supported by the Cloud. This pair retreated from Tue high and waffled around 66.80 this morning. Pair remains guided by the ichimoku cloud on the daily chart. Near-term trades should be bias to the upside, taking the cue from the greenback. Support is seen around 66.63 (50-DMA) while bids could be deterred by the 67.10. Risk appetite dried up on 4 Jan as foreign investors sold a net USD 86.5bn of equities and USD36.8bn of bonds. Trade numbers could be due anytime from Fri onwards. FinMin Arun Jaitley assured more public investment.

      USD/IDR – Suspended in Cloud. USD/IDR remained suspended in the daily ichimoku cloud, last seen around 13845, with topside capped at 14030(50% fib retracement of the Oct dive). Near term bias is still to the upside for this pair. Next support is seen at 13770 (50-DMA), ahead of the next at 13682. Foreign investors bought a net USD5.2bn of equities on 5 Jan and USD9.4bn of debt on 4 Jan.

      USD/PHP – Into the Cloud.  This pair pulled back towards the 100-DMA and was last seen around 46.92 this morning. Bias is still the downside with barrier seen around 47.10, near the upper bound of the daily ichimoku cloud and 50-DMA.  The 100-DMA still marks support around 46.84. Governor Tetangco said that the central bank does not want too much volatility. He warned that the harsher El Nino raises inflationary risks at home. On monetary policy, he sees no need for a shift in policy stance.

      USD/THB – Bearish Divergence. This pair edged higher and was last seen around 36.18. Further bullish extensions can only be established after prices break through barrier at 36.27. Momentum is still lacking at this point. Sideway trades may dominate within 35.90-36.30, albeit with a bullish tilt. Beyond the near-term, we see bearish divergence with the MACD. Budget Bureau told the press that the budget disbursement was on target, achieving 30.22% of total budget in 1Q fiscal year 2016.

Rates

Malaysia

      Activity in the government bond market was initially subdued as USDMYR remain elevated, but risk appetite improved later with buying interest coming in. Yields ended mixed from +5bps to -4bps. There are no real catalyst to move prices either way, in our opinion. The 7.5y GII new issue last dealt at 4.40% in WI trading.

      For IRS, not much changed from the previous day. Better paying interest seen in the afternoon but nothing was dealt in the market. 3M KLIBOR was unchanged at 3.84%.

      Local PDS space traded firmer, with market more keen on short dated papers around the 4% mark. Caga papers at the front end were dealt as much as 5bps tighter and Rantau 22 also tightened 3bps to 4.55% (32bps z-spread; 50bps G-spread). Better buying was seen on 10y PASB notes which tightened 3bps to 4.63% (20bps z-spread; 46bps G-spread). The paper still seem attractive with a few bps upside to offer.

 Singapore

      Long end SGS saw continued buying, but short end bonds remained under selling pressure. Short end yields were flat to 2bps higher, while long end yields ended 2-5bps lower with prices partly adjusted higher to reflect the lower SGD IRS curve amid little buying in SGS. The IRS curve closed 3-6bps lower on persistent receiving interest.

      In Asian credit space, INDON continued to be firm with INDON 26 trading up to 100. The same goes for O&G names, with PETMK 25 rallying to around 163/158, and CNOOC 25 and SINOPE 25 up about 5bps. Better buying seen on Chinese IG names, broadly pushing them 3-5bps tighter. Financial and tech names were sought after as HRAM, BIDU and TENCNT saw bids across. Players appear to be testing ground as market remains risk-off with most players still staying sidelined.

Indonesia

      Indonesia bond market closed lower as weighted average yield (WAY) during the auction was higher compared to previous day close. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 8.816%, 8.799%, 8.955% and 8.973% while 2y yield shifts up to 8.407%. Trading volume at secondary market was seen thin at government segments amounting Rp16,711 bn with FR0056 as the most tradable bond. FR0056 total trading volume amounting Rp5,509 bn with 176x transaction frequency and closed at 97.078 yielding 8.799%.

      Indonesian government conducted their first 2016 conventional auctions today and received incoming bids of Rp26.20 tn bids versus its target issuance of Rp12.00 tn or oversubscribed by 2.18x. However, DMO only awarded Rp12.00 tn bids for its 3mo SPN which was sold at a weighted average yield (WAY) of 6.56300%, 1y SPN was sold at 7.51663%, 6y FR0053 was sold at 8.81961%, 11y FR0056 was sold at 8.82997% while 20y FR0072 was sold at 9.02932%. Incoming bids were mostly clustered on the FR0053 and FR0056 series. No bids were rejected during the auction. Bid-to-cover ratio during the auction came in at 1.36X – 2.55X. Till the date of this report, Indonesian government has raised approx. Rp12.0 tn worth of debt through bond auction which represents 12.3% of the 1Q 15 target of Rp97.34 tn. On total, Indonesian government has raised approx. Rp87.7 tn worth of debt through domestic and global issuance which represent 16.5% of this year target of Rp532.4 tn. Assuming that if Indonesia government issues Rp2.00 tn during every sukuk auction in 1Q 16 then the Government needs to issue Rp12.22 tn during every conventional auction (6 upcoming conventional auction in 1Q 16) to meet their target of Rp97.34 tn.

      Corporate bond trading traded heavy amounting Rp621 bn. JPFA01CN2 (Shelf registration I JAPFA Phase II Year 2012; Rating: idA) was the top actively traded corporate bond with total trading volume amounted Rp100 bn yielding 12.335%.