Maybank GM Daily - 14 Apr 2016

FX

Global

      US stocks ignored lackluster retail sales which came in at -0.3%m/m, missing the consensus at 0.1%. PPI final demand also surprised to the downside with a print of -0.1%m/m vs. the average forecast of 0.2%. Perhaps the focus was more on the Beige Book which gave a rather upbeat assessment for the past two months - consumer spending increasing, buoyant tourism, strengthening labor market conditions and higher business spending across most Districts.  Elsewhere, Bank of Canada did not move, as expected.

      This morning, MAS surprised by moving to a neutral policy – effectively removing the appreciation path that the SGD was on. The width of the policy band and the level at which it is centred were unchanged. MAS says medium term, core inflation is expected to average slightly under 2%. Advanced estimate of 1Q GDP steadied at 1.8%y/y from previous quarter. USDSGD spiked past the 1.36-figure, a big-figure change from levels around 1.35. MYR, KRW and THB were dragged along but to a lesser extent. USDCNH was seen around 6.4940.

      Next up, Australia’s labour report is due. Consensus expects an addition of 17.6K. A higher print could lift AUDSGD towards the 1.05-figure. BOE meets tonight and we expect this one to be a non-event. US has Mar CPI due along with speeches from Fed Lockhart and Powell. Europe also releases its Mar inflation print today.

Currencies

G7 Currencies

      DXY – Further Upside Risk. USD extended its rebound this morning, in line with our technical call to go tactically long USD from current levels (with tight stop) since Tue – descending wedge appears to be in the making – typically could see upside risk. We do not rule out a technical rebound. Daily MACD suggests some signs of bullish divergence. Stochastics is also showing tentative signs of turning from oversold conditions. Overnight US data was slightly disappointing – retail sales and PPI. Fed’s Beige book reported growth in “modest to moderate” range. This morning, Singapore central bank surprised markets by moving to a neutral policy stance of zero appreciation (a move from modest and gradual appreciation path since Oct 2015. The policy move saw USDSGD jumping higher, and took USD/AXJs higher with it. DXY was last seen at 94.90 levels. We continue to see further upside risk towards 95.10 (21 DMA), before 96 (50 DMA). Support at 94 levels before 92.50. Week remaining brings 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 – Pullback Could Extend. EUR turned lower, in line with our caution for a risk of technical pullback. Last seen around 1.1270 levels amid USD rebound. Daily momentum has turned bearish while stochastics are falling from overbought conditions. We are still calling for a technical pullback from current levels. Support 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 remaining brings EC CPI (Mar) on Thu; EC Trade (Feb) on Fri.

       GBPUSD – BoE Today. GBP slipped amid USD rebound. Last seen at 1.4180 levels. Daily momentum and stochastics indicators not indicating a clear bias. 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. Retain our bias to sell GBP on rally ahead of Referendum (23 Jun). Week remaining brings BoE Meeting (expect status quo on monetary policy) on Thu; Construction Output (Feb) on Fri.

       USDJPY – Capped. USDJPY bounced back above the 109-levels overnight and remains biddish following BOJ governor Kuroda reiteration that QQE with negative interest rate will continue for as long as required to achieve the 2% inflation target. The firmer dollar overnight also helped. The JPY was sold off against most of the majors this morning. The uptick in the Nikkei morning should also provide further support for the pair intraday. Still, this rally could be short-lived as 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 for now. 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 are all still bearish bias. With risks still to the downside, further upside could be capped. Resistance is around 109.90 (8 Apr high); 110.40 (61.8% Fibo retracement of 2014-low to 2015-high). New support is now around the 109-levels; 107.63 (2016 low). Remaining week has Feb IP, Feb Capacity Utilisation on Fri.

       NZDUSD – Still Confined within the Trend Channel. NZD slipped amid USD strength. Mar BusinessNZ Mfg PMI came in weaker than expected. Pair was last at 0.6890 levels and remains confined to the upward sloping trend channel of 0.6680 (lower bound) – 0.7030 (upper bound). 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). Level to watch on the downside at 0.6750 (50 DMA, 38.2% fibo) before 0.6680 (100 DMA, lower bound of the trend channel). Week remaining brings Non-resident bond holdings (Mar) on Fri.

       AUDUSD – Retracement. AUD slumped towards the 0.7630-level by this morning as dollar makes a broad technical rebound yesterday. China’s imports fell less than expected and that provided only tentative support for the pair. The 21-DMA is in the way of the bears now. 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. Consumer inflation expectation was raised to 3.6% from previous 3.4%. Australia added 26.1K of jobs in Mar. However, full time employment fell 8.8K while part-time employment rose 34.9K. Participation rate steadied at 64.9%. Jobless rate slipped to 5.7%. Week ahead brings RBA Financial Stability Review on Fri.

