Maybank GM Daily - 13 Apr 2016

FX

Global

      Risk appetite gained in equity markets after oil prices continued to make headways above the USD40-level. JPY pared its recent gains but that was probably one of the few to trade on the backfoot against the dollar. The USDJPY upmove came after BOJ tweaked its negative interest rate policy rules yesterday, increasing the portion to which a 0% rate is applied effectively reducing the funds subjected to negative interest rates. Dollar weakened against the rest of G10. AUD, CAD and NZD outperformed, up 1.0% against the USD. AUD was lifted the most by the rise in the iron ore prices which jumped >2.5% in each of the p-past two sessions. The U$60 is within reach for the metal.

      IMF downgraded global forecast to 3.2% for 2016 from 3.4% previously. 2016 Euro-area growth forecast was cut to 1.5% from 1.7%. US growth was cut to 3.5% from 3.6%. China’s growth forecast was upgraded to 6.5% from 6.3%, closer to our Chief Economist’s forecast of 6.6%.

      Earlier in Asia, there were speculations of BI possibly adopting the 7-day reverse repo rate as the new policy rate benchmark. The adoption of a market-based rate as the policy rate could improve the transmission mechanism of monetary policy.

      The day ahead has Bank of Canada’s rate decision and consensus expects the central bank to stand pat. US is due to release its retail sales, PPI and beige book tonight. Euro area will release its industrial production. Apart from China’s trade numbers for Mar and possibly monetary data, there is no other tier one data scheduled for release out of Asia.

Currencies

G7 Currencies

      DXY – Potential Upside Risk. USD longs continue to rush for the exit amid risk supported sentiment – equities, oil prices, commodity prices including iron were firmer. A handful of Fed speaks (non-voters) but comments were mixed overnight – Harker said it might prove prudent to wait until inflation data is stronger before a second rate hike; while Lacker said inflation seems to be returning to 2% faster than expected and Williams said he is less concerned about China hard landing. DXY was last at 94.07 levels.  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 (50 DMA). Bias to go tactically long USD from current levels (with tight stop). Support at 94 levels before 92.50. Implied probability from Fed fund futures continue to show zero probability of a Fed move in Apr; and only 17.6% probability of a Fed move in Jun. Markets are just pricing in about 21bps 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. 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 – Risk of Technical Pullback. EUR continued to trade in recent range of 1.1330 – 1.1465 in absence of fresh catalyst. EUR was last at 1.1380 levels. Bullish momentum on daily chart continued to wane while stochastics are showing signs of falling from overbought conditions. We are calling for a technical pullback from current levels. Support around 1.1310 levels (21 DMA), 1.1180 (50 DMA). That said we remain bias to buy on dips targeting a move towards 1.15, 1.18. Week remaining brings EC Industrial Production (Feb); FR CPI (Mar) on Wed; EC CPI (Mar) on Thu; EC Trade (Feb) on Fri.

       GBPUSD – Sell on Rally. GBP continued to higher at the expense of USD weakness. UK Mar CPI was better than expected, raising pressure that BoE may not be able to hold off rate hike for too long. GBP was last seen around 1.4270 levels. Daily momentum and stochastics indicators have turned mild bullish. Resistance at 1.4350 (61.8% fibo retracement of Feb high to low), 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. ICM polls showed Leave UK at 45% (up by 2 ppt), Remain at 42% and Undecided at 12%. Retain our bias to sell GBP on rally ahead of Referendum (23 Jun). Week remaining brings BoE Meeting on Thu; Construction Output (Feb) on Fri.

       USDJPY – BOJ Tweak Supports. USDJPY continued its bounce higher amid a rebound in oil prices and a firmer dollar. This together with yesterday’s tweak by the BOJ to its negative interest rate policy rules yesterday, increasing the portion to which a 0% rate is applied and thus reducing the funds subjected to negative interest rates, is supporting the pair higher. The ratio of funds exempted from negative interest rate was raised from zero to 2.5% effective in the two months starting 16 Apr. This had sparked a rally in banks shares (up 2%) and spurred a concomitant rise in the Nikkei and supported the USDJPY back above the 108-levels. Further upside in the Nikkei futures should be supportive of the pair today. As we had written earlier, 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 remains at 110.40 (61.8% Fibo). Still favor selling on rallies towards 109.70 levels. Remaining week has PPI (Mar); Money Stock (Mar) on Wed; IP, Capacity Utilisation (Feb) on Fri.

