Maybank GM Daily - 29 Sep 2014

FX

Global

      After the strong performance by the US economy in 2Q, expanding by an annualized 4.6% – the fastest pace since 4Q 2011, markets will be eyeing both the ECB policy meet and NFP.  The words of President Draghi had been unmistakably dovish in the past week and a change in tone on Thu seems unlikely. In the US, consensus expects a rebound in the NFP to levels above 200K from the previous 142K in Aug. We expect the firm expectations of the release to keep the dollar index buoyant. Before that, US ADP report due on Wed could guide the markets to the NFP number at the end of the week.

      In Australia, retail sales (Cons.:0.4%m/m) are due on Wed would be watched for cues on private consumption. The RBA annual report is released the next day. The AUD had been hammered by commodity prices and was dragged lower by fellow antipodean - NZD - after the adhoc statement by RBNZ. The NZD continued on its slide this morning, dropping 1.5% intraday following comments by the PM that the “Goldilocks” level for the NZD is around 65 cents.

      In Asia, we have Thailand’s custom trade numbers due on Mon, followed by the closely watched HSBC PMI-mfg out of China (Flash: 50.5) on Tue. The official version is due on Wed (Cons.:51.0) followed by Indonesia’s Sep CPI and its Aug trade figures. Singapore’s Sep PMI and Thailand’s CPI will be released that day as well.

      USD/AXJs are likely to stay buoyant with China’s PMI in focus at the start of the week but attention should be quickly shifted towards ECB and the US NFP. Policy divergence on the two ends of the Atlantic should support the greenback on dips. Any black swan events that stem from geopolitical risks are likely to benefit the USD bulls as well.

G7 Currencies

       DXY – Buoyant. Dollar bulls reasserted themselves following the strong GDP print, sending the DXY index to a fresh high of 85.671 this morning. Also, underpinning the dollar upticks last week were quarter-end flows as well as flight to safety. NFP is due at the end of this week and consensus is at 210K, vs. the previous 142K. Firm expectations of the data could keep dips supported. That said, we are wary of more aggressive bids given the bearish divergence observed. 84.532 is still the support to watch for this week. Next major barrier to eye is 86.962.

       USD/JPY – Sideways for Now. USD/JPY hovered within the tight band of 108.24-109.50 for much last week, losing much of its bullish momentum. There are few directional cues at this point and pair may remain in sideway gyrations for now. A break on either side of the current range could expose the next support at 107. A sustained move above the recent high of 109.46 could easily trip the 110-barrier ahead of the next at 110.66. The weekly chart indicates bullish risks beyond the near-term.

       AUD/USD – Depressed. Last seen at 0.8741, the week ahead has quite a few AUD-moving events including the RBA annual report on 1 Oct and US NFP on Fri. A strong print in the US NFP could keep the dollar supported and the AUD depressed. As RBA Glenn Stevens mulls over macroprudential tools to crimp home prices, any such measures then would allow for the possibility of a rate cut. That just means more downside risks for the AUD with next support seen at 0.8660 (24 Jan low).

       EUR/USD – Directionless. We are back in the week of another ECB meeting. After more dovish talks by President Draghi, EUR was pulled below the 1.27-figure against the USD to close the week and it remains in the sub-1.27 region this morning. MACD on the daily chart shows waning bearish momentum however even with a lower low and there could be some bullish divergence in the making. At this point, there is a slight risk of a corrective retracement towards the 1.2920 (near the 18-DMA) which has been guiding the pair lower. Still, the larger risks are to the downside with support seen at 1.2626.

      EUR/SGD – Sideways. The EUR/SGD has gained some traction to start the week after sliding for most of last week in tandem with the EUR/USD. The cross was last sighted around 1.6168 with directional cues remain lacking. For the week ahead, we expect the cross to take its cues from both the ECB policy meeting and US NFP. Until then, look for sideways trade to continue with 1.6087 providing support this week, while immediate resistance is likely around 1.6213 ahead of 1.6306.

      NZD/USD – Bearish. The NZD/USD dropped 1.5% intra-day in morning session today following comments by the NZ PM that the “Goldilocks” level for the NZD is around 65 cents. This was mentioned before the release of the RBNZ FX data report today which showed NZD521mn was sold in Aug, supporting the view that the RBNZ was instrumental in guiding the NZD lower over the past month.  The NZD fell to 0.7752 from around 0.7864.  NZDSGD also fell to below parity again from 1.0027 to 0.9885.  Expect the NZD to see further slide this week with the NZD/SGD probably heading towards 0.95-level before stabilising over the next week or so.  NZD/USD could be heading towards a break of 0.7692 before heading towards key 0.75-level.

Regional FX

       The SGD NEER trades 0.27% above the implied mid-point of 1.2782. We estimate the top end at 1.2527 and the floor at 1.3037.

