Maybank GM Daily - 11 Apr 2016

FX

Global

      The yen continued to outperform its peers, gaining 3% against the dollar since last week as the sell-off in the Nikkei continued. The Nikkei was down nearly 1.9% last week, while the DJI fell 0.9% the past week. The yen rally may not be over. Our fair value model puts USDJPY at 105 levels. Technically, we continue to look for further downside towards 106.70, before 101, barring intervention. The Asians, especially the ASEANs, performed well against the dollar with the baht the outperformer last week, up 0.5%.

      Oil prices firmed with the WTI passing the USD40/bbl mark at 40.14 and Brent at USD40.28/bbl as the OPEC and non-OPEC meeting on 17 Apr draws closer. Upside risks remain as scheduled maintenance in North Sea oil fields could curb European supply amid strong seasonal demand from refineries, aside from potential production freeze. Also, global oil production is at more than 90% of maximum capacity.

      Week ahead could see upside dollar risks and could translate into upside risks to dollar/Asians. This week has lots of Fed speakers: Dudly, Kaplan (Mon); Harker, Williams, Lacker (Tue); Lockhart, Powell (Thu); Evans (Fri). The Spring meeting of the IMF/World Bank is ongoing (15-17 Apr). Elsewhere, we have BoE meeting Thu, where we do not expect any moves. In Asia we have China CPI, PPI, Malaysia IP (Mon); Philippines exports (Tue); China trade (Wed); Singapore 1Q GDP (Thu); China 1Q GDP, IP, FAI, retail sales; Indonesia trade; Singapore retail sales (Fri). Thailand is closed Wed-Fri for Songkran and Kore is out on Wed. Market focus will be on MAS meeting on Thu where it is expected to stand pat as monetary conditions remain accommodative and fiscal impulse could do the heavy-lifting to allay growth concerns.

Currencies

G7 Currencies

      DXY – Plenty of Fed Speaks; Technical Rebound Possible. Decline in Dollar index paused, following the broad sell-off in Mar. USD was firmer against most risk proxy, commodity-linked currencies (i.e. AUD, CAD, AXJs) but fell against JPY. Risk sentiment was weaker with declines seen in equity, oil, and copper prices. There was no surprise from FOMC Mar meeting minutes (Thu) – reaffirmed that Fed remains patient and will proceed cautiously with increasing rates. The minutes also revealed a range of comments and views from FOMC participants on the timing of rate increase. Implied probability from Fed fund futures shows zero probability of a Fed move in Apr; and only 15.7% probability of a Fed move in Jun. Markets are just pricing in about 22bps hike over the next 12 months – which could be a risk in under-pricing Fed’s rate hike. This could mean that UST yields may have to rise further and USD could see less weakness (this scenario will pan out when markets re-adjust expectation on any hints of change in Fed language or closer to the Jun FOMC meeting). We continue to hold to our house view of 2 hikes in 2016 – one hike in Jun and another in Dec. DXY was last seen at 94.60 levels (6-month lows). Monthly, weekly, daily momentum remains bearish bias but MACD suggests some signs of bullish divergence. Stochastics is also showing tentative signs of turning from oversold conditions. We do not rule out further technical rebound and DXY could re-visit 95.25 (21 DMA), before 96.30 (50 DMA). Support at 94 levels before 92.50. Week ahead brings Fed’s Dudley, Kaplan speak on Mon; Fed’s Harker, Williams, Lacker speak; Import price index (Mar) on Tue; Retail sales, PPI (Mar); Beige Book on Wed; CPI (Mar); Fed’s Lockhart, Powell speak on Thu; Fed’s Evans speaks; Capacity Utilisation (Mar); IP (Mar); Empire Mfg (Apr); Univ. of Michigan (Apr) on Fri.

      EURUSD – Still Closely Tracking EU-UST yield Differentials. EUR continues to consolidate in the range of 1.1330 – 1.1450. Moves continue to track 2Y EU-UST yield differentials very closely. The spread was last at -121bps (vs. -145bps in mid-Mar). ECB minutes (released Thu) indicated that members still see scope for further rate cuts if need be. EUR was last at 1.1370 levels. Bullish momentum on daily chart remains intact (though some signs of waning momentum) while stochastics are entering overbought conditions and showing early signs of turning lower. Not surprised of a technical pullback. Support around 1.1280 levels (21 DMA). We remain bias to buy on dips targeting a move towards 1.15, 1.18. Week ahead brings GE CPI (Mar) on Tue; EC Industrial Production (Feb); FR CPI (Mar) on Wed; EC CPI (Mar) on Thu; EC Trade (Feb) on Fri.

