Maybank GM Daily - 3 Sep 2014

FX

Global

Overnight markets ended lower with the exception of NASDAQ at +0.4%, weighed by a sharp pullback in commodities. Crude oil prices sank 3.2% to around $93/bbl while gold prices slipped another -$20 (-1.6%) to trade around $1265. Investors shrugged off the strongest ISM manufacturing print seen in more than three years at 58.0 for Aug, taking the read as confirmation rather than a surprise. Markit US PMI-mfg also steadied around 57.9 compared to 58.0 in the month prior.       The other big mover of the night is USD/JPY which soared above the 105-figure, spurred by expectations of the upcoming cabinet reshuffle. Focus was on the likely appointment of Yasuhisa Shiozaki as health minister who prefers greater purchases of risky assets by GPIF.  Meanwhile, the narrowing opinion polls of the Scottish referendum weakened the GBP.       ECB policy meeting is the focus of the week amid some anticipations of quantitative easing. Australia released its 2Q GDP print. RBA Glenn Stevens also speaks at a function in Adelaide later but any jawboning on the AUD at this point could sound a bit hollow unless he comes up with a fresh bearish angle.

      Singapore’s PMI-mfg for Aug came in at 49.7, well under the consensus of 51.0. The electronics sector index also softened to 50.7. Even so, USD/SGD eased from its overnight highs to trade around 1.2530 this morning, in tandem with regional peers. SGD NEER hardly budged from its recent range, still around 0.1% above the implied mid-point of our model. Apart from Australia’s growth numbers, China’s PMI-non mfg could provide some distractions before the ECB policy meet. On the side, EU will decide on sanctions against Russia by Fri. Dollar strength could keep USD/AXJs buoyant.

G7 Currencies

      DXY – Buoyant. The DXY bids bumped into a barrier around 83.2390 before retreating to levels around the 83-figure. Next resistance is seen at 83.239, ahead of 83.460 while support is now at 82.939. Intra-day momentum still shows buoyant trades ahead and so does the daily chart. Expect downsides to be cushioned given the latest strong ISM print, a stark contrast to PMI-mfg numbers from the rest of the world.

      USD/JPY – Overbought. USD/JPY surge pass the 105-figure overnight on the back of dollar strength and expectations that a cabinet reshuffle today could see a new push for more changes, including more GPIF reforms. Pair is sighted around 105.20 currently with intraday momentum indicators including MACD showing bullish momentum, though RSI is indicating overbought conditions. With several of our barriers taken out with the surge, new hurdle to cross is around 105.44 (2 Jan high) and a firm break here exposes the next barrier at 106.55 (1 Oct 2008 high).

      AUD/USD – Choppy.  AUD/USD was unable to recover from its pullback on Tue, caving in to the overnight dollar strength and only inched higher to around 0.9280 this morning. The 4-hourly chart shows bearish momentum gaining for the pair and we continue to expect a downward shift in range-trading to 0.9200-0.9330 in the near-term. CFTC positioning also indicates a potential overbought conditions. Australia’s GDP slowed considerably to 0.5%q/q in 2Q from the previous 1.1%. The print was a tad firmer than the consensus of 0.4%, prompting an initial spike before a complete reversal towards interim support around 0.9263. Next support is seen around 0.9239.

      EUR/USD – Sideways. Last seen around 1.3130, sideway trades are likely to dominate within 1.3105-1.3150 ahead of ECB policy meet tomorrow. The slide in the past few weeks might have priced in some anticipation of quantitative easing from the central bank. The central bank has to persist in its resolve in order for a greater bearish extension in this pair. Any unexpected rebounds could meet interim barrier at 1.3186.

       EUR/SGD – Consolidative for Now. The cross was lifted to around 1.6460 by this morning, supported by SGD weakness.  This pairing needs to get above the 1.6486-barrier for any hope of a bullish reversal. The current upward tilt, as flagged on the 4-hourly MACD and price action, is likely tentative. Support is seen around 1.6380. We can expect sideway trades to continue within 1.6380-1.6480 until ECB’s rate decision on Thu.

Regional FX

      The SGD NEER trades 0.17% above the implied mid-point of 1.2553 with the top end estimated at 1.2303 and the floor at 1.2804.

       USD/SGD – Consolidation. USD/SGD surged past our barrier at 1.2521 yesterday towards our stronger barrier at 1.2544 underpinned by a firmer dollar, but appears to be waffling below that level. Pair is currently hovering around 1.2536 with intraday MACD forest still hugging the zero line from above and the pair now out of overbought territory. Ahead of US Beige Book and NFP, look for the pair to consolidate within 1.2500-1.2544 today with upside US surprises possible sending the pair towards the 1.2563-barrier. PMI disappointed yesterday evening, coming in below the expansion threshold of 50 at 49.7 in Aug and against expectations of 51.0, while electronics PMI dropped to 50.7 in Aug from 52.4 in Jul.

