My One Academy: Maybank GM Daily

Friday, July 25, 2014

Maybank GM Daily - 25 Jul 2014

Global

§ Better PMI-mfg figures out of the Eurozone lifted the EUR in late Asia but upmove was short-lived as the EUR/USD drifted back towards levels around 1.3465 by early Asian hours this morning. US data was mixed with a fall in the initial jobless claims to 284K from previous 303K. New home sales slipped to 406K in Jun from the previous 442K and Markit PMI-mfg for the US softened to 56.3 from the previous 57.3, bucking the trend in China and EU. Nonetheless, the print suggests that manufacturing is expanding. On the side, IMF lowered world GDP growth forecast for 2014 to 3.4% from its previous forecast of 3.7% made in Apr.

§ US equity indices closed flat after weaving in and out of red. USTs sold off with 10-year yields ending the session above the 2.50%-mark. More data out today with Germany’s IFO numbers in focus now followed by UK’s GDP and then durable goods order out of US. Releases from Asia includes Philippine’s trade numbers and Singapore’s industrial production.

§ Reaction to Japan’s CPI was muted and pressure on the BOJ to increase stimulus could ease given the slight upside surprise in Jun inflation numbers. The rest of the session for Asia could be subdued ahead of the weekend.

§ For most of ASEAN however, a long weekend awaits and we can expect much position adjustments. Indonesia is out for most of next week for Idul Fitri holiday. Malaysia too will only return on Wed after Hari Raya Puasa celebrations. Singapore extends weekend to Mon and onshore markets opens on Tue. Elsewhere, markets in Philippines will take a break on Tue for Eid Al-fitr. Broad dollar strength could continue to keep Asian currencies on the backfoot.

G7 Currencies

DXY – Buoyant in Range. DXY remains around 80.85 this morning. There are not much signs on the momentum indicators but there are other bullish signs on the charts. So far, the greenback has been supported by the bullish ichimoku cloud as well as the 40-SMA on the 4-hourly chart. Durable goods order is due today and an improvement to 0.5%m/m is expected from the previous -0.9%. Topsides are likely guarded by 81.02 while offers will be deterred at first by 18-SMA at 80.81, close-by and then by the support at 80.68 which coincides with the 40-SMA.

USD/JPY – Upside Risks. After rallying to an intraday high of 101.86 on the back of positive data out of eurozone and US, the USD/JPY is correcting currently but only slightly supported by gains in the Nikkei. Though CPI data came in more moderately in Jun, there was little reaction. Pair is currently hovering around 101.75, back below our interim barrier at 101.76, with risks tilted to the upside. A re-test of the 101.76-barrier is possible with another break extending bullish moves towards the next barrier at 102.20. 101.55 should be supportive today. The BOJ’s gauge of inflation (headline inflation ex fresh food) continued to rise as a result of the sales tax hike in Apr, but it nevertheless posted a slower increase of 3.3% y/y in Jun from 3.4% in May. Headline inflation rose 3.5% y/y in Jun vs. May’s 3.7%. Still, with inflation coming in within expectations, there seems to be little need for the BOJ to pursue further easing for now to meet its 2% inflation target.

AUD/USD – Sideways. AUD/USD succumbed to the broad dollar gains for much of Thu and was back around 0.9420. This pair is on the uptick this morning and an upward sloping trend channel is forming. Key support is perhaps the 0.9410-mark that could mean the failure of this trend channel. For the moment, risks appear to be on the upside with 18-SMA above the 40-SMA. 0.9453 still marks the resistance that could deter aggressive bids. There are fewer catalysts today and intra-day moves are unlikely to threaten either way.

EUR/USD – Downside Pressure. The pair was lifted to a high of 1.3485 but downside pressure eroded Thu Asian gains by the end of NY session. Last seen around 1.3467, the pair could still remain on a gradual downward drift towards next support around 1.3432. Interim barrier is now at recent high of 1.3485 ahead of the 1.35-figure. Watch Germany’s IFO report for stronger cues. Majority expects a slight deterioration and any upside surprise is unlikely to give the currency much support as indicated by the firmer PMI-mfg numbers yesterday.

EUR/SGD – Sideways. EUR/SGD bounced from a low of 1.6641 and steadied around the 1.67-figure, supported by SGD weakness. There is still upside momentum but we see current bounce likely unsustainable. The 18-SMA is still well below the 40-SMA on intra-day chart. Bearish cloud still weighs on this cross and could keep this pairing in sideway trades within 1.6640-1.6730. Any surprises from Germany’s IFO surveys due today could swing intra-day trades.

Regional FX

The SGD NEER trades 0.70% above the implied mid-point of 1.2491 with the top end estimated at 1.2243 and the floor at 1.2739.

