Maybank GM Daily - 18 Sep 2014

FX

Global

The Fed decided to maintain the current target range for the federal funds rate for a considerable time as inflation remains below the 2% target. In addition, the Fed also laid out an exit strategy to normalize the stance of monetary policy, specifying a list of instruments to manage interest rates when the time comes. Much is still dependent on the “economic conditions and economic outlook”. Rate projections for end-2015 were revised higher to a median of 1.375% from 1.125% projected in Jun.        Dollar crossed the 2013-high of 84.753 briefly and leveled off to trade around the 84.70-mark. UST 10-yr yields bounced above 2.6% this morning in tandem with the greenback while equities also made a late reversal into black, closing with modest gains.        Early starter Nikkei was up 0.8% at last sight, buoyed also by a narrower-than-expected trade deficit for Aug. Elsewhere, Kospi fell -0.2%. As Asia digests the overnight events, BNM decides on overnight policy rate today. The decision could be a close call. Expect USD/MYR to remain lofty within range before 1800 (HKT). Rest of Asia is likely to trade on the backfoot in the face of the dominant USD.        Beyond Asia, the action does not stop. The final campaigning days of the Scottish Referendum had been emotional and GBP players are likely to steer to the sidelines ahead of the result. The rest of Europe awaits the TLTRO takeup today 1715 (HKT). Thereafter, we have housing starts and Philly Fed data out of the US.

G7 Currencies

DXY – Buoyant. The DXY jumped to a high of 84.761 before softening to levels around the 84.70 this morning. The greenback is likely taking the lull of the Asian session to consolidate before the next upmove. Intra-day indicators still flag bullish conditions and our next target is some distance away at 85.38. Rate projections were upgraded and likely sparked the sell-off in USTs and the late dollar rally. Support is seen at the 84-figure.        USD/JPY – Buoyant. The USD/JPY is still on the uptick this morning after breaking out of its recent tight trading range to above the 108-handle post FOMC. Pair hit a new high of 108.68 this morning, a high not seen since 9 Sep 2008’s 109.08, before coming off to hover around 108.43. Pair could still remain buoyant given mild bullish momentum on the intraday chart, though the pair looks overstretched currently. 108.76 is the new barrier to cross and a break of this level is needed for bullish extension to continue towards the next barrier at 109.08. We need to see the hurdle at 107.48 taken out for bullish extension to continue. BOJ governor’s speech in Tokyo will be eyed for hints of additional easing moves today.        AUD/USD – Risks to the downside. AUD/USD fell below the 0.90-figure by early Asia, last seen around 0.8960. We still eye support at 0.8909. Bullish risks in the greenback could keep the AUD pressured to the downside. Any bounces are likely short-lived and could meet resistance around 0.9054.        EUR/USD – Heavy. EUR slipped under the 1.2877-support and waffled around 1.2860 this morning, Downside momentum is gaining though all eyes are on the TLTRO take-up today at 1715 (HKT). That would be the main event to watch out of the EU and any disappointment could boost chances of QE. Next support for the EUR/USD pairing is not far away, at 1.2822 and a break here exposes the next at 1.2755. Bounces to meet barrier at 1.2993.

       EUR/SGD – Range-Plays. The EUR/SGD rose above the 1.6380 in Asia on Thu before reversing sharply towards 1.6310 in overnight trades. The dollar upmove weighed on the pair but prices have yet break the 1.6298-support. Range-plays are likely to continue within the wider 1.6210-1.6490 band as we have noted before.  MACD on the 4-hourly chart signals bias to the downside though RSI indicates small scope, printing 34. Expect this cross to trade with a downward tilt.

Regional FX

       The SGD NEER trades 0.18% above the implied mid-point of 1.2711. We estimate the top end at 1.2457 and the floor at 1.2965.

       USD/SGD – Overstretched. Several of our barriers were taken out overnight as the USD/SGD bounced higher in reaction to FOMC. Pair is currently hovering around 1.2689, within striking distance of our immediate barrier at 1.2700. Pair remains in overbought conditions currently. A break of 1.2700 would expose the next stronger barrier at 1.2721 (76.8% Fibonacci retracement of the Jan-Jul downswing). 1.2616 should be supportive today.

