Maybank GM Daily - 22 Sep 2014

FX

Global

DJI closed at record high on Fri at 17,279.74. Solid debut of Alibaba lifted sentiments accompanied by relief cheer over Scotland’s decision to stay with UK. On the other hand, S&P and NASDAQ slipped into small red by close. Over the weekend, G20 agreed on boosting combined GDP growth by 1.8% in the next five years.       We head into a quieter week. US has existing Aug home sales due on Mon, PMI-mfg on Tue and new home sales  on Wed. Durable goods order for Aug are due on Thu while the third estimate of 2Q GDP is out on Fri. Fed speaks may also be watched. China’s HSBC flash PMI-mfg for Sep would hog the limelight on Tue. A downside surprise could weigh on risk sentiments and drive the over-extended USD/JPY on a corrective retreat. That said, we would not go so far as to say that the big 110-figure is out of reach given the current strong bullish momentum.       More preliminary PMI-mfg numbers are out of the Eurozone but EUR/USD seems to have been resilient to domestic data. EUR players might rather stay on the sidelines as the currency continues to play within 1.2820-1.2990 range. German IFO numbers are also due at mid-week.       In Asia, Singapore CPI is out on the same day as China’s HSBC flash PMI-mfg. Thailand’s custom trade numbers could be out anytime between Wed and Fri. Philippine’s Jul imports and trade bal are due on Thu while Singapore’s Aug industrial production  will wrap up the week.

      We notice signs of bullish divergence for some MYR crosses – in particular against the JPY and NZD. For USD/Asians, as the post-Fed euphoria starts to fade and dollar starts to take on a consolidative tone, focus is now shifted to regional data releases and any ad-hoc risk events that could swing the FX space.

G7 Currencies

      DXY – Buoyant. The DXY index remained rallied past the 2013 high to peak at 84.795 on Fri before easing back slightly to 84.70 as we write. The higher median rate projection has spurred the short-lived rally in the DXY but the FOMC statement suggests that the Fed is not bringing forward the rate hike schedule. As such, the greenback can afford a period of consolidation in the 83.70-84.75 range, albeit with a bid tone. Break on the upside exposes the next at 85.377. The week ahead has more preliminary PMI-mfg prints due and risk appetite could be the major DXY swinger. Data-wise, the third estimate of 2Q GDP is due on Fri, after durable goods order. Fed Speaks will be watched as well, starting with Fed Dudley tonight.

      USD/JPY – Bullish Breakaway. The USD/JPY is within striking distance of the psychological 110-figure after a week of dollar strength and risk-on sentiments. Pair is currently hovering around 108.93 after taking out our barrier at 108.76 last week. Bullish momentum is showing no signs of waning, though RSI is indicating overstretched conditions currently on our daily chart. Immediate barrier to watch out for is recent high of 109.46 and a break here could see a move to the next target at 110 ahead of 110.66 (15 Aug 2008). 108-figure should continue to be supportive this week. Aug CPI out this Fri will be eyed.

      AUD/USD – Offered. The pair extended decline and waffled around the 0.8940-mark this morning, weighed by dollar strength. Even boosts to the Chinese economy, arguably as they might be, failed to stall the bears. Downside risks are gaining on the pair and could pres the pair towards next support at 0.8909 which is looking pretty close now. Next support is seen at Aug-2013 low at 0.8847. Unexpected bids to meet resistance around 0.9084.

      EUR/USD – Directionless. EUR has to be contented with shallow dips as both the currency and the greenback are not showing much directional cues at the moment. Last seen around the 1.29-figure, there are still eager sellers around the 1.30-figure and we expect two-way gyrations to continue within the narrow confines of the 1.2820-1.2990 range. Beyond the near-term, bias is still to the downside as flagged by the 18-DMA which lies below the 40-DMA.  Preliminary PMI-mfg numbers are due for release followed confidence indicators out of core economies. German IFO surveys are also due.

      EUR/SGD – Bearish Risks. The EUR/SGD waffled near the lower bound of its 1.6210-1.6400 range. This cross was last seen at 1.6260, weighed by the dollar strength. 18-DMA is well below 40-SMA and recent price moves suggest that risks are still to the downside though the Sep low of 1.6203 acts as the interim support before greater bearish extension can be established. Next technical support is seen at 1.6087.

Regional FX

      The SGD NEER trades 0.37% above the implied mid-point of 1.2701. The top end is estimated at 1.2448 and the floor at 1.2954.