USD/SGD – Consolidation. USD/SGD is back above the 1.24-figure following a resurgent dollar overnight. After hitting a high of 1.2413 overnight, the pair retreating slightly, sighted around 1.2405 currently. Intraday MACD is still showing little momentum in either direction. Ahead of the long week end (onshore markets are closed on Mon for the Hari Raya Puasa celebrations), we expect 1.2451 to cap upside today, while 1.2380 should limit downside. Industrial production for Jun is on tap later this afternoon and we do expect it to a minimal impact on the pair, barring major surprises. Market is expecting factory output to dip by a slower 0.9% y/y in Jun after contracting by 5.7% in May.

AUD/SGD – Range-Bound. AUD/SGD waffling this morning with the cross sighted lower currently around 1.13686. Intraday MACD forest is at the zero line, pointing to a lack of directional cues ahead. We continue to look for the cross to trade range-bound within 1.1640/1.1724 today. SGD/MYR – Rangy Still. SGD/MYR closed above our resistance at 2.5630 yesterday but is on the slide this morning. Cross is sighted around 2.5630, within the intraday ichimoku cloud currently. Momentum indicators are still not providing any directional clues for now and range-bound trades are likely today. Ahead of the long weekend in both Singapore and Malaysia, expect rangy trades within 2.5547-2.5721 today.

USD/MYR – Capped. USD/MYR bounced away from the 3.1660-support on Thu and remained on the upmove, underpinned by overnight dollar gains. Thin trades in the bond markets were noted by our traders as the major celebration of Hari Raya Puasa nears and we can expect another session of subdued trades today. Dollar bids to keep this pair buoyant in the current range though upsides are likely to be capped by 3.1875. This is marked by the lower bound of the thick bearish ichimoku cloud on the intra-day chart. Support is still at 3.1660 which has proven reliable. The 1-month NDF bounced in tandem and was last seen around 3.1860. Topsides are still guarded by the cloud around 3.1891. Support at 3.1790 ahead of 3.1694. S&P sees an improvement in the general government debt ratio to GDP at 2.9% compared to 3.8% a year ago. The rating agency expects the upcoming GST and subsidy rationalization to aid fiscal consolidation. On the other hand, Fitch affirms Malaysia at “A-“ but kept outlook negative, citing “unclear plans to achieve budget deficit targets”, “future increase in macroeconomic volatility on the credit profile that stems from high and rising household debt” amongst others. Elsewhere, Malaysia’s 1MDB proposed to build a coal-fired plant in Pulau Indah.

USD/CNY was fixed at 6.1597 (+0.0018), vs. previous 6.1579 (+2.0% upper band limit: 6.2854; -2.0% lower band limit: 6.0390). CNY/MYR was fixed at 0.5145 (+0.0019). USD/CNY – Sideways. Pair bounced this morning and was still limited by the 6.1953-support-turned-barrier. Bias is still to the downside and expect bids to remain checked by the 6.1953-resistance. Next support is still seen at 6.1860. An unexpected break of the 6.1953-barrier exposes the next at 6.2021. China Banking Regulatory Commission has allowed the roll over loans for companies that face “temporary liquidity problems” (BBG). These companies must have sound operations and good credit record to qualify.

1-Year CNY NDFs –Tentative Relief. The NDF hovered around 6.2425, losing much of its bearish momentum on the intra-day chart. In the absence of stronger cues, expect sideway trades with dollar gains to keep the pair buoyant. 18-SMA is still below the 40-SMA and downside pressure could persist beyond the intra-day trades. Topsides could be deterred by 6.2489 while downsides are likely cushioned by 6.2350. USD/CNH – Two-Way Risk. USD/CNH edged off Thu lows to around 6.1930 at last sight. Momentum indicators show little momentum for the pairing risks are on both sides. Intra-day barrier is seen close by at 6.1957. A clean break here exposes next barrier at 6.2012. Support is still seen at recent low of 6.1884.

USD/IDR – Upside Risks. After hitting a recent low of 11500 on the back of a Jokowi victory, USD/IDR is bouncing higher again as the deadline for the losing presidential candidate team to file an appeal of the result to the Constitutional Court. Despite the possibility of prolonged political uncertainty, foreign funds continue to add to their holdings of Indonesian assets, buying a net USD32.05mn in equities yesterday, while adding a net IDR5.36tn in government debt between 17-23 Jul, which should provide support for the IDR. Pair is currently sighted above the 11600-level around 11610 with intraday MACD indicating bullish momentum. Note that onshore markets are close for most of next week, limiting moves on the IDR. For today, we continue to look for trades within 11500/11750 with risks to the upside. 1-month NDF remains above the 11600-level this morning, sighted around 11640 currently with intraday MACD indicating increasing bullish momentum. The JISDOR was back above the 11500 yesterday, fixed at 11531 after Wed’s fixing of 11498.

USD/PHP - Capped. USD/PHP is still bouncing higher, sighted around 43.370 currently with intraday MACD forest is now hugging close to the zero line. An intraday ichimoku cloud continues to weigh overhead, which could see upsides capped around 43.421 today. A firm break of this barrier is needed for bullish extension to continue towards 43.528. 43.185 should still be supportive today. 1-month NDF is wobbling this morning, currently inching slightly higher around 43.340 with intraday MACD indicating mildly bullish momentum. Imports fell by 9.6% y/y in May, and exports up 6.9% y/y (released earlier on 10 Jul), resulting in trade surplus of USD718mn (Apr: -USD783mn revised) vs. market expectations of a USD145mn deficit.