       AUD/SGD – Two-Way Trades. The AUD/SGD is rebounding slightly on the back of AUD strength after slipping overnight. Pair is hovering around 1.1375 currently with intraday MACD showing little momentum in either direction. Lacking direction cues, pair is likely to remain in two-way trades within 1.1275-1.1532 today. SGD/MYR – Capped. After retreating below the 2.55-handle yesterday, the SGD/MYR is bouncing higher to around 2.5510, helped by the relative MYR weakness this morning. Rebound though could be mild given that bullish momentum is waning as shown by intraday MACD. Look for 2.5394 to still provide support today, while bids are likely to meet immediate resistance around 2.5547 ahead of the next at 2.5630.

       USD/MYR – Rangy. USD/MYR gapped up to trade around 3.2365 this morning, following the dollar upmove. Intra-day chart shows bullish momentum though we reckon bids to be met by stealthy offers ahead of BNM’s rate decision at 1800 (HKT). The 1-month NDFs hovered around 3.2440, having led the spot prices higher with its upmove overnight. The rate decision in the evening could be a close call given the split in polls. Malaysia’s CPI firmed to 3.3%y/y from 3.2% previously. Core inflation was stable and our economic team keeps inflation rate forecast at 3.5% for now.

       USD/CNY was fixed at 6.1490 (+0.0040), vs. previous 6.1450 (+2.0% upper band limit: 6.2745; -2.0% lower band limit: 6.0284). CNY/MYR was fixed at 0.5253 (0.0014). USD/CNY – Back in Range. Pair bounced to levels around 6.1450 this morning, underpinned by the firmer fixing and dollar upmove overnight. Intra-day momentum still suggests waning bullish momentum and range-plays are likely to continue within 6.1348-6.1530. Hot from the wires, new home prices fell in Aug across 68 cities from Jul, an increase from 64 in Jul. In other news, NDRC may form city clusters across provinces as soon as 2015 (Economic Information Daily).

       1-Year CNY NDFs – Bullish. The NDF is guided higher by the 18-SMA on the 4-hourly chart and was last seen around 6.2460. Bullish momentum is weak on the 4-hourly chart and next barrier is close by at 6.2485. Support is pencilled in at 6.2350. USD/CNH – Anchored. USD/CNH bounced to a high of 6.1643 before reversing to around 6.1580. Two-way interests seen in this pairing with momentum indicators still suggesting slight bearish conditions. Strength of the CNH sees the currency trades at a wide discount to CNY.

       USD/IDR – Bullish Bias. The USD/IDR gapped higher at the opening to 12028 from yesterday’s close of 11970 on the back of US Fed fund rate expectations. Pair remains above the key-12000 psychological level at 12023 currently with intraday MACD showing increasing bullish momentum, though the pair remains overstretched. We continue to expect the pair to remain elevated on the back of a firmer dollar tone, concerns about the president elect’s cabinet choices, his ability to garner a majority in Parliament and his commitment to deal with the economic problems, including the fuel prices subsidy issue, amid calls for nationalistic policies. Still, watch out for possible central bank intervention to keep currency volatility in check that could keep the pairing capped at around 12100 today. New support is now seen around 11950. Waning risk appetite saw foreign funds selling a net USD46.27mn in equities yesterday, weighing on the IDR. The 1-month NDF broke above the key 12000-psychological level yesterday and continues to hover around that level this morning. The 1-month is currently sighted around 12110 with the four-hourly chart showing bullish momentum ahead. The JISDOR was once again fixed slightly higher at 11908 yesterday from 11903 on Tue.