       AUD/SGD – Waffling. The AUD/SGD slid to 1.1621 after the release of 2Q GDP. Intraday MACD forest is still hovering close to the zero line from below, suggesting the lack of momentum cues. Given the swings in the AUD this morning, expect the cross to waffle throughout the day with topside likely to be guarded by 1.1683 with 1.1590 supportive today.  SGD/MYR – Regaining Bullishness. After trading rangy for the past several sessions, SGD/MYR surged on the back of the relative weakness of the MYR. Last sighted around 2.5401, momentum continues to be lacking as showed by intraday MACD, though the cross is currently in overbought conditions. With several of our barriers taken out on the upsurge since yesterday, new barrier is seen around 2.5480. Support today is around 2.5282.

       USD/MYR – Still in Congestion. USD/MYR remained on the upmove and was last seen around 3.1850 this morning, underpinned by the dollar strength. Pair has penetrated above the bearish ichimoku cloud but bids still capped by its upper bound. There are increasing bullish cues on this pair. Support is seen around 3.1685 while next bullish target is marked at 3.1946 if the pair can manage a decisive break above the ichimoku cloud. Trade numbers are due at the end of this week and an improvement in the external sector could mean greater bullish cues for the following week. 1-month NDF was also buoyant around 3.1920. 

       USD/CNY was fixed at 6.1697 (+0.0013), vs. previous 6.1684 (+2.0% upper band limit: 6.2956; -2.0% lower band limit: 6.0487). CNY/MYR was fixed at 0.5162 (+0.0031). USD/CNY – Rangy. Pair is still in sideway gyrations, last seen around 6.1480. This pair is still not showing much directional bias and we look for a breakout of the current 6.1350-6.1570 range for better cues. China’s PMI-non mfg came in at 54.4 for Aug vs. 54.2 in Jul. New yuan loans of China’s four biggest banks is estimated around CNY25bn in Aug, Shanghai Securities News.

       1-Year CNY NDFs – Upward Tilt. The NDF bounced above the 6.2310-barrier on Tue, underpinned by dollar strength before settling above the 6.32-figure, last printed 6.2315. Slight bullish conditions detected with next barrier seen around 6.2430. Expect an upward tilt in intra-day trades. USD/CNH – Rangy. USD/CNH edged lower this morning, still within the 6.1420-6.1590 range eyed. We expect consolidative trades to continue.  Intra-day momentum indicators show little directional bias CNH still trades at a discount to CNY.

       USD/IDR – Bullish. USD/IDR breached our long-held barrier at 11750 this morning on the back of a firmer dollar tone. Pair is sighted hovering around 11776 currently Intraday MACD is showing increasing bullish momentum, though the pair is in overbought condition. Though political risks have subsided, concerns remain about the president-elect’s cabinet choices, his ability to build a parliamentary majority and most importantly, his determination to deal with the problems facing the economy, particularly fuel price subsidies and nationalistic policies. Meanwhile, foreign funds sold a net USD19.71mn in equities yesterday but added a net IDR3.32tn in debt to their outstanding holding in 28 and 29 Aug. With risks still to the upside, next barrier is now seen around 11840. 11640 should be supportive today. Four-hourly MACD is increasing showing bullish momentum ahead, though RSI is showing overstretched conditions. The JISDOR was fixed higher yesterday at 11734from Mon’s 11710.

       USD/PHP – Upswing. USD/PHP is back on the upswing this morning underpinned by a resurgent dollar overnight. Pair is currently sighted around 43.700, within striking distance of our barrier at 43.750. A firm break of that barrier could expose the next hurdle at 43.875. However, market is eyeing CPI data out tomorrow with a firmer CPI print suggesting possible upside to policy rate and this could limit upsides today. 43.465 remains supportive today. The 1-month NDF is on still on the uptick, hitting 43.710 this morning with intraday MACD showing bullish momentum building up, though the pair is edging closer to overbought conditions.

       USD/THB – Consolidating. USD/THB broke our barrier at 32.050 on its way up yesterday on a bullish dollar, but appears to stall at our next hurdle at 32.140. Pair appears to be in reversal, sighted around 32.095 currently with intraday MACD showing waning bullish momentum. As well, RSI is indicating that the pair is no longer in overbought conditions. Look for the pair to consolidate today after yesterday’s upsurge within 31.980-32.140 today, though a break of our resistance at 32.140 today on further dollar bullishness could expose the stronger hurdle at 32.245. Meanwhile, foreign appetite for Thai assets was mixed with funds purchasing a net THB0.85bn in equities and selling a net THB1.82bn in debt yesterday. With risk appetite soft today, a further sell-off seems likely today, which could also weigh on the THB. New PM Prayuth intends to accelerate public spending in the first three months of the new fiscal year starting 1 Oct. He intends for more than 35% of the investment budget to be spent in 1Q of FY 2015.