      USD/SGD – Upside Bias. USD/SGD came within a hair breath of breaking the 1.27-figure last week before coming off. Pair remains on the retreat, currently sighted around 1.2648. However, this seems more a prelude to sideway trades than to a sustained dip given that the USD could be in a period of consolidation. Expect dips to remain cushioned by the 1.26-figure. Risks are still biased to the upside given that the 18-DMA lies above the 40-DMA still and we eye the first barrier at 1.2721. Aug CPI and Aug IPI are due this week, but we expect little impact on the pairing unless they surprise.

      AUD/SGD – A Falling Knife. The AUD/SGD remains on the downmove, sighted around 1.1300 currently. Cross is still showing strong bearish momentum, though it is approaching oversold conditions. Offers are likely to be limited by 1.1275 – major support level - this week.  Cross could probably find a base within 1.1275-1.476 this week unless fresh cues emerge. SGD/MYR – Bullish Risks. MYR weakness lifted the SGD/MYR towards the 2.5630-barrier last week. Daily chart continues to indicate bullish conditions for this cross, further underpinned by the 40-DMA around 2.5547. Next support is seen around 2.5394. We reckon the cross could remain rangy with an upside tilt for this week.

      USD/MYR – Capped. USD/MYR steadied around 3.2330 and daily MACD indicates waning bullish momentum. 3.2492 has become a barrier for this pair though the positive cross-over of the 18-DMA and the 40-DMA signals bullish risks in this pair towards the next 3.2717-barrier. Offers to be met by buying interest. Support is seen around 3.2240 1-month NDF is on the downtick this morning, last seen at sub-3.24 levels. This pair closes in on the next support level at 3.2372 and a break here exposes the next at 3.2175.  At home, Second Finance Minister Ahmad Husni Hanadzlah revised the 2014 growth forecast higher to 5.5-6.0%.

      USD/CNY was fixed at 6.1485 (+0.0030), vs. previous 6.1455 (+2.0% upper band limit: 6.2740; -2.0% lower band limit: 6.0279). CNY/MYR was fixed at 0.5258 (-0.0011). USD/CNY – In Range. Pair hovered around 6.14-figure this morning, hardly reacting to the firmer fixing this morning. Pair is still the 6.1348-6.1530 range and there is little directional cues. Expect gyrations to remain thereabouts for much of this week, unless HSBC flash PMI-mfg tomorrow surprises. Over the weekend, Finance Minister commented at the G20 meeting that the nation will not rely on fiscal stimulus for large investment even as economic growth faces downward pressure. The nation will press on with SOE reform as well as that of household registration and rural land to spur growth.

      1-Year CNY NDFs – Neutral. The NDF traded around the 6.24-figure, underpinned by the daily ichimoku cloud at 6.2343. Momentum is still bullish, according to the daily chart but recent price moves suggest two-way interests. Expect intra-week trades to remain within 6.2343-6.2485. USD/CNH – Offered. USD/CNH slipped towards levels around the 6.14-figure this morning and momentum indicators waning bullish pressure abound. At this point, risks are still to the downside but major support is seen at Sep low of 6.1310 while topsides could be guarded by 6.1539. CNH now trades at a very narrow discount to CNY.

      USD/IDR –Overstretched. Dollar strength and waning risk appetite sent the USD/IDR higher towards the 12100-level last week, before easing back below the 12000-figure. We had foreign funds selling off a net USD171.47mn in equities last week, lifting the pair higher. Pair remains within striking distance of the 12000-figure, last sighted at 11978. Risks remain tilted to the upside as indicated by our daily chart, though the pair appears overstretched. Markets remains concern about the president elect’s cabinet choices, his ability to garner a majority in Parliament and his commitment to deal with the economic challenges, including cutting fuel subsidies. With risks still bias to the upside, we reckon bids are likely to be still capped by 12100 this week, while offers should be limited by 11900. The 1-month NDF continued to trade above the key 12000-psychological level, sighted around 12050 currently with the daily charts showing bullish momentum still, though it has come off a little. Still further upside could be capped given bearish momentum as shown by the four-hourly chart. The JISDOR ended the week on a bearish note, fixed lower below the key 12000-level at 11985 on Fri.

      USD/PHP – Bullish Bias. Onshore markets re-opened today after being closed on Fri because of the storm. Before the disruption, the USD/PHP was on way higher, peaking at 44.645. Pair is currently sighted around 44.495 and remains buoyant as indicated by our daily charts. With risks tilted to the upside, price action this week is likely to hover within 44.125-44.820. Look out for possible moves by BSP should the pair swing further to the upside following comments by the BSP governor that the central bank would remain in the market to curb volatility. The 1-month NDF remains on the retreat to start the week, hovering around 44.510 currently, with the daily chart indicating still bullish conditions.

