Maybank GM Daily - 15 Apr 2016

FX

Global

      Overnight sentiment was cautious. Data hardly helped with CPI missing forecast with a print of 0.1%m/m for Mar. Core inflation is subdued as well, at 0.1%m/m. Earnings reports from major banks were lackluster. Benchmark indices flat-lined for much of the session as investors kept to the sidelines ahead of the Doha meeting this weekend. Oil prices came within recent highs before reversing lower again. WTI and Brent were last seen at the respective U$41 and U$43 handle.

      The dollar index rose yesterday before closing just under the 21-DMA, last seen at 94.90. Asian currencies were weighed by the MAS surprise move to neutral which weakened the SGD by 0.9% within the session. The magnitude of depreciation was matched by KRW, followed by the MYR, down -0.5%. G10 was a mixed basket with AUD, the outperformer, boosted by the rebound in copper prices rather than its Mar labour report. NZD on the other hand, weakened 1% against the USD. GBP also traded on the backfoot, uninspired by the BOE decision to stand pat, citing Brexit and growth concerns.

      Next up, China’s GDP and consensus expects a slight deceleration from the previous 6.8% to 6.7%. An upside surprise to the GDP print as well as other activity data could benefit SGD, KRW, TWD which have strong trade relations with China and seen as a semi-proxy to the yuan. KRW and TWD in particular took the brunt when depreciation expectations of the yuan was at its highest so these regional currencies could stand to benefit the most from signs of stabilization in the Chinese economy. We look for AUD to get a boost as well, given its strong correlation to Asian equity markets. AUDSGD has crossed the 1.05-figure as we had forewarned yesterday and we see momentum for further upsides to come. today.

Currencies

G7 Currencies

      DXY – Upside Risk. DXY index was a touch firmer overnight. Mar CPI came in slightly softer than expected. Fed’s Lockhart said he is less likely to be strongly in favour of a rate move in Apr but Jun remains an option. DXY was last seen at 95 levels. Daily momentum and stochastics indicators are indicating a mild bullish bias. We reiterate 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. We continue to see some upside risk towards 95.10 (21 DMA), before 96 (50 DMA). Support at 94 levels before 92.50. Day ahead brings Fed’s Evans speaks; Capacity Utilisation (Mar); IP (Mar); Empire Mfg (Apr); Univ. of Michigan (Apr) on Fri.

       EURUSD – Buy on Dips. EUR remained soft amid mild USD strength overnight. Euro-area Mar CPI was up 1.2% m/m, in line with expectation. EUR was last seen around 1.1255 levels. Daily momentum and stochastics are mild bearish bias. 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. Day ahead brings EC Trade (Feb) on Fri.

       GBPUSD – Sell on Rally. GBP fell amid mild USD strength and BoE’s warning on Brexit. BoE kept monetary policy status quo – MPC voted 9 – 0 to keep rate unchanged at 0.5%, holds APP at GBP375bn, as expected. BoE sounded the warning alarm on Brexit – the biggest risk to domestic financial stability; cited Deloitte’s survey of CFOs as a sign that referendum is weighing on demand; hiring and investment intentions may already be dipping. GBP was last seen at 1.4140 levels. Daily momentum and stochastics indicators are 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). Day ahead brings Construction Output (Feb).

       USDJPY – Near-Term Upside. USDJPY crawled back up from its new 2016 low at 107.63 (11 Apr) to above the 109-handle amid a rebound in the dollar and reversal of safe-haven plays. BOJ governor commented that this was a correction in excessive JPY gains of the past few days. This morning though the Nikkei futures are down, signalling some downside pressure on the pair, while the sell-off in the majors against the JPY was mixed. Still, the move higher could be short-lived as there appears to be little that the BOJ can do to support the pair for now 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. Last seen at 109.50-levels, pair has lost most of its bearish momentum and stochastics is showing tentative signs of turning higher from oversold levels. Monthly and weekly momentum indicators are all still bearish bias. Amid dollar strength this morning, we could see some further upticks intraday. Immediate resistance is around 109.90 (8 Apr high); 110.40 (61.8% Fibo retracement of 2014-low to 2015-high). Support remains around the 109-levels; 107.63 (2016 low).

       NZDUSD – Watch China Data Today and NZ CPI Mon. NZD fell amid renewed market talks of RBNZ cutting rates and mild USD strength. Pair was last at 0.6850 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). One way to express NZD downside would be to cross it with long AUD trade but this is conditional on China data later this morning – and data needs to be firm or at least meet expectation. Next Mon also brings NZ 1Q CPI data – a soft number will add to further NZD downside. On the AUDNZD cross, daily momentum and stochastics are indicating a bullish bias. Strong resistance around 1.1250 – 1.13 levels. Break that on weekly/daily close basis should see the cross inching towards 1.1470 (38.2% fibo retracement of 2011 high to 2015 low).