       USD/PHP – Upside Bias. Like the rest of its regional peers, the USD/PHP is on the upswing, egged on by expectations of Fed fund rate hike. Pair is currently sighted around 44.500 after hitting 44.560 earlier. Intraday MACD showing only mild bullish momentum, though the pair is edging closer to overstretched conditions. Given expectations of a firmer dollar tone, upsides are likely to be capped by 44.580 ahead of 44.700. Downsides should be limited by 44.125 today. The 1-month NDF remains on the upswing, hovering around 44.550 this morning with the four-hourly chart showing only mild bearish momentum though the RSI is indicating overbought conditions.

       USD/THB – Bullish Bias. USD/THB continues to ride the Fed fund rate hike expectations this morning. Pair is sighted around 32.330, though it appears overstretched for now. With our barrier at 32.290 taken out, the next barrier to cross is 32.355 ahead of the next at 32.500. Support is seen around 32.245 today. Foreign buying of Thai assets continued yesterday with a net THB2.24bn and THB0.19bn in equities and debt purchased, which supported the pair yesterday. BOT left its policy rate unchanged at 2.00% as expected. Benign inflation and a still fragile economy allowed the central bank to hold its rate steady. Our economic team expects a rate hike only in 2H 2015.

Rates

Malaysia

      In the local government bond market, BNM announced the reopening of the 30y MGS 9/43 with an issue size of MYR2b. WI was quoted at 4.74/66. Market was quiet ahead of several key events including the US FOMC decision and Scotland referendum, in addition to the local MPC meeting on Thursday. Meanwhile, CPI printed slightly at 3.3%, slightly higher than market consensus of 3.2%. We expect muted reaction until after the rate decision by BNM.

       The IRS market remained more offerish, probably a reflection of more paid positions need to be squared. 1y IRS traded at 3.78%. 3M KLIBOR stayed elevated at 3.74%.

       The PDS market remained muted. Higher grade long papers saw some interest with Aman and Aquasar being traded. There was also some interest in the higher yielding short duration papers from Gamuda, Malakoff, IJM and YTL Power.

Singapore

      In the SGS market, longer end bonds traded softer as the curve steepened slightly. Market preferred to be a little squarish to slight paid rates ahead of the FOMC, which might be sounding not so dovish to slightly hawkish. Any major shift in tone toward a much earlier-than-expected FFR hike might prompt further steepening phenomenon in the markets with the back end SGS bearing the brunt.

       In the Asian credit market, most were sidelined ahead of the FOMC, though there were still a number of new issues. International Finance Corporation (AAA rated by S&P) issued CNH1b at 3.10% for a 5y piece. Frasers Centrepoint Limited is issuing a SGD500m paper with initial guidance at 5.00%. The book was overwhelmed with 7 times order and last revised its guidance to 4.88%. Jababeka, an Indonesian industrial company issued USD56m 5NC3 paper on top of the exchange of its existing 2017 paper to this new paper, at 7.5%.

Indonesia

      Indonesia bond market closed lower amid China introduces stimulus measures. At current yield, we believe that market has slightly priced in the chances of Fed giving a hawkish statement. Yet, bond prices might continue slipping if the hawkish statement did eventually appears. There weren’t any news domestically as there won’t be any economy data publication till the end of this month hence some buying was seen by foreigner. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 8.047% (+0.5bps), 8.292% (-1.2bps), 8.554% (-2.2bps) and 8.854% (-1.1bps) while 2-yr yield shifts up to 7.551% (+1.6bps). Trading volume remains heavy amounting Rp16,163 bn from Rp11,129 tn with FR0069 (5-yr benchmark series) and FR0068 (20-yr benchmark series) as the most tradable bond. FR0069 total trading volume amounted Rp3,005 bn with 65x transaction frequency and closed at 99.343 yielding 8.047% while FR0070 total trading volume amounted Rp2,483 bn with 105x closed at 100.534 yielding 8.292%.

       Corporate bond traded heavy amounting Rp785 bn (vs average per day (Jan – Aug) trading volume of Rp657 bn). SMFP02CN4 (Shelf registration II Sarana Multigriya Finansial Phase IV Year 2014; Rating: idAA+) was the top actively traded corporate bond with total trading volume amounted Rp500 bn yielding 9.13%.