       USD/SGD – Upside Bias. USD/SGD breached the 1.27-figure last week on the back of a firmer dollar tone and continues to climb higher to the 1.2750-region to start the week. Expect dips to remain cushioned by the 1.2653-support, underpinned by the 18-DMA. Uptrend is still intact though we are wary of a corrective pullback as the momentum indicators flag bearish divergence. Pair looks overstretched currently. Any USD/SGD pullback to meet support at 1.2653. Next barrier is seen around 1.2780 with a break exposing the next at 1.2800 on its way to the next hurdle at 1.2830.

       AUD/SGD – Bearish. AUD/SGD is still on the slide towards 1.1094, weighed by the bearish AUD. Cross is currently sighted around 1.1127 with it closing in on the 1.1094 target and there is no floor in sight given the bearish momentum. Next bearish target could be 1.098. That said, RSI on the weekly chart indicates overstretched conditions and unexpected bounces could meet resistance around 1.1275.

       USD/MYR – Buoyant. USD/MYR gapped higher at the opening to 3.2685 this morning, buoyed by a firmer dollar tone. Pair is now within striking distance of 3.2717, last printed just a tad below at 3.2710. Uptrend is still intact and bulls could reach for the 3.296-figure by the end of the week. There is no note-worthy data due this week but all eyes are on the labour report out of the US on Fri. Estimates so far have been bullish and that could keep the dollar index buoyant. Expect dips to be shallow with first support seen around 3.2492. 

       USD/CNY was fixed at 6.1539 (+0.0031), vs. previous 6.1508 (+2.0% upper band limit: 6.2795; -2.0% lower band limit: 6.0332). CNY/MYR was fixed at 0.5319 (+0.0020). USD/CNY – Congestion. The USD/CNY ended the week below our 6.1292-support at 1.267, but has bounced back above that support-level to start the new week. Pair was last seen around 6.1323, buoyed by both a firmer dollar tone and the higher fixing today. Pair has lost most of its bullish momentum and sideways trade could be likely ahead. Our support at 6.1292 remains intact, though a break here exposes the next support at 6.1206.  6.1570 continues to cap upside this week.

       1-Year CNY NDFs – Upside Bias. The NDF continues on its uptick from last week, breaking above our barrier at 6.2485, sighted around 6.2500 currently. Bullish momentum is building, with the NDF approaching overstretched territory. Upside surprises in the HSBC flash PMI-mfg could drag the NDF lower. For bullish extension to continue, we need to see a break of 6.2550 (4 Aug high) for moves towards the next barrier at 6.2590. Support is seen around 6.2300 this week. USD/CNH – Two-Way Trades. USD/CNH is tracking the NDF higher with an attempt to break out above the 6.16-barrier this morning. Pair was last seen around 6.1539 with support still seen around 6.1320. The lack of momentum on our daily chart suggests two-way trades are likely in the week ahead. A firm break of our barrier at 6.1600 should expose the next at 6.1774. CNH now trades at a narrower discount after a strong catch-up session on Tue.

       USD/IDR – Overbought. The USD/IDR gapped higher at the opening to 12091 this morning, spurred by continuing concerns that the president-elect may not be able to push through necessary unpopular reforms through a hostile incoming parliament. Not surprisingly, foreign funds sold off a net USD249.20mn in equities last week on these domestic concerns, supporting the pair higher. Pair is currently sighted around 12108 with bullish momentum building up again as shown by our daily charts, though the pair is overstretched at this point. Coupled with dollar strength and concerns about the twin deficit, further upside seems likely. Next hurdle is seen around 12165 ahead of 12210. 11950 should remain supportive this week. The 1-month NDF continues to hover above the key 12000-psychological level, last sighted around 12225 with daily MACD showing increasing bullish momentum, though the RSI is indicating near overstretched conditions. An intraday ichimoku cloud is forming ahead that could determine price action. The JISDOR was fixed above the 12000-figure again, set at 12007 on Fri after nearly a week hovering below that level.

       USD/PHP – Bullish Tilt. USD/PHP is within striking distance of the 45.000-figure, last sighted around 44.970. Pair is on the upmove, supported by a firmer dollar tone. RSI is indicating overstretched conditions currently. With dollar strength still underpinning, immediate barrier is seen at 45.050 with a firm break here exposing the next at 45.115. 44.700 should be supportive this week. The 1-month NDF is wobbling this morning, sighted around 45.050. Daily chart continues to show mild bullish momentum, though RSI is indicating overbought conditions.

