Indonesia bond market closed lower on the first trading day of 2017. Thin trading volume at the secondary market occurred mainly in our opinion as most of the Bond Investors may have be on Holiday trips, and awaiting of elected president Trump to take his oath for becoming the 45th President of U.S. During the day, Indonesia statistics released Indonesia’s inflati

FX

Global

      Wall Street started with a bang overnight with rising oil prices giving energy sector a lift amid crude cuts expected this month. Solid US data lifted the DXY index to a fresh high of 103.82. The Dec PMI-mfg came in at 54.3, firmer than the expected 54.2. ISM manufacturing also rose to 54.7 from previous 53.2, above the consensus of 53.8. Construction spending in Nov also accelerated to 0.9%m/m from previous 0.6%. By the end of the session, the DXY index seems to have drifted back within the range of 102-104, albeit still rather bid.

      Asian FX did not fare too badly with USDSGD making an attempt at 1.4550 before making a sharp pullback to levels under then 1.45-figure. USDCNH drifts lower after the onshore central parity was fixed lower than expected yesterday. USDCNH has been drifting lower and that should serve as an anchor to USDAsian. Meanwhile, the overnight CNY Hibor has risen to 17.76% as we last seen amid a yuan liquidity drain in the offshore market.

      Data calendar is rather light in the region with only Thailand CPI due today. In late Asian hours, Euroarea will release a Dec CPI followed by the minutes of the FOMC meeting in Dec. Expect a mildly hawkish tone that was conveyed in the statement and press conference. We expect USD strength to remain for at least the next six months and look for the Fed to raise rates twice in 2017.

 

Currencies

G7 Currencies

      DXY – Buy on Dips. USD index climbed to fresh 14-year high off the back of better than expected US data overnight – Mfg PMI, ISM Mfg and construction spending. Report showed that US manufacturing expanded at the fastest pace in 2 years. Though gains were pared into NY close, DXY remains well supported. Last seen at 103.20 levels. Weekly momentum remains bullish bias. Resistance at 103.80 levels (138.2% fibo projection of Dec 2015 high to 2016 low) before 104.70 levels (150% fibo proj). Support remains at 102.30 (21 DMA). Focus for the day on Minutes of the last meeting for clues of rate hike trajectory (but given that dots plot projection was released together with press conference at the last meeting, there should not be any major surprises). Our bias for further USD upside remains unchanged, though we do not rule out any short term pullback. Jobs data end week may provide the catalyst. We still look to buy USD on dips vs. EUR and JPY – playing the monetary divergence theme. Week remaining brings FOMC meeting Minutes on Wed; ADP employment, ISM non-mfg, services PMI on Thu; NFP, unemployment rate, average hourly earnings, trade, durable goods order on Fri.

      EURUSD – Focus on Inflation. EUR’s attempt to rise was stopped in its track. Intra-day high yesterday was 1.0490 in Asia and the pair traded softer towards 1.0341 in to London/NY hours amid USD strength. Last seen at 1.0410 levels. Mild bullish momentum on daily chart shows signs of slowing. Support at 1.0350; resistance at 1.0490 (21 DMA). Key focus today on inflation data – better than expected print could see EUR clawing back losses. 10Y European bond-UST spread have eased from record wide of -235bps (last month) to about -220bps. This spread (which is typically positively correlated with EUR/USD) may need to widen again to see EUR sustainably lower. And one of the ways that could happen is to see another round of benign inflation print (potentially resulting in lower EU bond yield and wider spread to the UST). We reiterate our view for further EUR downside  against an environment of growing divergence in monetary policies (between ECB and Fed) and political contagion risks in Europe - potential early elections in Italy (Feb); Netherlands Presidential elections (Mar 2017); French Presidential elections (Apr-May 2017) and Germany Federal elections (Aug-Oct 2017). Week remaining brings services PMI, CPI estimate and core CPI on Wed; retail PMI, PPI on Thu; retail sales, consumer confidence on Fri.

      GBPUSD – Lean Against Strength. GBP continue to trade with a heavy bias amid broad USD strength. News of the resignation of UK permanent representative (Sir Ivan Rogers) to EU added to our list of doubts/confidence that UK has any clear exit strategy post-trigger of Article 50 by Mar 2017. Pair was last seen at 1.2230 levels. Bearish momentum remains intact though showing tentative signs of waning. Support remains at 1.2210 levels. Area of resistance at 1.2350 (23.6% fibo retracement of Dec high to low) – 1.24 (21 DMA). Bias to lean against strength. We maintain our bearish bias on the GBP over the medium term horizon (6-9 months), as much uncertainty remains over the timing of trigger of Article-50, exit plan/ strategies the incumbent government has (how the negotiations with EU will pan out) and the medium term repercussion of these on UK’s outlook and prospects (in terms of growth, trade relationships, London’s status as financial hub, investment/portfolio flows and job creation). We expect GBP to face downside pressure (possibly breaking below 1.20) in 1H 2017 on risk of snap elections, unclear exit strategy before gradually rising into end-2017 as clarity over UK’s future takes hold. Week ahead brings Mfg PMI (Tue); Construction PMI (Wed); services PMI (Thu).

