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FX
Global
US equities bounced on the back of better-than-expected payroll numbers although the dollar did not benefit. Feb NFP came in at 242K, well above the consensus forecast of 195K. Jan’s print was also revised higher to 172K. As a result, unemployment rate steadied at 4.9%. Average hourly earnings slipped -0.1%m/m in Feb, keeping the greenback under pressure. Equities took heart that rate tightening would not come so soon and risk proxies including AUD and NZD strengthened more than 1% each by the end of the session.
Risk sentiment was less positive this morning after China releases its 2016 targets at the start of the NPC on Sat. The GDP target was announced as expected, at 6.5-7.0%, underscoring growth uncertainties this year. The government pledged to increase fiscal and monetary stimulus to support short-term growth while also striving to reduce industrial overcapacity. Oil remained firm this morning with WTI and Brent at around USD36 and USD39 respectively. That lifted the MYR by 0.7% against the USD. SGD weakened -0.2% in early trades.
The week ahead is likely to see markets in consolidation mode ahead of central bank meetings this week including BNM (Wed), ECB, BOK, RBNZ (Thu). ECB is expected to lower deposit rate by another 10% to 0.4% and to further expand its monthly asset purchase. Technical adjustment to the QE program is required. Failing which, ECB will risk running out of assets to purchase even if they increase QE. BOK and RBNZ are not likely to move. We see risks of another 50bps cut to SRR and maintain our call for OPR to remain unchanged at 3.25%.
Other data we are watching for the week - FX reserves data for the Asian region (Mon); China Feb trade; Euro-area 4Q GDP; RBA Lowe speaks (Tue); China Feb CPI, PPI data; Japan Feb PPI; Philippines Jan exports (Thu); Malaysia Jan IP (Fri); China’s Feb IP, retail sales and FAI (Sat).
Currencies
G7 Currencies
DXY – Consolidate. US NFP came in better than expected (+242k for Feb with +30k upward revision in previous 2 months) but earnings growth (-0.1% m/m) disappointed. Talks of survey being done early in Feb and may have missed out capturing the full results. Broad USD weakness continues as risk proxies (led by AUD, NZD) rallied. DXY was last seen at 97.35 levels. Bullish momentum continues to wane and stochastics is falling from overbought conditions. Resistance remains at 98 (61.8% fibo retracement of Jan high to Feb low), 98.75 (76.4% fibo). Support at 97-levels (21, 200 DMA, 38.2% fibo). Week ahead brings Feb labor market conditions index; Fed’s Fisher and Brainard speaks (Mon); Feb NFIB small business optimism (Tue); Jan wholesale inventories (Jan); initial jobless claims (Thu); Feb import prices (Fri).
EURUSD – Bias to Sell Rallies. EUR turned higher amid broad USD weakness last Fri but the move higher stalled at 1.1050 (200 DMA). EUR is a touch weaker this morning. Last seen at 1.0990. Bias remains to sell EUR on rallies. We expect further easing in the form of 10bps cut to -0.4% on the deposit rate and a further expansion of monthly asset purchase. Technical adjustment to the QE program is required (for details please refer to our tech weekly dated 4 Mar). Bearish momentum continues to wane and stochastics is rising from oversold levels. Look for opportunities to lean against strength. Resistance at 1.1050 (200 DMA) before 1.1070 (21 DMA), 1.11 (50% fibo). Support at 1.0950 (23.6% fibo retracement of Dec low to Feb high) before 1.0830(Mar low). Week ahead brings EU summit (Mon); GE Jan factory orders; Euro-area investor confidence (Mon); Euro-area 4Q GDP; GE Jan IP; FR Jan trade; EU Finance Ministers meet in Brussels (Tue); ECB Meeting; GE Jan trade; FR Jan IP (Thu); GE Feb CPI (Fri).
GBPUSD – Sell Rallies. GBP rose amid USD weakness. We reiterate that GBP downside risk appears to have been priced in to some extent - Brexitrisks are somewhat priced in (although not entirely as a real exit could see a larger sell-off) while BoE rate hike expectations have been pushed back further 2017. Broad USD weakness could continue to see weak GBP shorts getting squeezed. That said we continue to caution that the pair remains biased to the downside amid Brexit concerns over the next few months. Pair was last seen at 1.4220 levels. Daily momentum has turned mild bullish and stochastics is rising from oversold conditions. We look for opportunities to sell towards 1.4250 (50% fibo retracement of Feb high to low), 1.4350 (61.8% fibo). Support at 1.38, 1.35 levels. Week ahead brings Jan consumer credit (Mon); Feb PMI Mfg (Tue); Feb construction PMI (Wed); Feb house prices, FX reserves, services and composite PMI (Thu).