      GBPUSD – Bearish Bias. GBP continued to trade with a heavy bias amid little data in the past week to drive the pair. We reiterate that Brexit concerns should continue to weigh on the currency until referendum takes place on 23 Jun. We expect 1m and 2m vols to play catch up with 3m vols in the option space. Retain our bias to sell GBP on rally ahead of Referendum (23 Jun). GBP was last seen at 1.4120 levels. Daily momentum and stochastics indicators have turned bearish. Support at 1.4030 (23.6% fibo retracement of Feb high to low) before 1.3830 (Feb low). Resistance at 1.4150 (38.2% fibo), 1.4250 (50% fibo). Week ahead brings CPI, PPI, RPI (Mar); ONS House Prices (Feb) on Tue; BoE Meeting on Thu; Construction Output (Feb) on Fri.

      USDJPY – Sell on Rally. USDJPY tumbled to fresh 18-month lows of 107.67 (Thu) amid waning risk sentiment (most bourses in US and Europe closed in negative territories) and narrowing yield differential between 2Y UST and JGB. Pair was last seen at 107.90 levels. Monthly, weekly, daily momentum indicators remain bearish bias. Next support at 106.70 levels (76.4% fibo retracement of 2014-low to 2015-high) before 101. Resistance at 110.40 (61.8% fibo). We are cautious of potential intervention risk but likely to only slow the pace of JPY appreciation rather than to counter the trend. Still favor selling on rallies towards 109.70 levels. Week ahead brings Machine Orders (Feb) on Mon; BoJ Harada speaks; Machine Tool Orders (Mar) on Tue; PPI (Mar); Money Stock (Mar) on Wed; IP, Capacity Utilisation (Feb) on Fri.

      NZDUSD – Confined within the Trend Channel. NZD inched lower for the week, tracking the decline in other risk proxies including commodity prices and AUD. Dairy prices rebounded (+2.1%) in the recent GDT auction and saw a temporary rebound in NZD but gains were unsustainable as NZD continues to take cues from externalities. Pair was last at 0.6800 levels and remains confined to the upward sloping trend channel of 0.6680 (lower bound) – 0.70 (upper bound). Momentum and stochastics are indicating early signs of bearish bias. Next level to watch on the downside at 0.6780 (21 DMA) before 0.6680 (100 DMA, lower bound of the trend channel). Resistance at 0.6930 (50% fibo retracement of Apr 2015 high to low). Week ahead brings Card Spending Retail (Mar) on Mon; Food Prices (Mar) on Wed; BusinessNZ Mfg PMI (Mar) on Thu; Non-resident bond holdings (Mar) on Fri.

      AUDUSD – Possible Technical Pullback. AUD eased off its recent highs of 0.7723 amid technical pullback in commodity prices including copper and oil prices. Copper stock piles increased 2.8% on the London Metal Exchange. AUD was last seen at 0.7540 levels. Daily momentum and stochastics are indicating a bearish bias. Not surprised to see a pullback towards 0.7380 (38.2% fibo retracement of 2016 low to high). Resistance remains at 0.7720 (previous high). Bias to buy on dips.  Week ahead brings Home loans, investment lending (Feb) on Mon; NAB Business Conditions (Mar) on Tue; Westpac Consumer confidence (Apr) on Wed; CPI expectation (Apr); Employment Change (Mar) on Thu; RBA Financial Stability Review on Fri.

     Asia ex Japan Currencies

      The SGD NEER trades 0.04% above the implied mid-point of 1.3494 with the top end estimated at 1.3224 and the floor at 1.3764.

      USDSGD – Interim Upside Risk but Bias Remains to Sell on Rally.  USDSGD consolidated in 1.3400 – 1.3590 range in the past week. Last seen at 1.3490 levels. Week ahead brings MAS meeting decision and 1Q GDP (14 Apr). We do not expect MAS to move at the upcoming meeting. Pair could continue to consolidate and face some upside risk in the lead-up to the meeting. Resistance is around 1.3600 (21 DMA) before 1.3650 (38.2% Fibo retracement of 2014 low to 2015 high). Support remains at 1.34 (50% Fibo) before 1.3160 (61.8% Fibo).

      AUDSGD – Downside Pressure; Buy on Dips. AUDSGD drifted lower amid a weaker AUD and firmer SGD. Cross was last seen around 1.0160. Daily momentum and stochastics continue to indicate a bearish bias. Next support at 1.0130 (61.8% Fibo of Aug high to Sep low) before 1.0050 (50% Fibo). We see opportunities to buy on dips towards 1.0050. Resistance at 1.0240 (76.4% Fibo), 1.04 (2016 high).

      SGDMYR – Sell the Rally. SGDMYR drifted higher following the dragonfly doji (Mon). This is typically a bullish formation. Bearish momentum is waning and stochastics has risen from oversold conditions. Cross could re-visit 2.9140 (23.6% fibo retracement of 2016 high to low), 2.95 (50% fibo, 21 DMA). Support remains at 2.8620 (2016 low) before our 2.82 – 2.84 objective.