      USDJPY – Still Rangy. Onshore markets re-opened today after closing for a holiday yesterday. USDJPY hit an overnight high of 118.60, tracking the 10Y UST yield moves above the 2.50% levels. Since then, the UST 10Y yield has eased off to below the 2.46%, lessening the upside pressure on the pair.  Pair was last seen at the 118 levels.  Quiet domestic data week ahead with market likely to continue to take its cue externally, particularly from US NFP (Dec) print on Fri. Daily chart is still bearish bias with stochastics showing tentative signs of climbing higher. Bullish momentum on weekly chart remains intact with weekly stochastics still in overbought conditions. A clean break above the 118 could see the pair retest yesterday’s high of 118.60 ahead of 119.50 levels. Week ahead has Nikkei PMI mfg (Dec F) on Wed; Nikkei PMI services & composite (Dec) on Thu; labour cash earnings (Nov) on Fri. 

      NZDUSD – Death Cross Formation in the Making. NZD traded softer amid broad USD strength and lower dairy prices in GDT auction overnight. Last seen at 0.69 levels. Our caution for death cross formation (50DMA cutting 200DMA to the downside) in the making in yesterday’s GM Daily remains intact. Key support at 0.6860 (Dec low) before 0.6720 (61.8% fibo retracement of 2015 low to 2016 high). Resistance at 0.70 (21 DMA). Bias to lean against strength.

      AUDUSD – Tactical Upside. Pair is last seen around 0.7230 and we continue to hold on to out tactical trade to long the AUDUSD pair towards 0.7311. Cut loss at 0.7149. Spot reference at 0.72 which will allow a 1:2 risk reward ratio. We see 0.7150 as a potential base for this pair. For the rest of the year, we also see upside risks to the AUD as the oversupply of commodities including steel and copper are completely priced in and AUD to respond next to potential lift in infrastructure demand for these key metals. Terms of trade seemed to have bottomed correspondingly and that should be expansionary for the economy. Week ahead has trade (Nov) on Fri.

      USDCAD – Overbought. USDCAD is on the uptick this morning, underpinned by the firm USD. This pair is still within the 1.3310-1.3570 range. With 1.3575 as a resistance, we see a potential double top formation formed on the 28 Dec. Strong upticks in oil prices and potential correction in the the USD adds conviction to our view. We can choose to short USDCAD at this level (1.3433) towards first target at 1.3310 before the next at 1.3135. Stoploss at 1.3600. That should give a rather good risk reward ratio of ~1:4. Stochs flag overbought conditions. Week ahead has RBC Canadian Manufacturing today, Dec labour report on Fri.

Asia ex Japan Currencies

      SGD NEER trades around 1.12% below the implied mid-point of 1.4339. The top is estimated at 1.4049 and the floor at 1.4629.

       USDSGD – Still In Consolidation Mode.  USDSGD climbed to a high not seen since 2009 at 1.4547 overnight, tracking the UST 10Y yield spike above the 2.50% levels. Since then, the UST 10Y yield has eased off to below the 2.46% levels, weighing on the pair. The continued bounce in manufacturing PMI for Dec to 50.6 (Nov: 50.2) – the highest since Nov 2014 – and the rebound in electronics PMI to 51.2 (Nov: 50.5) should also slow the advance in the pair intraday. Last seen around 1.45-handle. Bearish momentum on daily chart remains intact while stochastics is tentatively turning lower from overbought levels. In the run-up to US NFP this Fri, look for the pair to stay in consolidative trade within 1.4430-1.4550 intraday. Remaining week has Nikkei PMI (Dec) tomorrow.

      AUDSGD – Barrier at 1.05. AUDSGD is in consolidation after a drop in the last two weeks of Dec.  Barrier to watch is at 1.05 and this cross is definitely too close for comfort there, last printed 1.048. Downside risks beckons if the barrier at 1.05 holds. Otherwise, we still look for an eventual move towards 1.10, 1.12 in the medium term. Support at recent lows of 1.035. Bias remains to buy on dip.

      SGDMYR – Waning Bearish Momentum. SGDMYR was last seen at 3.1040 levels. Bearish momentum on daily chart shows signs of waning while stochastics continues to rise from near oversold conditions. Technical signals suggest potential upside risks in the near term. Next resistance at 3.14. Support at 3.0850 (50 DMA). 