USDJPY – Interim Double-Bottom Watched. Interim bottom around 111-levels has held-up well. USDJPY rebounded to a high of 114.56B (2 Mar) before easing back towards the 113 levels on 4 Mar on disappointing US wage growth print. Pair remains pressured by a soft dollar this morning with the pair last seen around the 113.65 levels. Still, risks are to the upside with daily momentum continuing to indicate mild bullish momentum. Any downside is likely to be limited. Further upmoves could revisit 115 levels (38.2% Fibo retracement of the Jan-Feb downswing) and then towards 116.30 levels (50% Fibo, 50DMA). Support remains around 111 levels. Week ahead has BOJ Kuroda speaking in Tokyo this morning and then in parliament later in the afternoon; final 4Q GDP; Jan current account (Tue); Feb machine tool orders; Feb money stock (Wed); Feb PPI (Thu). BOJ governor Kuroda told parliament that he was not considering lowering interest rates at this time, but he reiterated that he would not hesitate to take action as needed.
NZDUSD – False Break? Kiwi turned higher amid broad USD weakness. Focus this week on RBNZ meeting (Thu). We do not expect RBNZ to cut rate below historical low of 2.5% at the upcoming meeting. We believe RBNZ will adopt and wait and watch approach – for more data flows and what other central banks may do. Expect RBNZ to talk down NZD. Our bias remains for RBNZ to cut policy rate by 25bps at the Apr or Jun meetings, should growth momentum fails to pick up. Maintain bearish outlook due to a combination of factors including RBNZ explicit bias for further easing and weaker NZD (as export prices remain soft), benign inflation outlook, challenging dairy market dynamics, high risk of current account deficit widening, further downside risk to growth outlook. NZD was last at 0.6790. Daily momentum and stochastics are indicating a bullish bias. Key resistance at 0.6760 (76.4% fibo retracement of Dec high to Jan low, previous highs in Feb) appears to have been broken. Is this a false break or a clean break? A clean break could see a sustained move higher towards 0.6890 (previous highs in Oct and Dec 2015). Bias remains to sell rallies. Support at 0.6650 (50, 100, 200 DMAs), 0.6620 (50% fibo of Dec high to Jan low, 21 DMA), before 0.6550 (38.2% fibo). Week remaining brings 4Q Mfg activity (Tue); Feb card spending (Wed); RBNZ meeting; RBNZ Wheeler speaks (Thu); Feb BusinessNZ Mfg PMI; Feb food prices (Fri).
AUDUSD – Upside Bias. AUD broke above the 0.74-figure and hovered around the level this morning. Profit taking eased the pair this morning from Fri highs of 0.7440. In spite of the retreat, upside momentum is still strong. Next resistance to watch will be at 0.75 levels. Support is now seen at 0.73 (23.6% Fibonacci retracement of the Jan-Mar rally). Week ahead brings Feb FX reserves (Mon); Feb NAB Business Conditions; RBA’s Lowe speaks (Tue); Westpac consumer confidence; Jan investment lending (Wed); consumer inflation expectations (Thu).
USDCAD – Eyes on 200-DMA. USDCAD hovered around 1.3340 as we write this morning as oil prices remained firm. Daily momentum and stochastics remain bearish bias although we observed stochastics at oversold levels. We still favor USDCAD shorts. Support at 1.33 (200 DMA) and a break there brings 1.2830 into view. Resistance at 1.3540 (61.8% fibo of Oct low to Jan high), 1.3660 (100 DMA).
Asia ex Japan Currencies
The SGD NEER trades 0.10% below the implied mid-point of 1.3755. We estimate the top end at 1.3475 and the floor at 1.4030.
USDSGD – Downside Pressure. USDSGD saw sharp moves over the past week breaking below the 1.38-handle. Pair touched low not seen since Oct 2015 at 1.3734 on Fri before rebounding slightly. Positive sentiments amid an oil price rebound, and a softer dollar as well as a return of foreign funds into government debt (yields were down across the board by around 0.25-9.81bp except for the 3M and 6M last week) had weighed on the pair. Pair was last seen around 1.3767. Daily chart and stochastics are mild bearish bias. Portfolio inflows on continued positive sentiments could pressure the pair further lower. Immediate support is now at 1.3730 (Oct 2015 low) before the next at 1.3645 (61.8% Fibo retracement of the Jun 2015-Jan 2016 upswing). Rebounds should meet barrier around 1.3800 (50% Fibo) and then 1.3950 (38.2% Fibo).
