Maybank GM Daily - 7 Jul 2014

FX

Global

      Friday was dull without the US and we head into a quieter week in the developed markets. Minutes of the Jun FOMC meeting due on the night of Wed is not expected to hold much surprises, allowing carry trade to continue. A rather anchored rates outlook should support the antipodeans on dips, notwithstanding the recent jawboning from RBA Glenn Stevens. Carry trade still dominates in the absence of volatility.  BOE decides on policy decision on Thu. Most do not expect a move but are looking for Carney to follow through on his hawkish bias from the June meet. GBP could thus remain elevated. Any disappointment on that front is likely to trigger a shortlived pullback.

      With a lack of market cues from the West, focus is thus likely shifted towards Asia. China is due to release a string of high frequency Jun data. The releases should add to the lukewarm data that we have seen thus far in 2Q and should not rattle markets much with the exception of perhaps the trade numbers (Cons.: Exports:10.5%y/y; Imports:6.00%y/y; Trade balance: $36.95bn) on Thu. Thursday is indeed looking crowded indeed in Asia. Apart from the BOE meeting in the evening, BI and BNM meet as well. No action is expected from the Indonesians. On the other hand, markets are already gearing up for the first rate hike Mar 2011 by BNM. USD/MYR has so far slipped to lows of 3.18 and is likely to remain thereabouts for the rest of the week ahead of the meet. We think a kneejerk reaction could bring the pair towards the 3.17-figure but dips below this level could see some bargain hunters.

      Apart from data releases, the main event in ASEAN is Indonesia’s Presidential Election and polling day is on 9 July. Offshore voting has begun. The fight between the two candidates is becoming a bit too close for comfort and we expect uncertainties or even fears of an unclear election outcome to drive the USD/IDR higher in the interim. Barrier is seen around 12100 ahead of 12281.

G7 Currencies

       DXY – Sideways. The dollar index made a complete recovery by the end of the week, buoyed by both the ADP and NFP numbers that topped consensus. The greenback hovered around 80.30 as we write and remained within the medium term range. In addition, we are wary of the negative cross-over of the 18 day-ma and 40 day-ma on the chart, signaling at best range-trading and if not, downside risks. The June FOMC minutes will be released in the middle of the week and should keep the broad view of the Fed intact. Support is seen at 79.920 while topsides remain capped by 80.420.

      USD/JPY – Rangy.  USD/JPY ended the week back above the 102-region around 102.20, helped by a resurgent dollar and higher yields. The pair is still hovering around above the 102-region at 102.11 with daily MACD showing little momentum in either direction, suggesting two-way trades are likely this week. With the pair now back within the ichimoku cloud, we see a barrier at the top of the cloud around 102.50 ahead of the next at 102.68. Support remains around 101.20.

      AUD/USD – Sideways. AUD/USD was hammered by jawboning by RBA Glenn Stevens last week. His words were unexpected after the rather nonchalant statement released at the end of the policy meeting. Pair waffled around 0.9350 this morning and 0.9320 supports the pair for now. This week contains quite a few key data releases including NAB business surveys, labour report as well as consumer confidence numbers. China’s trade numbers will be closely watched as well. Choppy trades to continue within 0.9255-0.9420.

      EUR/USD – Shallow Dips. EUR/USD mirrored the dollar moves in the reverse. The pair slipped from its mid-week high of 1.37-figure to trade around 1.3610 as we write on Fri morning.1.3586-support is a tough one to break and could provide ample support for the pairing in the week ahead. Upticks are likely to meet barrier at 1.3670 ahead of the next at 1.3700. On the daily chart, the MACD is paring bullish momentum and risks are tilted to the downside.

Regional FX

      The SGD NEER trades 0.54% above the implied mid-point of 1.2537 with the top end estimated at 1.2287 and the floor at 1.2786.

       USD/SGD – Flat. USD/SGD rebounded from a low of 1.2450 last week – a level not seen since 20 Nov last year. Pair is currently sighted around 1.2461 with momentum indicators showing little directional cues. Advanced estimates for 2Q GDP is on tap 10-14 Jul but we do not expect this to have much impact on the FX space unless there is a huge surprise in either direction. We look for rangy trades to dominate within 1.2426-1.2512 this week.

       AUD/SGD – Supported on Dips.  AUD/SGD is back within the ichimoku clouds, trading around 1.1651 currently. Risks are now to the downside according to MACD though there is support from the daily ichimoku cloud, albeit thin. We expect rangy trades within 1.1590/1.1774 in the week ahead. Eyes on data releases out of Australia and China for cues. Any break of the 1.1590-support exposes the next support at 1.1507.  SGD/MYR – Downside Pressure. SGD/MYR ended the week below the 2.5564-support, but is back above that support level to start the new week at 2.5570. Risks though have flipped to the downside. Rate hike expectations should continue to put downward pressure on the pair.  We look for rangy trades within 2.5447/2.5630 for much of the week.

       USD/MYR – Heavy. USD/MYR pulled back to a low of 3.1805 and is currently oversold. Markets have priced in at least a 25bps rate hike on Thu and the rest of the week could see more rangy trades with a likely bias to the downside. Last seen around 3.1870, support is seen around 3.1764 ahead of 3.1689 while topsides are guarded by 3.2109. 1-month NDF steadied near its previous close around 3.1890 as we write this morning. Daily momentum shows bearish momentum. Pair is thus likely to remain heavy for much of this week, in the lead up to monetary policy meeting this Thu. May exports eased less than expected to 16.3%y/y from the previous 18.7% Imports accelerated to 11.9%y/y from the previous 5.0%. Trade balance narrowed to MYR 5.72bn from the previous MYR8.74bn. In separate news, palm oil stockpiles in Malaysia gained in June to 1.86mn MT from 1.84 mn MT in the month prior.