       AUDUSD – China GDP. AUD retraced from its overnight highs to sub-0.77-levels, wary of China’s GDP release later. Barrier at 0.7720 is still quite strong and a break there opens the way towards the next at 0.7850 (76.4% Fibonacci retracement of the May-Sep descent).  The 21-DMA is still a support at the 0.76-figure before the next at 0.7417. Bias to buy on dips.  RBA releases its Financial Stability Review today.

       USDCAD – Downtrend. The pair was last seen around the 1.2830-level, retracing from lows along with the dollar. Support at 1.2830 is still being tested (again) and the next is seen at 1.2660. Feb new housing price index surprised to the upside at 0.2%m/m, picking pace from the previous at 0.1%. Eyes are on the Doha talk this weekend.  The other data release is manufacturing sales for Feb, due tonight.

     Asia ex Japan Currencies

      The SGD NEER trades 0.83% below the implied mid-point of 1.3531 with the top end estimated at 1.3258 and the floor at 1.3804.

       USDSGD – Still Capped By 1.3650 Levels.  USDSGD continued its climb higher this morning on the lingering impact of yesterday’s surprise MAS move to a neutral stance and amid broad Dollar Asian strength. 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. We believe that 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 1.3645 levels. Daily momentum and stochastics are bullish bias. Resistance remains at the 1.3650 levels (38.2% Fibo retracement of 2014 low to 2015 high). This level is key as it is not only a key Fibo retracement level but also around the 1% level (midpoint) of the lower half of the policy band (estimated at 2%). A daily close above that level could see the pair visit the next barrier at 1.3770 (50DMA). Market whispers of a test of the 1.3650-1.3670 levels (. Support is seen around 1.3560 (21DMA).

       AUDSGD – Upside Momentum. AUDSGD crossed our target of 1.05 and hovered around 1.0490.  This cross was backed by SGD bears after the surprise move by MAS though the move towards the key-1.05-figure was completed by AUD bulls. Upside momentum is strong though we would not rule out retracements on profit-taking, especially ahead of the weekend. Support at 1.0130 (61.8% Fibo of Aug high to Sep low).

       SGDMYR – Stay Short. SGDMYR continued to trade with a heavy bias amid SGD weakness off the back of MAS policy move yesterday.  Last seen at 2.8560 levels. Bearish pressures are re-emerging as indicated by daily momentum and oscillators. We still see further downside towards our short SGDMYR objective at 2.8250 (50% fibo retracement of 2014 low to 2015 high). Resistance at 2.8970 (38.2% fibo).

       USDMYR – Upside Risk in the Short Term. USDMYR inched higher amid a combination of factors including firmer USD, softer oil prices and the MAS surprise move yesterday morning (which saw USDSGD caught on a bid tone). Pair was last seen at 3.89500 levels. Daily momentum is showing tentative signs of mild bullish bias while stochastics is also showing signs of rising from oversold levels. Resistance at 3.90 (61.8% fibo), 3.9470 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 – Upside Risks. Rebound yesterday was capped at 21DMA (1156 levels). Ruling party’s (Saenuri party) defeat in the National Assembly Elections on 13 Apr is a setback to President Park but less likely to affect the currency. Earlier talks of Korean-style QE (if Saenuri party secures a win) should now be fading. 1s USDKRW NDF was a touch softer this morning ahead of China 1Q GDP release (10am). Pair was last seen at 1153 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 inched higher at 6.4960, lifted by the USDSGD move yesterday. We see upward momentum gaining for this pair. Barrier at 6.5080 (50-DMA) ahead of the next at 6.5370 (50-DMA). 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 97.63 to 97.60, 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 17 pips higher at 6.4908 (vs. previous 6.4891). CNYMYR was fixed 21 pips higher at 0.5982 (vs. previous 0.5961). China’s GDP and consensus expects a slight deceleration from the previous 6.8% to 6.7%. Industrial production, retail sales and urban FAI are also due. Monetary data should be released today.

       SGDCNY – Pullback. This cross pulled back below the 21-DMA and closed at 4.7513. We see a risk for this cross to break the 4.7500-4.8200 range to the downside. Bearish momentum is gaining for this cross. A break of the 4.7500-support opens the way towards 4.6550, the 50-DMA.