       NZDUSD – Confined within the Trend Channel. NZD continued to push higher amid broad USD weakness. Pair was last at 0.6930 levels and remains confined to the upward sloping trend channel of 0.6680 (lower bound) – 0.7030 (upper bound). Momentum and stochastics are showing tentative signs of bullish bias. Resistance at 0.6930 (50% fibo retracement of Apr 2015 high to low) before 0.7030 (upper bound resistance). Level to watch on the downside at 0.6780 (21 DMA) before 0.6680 (100 DMA, lower bound of the trend channel). Week remaining brings Food Prices (Mar) on Wed; BusinessNZ Mfg PMI (Mar) on Thu; Non-resident bond holdings (Mar) on Fri.

       AUDUSD – Watch China Trade. AUD bounced to levels around 0.7680 though the pair still kept within the recently established range of 0.75-0.77. Iron ore prices jumped by another 2.5% yesterday and the uptrend in iron ore looks set to continue. China’s trade data on watch now, out at 10am (SGT). That could lead the AUD towards our 0.80-target within the month. Support is still seen around 0.75, ahead of the next at 0.7380 (38.2% fibo retracement of 2016 low to high). Resistance remains at 0.7720 (previous high), likely to be tested today. Bias to buy on dips. NAB business conditions improved in Mar to 12 from 8. Business confidence also showed a marked improvement to a score of 6 from previous 3. Westpac consumer confidence deteriorated to 95.1 for Apr from previous 99.1. Week ahead brings CPI expectation (Apr), Employment Change (Mar) on Thu; RBA Financial Stability Review on Fri.

       USDCAD – Downtrend. The pair was last seen around the 1.2775-level, weighed by bearish dollar and oil strength. The bullish divergence that we had been waiting for is taking its time to take effect. Support at 1.2830 was broken and the next is seen at 1.2660. Bank of Canada makes its rate decision tonight. Consensus expects no change to policy rate as the data has shown more activity in the economy than previously expected and that further cuts may raise household debt which is looking increasingly unsustainable. 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 0.07% above the implied mid-point of 1.3459. We estimate the top end at 1.3190 and the floor at 1.3728.

       USDSGD – Upside Risk In Lead-up To MAS.  USDSGD is bouncing slightly higher this morning amid a firmer dollar and oil prices. USDSGD overnight vols have spiked to levels not seen since the Oct 2015 (around the MAS Oct meeting) as the MAS meeting approaches, helping to keep the pair supported. . Tomorrow has MAS meeting decision (and 1Q GDP) but we do not expect MAS to move at the upcoming meeting as policy remains accommodative and fiscal policy is at work supporting the economy. As well, spreads between SG and US 10Y govt. bond yields have tightened, which is weighing on the SGD. Last seen around 1.3450 levels, pair is exhibiting very mild bullish momentum, though stochastics is fast approaching oversold levels. Resistance is around 1.3555 (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 – Rebound. AUDSGD rebounded to levels around 1.0320 as we write this Asia morning, backed by AUD strength. Daily momentum and stochastics indicate that bears have run out of steam. Support at 1.0130 (61.8% Fibo of Aug high to Sep low). Next resistance at 1.04 (2016 high) before our ultimate goal of 1.0540.

       SGDMYR – Stay Short. SGDMYR gapped in the open this morning on Ringgit outperformance. Last seen at 2.8670 levels. Bearish pressures are re-emerging with momentum and oscillators indicators turning bearish again. Next support at 2.8320 (Apr low). A break below could see the cross inching closer to out 2.82 – 2.84 objective. Resistance at 2.9140 (23.6% fibo retracement of 2016 high to low).

