Maybank GM Daily - 5 Apr 2016

FX

Global

      Overnight was rather quiet as caution quietly seeped into the equity markets, not helped the least by the downside surprise in durable goods order for Feb. The print at -3.0%m/m was worse than the estimated -2.8%. Feb factory orders came in at -1.7%m/m vs. the previous 1.2%. Oil prices fell. WTI was last seen at USD35.40 while Brent hovered around USD37.40.

      Softer oil prices are likely to lend some support to USDMYR. The other currency that could come under pressure was KRW, down -0.8% at last sight. Morning action saw NZD under pressure ahead of the GDT auction tonight, last seen around 0.68. On the other end of the spectrum, JPY gained on weaker risk appetite with USDJPY testing the strong support at 111, which has held this year. A break there exposes the next at 109.50.

      Two central banks have their meetings today– 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. The rest of USDAXJs are likely to consolidate in the absence of strong market cues this week.

Currencies

G7 Currencies

      DXY – Upside Risk Next Few Days.  USD was mixed overnight – firmer against most AXJs but remained softer against JPY, EUR. Oil price was lower, off the back of Saudi’s comments that any production freeze is conditional on OPEC/non-OPEC coordination. Fed’s Rosengren said that he expects rate increases but not as gradual as implied by markets; surprised that the markets are only expecting 0 – 1 rate increase this year. Durable goods order was weaker than expected overnight. Markets could take hint from oil price and sentiment (recall that positive correlation between oil prices and risk asset is significant). With markets “tapering” their expectation for any production freeze (17 Apr meeting) which could see downside risk in oil prices and cautious risk sentiment, as well as recent USD move against AXJs in recent weeks (to the downside), there could be potential profit taking on USD shorts, in particular against AXJs. On DXY technical, momentum remains bearish but MACD suggests some signs of bullish divergence. Retracement could re-visit 21DMA (now at 95.70). Further extension could see a move towards 96.45 (50% fibo retracement of the decline from Mar high to low). Support at 94.30 levels before 92.50. 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. Fed Chair 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 – Watch for the Pullback towards 1.1250. EUR was little changed from where it opened yesterday. Last seen at 1.1395 levels. Momentum remains bullish but stochastics are at overbought conditions and suggest waning momentum ahead. Potential pullback towards 1.1220 – 1.1250 levels (21 DMA). Bias to buy on dips, targeting a move towards 1.15, 1.18.  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 – 3m Vols Priced A lot Higher. GBP was a touch higher overnight. Last seen around 1.4270 levels. We reiterate that Brexit concerns should cap any excessive rise. Options market is showing that 3m vols are at 15 levels while 1m and 2m vols are around 10-levels, suggesting the premium markets are pricing for Brexit. Retain our bias to sell GBP ahead of Referendum (23 Jun).  The weekly and daily charts indicate little momentum on either side and we envisage two-way trades within the 1.40 - 1.4350 range. Week ahead brings Halifax house price for Mar on Thu before Feb industrial production, manufacturing production and trade balance on Fri.

       USDJPY – Bearish. USDJPY continues to slip lower amid a sell-off in the JPY against the majors. Not helping is the drop in the Nikkei futures, which could pressure the pair lower given the positive correlation between the two. BOJ governor’s sanguine view of the economy suggests that further easing moves might not be forthcoming for now even as he suggests that the negative interest rate could go lower if needed. He suggested that even as the Tankan shows companies becoming more cautious than before, sentiments are at favourable levels on the whole. He also suggested that companies continue to see price rise. Still, concerns are rising that the failure to reflate the economy poses increasing risk to the future of Abenomics, which, if it happens, could trigger not only a collapse in confidence but also a sell-off in the Nikkei and force large unwinds of JPY-hedges and risk USDJPY falling further. Pair was seen around the 110.90 currently. Pair has lost most of its bullish momentum and stochastics is turning lower. Weekly charts are still bearish bias. 111-levels (triple bottom formed in 2016) continues to be supportive. Resistance is around 113.30 (23.6% Fibo retracement of Jan high to Mar low) still. We have Feb Labor Cash Earnings; Mar PMI Services, Composites due today and Feb current account on Fri. In the news, PM Abe and Finance Minister Aso were of one mind in front-loading the JPY10tn of spending in 1H of FY2016 to support the economy. FM Aso has order the various ministries to spend about 80% of public works money in 1H.