      USD/THB – Sideways. After a fortnight of upswing, the USD/THB hit a high of 32.350 last week on the back of dollar strength and risk aversion. This was seen in the foreign funds sell-off of a net THB11.51bn in debt last week, though they did add a net THB5.45bn in equities. Pair is on the retreat to start the new week, hovering around 32.185 at last sight. Bullish conditions appear to be waning, though risks are still to the upside with the 18-DMA still above the 40-DMA. For now, look for sideway trades in the week ahead with resistance still around 32.355 this week. We need to see a break of this level for bullish extension to continue with the next target at 32.500. Support this week is seen around 32.050. Custom trade data is out this week, but we do not expect it to have a major impact on the pairing.

Rates

Malaysia

      Local government bonds gapped 4-9bps lower post MPC this morning as some players revised their OPR hike expectations untill next year. The curve steepened with the 3y benchmark MGS 3/17 yield moving lower by the most. The morning trade session also saw the auction on the 30y MGS 9/43. Lackluster demand on the long ends left the auction with a BTC of 1.365. The auction tailed and the bond was dealt at 4.74% post auction results. We noticed profit takers throughout the morning but were limited especially when London trading session opened and foreign buying were seen.

      IRS levels collapsed essentially 5bps across the curve, and we think this was driven by cutting paid positions. Market was reasonably active with trades done from 1y up to the 5y point. 5y IRS traded at between 3.97-3.99%. Receiving interest remained strong. We recommend paying 5y IRS around mid-3.90%. 3M KLIBOR, on the other hand, was unmoved by the BNM’s decision to keep OPR unchanged, and stayed unchanged at 3.74%.

      The PDS market was active especially the infrastructure and power names. We saw signs of profit taking at the longer end of the curve with Plus 2038 and Dana Jul 2034 being traded about 2bps above their MTM levels. Bids concentrated on short to medium tenure GGs and AAAs.

Singapore

      SGS prices continued to trade weaker although closing the week outperforming SGD IRS by about 2bps. SGS yields ended 2-5bps higher at the end of the day. We saw bids for bonds from the belly onwards. SGS prices might stabilize in the coming week as market probably looks to bottom-pick.

      Asian credit market was a bit quiet. Cash price continued to be under pressure with UST moving higher in yield. Not much change was seen on Korean names, so did the Chinese HY names. It is also not helping with the recent release from National Bureau of Statistics on the falling house prices in China, reflecting the weakness in the property sector. New issues HONHUA and CHOHIN were trading at around reoffer levels.

Indonesia

      Indonesia bond market posted gains on the final day of last week. The discussion of subsidize fuel price hike of Rp3,000,- have gave positive sentiment despite subsidize fuel price hike would trigger a cost push inflation. For every 10% rise of subsidize fuel prices, it generates an additional 0.8% in inflation. So with an expectation rise of Rp3,000,- or 46% in subsidized fuel price, an additional 3.68% inflation would be generated, bringing Indonesia inflation to reach around 8.6% - 9% level at the end of this year if the price hike takes places this year. Without the subsidize fuel price hike, our house estimate that full year inflation would be at 5.12% level. Bond price may rise eventually when the fuel price hike takes place but the optimism of future Indonesia growth have actually made bond price hike on Friday. Foreign investors were seen purchasing during the day. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 8.053% (-1.1bps), 8.215% (-6.9bps), 8.523% (-5.0bps) and 8.765% (-10.0bps) while 2-yr yield shifts down to 7.540% (-1.0bps). Government bond traded heavy at secondary market amounting Rp8,140 bn from Rp8,841 tn with FR0068 (20-yr benchmark series) and FR0070 (10-yr benchmark series) remain as the most tradable bond. FR0068 total trading volume amounted Rp1,777 bn with 118x transaction frequency and closed at 96.380 yielding 8.765% while FR0070 total trading volume amounted Rp1,681 bn with 112x closed at 101.039 yielding 8.215%.

      Corporate bond traded thin amounting Rp165 bn (vs average per day (Jan – Aug) trading volume of Rp657 bn). BMRI01 (Subordinate Bank Mandiri I year 2009; Rating: idAA+) was the top actively traded corporate bond with total trading volume amounted Rp40 bn yielding 9.868%.