       USDCAD – Downtrend. The pair was last seen around the 1.2840-level, retracing from lows along with the dollar. 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 did not move, as expected. Governor Poloz cited positive impact expected from the fiscal measures from Prime Minister Justin Trudeau’s government. 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 0.59% below the implied mid-point of 1.3542. The top end is estimated at 1.3270 and the floor at 1.3815.

       USDSGD – Neutral Policy; 1.3650 First Objective.  USDSGD spiked back above the 1.36-handle following the MAS surprised decision to move to a neutral policy stance today. There was no change in the width of the policy band or the level at which it was centred. The MAS statement reiterated that this was not a policy to depreciate the SGD but to only remove the modest and gradual appreciation stance that has been in place. Possible reasons for this move by the MAS include the dimming global outlook since Oct and that core inflation could come in at the lower half of the forecast range. So far, the SGD has moved lower by about 1.0% against the USD. Not surprisingly, the SGD NEER has slipped below the mid-point, where it had been hovering prior to the MAS announcement, to around -0.6% at the point of writing. Following the MAS move, we expect domestic interest rates to rise. However, the impact of the move could be limited as the shift is from a 0.5% appreciation path to 0% and the current SGD weakness could be somewhat temporary.  Pair was last seen at 1.3630 levels. Daily chart is now showing bullish momentum and stochastics is climbing higher. With the removal of the modest and gradual appreciation stance, we could see the pair re-visit 1.3650 (38.2% Fibo retracement of 2014 low to 2015 high); 1.3780 (50DMA). Support is at 1.3415 (2016 low). Also released at the same time was the advanced estimates of 1Q16 GDP, which showed the economy rising by 1.8% y/y (0% q/q saar) on the back of a broad slowdown in the services sector (1Q16: 3.4% vs. 4Q15: 7.7%) and construction (1Q16: 2.5% vs. 4Q15: 6.0%) and larger contraction in manufacturing (1Q16: -5.2% vs. 4Q15: -4.9%). The government expects growth to be modest on the back of external headwinds but still within its 1-3% forecasts range. Forecast for core inflation remains unchanged at 0.5-1.5% for 2016 but is expected to come in within the lower half of the range.

       AUDSGD – Rebound today. AUDSGD rebounded towards 1.0400 as we write this Asia morning, backed by SGD bears after the surprise move by MAS. Daily momentum and stochastics indicate that bears have run out of steam. Next resistance at 1.04 (2016 high) before our ultimate goal of 1.0540. Support at 1.0130 (61.8% Fibo of Aug high to Sep low).

       SGDMYR – Stay Short. SGDMYR remained heavy amid SGD weakness off the back of MAS policy move.  Last seen at 2.86 levels. Bearish pressures are re-emerging with momentum and oscillators indicators turning bearish again. Next support at 2.8620 (Apr low). A break on daily close basis below could see the cross extending its decline towards our 2.82 – 2.84 objective. Resistance at 2.9140 (23.6% fibo retracement of 2016 high to low).

       USDMYR – Tentative Signals for Rebound. USDMYR rebounded amid MAS surprise move this morning (which saw USDSGD and other USDAXJs higher), broad USD strength and oil price weakness (on EIA stockpiles higher than expected and talks of Iran Oil Minister not attending Doha talks this Sunday). Pair was last seen at 3.90 levels. Daily momentum is showing tentative signs of bullish bias while stochastics is also showing signs of rising from oversold levels. Resistance at 3.90 (61.8% fibo), 3.96 levels (21 DMA). Next support at 3.80-figure, before 3.7670 (76.4% fibo of 2015 low to high) and 3.54 (May 2015 lows). We reiterate the USDMYR downtrend is far from over.

       1m USDKRW NDF – Rebound Underway. 1s USDKRW NDF extended its rebound amid broad USD strength. MAS surprise move this morning, saw USDSGD and other USDAXJs higher. PBoC much higher than yesterday fix also added to the bid tone. 1s KRW was last seen at 1156 levels. Daily momentum and stochastics are mild bullish bias. Resistance at 1156 (21 DMA), 1162 (23.6% fibo retracement of Mar high to low), 1177 (200 DMA and 38.2% fibo).

      USDCNH – Upside Bias within 6.45-6.54. Pair shot up on the back of dollar upmove as well as the surprise move by MAS and prices were last seen around 6.4990. We continue to observe that PBOC uses the DXY index and the RMB index to guide the USDCNY. The RMB index strengthened from our estimate of 97.56 to 97.63, in tandem with the dollar upmove. 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. USDCNY was fixed 300 pips higher at 6.4891 (vs. previous 6.4591). CNYMYR was fixed 5 pips lower at 0.5961 (vs. previous 0.5966). Mar trade numbers were stronger than expected. Exports rebounded 18.7%y/y in yuan terms while imports declined by -1.7%y/y vs, expected -4.8%. This week has Mar monetary data due anytime, activity data on Fri along with 1Q GDP. In news, Tianjin may expand Free Trade Zone to CaoFeiDian while Premier Li said at a State Council Meeting that social security fund and housing provident fund contribution rates for company could be lowered to reduce company’s spending. Meanwhile, PBOC conducted CNY285.5bn of MLF yesterday.

