Maybank GM Daily - 4 Apr 2016

FX

Global

      US NFP beat the consensus of 205K at 215K for Mar and the previous print was also revised higher. However, unemployment rate inched higher to 5.0% while average hourly earnings also picked up pace to 0.3%m/m from previous -0.1% (above the already optimistic consensus of 0.2%). With Fed Chair Yellen’s words still fresh in the minds, bounces in the USD were seen as opportunities to short and the DXY index was back to where it was at the start of the Friday session.

       The NFP was another ingredient for the exuberance brew. The print was perfect, smack on the average since 2012. US stocks ended the first session for the quarter with modest gains, shrugging off the decline in oil prices after Saudi Arabia said its output freeze is condition on other players in the market also doing the same.

       Onshore markets in Hong Kong, Taiwan and China are close today. The data docket for region is lighter. Only two central banks have their meetings – RBA and RBI. RBA is not expected to act. The statement from the last meeting and rhetoric from the central bank Governor recent has suggested that the central bank is comfortable with the cash target rate at the current levels but we think less so with the current AUD level. The latter could be seen as a hindrance for Australia’s economic rebalancing. Any dips in the AUD could be shallow and could be an opportunity to re-accumulate longs towards our goal of 0.80. RBI is expected to lower reverse repo rate by 25bps after the government chose to stick to fiscal discipline. We think RBI would choose to do more, 50bps. USDAXJs are likely to consolidate in the absence of strong market cues this week.

      The other event of the week is the Minutes released by FOMC for the Mar meeting. However, Yellen had already spoken her mind last week and we doubt the Minutes can give fresh cues. That said, she is due to be on the panel with Greenspan, Bernanke and Volker this Fri and that should be closely watched to see if she wants to change her mind after the Mar NFP print as well as the durable goods order due today

Currencies

G7 Currencies

      DXY – Bullish Divergence.  NFP came in at 215K, just above the 205K consensus with the previous print revised higher. While jobless rate ticked higher to 5.0%. The average hourly earnings also picked up pace to 0.3%m/m from previous -0.1%. The upside surprise lifted the DXY index to a high 95.10 before the eager sellers reversed out all gains for the greenback. Noteworthy was the fact that DXY index tested the 94.30-support again in the session before retracements to elves around 94.60 as we write this morning. The recent low of 94.30 (which marks the lower bound of the descending wedge) is the third trough for the DXY index since Feb which has a corresponding higher low on the daily MACD chart, a strong bullish divergence signal. We do not rule out a retracement towards the 96-figure. Interim barriers are seen at 95.42, 96.40. Supports are seen at 94.30, 93.85(Oct low) before 92.63. Monthly and weekly momentum indicators remain bearish bias. Also released last Fri, PMI-mfg improved to 51.5 from pervious 51.4. US manufacturing rise to 51.8 from previous 49.5. Univ. of Mich. Sentiment also beat expectations at 91.0. Week ahead brings Feb factory orders, Feb durable goods orders today; trade balance for Feb, Mar MBA mortgage applications and US FOMC Minutes for Mar on Wed; initial jobless claims on Thu before wholesale inventories for Feb are out on Fri. With Fed Yellen’s words of caution still fresh in our minds, the Minutes scheduled for release on Wed Asia night is unlikely to provide new leads. However, Yellen is due to speak again on Fri, with Greenspan, Bernanke and Volker. That is likely to be closely watched to see if there is any revision to her views after the decent jobs report.

       EURUSD – Upside Bias. EUR touched fresh highs of 1.1438 last Fri and was last seen around the 1.14-figure as we write in Asia morning. Daily chart indicates persistent bullish momentum and upticks towards next barrier at 1.1495 (Oct high) are quite likely. Support at 1.1266 (76.4% fibo retracement of Oct-high to Dec-low) before 1.1124 (61.8% fibo). Weekly and monthly momentum indicators bullish bias as well but given the bullish divergence on the greenback, upmove might be a grind.  Week ahead brings ECB’s Praet’s speech today;  Germany’s factory orders for Feb, Feb retail sales on Tue; Germany industrial production for Feb on Tue; Germany’s industrial production on Wed; France industrial production for Feb on Fri.

       GBPUSD – No Bias. GBP retained heavy tone at levels around 1.4230. We still keep the view that Brexit concerns should cap any excessive rise. The weekly and daily charts indicate little momentum on either side and we envisage two-way trades within the 1.39-1.43 range. Topsides are capped at 1.45-figure. Week ahead brings Halifax house price for Mar on Thu before Feb industrial production, manufacturing production and trade balance on Fri.

