Maybank GM Daily - 12 Apr 2016

FX

Global

      Overnight action was cautious as equity investors pared their positions ahead of earning seasons. The dollar softened broadly. GBP strengthened the most against the G10, up +0.8% followed by NZD and CAD up +0.7% each. The rise in oil certainly did help commodity-linked currencies ahead of the talks in Doha. Asian currencies strengthened in the absence of dollar strength with KRW (0.6%) in the lead followed by SGD (0.5%) by the end of Mon.

      Earlier in Asia yesterday, China’s Mar CPI steadied at 2.3%y/y from the month prior. The more closely watched data was PPI which surprised to the downside with a decline of -4.6%y/y compared to the previous drop of -4.9%. This was taken as an early sign that deflationary pressure is easing amid the recovery in the property sector as well as decisive measures to cut excessive production. Chinese equities closed >1% higher on Mon. Yesterday, Premier Li continued to urge for greater reduction in over production capacity, absorption in the steel and coal supply glut and for deleveraging to be expedited via the debt-equity swap scheme. The RMB index remains below the 98-level. We think there that given the primary concerns on capital outflows and a nagging problem of its REER (widely seen as overvalued), PBOC would be less concern of a weaker RMB against the basket and seek to adjust the 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.

      The day ahead has Australia’s NAB business conditions index for Mar, UK is probably the only country to release a key data - CPI, PPI, RPI (Mar) and house prices for Feb. Asia’s data docket is lighter with China’s monetary data release possibly today or anytime within the week. US Fed Harker, Williams and Lacker speak today before the import price index is released. With little key data scheduled for today, expect more or less consolidative action yesterday.

Currencies

G7 Currencies

      DXY – Descending Wedge (Upside Risk). DXY remained on the decline. Fed’s Kaplan said – there is no question that 1Q GDP is weak and he wouldn’t be moving today. Implied probability from Fed fund futures continue to show 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 we previously highlighted - could result in the risk of under-pricing Fed’s rate hike. This could mean that UST yields may have to rise further to play catch-up as positioning re-adjusts 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 levels (fresh 6-month lows). Monthly, weekly, daily momentum remains bearish bias but daily MACD suggests some signs of bullish divergence. Stochastics is also showing tentative signs of turning from oversold conditions. A descending wedge appears to be in the making – typically could see upside risk. We do not rule out a technical rebound and DXY could re-visit 95.10 (21 DMA), before 96.30 (50 DMA). Support at 94 levels before 92.50. Week ahead brings 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 – Consolidation. EUR is still consolidating in recent range of 1.1330 – 1.1450 in absence of fresh catalyst. 2Y EU-UST yield differentials continue to drive EUR. The spread was last at -122bps (vs. -145bps in mid-Mar); note that this is now at its least wide for 2016 (but still relatively wide compare to Oct 2015 levels of -90 bps). EUR was last at 1.14 levels. Bullish momentum on daily chart some signs of waning momentum while stochastics are entering overbought conditions and is showing early signs of turning lower. Not surprised of a technical pullback from current levels. 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 – Sell on Rally. GBP turned higher at the expense of USD weakness. Last seen around 1.4230 levels.  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). Daily momentum and stochastics indicators have turned bearish. Support at 1.4150 (38.2% fibo retracement of Feb high to low), 1.4030 (23.6% fibo) before 1.3830 (Feb low). Resistance at 1.4250 (50% fibo), 1.4350 (61.8% fibo). Sell towards 1.4350. 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 was pressured lower yesterday with the pair touching a new low for 2016 at 107.63 (11 Apr). Pair has since rebounded from that low to hover around the 108-handle as the JPY was sold-off against most of the majors this morning. This level is way below the pre-BOJ QQE moves in 2014. However Nikkei futures are pointing to a pick-up today which could be supportive of the pair today. Pressure remains on the downside for the pair. There appears to be little that the BOJ can do to support the pair given that negative interest rates are not popular with the public and PM Abe and the ruling coalition are faced with an Upper House elections in early summer (sometime in Jul). As well, G7 meetings in May could limit policy options for the BOJ. Possible jawboning by the government and BOJ is possible and direct intervention is possible but these are likely to only slow the pace of JPY appreciation rather than to counter the trend. Monthly, weekly, daily momentum indicators remain bearish bias. Support is still at 106.70 levels (76.4% Fibo retracement of 2014-low to 2015-high) before 101. Resistance at 110.40 (61.8% Fibo). Still favor selling on rallies towards 109.70 levels. Week ahead has 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 rebounded amid broad USD weakness. Pair was last at 0.6850 levels and remains confined to the upward sloping trend channel of 0.6680 (lower bound) – 0.70 (upper bound). Momentum and stochastics are not indicating a clear 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 remaining brings Food Prices (Mar) on Wed; BusinessNZ Mfg PMI (Mar) on Thu; Non-resident bond holdings (Mar) on Fri.