       NZDUSD – GDT Auction Tonight. NZD was a touch softer this morning. 1Q Business confidence, Mar commodity prices all surprised to the downside. Technically the pair rejected the upper bound of the upward sloping trend channel at 0.6966 last week and has been drifting lower since. Momentum and stochastics are also indicating a mild bearish bias. Next level to watch on the downside at 0.6760 (21 DMA) before 0.6650 (lower bound of the trend channel and 100 DMA).  Week ahead brings global dairy trade auction event later tonight; REINZ house sales for Mar could be released anytime from Fri onwards.

       AUDUSD – Is 77 cents unbearable for RBA? The pair slipped towards the 0.76 by early Asia. Deeper retracements are possible 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 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 adjustment. 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% Fibonacci 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 – Bulls Bidding Time. USDCAD inched higher overnight and was last seen around 1.3095 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 1.3548 with the top end estimated at 1.3277 and the floor at 1.3819.

       USDSGD – Climbing Higher Within Range.  USDSGD is still trading amid rising vols as MAS meeting approaches. Government debt sell-off as reflected in rising yields this morning (up 0.05-11.70bp at the shorter-end) could be adding downside pressure to the pair. Pair was last seen around 1.3550 levels. Daily momentum and  stochastics are showing no strong momentum. 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 range-bound trades within 1.3415 (year’s low)-1.3660 (23.6% Fibo retracement of the Jan-Mar downswing). Week ahead has Mar foreign reserves (Thu) and advanced estimates for 1Q GDP and MAS meeting are due sometime 7-14 Apr. Manufacturing PMI ticked higher but remained below the 50-expansionary threshold at 49.4 in Mar (Feb: 48.5). Electronics PMI rose also well to 49.0 in Mar from Feb’s 48.2.

       AUDSGD – Not Moving. AUDSGD was stuck around the 1.03-figure, last printed 1.0270 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 – Dragonfly Doji – Cautious of Short Squeeze. SGDMYR fell to another fresh 7-month low of 2.8620 yesterday. Cross has since rebounded amid Ringgit weakness (driven by oil prices). Daily momentum remains bearish but stochastics is showing signs of rising from oversold conditions. We caution that the pair could see a retracement towards 2.9140 (23.6% fibo retracement of 2016 high to low), 2.95 (50% fibo, 21 DMA). We observed a dragonfly doji seen on yesterday’s candle, typically a bullish formation. Further signs to be confirmed if today’s candle is bullish. Such technical formation will see a morning star (further signs of bullish bias) and further confirmed retracement ahead.

       USDMYR – Hammer (Bullish Reversal). USDMYR rebounded amid renewed oil price weakness and USD strength (against AXJs). Pair was last seen at 3.9220 levels, after seeing a low of 3.86 yesterday. We observed a hammer candlestick formed yesterday. This is typically a bullish reversal. While momentum remains bearish bias, it is showing signs of waning and stochastics is also showing signs of rising from oversold conditions. Retracement could revisit 3.9520 (23.6% fibo retracement of Feb-high to Apr low), before 4.0000 (38.2% fibo), 4.0550 (50% fibo).  We remain bearish bias in the medium term but caution for short squeeze. Week ahead brings Feb trade (Wed); 31 Mar foreign reserves (Thu).

       1s USDKRW NDF – Cautious of Short Squeeze. 1s USDKRW NDF rebounded amid USD strength and cautious risk sentiment. Pair was last at 1156 levels. Bearish momentum on daily appears to be waning and stochastics is rising from oversold levels. This suggests potential upside move. Resistance at 1168 (61.8% Fibo retracement of Oct low to Feb high). Support at 1150 (76.4% fibo) before 1136 (previous low).

       USDCNH – Eyes Fixing. The pair steadied around 6.4740 at last sight. We continue to observe that PBOC uses the DXY index and the RMB index to guide the USDCNY. For now, the 98-level holds as a floor for the RMB index, tested twice in the past month and held. According to our RMB index estimate, the last fixing place the RMB index at 98.18. With mild bullish divergence shown on the dollar chart, gains in the greenback may not translate into much gains for the USDCNY because CNY needs to retain a certain amount of strength against the basket of trading partners. We continue to expect USDCNH to remain within the 6.4200-6.5200 range. USD/CNY was fixed 78 pips higher at 6.4663 (vs. previous 6.4585). CNY/MYR was fixed 23 pips higher at 0.6026 (vs. previous 0.6002). The week ahead has Caixin services PMI for Mar and FX Reserves. In news, China banks may convert CNY1trn of bad loans to equity.