AUDSGD – Maintain Long Bias. AUDSGD retreated from weekly highs of 1.0250 towards the 1.02-figure. AUD strength will still continue to underpin this cross. Next barrier is seen at 1.0350 (double top in Nov and Dec) before 1.05 (our ultimate objective).
SGDMYR – Still Watching 200 DMA. SGDMYR traded a touch lower but still seen supported above the 200 DMA at 2.96 levels. We continue to watch the support at 200 DMA. Daily momentum is flat for now. We reiterate a break below 200 DMA is needed for further downside move to materialise. Next support level at 2.9380 (23.6% fibo retracement of Jan high to low) before 2.8940 (previous low). Resistance at 3.0090 (61.8% fibo retracement of Jan high to Jan low), 3.03 (50 DMA).
USDMYR – Bearish Bias. USDMYR traded lower amid broad USD weakness and continued interest in local bonds. USDMYR gapped in the open today to an intra-day low of 4.0712 before rebounding. Last seen at 4.08 levels. Daily momentum is mild bearish with stochastics falling. Key support at 4.08 (Oct low) before 4.05. Resistance at 4.14 (200 DMA). Week ahead brings FX reserves (Mon); BNM meeting (Wed); IP, manufacturing sales (Fri). We see risk of SRR 50bps cut and maintain our stand for OPR to be held steady at 3.25%
1s USDKRW NDF – Downside Pressure to Persist. 1s USDKRW briefly dipped below 1200 on Fri amid broad USD weakness and risk-supported sentiment. Pair was last seen at 1201. Daily momentum and stochastics are bearish bias. Next support at 1183 (100 DMA). Resistance at 1208 (50 DMA). BoK meets on Thu. We expect BoK to keep policy rate on hold at record lows of 1.5% while waiting for Fed meeting in mar (week later) and further domestic data before making the decision to ease further or not.
USDCNH – 100-DMA broken. The slip below the 100-DMA at 6.5085 saw USDCNH around 6.50 as we write. CNH is now trading at a slight premium to the CNY against the USD. Next support for the USDCNH is seen at 6.4858 (61.8% Fibonacci retracement of the Oct – Dec rally, Feb low). We think this pair could remain in consolidation within 6.48-6.58 given the lack of momentum. Stochastic is also rising from oversold conditioions. USD/CNY was fixed 171 pips lower at 6.5113 (vs. previous 6.5284). CNY/MYR was fixed 8 pips lower at 0.6300 (vs. previous 0.6308).The National People Congress started on Sat and concludes on 13 Mar. As expected, GDP target was kept at a range of 6.5-7.0%, underscoring growth uncertainties this year. The government pledged to increase fiscal and monetary stimulus to support short-term growth while also striving to reduce industrial overcapacity. We expect (risk) markets to be relatively stable during the meetings that continue. More details are waited on how the government will reduce housing stocks, lower corporate and government debt as well as to ease existing bottlenecks. The projected budget of 3% of GDP for 2016 is a record high since 1949.
SGDCNY – Pressured Higher. This cross rallied to a high of 4.7422 ( a double top) before closing around 4.7267 on Fri. This cross has made a double top and a failure to breach the 4.75-figure could see a sharp reversal towards the 4.6260 (50-DMA). However, a break there could see next barrier targeted at 4.7600.
1s USDINR NDF – 100-DMA eyed. Pair hovered around 67.35 this morning and pressure is still to the downside. The 100-DMA at 67.22 supports downside and a break there opens the way towards the 200-DMA at 66.20. Our target for USDINR to correct towards the 67-figure has been met last Fri, re-initiated on 18 Feb. Bounces in the 1s USDINR NDF could meet barrier around the 68-figure (50DMA). Foreign investors bought USD164.7mn of equities but sold USD19.4mn of debt on 3 Mar. Over the weekend, PM Modi asked Finance Minister Arun Jaitley to keep “middle class sensitivities in mind” (ET) after the latter announced plan to tax pension withdrawals at his budget speech.
USDIDR – Pressured Lower. USDIDR continues to slip lower as it did over the past week to below the 13000-handle before rebounding. Portfolio inflows over the past week amid an improvement in risk appetite weighed on the pair. Foreign funds had purchased a net USD171.06mn of equities. This was despite them removing a net IDR1.12tn from their outstanding holdings of government debt on 29 Feb-3 Mar (latest data available). Improving macroeconomic fundamentals, political stability, and the Jokowi government’s push for infrastructure building and investment amid low oil prices and supportive monetary policy continues to be supportive of the IDR. Pair is currently seen around 13018 with daily chart exhibiting increasing bearish momentum and stochastics remains at oversold levels. This suggests the potential for a rebound in the near term. Support nearby is seen around 12980 (76.4% Fibo retracement of the Jan-Sep 2015 upswing) before the next around 12570 (Feb 2015 low). Rebound should meet resistance around 13335 (61.8% Fibo). The JISDOR was fixed lower at 13159 to end the week last Fri from 13260 on Thu. Quiet week ahead with just Feb foreign exchange reserves on tap later today.