       USDJPY – Bearish Tilt. USDJPY traded lower for most of last week after touching a high of 113.80 on the back of dollar weakness following the Fed Chair Yellen’s dovish comments. The JPY continued to be sold-off against most of the majors this morning. News on Sat saw PM Abe soften his stance against delaying the planned sales tax hike, saying he will make a timely and proper decision. The failure to reflate the economy poses increasing risk about the future of Abenomics, which, if it happens, could lead to a collapse in confidence and trigger a sell-off in the Nikkei and force large unwinds of JPY-hedges and risk USDJPY falling further. USDJPY was last seen  around 112.60 levels with the pair losing most of its bullish momentum on the daily chart and stochastics bearish bias. Support remains around the 111-levels (triple bottom formed in 2016). Resistance is around 113.30 (23.6% Fibo retracement of Jan high to Mar low) still. Week ahead has Feb Labor Cash Earnings; Mar PMI Services, Composites (Tue); Feb current account (Fri).

       NZDUSD – Retracements Needed. NZDUSD touched ten-month high of 0.6965 before easing off to levels around the 0.69-figure. This recent retracements coincide at a point where the pair has touched the upper bound of the upward sloping trend channel. Last printed 0.6896, some retracements might be needed for further upside extensions within the upward sloping trend channel. Retracements towards support at 0.6819(23.6% Fibonacci retracement of the 1Q rally) cannot be ruled out, before next support at 0.6729(38.2%). Week ahead brings global dairy trade auction event tomorrow (5 Apr); REINZ house sales for Mar could be released anytime from Fri onwards.

       AUDUSD – Is 77 cents unbearable for RBA? The pair hovered around at 0.7660, little changed since last Wed. Recent price moves indicate unwillingness for bulls to take the pair higher ahead of RBA meeting tomorrow. Retracements cannot be ruled out and we see support at 0.7496 (61.8% fibonaccci retracement of the May-Jan sell-off). Now with the economy picture largely unchanged, the question now is whether AUD at 0.80 would be a hindrance to the economy, or at least to RBA? We think that RBA might not be able to afford to sound too dovish for this meeting. Any expectations for a rate cut could boost the AUD bonds even more for yield-hungry investors. With major banks willing to raise mortgage rates, we see a risk of either a surprise rate cut tomorrow whilst giving a firm signal of a bottom for rate cycle OR acknowledge that AUD has been strong and stick to what has been said in the previous meeting which has been a mildly positive assessment of the economy. We do not suppose that RBA would want to react to FX with monetary policy. Support is seen at 0.75-figure before the next at 0.7340. Interim resistance at 0.7723 (recent high) before the next at 0.7850 (76.4% fibonaci retracement of the May-Jan sell off). We still think it is a matter of time before 0.80 is reached. Week ahead brings retail sales due later for Feb along with building approvals; trade balance and RBA meeting on Tue.

       USDCAD – Bullish divergences. USDCAD touched a new low of 1.2858 before retracing to levels around 1.3030 at last sight. Bullish momentum is waning though stochastics is rising from oversold conditions. Bias is still weak at this point. Momentum indicators suggest a rebound ahead towards the 1.33-figure (near 200-DMA) before the 1.3460 (last Oct high) which could potentially form a head and shoulders formation. Housing starts for Mar and labour report for Mar are due on Fri.

     Asia ex Japan Currencies

      The SGD NEER trades 0.19% above the implied mid-point of 1.3510. The top end is estimated at 1.3240 and the floor at 1.3780.

       USDSGD – Consolidation.  USDSGD traded lower to touch a new a new low for 2016 of 1.3415 (31 Mar), weighed by the dovish comments of Fed Chair Yellen, before consolidating around the 1.35-region. Pair remains in consolidation and was last seen around 1.3485. Daily momentum indicators are showing no directional clarity, though stochastics is bearish bias. The death cross where 50DMA cuts 200 DMA on the downside, typically signalling bearishness, appears to be playing out. We need to see a clean break of the 1.34-handle for a move towards the 1.31-handle. Until then, we could continue to see the pair consolidate and bounce within the 1.3415 (year’s low)-1.3660 (23.6% Fibo retracement of the Jan-Mar downswing) range. Week ahead has Mar PMI, electronic sector index (Mon); Mar foreign reserves (Thu) and advanced estimates for 1Q GDP due sometime 7-14 Apr.

       AUDSGD – Not Moving. AUDSGD was stuck around the 1.03-figure, last printed 1.0340 as we write. We still see two-way trades within 1.0250-1.0400 for the rest of the week. Beyond the 1.03-figure, lies the 1.0250-support (23.6% fibo retracement of Feb low to Mar high). We do not rule out deeper retracements towards next support at 1.0170 (38.2% fibo).  These are taken as shallow retracements before our ultimate target at 1.0540 to be reached.