      USDMYR – In Overbought Conditions. Little movement in USDMYR. Onshore spot appears relatively stable within 4.48 – 4.50 range. Oil gains provided some buffer against broad USD strength elsewhere.  Pair was last seen at 4.4970 levels. On technical, mild bearish momentum (for USDMYR) on daily chart remains intact while stochastics are in very overbought conditions (but yet to show signs of turning lower). Next resistance at 4.52 levels. Support at 4.4630 (21 DMA). Week ahead brings trade data on Fri.    

      1s USDKRW – Chance of Pullback. 1s USDKRW eased from recent highs but broad USD strength kept the pair supported above 1200-handle. Last seen at 1206. Bullish momentum on daily chart is waning fast while stochastics is showing signs of falling from overbought conditions. We still see chance of pullback, possibly towards 1192 (21 DMA). Resistance remains at 1220 levels.

      USDCNH – Flirting With 7. The USDCNH has been on the downdrift since last night and was last seen around 6.9620. 7 is a forgone conclusion. This is a matter of when, not if.  Still, the recent additions to the basket reaffirm our view that China will continue to keep the yuan stable against the basket. Still, capital outflow is a key concern. PBoC has required addition reporting requirements for Chinese citizens using their FX quota. They have blocked firms from taking yuan abroad unless they have a valid business reason. They also want to suspend overseas acquisitions by Chinese companies including investments over U$10bn. They also require banks to report capital-account transactions involving forex of at least $5mn. UnionPay also prohibit Chinese residents from using its cards to buy insurance in Hong Kong other than for accident and medical coverage.. USDCNY was fixed 28 pips higher at 6.9526 (vs. previous 6.9498). CNYMYR was fixed at 0.6440, 4 pips lower than the previous 0.6436. Week ahead has foreign reserves this Sat.

      1m USDINR NDF – Heading Higher. USDINR hovered around 68.40. Momentum indicators show increasing upside pressure for this pair. Resistance remains around 68.52 while support is seen at 68.12 before the next at 67.80. A number of states expressed difficulty in making the Apr 1 deadline to roll out GST looked difficult to meet and that a realistic target could be Jun or Jul (Economic Times).  Week ahead has GDP estimate for 1Q this Fri. Foreigners sold U$99.9mn of equities and bought U$70mn of bonds.

      1m USDIDR NDF – Rangy With Potential Upside Risks.  1M NDF is edging slightly higher this morning, tracking the moves in the USD. The lack of domestic impetus is likely to see the 1-month NDF take its cue from external events, one of which is likely the US NFP this Fri. Risks in the next 3-6 months remain on the upside as there is potential for even more aggressive Fed hikes in 2017 on expectations of Trump’s planned fiscal stimulus, which could steepen the UST yield curve further, narrowing the yield differentials between US and Indonesia and sparking further fund outflows that would coincide with the end of the tax amnesty program. Also there are risks arising from domestic political tensions (in the run-up to the Jakarta gubernatorial elections in 15 Feb 2017) and growth concerns that should remain supportive of the 1-month NDF. On the other hand, the ongoing reform process and fiscal spending on infrastructure projects could mitigate some of these upside risks. Last seen around 13525 levels. Daily momentum indicators are mildly bullish bias with daily stochastics turning lower from overbought conditions. Weekly charts show bullish bias still intact but waning with weekly stochastics showing tentative signs of turning lower from overbought levels. Resistance is seen around 13630 (38.2% fibo retracement of the 2014 low to 2015 high). Support at 13445 (50DMA). Foreign investors started the year soft, selling USD5.73mn of equities yesterday. They had also ended 2016 by removing around IDR0.1tn from their outstanding holding of government debt on 30 Dec (latest data available). The JISDOR was fixed higher at 13485 yesterday from 30 Dec’s 13436. Quiet week ahead with just Dec CPI due later today. In the news yesterday, Dec CPI rose by 3.02% y/y, a moderation from Nov’s 3.58%, while core inflation held steady at 3.07% y/y. For the full year, headline and core inflation slowed to 3.53% and 3.35% respectively in 2016 from 6.38% and 4.89% in 2015. Our economic team expects inflation though to rise in 2017 to 4.01%.