USD/THB – Consolidating. USD/THB is still in consolidation around the 31.800 region this morning after bearish moves on Mon and Tue. Pair is sighted around 31.850 currently with intraday MACD showing mild bullish momentum. Foreign flows are likely to remain supportive of the THB as seen in foreign funds purchase of a net THB1.16bn and THB12.51bn in equities and debt yesterday. Also supporting the THB is positive outlook for the economy that should limit downsides. We continue to look for consolidative trades within 31.65/31.950 today.

The SGD NEER trades 0.70% above the implied mid-point of 1.2491 with the top end estimated at 1.2243 and the floor at 1.2739.

Rates

Malaysia

§ Local government bonds traded thinly with most players away for the coming holidays. Trades were centered on Islamic GII with most trades done on the 10-year GII 5/24. Players were still better sellers overall on bonds ahead of the long holidays.

§ The IRS market was active today. 5-year basis traded at -68bps and was offered on. 5-year IRS traded at 4.05% and 4.00%. IRS levels were bidded up led by offshore interest due to some unwinding of flattening trades. 3M KLIBOR stayed stable at 3.59%.

§ In the PDS market, buying momentum remained with a slew of names traded lower by 5-8bps across the belly right up to 10 years. Focus was still more towards AAA and below for yield pick. The usual names like Plus, Manjungs, Aman and MACB were traded lower. Trading activity will likely slow down approaching the Raya holidays albeit on a firmer tone.

Singapore

§ SGD rates continued to trade in a tight range in the absence of fresh impetus. The IRS curve closed slightly higher after UST futures fell from intraday highs. SGS continued to see paying interests at the long end, particularly the 15 and 20y benchmarks. Yields ended largely unchanged in thin trading.

§ In the Asian credit space, market continued its rally especially in the Indon space with Indon 44 traded back to all time its high of 120. Chinese IG and HY property joined in the buying momentum as well. Overall it was a strong session with spreads grinding tighter and buying conviction on the back of the better China numbers. There were a slew of new books openings to catch the lower UST and lock in some funding, namely EXIM of China, Modernland China, CRCC Yupeng and Abja Investment (Tata Steel).

Indonesia

§ Our economist sees July trade balance to be deficit of US$340 mn compared to surplus of US$70 mn in May. June exports is expected to increased to US$ 15.22 bn in June 2014 (vs May 2014 export value of US$14.83 bn) due to the improvement in macroeconomic situation of Indonesia's main trading partners which will boost demand for goods and services, which in turn also improves the performance of Indonesia’s exports. June imports are expected to increase to US$15.56 bn (vs May imports value of US$14.76 bn) imports is due to the increase in oil and non-oil imports to meet the increased demand for goods and services in order to Ramadan and Lebaran celebrations.

§ July CPI is expected to reach 0.99% m-o-m higher than in June 2014 which reached 0.43% m-o-m. This is caused by the impact of Ramadan and Lebaran. As in previous years, every Ramadan and Lebaran to make the consumption of goods and services experienced a surge. This condition makes the increase in the prices of goods and services. Furthermore, price increases also occurred in inter-city transportation tariffs, tariff carriage, air freight tariff and freight tariff. In addition, July inflation is also expected to increase due to an increase in electricity tariffs and the impact of the new school year which makes the increase in the cost of education. However, we expect the yearly inflation rate in July 2014 will decrease to 4.60% y-o-y from 6.70% y-o-y in June 2014. The yearly inflation slowdown is due to begin the end of the impact of fuel price hike last year.

§ Indonesia bond market closed mixed and moved in a limited range yesterday. As expected, that bond market won’t experience significant rally as investor might avoid entering this week due long holiday. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 7.868% (+0.1bps), 8.043% (-2.0bps), 8.490% (-1.9bps) and 8.666% (-2.0bps) while 2-yr yield shifts up to 7.404% (-2.4bps). Trading volume was noted heavy amounting Rp15,128 with FR0070 (10-yr benchmark series) and FR0068 (20-yr benchmark series) was the most tradable bond during the day. FR0070 total trading volume amounted Rp4,247 bn with 43x transaction frequency and closed at 102.177 yielding 8.043% while FR0068 total trading volume amounted Rp3,182 bn with 160x transaction frequency and closed at 97.260 yielding 8.666%.

§ On the corporate bond segment, trading volume was noted thin with total volume amounting Rp276 bn yesterday (vs average per day (Jan – Jun) trading volume of Rp677 bn). AKRA01A (AKR Corporindo I Year 2012; A serial bond; Rating: idAA-) was the top actively traded corporate bond with total trading volume amounting Rp80 bn and was last traded at 114.54.

My One Academy

Friday, July 25, 2014

Maybank GM Daily - 25 Jul 2014

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