       AUDUSD – Rangy. AUD bounced within the recently established range of 0.75-0.77. Last seen at 0.76, prices have been led higher by copper prices and oil prices. Daily momentum and stochastics are indicating a slight bearish bias but we see possibly rangy action. 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 NAB Business Conditions (Mar) today; Westpac Consumer confidence (Apr) on Wed; CPI expectation (Apr); Employment Change (Mar) on Thu; RBA Financial Stability Review on Fri.

       USDCAD – Bullish Divergence. The pair was last seen around the 1.29-figure, weighed by bearish dollar and oil strength. The bullish divergence that we had been waiting for is taking its time to take effect. Support is seen at 1.2830.  A break there exposes the next at 1.2660. We still hold on to our view that there should be a stronger retracement towards the 1.33-figure. Before that happens, rangy action is likely within 1.2600-1.3150. The week ahead ha Bank of Canada rate decision on Wed. Consensus expects no change to policy rate. Feb new housing price index is due on Thu, followed by manufacturing sales for Feb on Fri.

     Asia ex Japan Currencies

       The SGD NEER trades 0.20% above the implied mid-point of 1.3473. We estimate the top end at 1.3204 and the floor at 1.3742.

       USDSGD – Upside Risk In Lead-up To MAS.  USDSGD is bouncing slightly higher this morning but remains in consolidative mode within the 1.3400 – 1.3590. Pair was last seen around 1.3450 levels. Focus ahead is on MAS meeting decision (and 1Q GDP) on Thu (14 Apr). We do not expect MAS to move at the upcoming meeting as policy remains accommodative and fiscal policy is at work supporting the economy. Pair could continue to consolidate and face some upside risk in the lead-up to the meeting. Resistance is around 1.3570 (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 bounced above the 1.02-figure as we write this Asia morning, backed by AUD strength. 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 was little changed. Last seen at 2.89 levels. Bearish momentum is waning and stochastics is rising. Taken together, signs suggest mild bullish risk. 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 – Downtrend Far From Over. USDMYR has eased off from 3.95 levels (Fri) to below 3.89 levels (this morning). Move lower came amid USD weakness and supported oil prices. Last seen at 3.8880 levels. We previously cautioned for potential short-squeeze given the massive leg lower and short term technical signs (hinting at oversold conditions), but 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.

       1s USDKRW – Sell Rally. The pair continued to trade with a heavy bias amid weaker USD and broadly supported risk sentiment. Pair was last seen at 1147 levels. Daily MACD suggests some signs of bullish divergence. Upside can re-visit 1160 (21 DMA). Support at 1136 (Apr lows). Korea is out for holidays on Wed and will undergo legislative elections on Wed. Week remaining brings mar unemployment rate (Fri).