       1s USDINR NDF – Bullish Divergence. 1M NDF inched higher on the back of dollar gains and was last seen around the 67-figure. Thee 200-DMA at 66.53 is still the viable support that has been intact for the past couple of weeks.  Immediate barrier at 67.175 before 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 – Mild Bullish Bias. USDIDR was little changed this morning following yesterday’s gap higher. But risks are to the upside given the broad DollarAsians move higher. Pair was last seen around 13180 levels. Daily momentum is mildly bullish bias and stochastics has turned higher from oversold levels. Resistance is around 13225 (23.6% Fibo retracement of the Jan-Mar downswing) before 13275 (50DMA). Support is seen around the 1300-handle. The JISDOR was fixed higher for the first time this week at 13238 yesterday from Wed’s 13096. Risks sentiments remained weak with foreign funds selling a net USD15.12mn in equities yesterday. They had however added a net USD2.65mn to their outstanding holding of debt on 12 Apr (latest data available). In the news, the Coordinating Minister for the Economy Darmin Nasution does not expect growth to exceed 5.2% in 1Q given that the harvest season has been postponed to Apr from its usual Mar period. He expects growth to range within 5.1-5.2% in 1Q16.

      USDPHP – Tilted Higher.  USDPHP is little changed this morning following its move up higher yesterday. Pair was last seen around 46.180 levels.  Daily charts are still showing bullish momentum and stochastics bullish bias. With risks still tilted to the upside, we could see further upmoves today. Resistance is around 36.410 (23.6% Fibo retracement of the Jan-Mar downswing) still. Support remains around the year’s low of 45.900. Weak risk appetite continued with foreign investors selling a net USD10.64mn of equities yesterday.

       USDTHB – Rangy. Onshore markets remains closed for the Thai New Year celebrations and re-opens on Mon. Trades are likely to be quiet ahead as a result. USDTHB is hovering around the 35.100-levels this morning amid a mildly firmer dollar. Daily chart is showing no strong bias in either direction. 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. Rangy trades within 34.950-35.35.300 should hold intraday.

Rates

Malaysia

      MYR government bonds softened on the back of stronger USD overnight. The 20y MGS 5/35 re-opening auction posted a high of 4.258%, low of 4.197% and an average of 4.242%. Bid/cover was decent at 1.986x. More than MYR1.2b were allotted to end investors.

       Foreigners pushed up the IRS curve further by 1-2bps, with the 5y IRS trading at 3.73%. This is in line with regional rates which were generally higher on weaker emerging market currencies. 3M KLIBOR remained at 3.70%.

       Quiet day in the PDS market as offers remained firm at 2-3bps below MTM levels. Better buying seen at the long end of the AAA curve as Plus 33s tightened 2bps to 4.78% (G+60bps/Z+39bps). At the belly, Telekom 22s and 24s widened 1bp, while others traded unchanged. In the GG curve, JCorp and Prasa belly papers traded flat, while Prasa 29 tightened 1bp to 4.52% (G+49bps/ Z+27bps). The AA space mostly saw crosses, and UEM 18s were taken 2bps wider from MTM at 4.57% (G+107bps/Z+92bps) which seems fair. Danainfra is looking to raise at least MYR1.8b from GG issuances, possibly in May.

Singapore

      The surprise move by MAS to adopt a neutral policy from gradual appreciation spiked up SGD IRS rates and SGS yields. IRS curve bear flattened with the front end 12-13bps higher and the rest of the curve 7-9bps higher. The SGS yield curve also bear flattened, higher 6-11bps. Bond swap spreads widened by 1bp, especially at the long end. While we believe market will not be overly bearish as funding rates remain low, market will likely adjust to a weaker SGD in the next few days.

       In Asian credit, INDON cash bonds saw strong buying in the 26 and 46 benchmarks with prices up by 35cts and 50cts respectively. PHILIP 41 was also up by 75cts thanks to onshore buyers. On Sunshine Life’s new papers, the 10y was better by 10bps, while the 3y and 5y traded around re-offer. Stats ChipPac 20 was up 2pts on news it secured a new loan, but later encountered selling from leverage PB accounts. Hungary is foraying into the dim sum bond market with a 3y issuance, likely rated BB+, which may do well in secondary market away from the usual Chinese names.

 Indonesia

      Indonesia bond market closed slightly lower during the day. We see this as healthy correction following an incline in IGS prices for 3days in a row. Our economist sees that March trade balance would come in narrower compared to Feb trade balance number yet would remain surplus of $0.43 bn. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 7.247%, 7.398%, 7.646% and 7.694% while 2y yield shifts up to 7.232%. Trading volume at secondary market was seen moderate at government segments amounting Rp12,628 bn with FR0073 as the most tradable bond. FR0073 total trading volume amounting Rp2,335 bn with 147x transaction frequency and closed at 109.768 yielding 7.646%.

       Corporate bond trading traded moderate amounting Rp390 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 Rp136 bn yielding 9.193%.