       USDMYR – Watch Out for 3.80. USDMYR continued to come under downside pressure amid USD weakness and strong oil prices on market talks that Saudi and Russia have reached a consensus on oil production freeze despite the weekly rise in API inventories in US. DOE inventories number tonight could provide further impetus for sustained gains in the MYR. Pair was last seen at 3.8550 levels. Next support at 3.80-figure, before 3.7670 (76.4% fibo of 2015 low to high) and 3.54 (May 2015 lows). Resistance at 3.90 (61.8% fibo), 3.96 levels (21 DMA). We reiterate the USDMYR downtrend is far from over.

       USDCNH – Wedged Within 6.45-6.54. The pair appears to be in consolidative mode within the smaller 6.4680-6.4950 range. Pair was last seen around 6.4760. 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 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. USDCNY was fixed 25 pips lower at 6.4591 (vs. previous 6.4616). CNYMYR was fixed 31 pips lower at 0.5966 (vs. previous 0.5996). Mar trade numbers are due today. This week has Mar monetary data due anytime, activity data on Fri along with 1Q GDP. In news, China is said to expand the trial of local auction of MOF deposits at banks. 15 provinces and cities will be included in the trial program.

       SGDCNY – Rangy. This cross came close to testing the upper boundary of the 4.7500-4.8200 range again. The cross closed at 4.8055. Support is seen at the 21-DMA at 4.7700 levels. Chart is now showing very mild bearish bias. Two-way trades likely within 4.7500-4.8200 in the near term though uptrend is still intact. A break of the 4.8270-barrier opens the way towards 4.8360.

       1s USDINR NDF – Watch the 200-DMA. 1M NDF was last seen around 66.60, still testing the 200-DMA at 66.53, the viable support that has been intact for 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 bought U$23.5mn of equities and U$57.0mn of bonds on Apr 11^th. Mar CPI came in below consensus at 4.83%y/y. Cost pressure eased across the board including the heavily weighted food component. Industrial production for Feb surprised to the upside by picking pace to 2.0%y/y from previous decline of -1.5%.

       USDIDR – Gapped Lower. USDIDR gapped slightly lower at the opening to 13094 this morning from yesterday’s low of 13108, helped by the improving risk sentiments amid a rebound in oil prices. Pair was last seen around 13098 with daily momentum bearish bias and stochastics at oversold levels. With risks tilted to the downside, further downside moves should find support nearby around the 13000-handle before 12984 (2016 low). Any rebound is likely to meet resistance around 13200 levels (21 DMA). The JISDOR was fixed lower again at 13123 on from Mon’s 13134. Risks sentiments rebounded with foreign funds buying a net USD18.67mn in equities yesterday. They had also added a net USD0.47mn to their outstanding holding of debt on 8 Apr (latest data available). In the news, BI is said to be mulling the adoption of a 7-day reverse repurchase rate as the new policy rate benchmark. The adoption of a market-based rate as the policy rate likely to improve the transmission mechanism of monetary policy. This would allow the central bank to be more effective in influencing the market by targeting the deposit rate directly. The 7-day reverse repo rate would replace the existing BI reference rate.

       USDPHP – Gapping Lower.  USDPHP gapped slightly lower at the opening to 46.005 this morning from yesterday’s low of 46.022, tracking the USDAsians broadly lower amid an improvement in risk appetite with the rebound in oil prices. Pair has broken below the 46-figure and was seen around 45.950 (year’s low). Daily charts are still showing bullish momentum though. This suggests that further downside moves could be limited. Support nearby is around 45.900 before 45.700 levels (15 Oct 2015 low). Resistance is around 46.240 (21DMA). Support remains around this year’s low of 45.900. Risk appetite waned yesterday with foreign investors selling a net USD0.55mn of equities.

      USDTHB – Range-Bound. Onshore markets are closed from today for the Thai New Year celebrations and re-opens on Mon. Trades are likely to be quiet ahead as a result. USDTHB is currently hovering around the 35-handle. 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. Expect rangy trades within 34.900-35.120 to hold intraday. A clean break of the 34.900-support levels could expose the next at 34.720. Investor sentiments deteriorated again with foreign funds selling a net THB0.56bn and THB0.12bn in equities and government debt yesterday.