USDPHP – Bearish Bias. USDPHP remained on the downtrend for the past week, helped by portfolio inflows amid positive risk sentiments. Foreign funds had bought a net USD29.66mn in equities. Last seen around 46.790, pair is now exhibiting increasing bearish momentum and stochastics is at oversold levels. This suggests the potential for a rebound ahead. For now, risk remains on the downside. Support nearby is around 46.755 (50% Fibo retracement of the Oct 2015-Jan 2016 upswing) before the next at 46.570 (200DMA). Rebound should meet resistance is around 47.065 (38.2% Fibo) ahead of the next at 47.275 (100DMA). Week ahead has Feb foreign exchange reserves (Mon); Jan exports (Thu); Jan unemployment rate (Fri).
USDTHB – Still Eyeing 35.200-Levels. USDTHB has been on the downmove towards the 35.320 levels last week, breaking below the 200DMA-support level as positive sentiments lifted portfolio inflows. Foreign funds purchased a net THB13.14bn and THB6.58bn in equities and government debt last week. Last seen around 35.390, pair is now exhibiting mild bearish momentum on the daily charts, and stochastics remains bearish bias. Weekly charts remain bearish bias. With the daily break of the support level at 200DMA on 4 Mar, pair could revisit the year’s low of 35.210 and then 35.130 (Oct 2015 low). Any rebound should meet resistance around 35.500 (23.6% Fibo retracement of the Jan-Feb downswing); 35.673 (38.2% Fibo). Quiet week ahead with just 4 Mar foreign reserves on tap on Fri.
Rates
Malaysia
Local government bonds took a breather after posting gains in the last couple of days. Yields ended the day virtually unchanged with lower volume. However, 3y benchmark GII saw strong interests with more than MYR600m nominal exchanged hands. Overall, markets remained biddish and positive sentiments still seen in the Ringgit alongside regional currencies.
IRS market was quiet with no trades reported. The curve ended a tad higher. 3M KLIBOR was unchanged at 3.73%.
The PDS market saw better buyers on selected names especially at the front end of the curve. Caga was better bid, tightening 1-5bps. Caga 19s traded 5bps lower at 4.01% (G+48.5/Z+22.9). Aman 21s were traded around 4.21-4.23% (G+70.5/ Z+44.9) in good volume. GGs faced some profit taking. PASB 23s was given at 4.23% (G+58.6/z+33.9) which offers some value. In general, trading volume during the week increased WoW although prices moved sideways.
Singapore
SGD rates fell as the massive selloff in spot USDSGD pushed short date forwards further to the left, implying lower SOR fixing. IRS curve slid under keen offering interests and ended the day lower by 5-6bps. Trading in SGS was however lackluster as players were sidelined ahead of NFP. Intermittent selling by profit takers capped the gains in SGS causing swap spreads to narrow during the day. Late buying towards market close when UST futures ticked higher helped prices to end the day higher. SGS yields closed lower by 3-6bps.
In Asian credit, positive tone still prevailed ahead of the NFP. Indon curve flattened along the 10-30y (Indons 26 +25 cents, belly 20y higher by 1.5-2.0points, Indon 46 +1 point,). Japanese TLAC continued to grind tighter by 2-3bps, while Phillies gained 37.5 cents.
Indonesia
Indonesia bond market closed with yield curve bull flattening as yield for tenor above 5yr dropped by an average of more than 20bps. This situation however is caused by inflows to the bond market amid ahead of US labour data publication post market close. Chances for the IGS prices to reverse remains specifically if the US labour data came out to be better than expected. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 7.633%, 7.861%, 8.244% and 8.246% while 2y yield shifts down to 7.683%. Trading volume at secondary market was seen heavy at government segments amounting Rp16,426 bn with FR0056 as the most tradable bond. FR0056 total trading volume amounting Rp2,915 bn with 121x transaction frequency and closed at 103.635 yielding 7.861%.
Corporate bond trading traded moderate amounting Rp504 bn. BNGA02SB (Subordinated II Bank CIMB Niaga Year 2010; Rating: AA(idn)) was the top actively traded corporate bond with total trading volume amounted Rp70 bn yielding 10.078%.
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