       SGDMYR – Making New Lows. SGDMYR continued its fall last week amid continuing MYR strength. Cross remains heavy and is making new lows. Last seen around 2.8670 levels, daily momentum remains bearish bias and stochastics now in oversold territory. 21 and 50 DMAs have cut 200 DMA to the downside – a death cross formation typically associated with bearish bias. Further downside remains likely. Support remains around 2.82-2.84 levels. Resistance at 2.9170 (23.6% Fibo of Jan high to Apr low).

       USDMYR – Bearish. USDMYR continues to trade lower with a new low seen at 3.8623. Pair continues to be driven by softer USD (due to dovish Yellen and other Fed speakers) as well as relatively lower oil price volatility. Pair was last at 3.8640-levels. With sustained price action below the 4-figure suggests further MYR gains ahead. Support remains at 3.80 levels. Resistance at 3.9760 (30 Mar high), 4.00 (50% Fibo retracement of the Apr-Sep upswing). We reiterate our technical observation that a death-cross was seen in the pair, where 50 DMA cuts 200 DMA to the downside. This is typically bearish in nature. The last time when 50 DMA cuts 200 DMA was in Nov-2014 and that time 50 DMA cuts 200 DMA to the upside (golden cross – bullish), and the pair rose from 3.30 levels to above 4.40. This death cross should be respected, in our opinion. We remain bearish bias in the medium term. Week ahead has Feb trade (Wed); 31 Mar foreign reserves (Thu).

       1s USDKRW NDF – More Gradual Downsides. 1s USDKRW NDF continues its slide lower amid softer USD. Pair was last at 1147 levels. Bearish momentum on daily appears to be waning and stochastics is rising from oversold levels. This suggests that further downside moves could be more gradual. Support remains 1120 levels (Oct 2015 lows). Resistance at 1150 (76.4% Fibo retracement of Oct low to Feb high), before 1168 (61.8% Fibo).

       USDCNH – Onshore Markets Close. The pair steadied around 6.4690 at last sight. Onshore markets in Hong Kong, China and Taiwan are closed. We continue to expect USDCNH to remain within the 6.4200-6.5200 range. As of 1 Apr, USD/CNY was fixed 29 pips lower at 6.4585 (vs. previous 6.4612). CNY/MYR was fixed 75 pips lower at 0.6002 (vs. previous 0. 6077). The week ahead has Caixin services PMI for Mar.

       1s USDINR NDF – Retracements. Pair was last seen around 66.50, sticky around the 200-DMA. There is still little bias at this point on the daily chart and see some signs of bullish divergence. Retracements towards the 67-figure should not be ruled out. At this point, the 100-DMA at 67.50 seems to have deterred aggressive bulls. Weekly momentum is still bearish. The 200-DMA at 66.20 is a key support for this pair. RBI is expected lower reverse repo rate by 25bps to 5.50%. We expect a 50bps cut as RBI has shown a penchant for surprise and frontloading another 25bps makes sense in the environment of low inflation rate, at least for now. Wek ahead has trade for Mar, due anytime from Fri onwards.

       USDIDR – Bearish Bias. After climbing to a three week high of 13458 (29 Mar), the USDIDR fell amid dollar weakness following Fed Chair Yellen’s dovish comments. Pair continues to be heavy, last seen around 13140-levels. Daily momentum continues to show waning bullish bias and stochastics bearish bias. Support remains around the 13000-handle; 12984 (2016 low). Resistance is at 13225 levels (23.6% Fibo retracement of the Jan-Mar downswing); 13315 (31 Mar high). The JISDOR was fixed lower at 13200 to end the week from Thu’s 13276. Risks sentiments deteriorated last week with foreign funds selling a net USD62.33mn in equities. They had also sold off a net IDR1.55tn from their outstanding holding of government debt on 28-30 Mar (latest data available). In the news, Mar CPI remained benign, rising by 4.45% y/y vs. 4.42% in Feb with higher food prices mitigated by lower housing and transport costs. Core inflation however moderated to 3.50% y/y in Mar from 3.59% in Feb.

       USDPHP – Rangy.  USDPHP appears to be in consolidation mode after slipping lower from last week’s high of 46.535. Pair was last seen around 46.000-handle, weighed by dollar weakness. Pair has lost most of its bearish momentum and stochastics is showing tentative sign of turning higher. Resistance is around 46.262 (30 Mar high); 46.410 (23.6% Fibo retracement of the Jan-Mar downswing). Support is around this year’s low of 45.900. Rebounds should meet resistance around 46.610 (23.6% Fibo). Risk-supported sentiments saw foreign investors purchasing a net USD7.13mn of equities last week. Week ahead sees Jan budget balance (Mon); Mar CPI (Tue); Mar foreign reserves (Thu).