       SGDCNY – Rangy. This cross inched lower and closed at 4.7929 yesterday, still within the 4.7500-4.8200 range. 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 – 200-DMA. 1M NDF inched higher on the back of dollar gains and was last seen around the 67-figure, having bounced off the 200-DMA at 66.53, the viable support that has been intact for the past couple of weeks.  Immediate barrier at 67.175 nefore 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 12^th.

       USDIDR – Gapped Higher. USDIDR gapped higher at the opening to 13233 this morning from yesterday’s high of 13165 on the back of a firmer USD and possible from the weaker SGD following the MAS policy decision. Pair was last seen around 13251. Daily momentum is now bullish bias and stochastics has turned higher from oversold levels. Immediate barrier is around 13285 (50DMA) before 13375 (38.2% Fibo retracement of the Jan-Mar downswing). Support nearby is around 13200 before 1300-handle. The JISDOR was fixed for the fourth consecutive session at 13096 yesterday from Tue’s 13123. Risks sentiments deteriorated yesterday with foreign funds selling a net USD7.53mn in equities. They had also removed a net USD0.50mn from their outstanding holding of debt on 11 Apr (latest data available).

      USDPHP – Gapping Higher.  USDPHP gapped higher at the opening to 46.200 this morning from yesterday’s high of 46.116, tracking the USDAsians broadly higher. Daily charts are showing bullish momentum and stochastics bullish bias. With risks now tilted to the upside, further upmoves should meet resistance around 36.410 (23.6% Fibo retracement of the Jan-Mar downswing). Support remains around the year’s low of 45.900. Support remains around this year’s low of 45.900. Risk appetite remained weak yesterday with foreign investors selling a net USD14.34mn of equities.

       USDTHB – Rangy. Onshore markets are closed for the Thai New Year celebrations and re-opens on Mon. Trades are likely to be quiet ahead as a result. USDTHB is inching higher to around the 35.200-levels this morning amid a firmer dollar overnight. Daily chart is exhibiting mild bullish momentum and stochastics is showing no strong bias. A death cross (where the 50DMA cuts the 200 DMA on the downside and which typically signals bearishness) could still be playing out. This could cap further upside ahead. Still, with onshore markets away, rangy trades within 34.900-35.35.330 to hold intraday.

Rates

Malaysia

      MYR bonds opened on the front foot as oil prices rallied overnight, but gave up some gains after Saudi’s oil minister dismissed the possibility of output cut when leading oil producers meet on Sunday. MGS yields closed mixed, +1bp to -2bps. For 20y MGS 5/35, nothing traded in WI, but a small amount of existing issues traded at 4.17%, within the quoted WI of 4.20/10%.

       IRS levels were up by 1-2bps because of foreign paying flows, which may be one-off. 5y IRS was dealt at 3.72%. The market has been passive of late and 3M KLIBOR still unchanged at 3.70%.

       The early rally in MGS led to better buying in PDS market. The front end of the AAA curve generally traded range bound and mostly saw Cagamas papers being dealt. At the belly, Manjung, Telekom and Plus traded unchanged in yields, while Danga 26 tightened 3bps to 4.42% (G+50bps/Z+36bps). The GG curve tightened 1bp at the belly and 2bps at the long end, with Dana 35 closing at 4.70% (G+37bps/Z+25bps). We think the long end of credit curves could tighten should long end MGS follow the rally at the belly of the curve.

Singapore

      SGS weakened tracking the UST and underperformed SGD IRS again as SGD forwards continued to trade heavy. The SGS yield curve was higher by 2-5bps with the front end worst-off. IRS remained capped with SOR set to ease lower.

       Asian credits still firm on better crude oil prices and sustained risk-on sentiment. O&G and financial names 3-5bps better, and China Travel (CHITRA) tightened 10bps. Korean and SEA IG papers also better by 2-3bps. In EM sovereign cash space, INDON still the preferred over PHILIP with the former adding 30-50cts vs -25cts for the latter. CDS spreads tightened across the board, with INDON trying to dip below 200.

 Indonesia

      Indonesia bond prices rallied yesterday supported by an impressive buying appetite during the day. Huge incoming bids during previous day auction along with the central bank plan to adopt reverse repo rate as benchmark may have fuelled such rally. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 7.225%, 7.332%, 7.560% and 7.615% while 2y yield shifts down to 7.229%. Trading volume at secondary market was seen heavy at government segments amounting Rp26,383 bn with FR0056 as the most tradable bond. Fr0056 total trading volume amounting Rp8,195 bn with 197x transaction frequency and closed at 107.500 yielding 7.332%.

       Corporate bond trading traded moderate amounting Rp620 bn. BTPN02ACN1 (Shelf registration II Bank BTPN Phase I Year 2013; A serial; Rating: AAA(idn)) was the top actively traded corporate bond with total trading volume amounted Rp100 bn yielding 7.732%.