       1s USDPHP NDF – Re-Test Of 50-Figure Likely. 1s USDPHP is trading slightly bid this morning amid a firmer USD. Pair was last seen around 49.96. Pair tested the 50-levels several times yesterday and a repeat cannot be ruled out today. In the absence of domestic catalyst, look for the pair to take its cue from external events, particularly US NFP on Fri. Risk to the pair remains to the upside in the medium term given possibly earlier-than-expected inflation in the US on possible Trump expansionary fiscal policy plans that should further steepen the UST yield curve and narrow the yield differential in favour of the US could encourage funds outflows and weigh on the PHP. Also, concerns over the protectionist-bent of the incoming Trump administration, the government’s extra-judicial killings, policy flip-flops and the president’s unpredictable temperament should keep the 1-month NDF supported. Daily momentum indicators and stochastics remain bearish bias. Immediate resistance is seen at 50.05 ahead of 50.43 (projected fibo retracement). Support is at 49.60 (50DMA). Week ahead brings CPI (Dec) expected either on Thu or Fri and foreign reserves (Dec) on Fri. Foreign investors started the new trading year on a positive note, purchasing USD6.43mn in equities yesterday.

      USDTHB – Still Rangy.  USDTHB is trading softer this morning after domestic markets re-opened after closing for a holiday yesterday.  Last seen around 35.900 levels. Daily momentum and stochastics indicators remain bearish bias. Weekly charts though show bullish momentum and weekly stochastics in overbought conditions. Support at 36.685 (61.8% fibo retracement of the 2016 high to low). Immediate resistance is at 35.967 (76.4% fibo) ahead of 36.110. Week ahead brings CPI (Dec) later today; foreign reserves (30 Dec) on Fri.

Rates

Malaysia

      Light trading activity in the Malaysian government bond space with focus centered on the front end bonds. The 3y MGII 4/20 re-opening auction size was announced at MYR3.5b, slightly smaller than expected.

      In IRS market, 3M KLIBOR moved up 1bp to 3.42% and the IRS curve moved up by 3-4bps. Rates were initially lower in the morning, but shifted higher in the afternoon amid the weaker MYR. 5y IRS was dealt at 3.88%.

      Corporate bond space continued to be quiet on a lack of catalyst. For GGs, the sole trade was Cagamas 7/19s at 4.08%, slightly wider than last done levels. In AAA, Aman 5/21 tightened 3bps to 4.32%, while Manjung 21 widened 1bp to 4.37%, 5bps more than the former. Long-dated Plus papers were also traded but levels were unchanged.

Singapore

      SGS opened weak and stayed on defensive mode after last Friday’s big selloff. Long dated issues were under pressure as yields rose more than 3bps in early trading despite the better UST. SGD IRS market was little changed at first but traded lower when USDSGD declined and short dated forwards eased. The SGS benchmark yield curve bear steepened, rising 2-3bps, while SGD IRS curve flattened, up 1bp at the front end and down 1-3bps further out. Swap spreads narrowed 1-4bps.

      Asian credits had a firm start to 2017 with IGs 1-2bps tighter, likely due to some buying and short covering. Indonesian sovereign papers outperformed with the belly rising 1.0-1.5points led by INDON 27. Although Malaysian sovereign papers were muted, bids tightened 2bps for Malaysian corporates such as Axiata 26 and TNBMK 26. Market felt better bid, but liquidity remains low.

 Indonesia

      Indonesia bond market closed lower on the first trading day of 2017. Thin trading volume at the secondary market occurred mainly in our opinion as most of the Bond Investors may have be on Holiday trips, and awaiting of elected president Trump to take his oath for becoming the 45th President of U.S. During the day, Indonesia statistics released Indonesia’s inflation during Dec 16 which came in at 3.02% YoY. The strongest inflation pressures came from the transport group. However, that effect was successfully offset by a deflation in the clothing group. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 7.518%, 7.795%, 7.744% and 8.127% while 2y yield moved lower to 7.446%. Trading volume at secondary market was seen thin at government segments amounting Rp5,241 bn with FR0059 as the most tradable bond. FR0059 total trading volume amounting Rp3,055 bn with 94x transaction frequency.

      Indonesian government conducted their first conventional auctions yesterday and received incoming bids of Rp36.90 tn bids versus its target issuance of Rp15.00 tn or oversubscribed by 2.46x. However, DMO only awarded Rp15.00 tn bids for its 3mo, 1y, and 10y bonds. Incoming bids were mostly clustered on the 3mo SPN series. 3mo SPN was sold at a weighted average yield (WAY) of 5.93287%, 1y SPN was sold at 6.78674% while 10y FR0059 was sold at 7.79954%. FR0061 and FR0072 series bids were rejected during the auction. Bid-to-cover ratio during the auction came in at 1.37X – 2.45X.

      Corporate bond trading traded heavy amounting Rp1,253 bn. BIIF01ACN2 (Shelf Registration I Maybank Finance Phase II Year 2016; A serial bond; Rating: AA+(idn)) was the top actively traded corporate bond with total trading volume amounted Rp150 bn yielding 9.074%.