Rates

Malaysia

      Local government bond market started slow to the week as MGS traded in range amidst thin liquidity. Volumes were low at the start of the session with most trades done on bills. Market would look to the next auction which is a retap on the 3y benchmark MGS 3/17. The bond was trading within the 3.50-3.47% range.

      IRS shaded 1bp higher at the 5y and 7y points but no trade was reported. Overall it was a very quiet day. Better bidding interest was seen from the basis, which is to remain tight given ample global liquidity. 3M KLIBOR stayed unchanged at 3.71%.

      The PDS market was muted in trades done although there was no short of bids in the AAA and GG space, but the offers were too few possibly due to the lack of supply. Buying interest concentrated at maturities form 2018 to 2019, e.g. Putrajaya 7/18 saw large volume. AA2-rated Encorp with 2025 to 2028 maturities was active likely due to yield searching. PASB 1/21 changed hands at 4.201%, cheaper than MTM at 4.19%.

Singapore

      In quiet trading, SGS prices seemed to have weakened by about 2-4bps from belly to tail end in line with the weakness in the US Treasury market which fell ahead of the US jobs report scheduled for release this Friday. Meanwhile, SGD IRS climbed about 2bps.

      In the Asian credit market, Korea Development Bank is issuing a 5.5y USD paper guiding at T5+95bps, but trading value may be little for this issue as the price guidance is similar to the existing KDB 19s and more supply of Korean names is in the pipeline. Republic of Indonesia opens book for a 10y USD sukuk guiding at 4.625%. Given some steady flow of investors looking for USD sukuk names, we expect the level to tighten to 4.40% or lower given how INDON and INDOIS reacted after the deal was announced. Meanwhile, China Taiping Insurance is issuing a PerpNC 5y USD paper with guidance of 5.875%. National Savings Bank of Sri Lanka came out with a 5y USD paper guiding at 5.5%, which should remain good at 5.30-5.35% judging from the traded levels of Sri Lankan Sovereign and Sri Lankan Airline (guaranteed by Sri Lankan Government).

Indonesia

      Indonesia bond market escalation remains as backed by the support of investors that fails to acquire government bond from bond auction. As a result, investors purchased their bond through the secondary market. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 8.000% (+2.4bps), 8.183% (-1.6bps), 8.515% (-1.7bps) and 8.670% (-2.2bps) while 2-yr yield shifts down to 7.546% (-5.0bps). Trading volume was noted heavy amounting Rp19,829 bn from Rp9,312 tn with FR0069 (5-yr benchmark series) and FR0071 (15-yr benchmark series) as the most tradable bond. FR0069 total trading volume amounted Rp5,265 bn with 66x transaction frequency and closed at 99.511 yielding 8.000% while FR0071 total trading volume amounted Rp4,397 bn with 80x closed at 103.996 yielding 8.515%.

      Indonesian government held a series of auctions yesterday and received a total of Rp31.08 tn bids versus its target issuance of Rp10.00 tn or oversubscribed by 3.11x. However, only Rp15.00 tn bids were accepted for its 3-mo SPN which was sold at a weighted average yield of 5.95100%, 1-yr SPN at 6.93191%, 5-yr FR0069 at 7.99000%, 10-yr FR0070 at 8.21812%, 15-yr FR0071 at 8.53981% while 30-yr FR0068 was sold at 9.03995%. Incoming bid were mostly clustered at the 5-yr, 10-yr and 15-yr series. Awarded yield were lower compared to previous conventional auction. Bid-to-cover ratio on today’s auction came in at 1.66X – 2.87X. No bids were rejected during the conventional auction. Incoming bids during the auction was the highest since 18 March 2014 conventional bond auction. Bond purchase through auction remains as investor could demand for higher yield noting down the availability of bond supply. The good demand in our view occurred with liquidity condition improvement post Eid al Fitri, better inflation and trade balance data, slower credit growth this year and as this was the first bond auction post constitutional court winning Jokowi-JK. As noted at our Industry Analyst report, credit growth this year would grew by 16.2% which is below previous year growth of 21.6%. Indonesian government has raised approx. Rp75.39 tn worth of debt through bond auction in 3Q 14 which represents 78.53% of the 3Q 2014 year target of Rp96 tn.

      Corporate bond traded thin amounting Rp367 bn (vs average per day (Jan – Jul) trading volume of Rp684 bn). BCAP01CN1 (Shelf registration I MNC Kapital Indonesia Phase I Year 2013; Rating: idBBB)) was the top actively traded corporate bond with total trading volume amounting Rp80 bn yielding 11.995%.