       USDTHB – Range-Bound. USDTHB hit a high of 35.460 (29 Mar) before slipping lower towards the end of the week, weighed by the dovish comments of the Fed Chair that sent the dollar lower. Also helping was the strong inflows last week that saw foreign funds buying a net THB15.42bn and THB41.03bn in equities and government debt that provide support for the THB. Nevertheless, further downside could be limited as rising political uncertainty in the run-up to the referendum in Aug weigh on the THB. Pair was last seen around the 35.160 levels. Daily chart and stochastics are waning bullish bias. Weekly charts remain bearish bias. A death cross (where the 50DMA cuts the 200 DMA on the downside and which typically signals bearishness) could be playing out. Resistance is around 35.370 (38.2% Fibo retracement of the Jan high to Mar low). Support is around 34.910 (23 Mar low); 34.720 (year’s low). Quiet week ahead with just 1 Apr foreign reserves on tap on Fri. Onshore markets are closed for a public holiday on Wed. In the news, the BoT announced the easing of rules to make it easier for capital to flow out of Thailand, including allowing commercial banks to offer FX derivatives based on other currencies other than the baht to all customers; widening intermediaries for FX trading with banks to include securities companies and allowing qualified companies in telecoms, e-payments and money-changers to act as transfer agents to facilitate electronic fund transfers. The daily limit for outward transfers was also raised to THB200,000 per customer from USD2,000 previously. Also in the news, Mar headline inflation remained in the doldrums for the 15^th straight month, declining by -0.46% y/y from Feb’s -0.5%. The drag on inflation was from lower energy prices and transport cost.

Rates

Malaysia

      Local government bonds sustained the bullishness, with off-the-run MGS and MGIIs being bought up, ending 5-8bps lower in yield. The benchmarks also lowered 1-3bps as the strength in MYR drove buying from both foreigners and locals, especially at the belly of the curve.

      IRS levels ended flattish, despite the bullish MGS, and no trades were reported in the market. 3M KIBOR remained at 3.71%.

      PDS saw better buying at the long-end and belly of the AAA curve. Khazanah’s issuances were bought up, with Danga 30 tightening 3bps to 4.69% (G+75bps/Z+49bps), Danga 26 tightening 2bps to 4.47% (G+55bps/ Z+43bps) and Rantau 22 tightening 4bps to 4.22% (G+60bps/Z+40bps). In GG space, PASB 26 rallied 2bps tighter to 4.33% (G+42bps/Z+30bps). The AA space was fairly muted, though some interest was seen for power names TBEI and YTL Power. With IRS rates lower and the rally in MGS, there is room for local credits to tighten unless sentiment turns.

Singapore

      SGS market was muted with slight selling bias and yields ended 1-2bps higher ahead of the US NFP release on Friday night. SGD IRS saw payers as the USDSGD pair and forwards moved back up with the curve higher by 3-7bps.

      Asian credit somewhat constructive. Overall spreads continued to grind in by 2-3bps. Baba 24, which was a laggard, outperformed by tightening 6bps. Sovereign space was muted with INDONs and PHILIPs about 12.5cents higher. CDS space was also muted ahead of the US NFP.

 Indonesia

      Indonesia IGS prices rally during the final day of last week. Despite March inflation came in slightly higher yet the expectation of further decline in inflation due to recent cut of fuel price suggest that real interest rate may widen in near future. Thus, buying appetite incline. Lower inflation may also be correlated as further chance for the central bank to continue easing their monetary rate. Inflation in the month of March was mainly contributed by        increase in the volatile foods prices. Post IGS market close, U.S. labour data was published which came in mixed. The published data would fuel the higher movement in IGS price today. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 7.238%, 7.505%, 7.912% and 7.962% while 2y yield shifts down to 7.456%. Trading volume at secondary market was seen heavy at government segments amounting Rp18,186 bn with FR0056 as the most tradable bond. FR0056 total trading volume amounting Rp2,625 bn with 110x transaction frequency and closed at 106.220 yielding 7.505%.

      Corporate bond trading traded heavy amounting Rp1,097 bn. BFIN02CCN3 (Shelf registration II BFI Indonesia Phase III Year 2016; C serial bond; Rating: A+(idn)) was the top actively traded corporate bond with total trading volume amounted Rp230 bn yielding 10.694%.