       USD/THB – Upside Bias. USD/THB tested our barrier at 32.355 this morning with a move towards the next resistance at 32.500 this morning before easing to hover around 32.350 this morning. Dollar strength is keeping is keeping the pair buoyant, though daily chart is showing waning bullish momentum. Aside from NFP, a slew of data is out this week starting with custom trade this afternoon. Any major surprises to the downside could send the pair higher back towards the 32.500-hurdle. Support is seen around 32.245 this week. Foreign funds bought a net THB8.17bn and THB7.70bn in equities and debt last week and continue foreign appetite for Thai assets should keep help put a lid on upsides this week.

Rates

Malaysia

      Local government bonds traded range-bound amidst thin liquidity throughout the day although USDMYR traded higher from yesterday. Players will turn to next Monday’s auction of a MYR3.5b size 5y GII419s reopen. WI was quoted within 3.82/75 but there were no trades. We expect participation on this largely from local names.

       IRS levels were relatively unchanged today, though there were quite a few trades of 5y IRS at 3.99% and 3.98%. We still favour receiving 5y IRS close to 4% despite a meager 25bps spread above 3M KLIBOR. This is because there were many offers of 5yr IRS at 4.04% when UST sold off, rumours of rate hike were imminent and MGS yields were 10bps higher. 3M KLIBOR was unchanged at 3.73%.

      Trading volume in the PDS market decreased today. We saw more selling pressure today with wider bid-ask quotes. GG Prasa 3/19 had the highest traded volume at about MYR50m. Perhaps emerging market investors have grown worrisome on rising geopolitical concerns and the possibility of higher US interest rates, which was reflected in one of the worst trading days for US Equity markets on Thursday.

Singapore

      The SGS yields closed 1-3bps lower except for the 5y benchmark due to a new issuance. The lower yields tracked the strength in UST as unfavourable news on Russian laws drafted to seize foreign assets resulted in a flight-to-safety sentiment yesterday. The 5y SGS auction came in pretty much in line with our expectation with the cutoff at 1.65%. The bid-to-cover ratio came in at 1.77 times which was a little lesser than expected considering the maturity amount and issue size of SGD2.9b.

      The Asian credit market saw a pullback, while Treasuries rallied, due to the terror warning for US citizens and news that Russian parliament may allow seizure of foreign assets. For new issues, Hanabank 2024 was priced at CT10 + 195bps, 30bps tighter than its initial guidance. The paper was last traded around CT10 + 177bps after rallying nearly 20bps on the strong interest for Korean names and the small issue size of USD300m. S&P raised the rating on the subordinated tranche of Woori’s GMTN programme from BB+ to BBB-. Woori 2024 also rallied almost 20bps and was last quoted around +201/+198 level.

Indonesia

      Our economist sees that Indonesia September inflation would increase to 4.76% yoy from 3.99% yoy or 0.47% mom in August 2014. The cause of this increase is the recent price hike of LPG 12kg which rose by 24.72% to Rp7,569 per kg from Rp6,069 per kg. The impact of this increase is predicted to contribute an additional of 0.3% towards the inflation. Core inflation for month of September 2014 is expected to reach 0.40% mom. Inflationary pressure caused by rising costs of education for academy/university, electricity tariff, and the weakening of the rupiah would push core inflation higher on monthly basis. On annual base, core inflation is expected to decline to 4.30% yoy from 4.47% yoy in August.

       August trade balance is expected to return deficit of US$0.13bn from surplus of US$0.12bn in July 2014. Imports is expect to rise to US$15.1bn in August (July: US$14.1bn) while exports are expected to rise to US$14.97bn (July: US$14.18bn). The rise in imports and export performance is caused by returning normal activity of loading and unloading of goods at the port after long holiday Eid celebration in the previous month. Moreover, Improvement in domestic economy has also contributed to the rise in imports.

       Indonesia bond market closed lower supported by Rupiah depreciation. Negative sentiment during the day was also contributed after Indonesia legislative approves that regional local leaders will be chosen by region legislator. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 8.068% (+2.6bps), 8.212% (+5.1bps), 8.602% (+7.3bps) and 8.785% (+7.5bps) while 2-yr yield shifts down to 7.568% (-0.4bps). Government bond traded thin at secondary market amounting Rp8,788bn from Rp5,841tn with FR0070 (10-yr benchmark series) and FR0069 (5-yr benchmark series) was the most tradable bond. FR0070 total trading volume amounted Rp2,133bn with 62x transaction frequency and closed at 101.048 yielding 8.212% while FR0069 total trading volume amounted Rp1,085bn with 23x closed at 99.271 yielding 8.068%.

      Corporate bond traded thin amounting Rp326bn (vs. average per day (Jan – Aug) trading volume of Rp657bn). AMRT01CN1 (Shelf registration I Sumber Alfaria Trijaya Phase I Year 2014; Rating: AA-_(idn)) was the top actively traded corporate bond with total trading volume amounted Rp88bn yielding 10.500%.