       SGDCNY – Upside Bias. This cross was at the brink of testing the upper bounds of the range that we watch before closing lower at 4.7930. Uptrend is still intact though bullish momentum is waning. Ahead of the MAS monetary policy decision next week, we anticipate some retracemetns towards the 4.7400-level.

       1s USDINR NDF – Retracements. Pair was last seen around 66.50, sticky around the 200-DMA. MACD forest is near zero on the daily chart at this point and there are some signs of bullish divergence. Retracements towards the 67-figure could be unfolding. 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. Week ahead has trade for Mar, due anytime from Fri onwards. Risk appetite was good on the last day of Mar with foreign investors buying USD679.8mn of equities and USD495.1mn of debt.

       USDIDR – Capped. USDIDR is on the uptick this morning as the pair plays catch-up with its regional peers. There could be some sell-off in IDR government bonds as reflected in rising yields of 0.03-16.6bp across most tenors this morning, supporting the IDR higher. Last seen around 13200 levels, daily charts are showing waning bullish momentum and stochastics bearish bias. This suggests that further upside moves could be capped ahead. Resistance around 13225 levels (23.6% Fibo retracement of the Jan-Mar downswing) ahead of 13315 (31 Mar high). Support remains around the 13000-handle; 12984 (2016 low). The JISDOR was fixed lower at 13145 on Mon from Fri’s 13200. Risks sentiments were positive with foreign funds buying a net USD21.52mn in equities. They had also added a net IDR1.19tn to their outstanding holding of government debt on 1 Apr (latest data available).

      USDPHP – Tilting Higher.  USDPHP climbed higher, tracking the USDAsians broadly higher this morning. Daily momentum is showing very mild bullish bias and stochastics is tentatively showing signs of turning higher. With risks titled slightly to the upside, look for 46.410 (23.6% Fibo retracement of the Jan-Mar downswing) to cap upside. Support remains around this year’s low of 45.900. Risk appetite deteriorated yesterday with foreign investors selling a net USD2.83mn of equities yesterday. Mar CPI is on tap today ahead of Mar foreign reserves on Thu.

       USDTHB – Bullish Tilt But Within Range. USDTHB continues to climb higher 35.460 (29 Mar) even as the dollar softens. Market positioning ahead of tomorrow’s holiday could be weighing on the THB. Pair was last seen around 35.270-levels. Daily momentum continues to be bullish bias, though stochastics is now flatlining. Weekly charts remain bearish bias though. A death cross (where the 50DMA cuts the 200 DMA on the downside and which typically signals bearishness) could still be playing out. Resistance is around 35.370 (38.2% Fibo retracement of the Jan high to Mar low); 35.415 (50DMA). Support is around 35.120. (23.6% Fibo). Asset buying was mixed yesterday with foreign funds selling a net THB0.93bn in equities but buying a net THB1.14bn in government debt. Quiet week ahead with just 1 Apr foreign reserves on tap on Fri. Onshore markets are closed tomorrow for a public holiday.

Rates

Malaysia

      Govvies ended mixed, with those at the very long end of the curve continuing to see good interest from real money accounts. Given current MYR levels and positive risk sentiment globally, we believe the current momentum will be supported in the near term. Upcoming auction is the reopening of 7y MGII 7/23 at an estimated size of MYR3b.

      MYR IRS saw firmer bidding, with levels ending 1-2bps higher. However, nothing was dealt in the market. 3M KLIBOR was unchanged at 3.71%.

      Quiet day for PDS market. GG belly papers widened slightly, except for PTPTN 26 which tightened 1bp to 4.42% (G+47bps/Z+36bps). The AAA space was focused on Putrajaya’s new issuance – MYR55m 6y sukuk at 4.20%, MYR250m 8y sukuk at 4.35% and MYR230m 9y sukuk at 4.40%. The final prices look fair and may tighten if rates go lower. Elsewhere in the space, Plus 32 tightened 2bps to 4.78% (G+65bps/Z+50bps) and Rantau 31 tightened 3bps to 4.75% (G+65bps/Z+50bps), both seem to be good offers. We think AAA names could trade better in secondary market in the near term.

Singapore

      SGS market was quiet with trading volume low and a hint of selling bias. Yields unchanged to -1bp. We expect SGS to continue trading sideways. SGD IRS levels also unchanged.

      Asian credit market was muted amid a closed Hong Kong market. Only a handful of trades were reported, mostly in 5y and below papers. Cash prices on most spreads rose marginally due to higher UST and spreads widened a little to compensate. Nothing reported dealt in CDS, but IG25 was marked down to reflect a lower US CDX IG over the weekend.

 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%.