       USDCNH – Stuck in Range. The pair appears to be in consolidative mode within the 6.4680-6.4950 range. 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 think there that given the primary concerns on capital outflows and a nagging problem on its REER, PBOC would be less concern of a weaker RMB against the basket and seek to adjust the 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. As of 12 Apr, USDCNY was fixed 33 pips lower at 6.4616 (vs. previous 6.4649). CNYMYR was fixed 8 pips lower at 0.5996 (vs. previous 0.6004). Inflation rose 2.3% y/y in Mar, little changed from Feb, on the back of rising food prices. The more closely watched data was PPI which surprised to the downside with a decline of -4.6%y/y compared to the previous drop of -4.9%. This was taken as an early sign that deflationary pressure is easing amid the recovery in the property sector as well as decisive measures to cut excessive production. Chinese equities closed >1% higher on Mon. Yesterday, Premier Li continued to urge for greater reduction in over production capacity, absorption in the steel and coal supply glut and for deleveraging to be expedited via the debt-equity swap scheme. This week has Mar monetary data due anytime, activity data on Fri along with 1Q GDP.

       SGDCNY – Rangy. This cross came close to testing the upper boundary of the 4.7500-4.8200 range. 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.

       1s USDINR NDF – Two-way trade. 1M NDF slipped to levels around 66.70 as we write, back to testing the 200-DMA (66.53) which has been a viable support in the past couple of weeks.  Rebounds to meet barrier at 67.175. Should the 200-DMA break, the next support is seen at 65.98 (76.4% Fibonacci retracement of the Oct-Mar rally). Foreign investors sold U$4.9mn of equities and U$8.8mn of bonds on Apr 7^th. Skymet weather services reported that the rainfall in Jun-Sep monsoon is forecasted to be above normal at 105%. India is due to release ists Mar CPI today. Consensus expects the inflation to slow to 5% from previous 5.18%y/y. Fed industrial production is also due and the average forecast is for a 0.6%y/y expansion from previous -1.5%.

       USDIDR – Capped. USDIDR slipped lower to 13126 at the opening but has since rebounded, tracking its regional peers broadly higher.  Last seen around 13140, pair has lost most of its bullish momentum and stochastics fast approaching oversold levels. With bias still tilted to the downside, further upmoves intraday should be capped. Support remains around the 13000-handle; 12984 (2016 low). Resistance is around 13225 levels (23.6% Fibo retracement of the Jan-Mar downswing) ahead of 13315 (50DMA). The JISDOR was fixed lower for the second straight session at 13134 on Mon from Fri’s 13169. Risks sentiments deteriorated with foreign funds selling a net USD32.66mn in equities yesterday. They had however added a net USD1.47mn to their outstanding holding of debt on 7 Apr. In the news, the Finance Ministry is planning to cut corporate tax to 20% this year. At the same time, the ministry is also intending to lift non-taxable personal income by 50%, which could boost GDP by 0.16ppt from higher private consumption and inflation by 0.06ppt.

      USDPHP – Consolidation.  USDPHP continues to trade within a tight 46.00-46.300 range this morning, even as the pair inches lower. Last seen around 46.120, pair is exhibiting mild bullish bias as reflected in the daily charts. With risks still bias slightly to the upside, further downsides are likely to be limited intraday. Resistance is around 46.280 (21DMA); 46.410 (23.6% Fibo retracement of the Jan-Mar downswing). Support remains around this year’s low of 45.900. Better risk appetite saw foreign investors purchasing a net USD6.27mn of equities yesterday.

       USDTHB – Range-Bound. USDTHB is little changed this morning, hovering around the 35-handle as markets traded cautiously ahead of the super-long weekend. Last seen around 35.030-levels, pair has lost most of its bullish momentum and stochastics is bearish bias.  A death cross (where the 50DMA cuts the 200 DMA on the downside and which typically signals bearishness) could still be playing out. Ahead of the start of the Songkran festival, expect rangy trades within 34.900-35.120 to hold intraday. Investor sentiments continued to sour with foreign funds selling a net THB2.17bn and THB3.63bn in equities and government debt yesterday. Onshore markets are closed from tomorrow for the Thai New Year celebrations and re-opens on Mon. Quiet week ahead with just 8 Apr foreign reserves due today.