      USDMYR – Interim Upside Risk but Downtrend Far From Over. USDMYR rebounded off its 7-month lows of 3.86 levels (4 Apr) to trade an intra-week high of 3.9525 (8 Apr). While we cautioned for potential short-squeeze given the massive leg lower and short term technical signs (hinting at oversold conditions), we think the move lower is far from complete. Next support at 3.80-figure, before 3.7670 (76.4% Fibo of 2015 low to high) and 3.54 (May 2015 lows). Squeeze higher could re-visit 4.00-4.01 levels.

       USDCNH – Still Below 98. The pair appears to be in consolidative mode within the 6.4680-6.4950 range for the past few sessions after rebounding from a recent low of 6.4572 (31 Mar).  Pair was last seen around 6.4790. We continue to observe that PBOC uses the DXY index and the RMB index to guide the USDCNY. The RMB index remains below the 98-level. We continue to see some upside risks in the dollar and that could signal upside risks to the RMB index, but relatively milder upside risk to the USDCNY. USDCNY was fixed 48 pips lower at 6.4679 (vs. previous 6.4733). CNYMYR was fixed 39 pips lower at 0.6004 (vs. previous 0.6043). Inflation rose 2.3% y/y in Mar, little changed from Feb, on the back of rising food prices.

       SGDCNY – Rangy. This cross is inching lower at 4.7951. Support is seen at the 21-DMA at 4.7700 levels. Daily chart is now showing very mild bearish bias, though stochastics is showing no strong bias. Two-way trades likely within 4.7500-4.8200.

      USDIDR – Bearish Bias. USDIDR appears to be mostly in consolidative mode for the past several sessions. But firmer oil prices could be supportive of the IDR ahead. Last seen around 13131, pair has lost most of its bullish momentum and stochastics is bearish bias. Resistance remains around 13225 levels (23.6% Fibo retracement of the Jan-Mar downswing) ahead of 13315 (50DMA). Support remains around the 13000-handle; 12984 (2016 low). The JISDOR was fixed lower at 13169 on Fri from Thu’s 13197 and a higher fixing today is possible. Risks sentiments were positive last week with foreign funds buying a net USD101.35mn in equities last week. They had also added a net USD4.67mn to their outstanding holding of debt on 4-6 Apr.

      USDPHP – Consolidating.  After touching a recent high of 46.335 (Wed), USDPHP has come off and appears to be in consolidative mode within a tight 46.00-46.300 range. Last seen around 46.175, pair is exhibiting mild bullish bias and stochastics is climbing higher. With risks titled slightly to the upside, pair could trade higher but in a wider range ahead. Look for resistance around 46.300 (21DMA); 46.410 (23.6% Fibo retracement of the Jan-Mar downswing). Support remains around this year’s low of 45.900. Risk appetite eased last week with foreign investors selling a net USD35.12mn of equities.

Rates

Malaysia

      IRS market was quiet with no trades reported in the market. 3M KLIBOR stayed unchanged at 3.70%.

      PDS ended last week on a quiet tone. The AAA curve saw light buying at the belly and front end. Telekom 12/24 tightened 1bp to 4.33% (G+57bps/Z+42bps), Plus 24 also 1bp tighter at 4.31% (G+60bps/ Z+42bps) and Plus 20 better by 3bps at 4.01% (G+52bps/Z+32bps). In the AA space, better buying was seen for IPPs with JEP 22s and 28s tightening 4bps. Sarawak Energy also tightened 2-4bps at the belly. The GG space saw JKSB 25 and Prasa 30 trade 2bps tighter.

Singapore

      SGS initially saw some buying but turned soft as US equity futures rallied and UST futures dipped. The benchmark yield curve largely closed -1bp, except for the 5y ended +3bps. Paying in SGD IRS pushed the front end of the curve 1bp higher, while the long end was down 1-2bps.

      In Asian credit market, spreads generally widened 1-3bps on higher UST. HRAM 25 underperformed as it widen 8bps compared to 3-5bps for other AMC names. In EM sovereign cash, INDON prices were flat, while PHILIPs ticked up by 15cts.

 Indonesia

      Indonesia booked gain during the final day of last week. Central bank officials as reported in media’s signals pause in interest rate easing cycle. Transaction activities were mostly coming from the SR008 as it has passed the minimum holding period. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 7.283%, 7.524%, 7.793% and 7.850% while 2y yield shifts down to 7.435%. Trading volume at secondary market was seen heavy at government segments amounting Rp15,253 bn with SR008 as the most tradable bond. SR008 total trading volume amounting Rp4,242 bn with 735x transaction frequency and closed at 101.359 yielding 7.779%.

      Corporate bond trading traded thin amounting Rp313 bn. MEDC01CN2 (Shelf registration I Medco Energi International Phase II Year 2013; Rating: idA+) was the top actively traded corporate bond with total trading volume amounted Rp76 bn yielding 12.710%.