       USD/CNY was fixed higher at 6.1658 (+0.0016), vs. previous 6.1642 (+2.0% upper band limit: 6.2916; -2.0% lower band limit: 6.0449). CNY/MYR was fixed at 0.5151 (-0.0009). USD/CNY –Rangy. Spot slipped this morning and traded around 6.2030 despite the higher fixing. Support is seen around 6.1953. Daily signals show downside little bias and thus expect pairing to be drawn towards the 6.1953-support. Unexpected upticks to be deterred by the resistance at 6.2167.  From the press, Director of the Finance Ministry’s fiscal-science research institute Jia Kang remarked that GDP growth may be 7.4% in 2Q and 7.6% in 2H. Elsewhere, the southern city of Guangdong may unveil SOE reforms (BBG). Meanwhile, all eyes on the slew of Jun data due this week, not least of all trade numbers on Thu. The sixth US-China Strategic and Economic Dialogue will be watched as wells.

       1-Year CNY NDFs – Overbought. NDF steadied around 6.2635 as we write this morning, close to its previous close and gaining bullish momentum. However, for a pair that has been in wide range trading within 6.20-6.27, prices are looking uncomfortably overbought. Expect buoyant trades for now but 6.2672 acts as an interim barrier ahead of the key resistance at 6.2725.Supoprt is seen at 6.2485.

       USD/CNH – Capped. USD/CNH was on the uptick around 6.2060, but pair is still under downside pressure unlike the NDFs. This pairing is likely weighed by the hot money inflows into the SAR. Support is seen at 6.2009 ahead of the next at 6.1967. Upticks to be guarded by 6.2193.

      USD/IDR – Range-bound. USD/IDR gapped lower at the opening to 11795 before recovering slightly to 11806 at last sight. It appears that market is positioning for a Jokowi victory on Wed. This is despite polls showing the presidential elections too close to call, which should keep the pair elevated. Moreover, the sell-off by foreign funds since Thu with a net USD65.22mn in equities sold altogether on Thu and Fri is adding upward pressure on the pair. On Thu, BI will meet on policy and no change is expected. Ahead of the presidential elections on Wed, we expect the pair to trade range-bound within 11750-12100 for the week ahead. A Jokowi victory could see a kneejerk positive reaction to the IDR, while the reverse is likely for a Prabowo win. In either case, the market is likely to remain volatile until there is policy clarity and key economic members of the cabinet are announced.1-month NDF continued its downward move for the third consecutive session, hovering around 11825 at last sight with momentum increasingly bearish. After three consecutive upticks, the JISDOR was fixed lower at 11887 to end the week.

       USD/PHP – Downside Risks. USD/PHP has been on the slide since 25 Jun and is currently edging lower to around 43.461 on the back of improving global risks prospects. Foreign funds remained positive on the economy, buying a net USD51.3mn in equities last week, providing support to the PHP. However, the grind lower is likely to be gradual given that MACD forest is  hovering close to the zero line, suggesting little momentum in either direction. A firm break of 43.421-support should expose the next support at 43.185. Hurdle to cross this week is 43.750. 1-month NDF is currently hovering little changed at 43.490 this morning with MACD forest still hugging close to the zero line though RSI is printing close to oversold territory at 26 currently.

       USD/THB – Sideways. USD/THB remained locked within a tight trading range of 32.350/32.455 last week. A similar pattern seems likely this week given the lack of directional clues this week in terms of data and as indicated by daily MACD forest. Even continued purchase of assets by foreign investors (a net THB3.44bn and THB40.87bn in equities and debt) last week failed to provide the pair with a significant lift. We need to see a firm break in either direction for directional clarity. Until then, we look for the pair to trade range-bound within 32.350-32.500 this week.

Rates

Malaysia

      Local government bond saw better sellers today on the back of stronger-than-expected US nonfarm payrolls overnight. Despite the bullish US data, USDMYR pair traded lower as heightened rate hike expectations build up as we get closer to MPC meeting on the 10th of July. Bonds traded overall mixed amidst thin liquidity. All eyes set on next week’s MPC with a market consensus 25bps OPR hike.

      In the IRS market, nothing was traded. The US was on holiday hence it's quiet. 3M KLIBOR stayed stable at 3.56%.

      The PDS market was active. Mid-to-long end continued to be in demand. Khazanah 2021 traded at 4.40% while AA3-rated Tanjung Bin Energy 3/2029 traded lower at 5.61%.

Singapore

      The SGS curve ended fairly flat compared to yesterday amidst thin volume probably due to the US holiday for Independence Day. Earlier the day the rise in USD rates pushed the SGD curve higher and flatter on the back of better than expected jobs data. By the close however, most issues recovered all lost grounds, with prices for the 20 and 30-year actually higher from previous close.

      In the credit market, US job data came out higher than market expectation. China property bonds continued to rally alongside with equities. As the US was on holiday for its Independence Day, it was quiet in the primary issuance market. We saw some private banks buying interest in the recently printed names like Tiong Seng Holdings and Sing Hai Yi. Demand was steady for Genting Singapore Perpetual being traded close to par.

Indonesia

      Today’s market was very quiet and stabilized as Indonesia’s Ministry of Finance said that Current-account deficit to be better than last year  to reach around USD26 billion – USD27 billion this year. Central Bank’s Governor also comments that they will always be in market to guard rupiah against too volatile moves which may make market participants uncomfortable. Overall, market closed with same level as yesterday. Furthermore, yield closed at 7.74/8.11/8.57/8.72% for 5Y/10Y/15Y and 20Y respectively.