Rates

Malaysia

§  MGS bond curve flattened as foreign accounts were seen selling front-end 3y and 5y benchmarks switching to long-end 15y and 30y benchmarks. 3y MGS 3/19s and 5y MGS 10/20s closed 5bps and 9bps higher as interest shifted towards the longer ends. 15y MGS 6/31s and 30y MGS 3/46 ended the day 2bps and 3bps lower with follow-suit in the belly. If such a trend continues the coming 20y MGS 5/35s reopening may turn out to be well bid.

§  IRS market was very quiet in the absence of fresh leads. There were no trades reported with curve ended unchanged. 3M KLIBOR stayed flat at 3.70%.

§  The PDS market still focused on GG and AAA papers with the popular names like PASB, Danainfra, Putrajaya, and Plus being sought after. New pipelines are lining up as levels are creeping lower. Spreads against govvies remain attractive particularly in the 3-5 years bucket.

Singapore

§  SGS market had a relatively quiet opening where bond yields were flat to 0.5bp lower. Most players were still sidelined in the absence of new leads. We continue to favour small longs with an eye on the USDSGD level with the upcoming MAS policy meeting later this week providing some impetus to the direction. SGS yields ended the day lower by 1bp underperforming the IRS as the bond-swap spreads narrowed 1bp.

§  In Asian credit, most active was Evergrande Real Estate which dropped >2pts post downgrade as certain real-money accounts needed to remove the paper from their holdings due to the downgrade which was a rather aggressive two notches by S&P. The Government of Malaysia started off the marketing roadshow for its USD sukuk offering. Malays 25 was better offered as end accounts try to make room for the new issue.

 Indonesia

§  Indonesia bond market closed with prices inclining. The incline occurred despite DMO will be conducting their auction today. The cause of such incline was increasing buying appetite. Chairman of Indonesia Parliament house which gave a statement in regards of passing the tax Amnesty bill may have contributed to the decline of IGS prices. We see that FR0053 prices are relatively undervalued at current point. We remain to see that FR0073 yield to be attractive however we believe that FR0073 price movement would be rather flat unless something very fundamental or aggressive foreign flows triggers the price to move higher. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 7.271%, 7.479%, 7.750% and 7.817% while 2y yield shifts down to 7.228%. Trading volume at secondary market was seen heavy at government segments amounting Rp19,730 bn with SR008 as the most tradable bond. SR008 total trading volume amounting Rp9,182 bn with 3,556x transaction frequency and closed at 101.546 yielding 7.706%.

§  DMO will conduct their weekly auction with five series to be auctioned which are SPN03160713 (Coupon: discounted; Maturity: 13 Jul 2016), SPN12170413 (Coupon: discounted; Maturity: 13 Apr 2017), FR0053 (Coupon: 8.250%; Maturity: 15 Jul 2021), FR0056 (Coupon: 8.375%; Maturity: 15 Sep 2026) and FR0073 (Coupon: 8.750%; Maturity: 15 May 2031). We believe that the auction will be oversubscribe by 1.50x – 2.50x from its indicative target issuance while our view on the indicative yield are as follows SPN03160713 (range: 5.20% – 5.40%), SPN12170413 (range: 6.55% – 6.75%), FR0053 (range: 7.25% – 7.35%), FR0056 (range: 7.43% – 7.53%) and FR0073 (range: 7.72% – 7.82%).

§  Corporate bond trading traded thin amounting Rp320 bn. FIFA02BCN3 (Shelf registration II Federal Internasional Finance Phase III Year 2016; B serial; Rating: _idAAA) was the top actively traded corporate bond with total trading volume amounted Rp117 bn yielding 9.129%.