Rates

Malaysia

§  Government bonds saw better buyers as oil prices rallied. In MGS, trading centered on the belly of the curve and the 15y and 30y benchmarks also had good interest. Noteworthy is the 7y MGII 7/23 ending 2bps lower with MYR1.3b trades done. Issue size for the 20y MGS 5/35 re-tap was announced slightly larger than expected at MYR2.5b. The WI was last seen quoted at 4.25/15% but nothing traded.

§  IRS and basis were active. IRS rates lowered slightly spurred by the positive sentiment in local bonds, with the 5y IRS trading at 3.70%. 3M KLIBOR remained at 3.70%.

§  PDS spreads grinded tighter. Short dated AAA papers tightened 1-4bps, while the belly traded range bound. It was the same for the belly of the GG curve, while the long end traded unchanged. 14y Prasarana and Danainfra traded at 4.52% (G+48bps/ Z+27bps). The AA space was a tad weaker at the long end as JEP 31s and 32s traded 1bp wider. Imtiaz 19s, however, tightened 6bps to 4.32% (G+83bpd/Z+65bpd) which looks fair.

Singapore

§  Lackluster SGS market with bearish undertone. Yields higher by about 1bp as UST Futures traded lower. SGD IRS levels also up by 1bp as soft forwards capped any rise. We reckon market is adopting a wait-and-see approach.

§  In Asian credit market, Evergrande dropped further by ~75cts as RM continued selling and previous PB buyers turned sellers. China TMT outperformed with Huawei tightening 8bps after comforting investors at a conference and indicating intentions to seek an official rating. Elsewhere China AMC, Finance and O&G in the 10y sector tightened. Slight compression seen in INDOI/INDON spreads as the former was up 20cts while the latter was flat. PHILIP 42 was down 25cts.

 Indonesia

§  Indonesia bond market closed positive supported by impressive incoming bids during auction. We believe that bidders which received partially of their bids may have immediately bought it from the secondary market which has resulted in IGS prices to move slightly higher. Aside from the good result from the auction, the statement gave by central bank officials that they would adopt reverse repo as benchmark rate soon would result in IGS prices to rally ahead from now. BI rate currently is at 6.75% while a 1 week Rev Repo rate is approx. 5.5% currently. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 7.304%, 7.449%, 7.728% and 7.754% while 2y yield shifts down to 7.218%. Trading volume at secondary market was seen heavy at government segments amounting Rp16,065 bn with SR008 as the most tradable bond. SR008 total trading volume amounting Rp3,378 bn with 2,202x transaction frequency and closed at 101.763 yielding 7.623%.

§  Indonesian government conducted their conventional auctions yesterday and received incoming bids of Rp32.03 tn bids versus its target issuance of Rp12.00 tn or oversubscribed by 2.67x. Incoming bids during the auction was noted doubled and higher by approx. 28% compared to the last conventional auction last two weeks and YTD average incoming bids during conventional auction amounting Rp25.03 tn respectively. However, DMO only awarded Rp18.00 tn bids for its 3mo, 1y, 5y, 10y and 15y bonds. Incoming bids were mostly clustered on the belly to long end tenors which are the FR0056 and FR0073 series. 3mo SPN was sold at a weighted average yield (WAY) of 5.47600%, 1y SPN was sold at 6.35500%, 5y FR0053 was sold at 7.32987%, 10y FR0056 was sold at 7.52318% while 15y FR0073 was sold at 7.9986%. No series were rejected during the auction. Bid-to-cover ratio during the auction came in at 1.52X – 2.38X. Foreign incoming bids during the auction were noted Rp11.46 tn or 35.8% of total incoming bids. However, only Rp6.67 tn bid (37.1% of total awarded bids) were awarded to foreign investors. Till the date of this report, Indonesian government has raised approx. Rp23.78 tn worth of debt through bond auction which represents 22.4% of the 2Q 16 target of Rp106.00 tn.

§  Corporate bond trading traded moderate amounting Rp615 bn. ISAT01DCN1 (Shelf registration I Indosat Phase I Year 2014; D serial; Rating: _idAAA) was the top actively traded corporate bond with total trading volume amounted Rp100 bn yielding 8.768%.