Maybank GM Daily - 8 Sep 2014

FX

Global

      US NFP disappointed on Fri. Instead of the 200k+ market was expecting, NFP printed only 142K, while unemployment rate dipped to 6.1% from 6.2% though this was more from discouraged workers who left the job market than an improvement in the labour market. This saw dollar marginally softer only and 10Y yields jumping 1.3bp to 2.46%. Still, this is unlikely to distract the Fed from their current exit strategy and their plans to hike rates next year.

      Despite the disappointing NFP print, US equity indices still managed to stay positive as investors played on the possibility that the Fed could delay rate hikes as a result of the slack in the labour market. Also helping was news of a cease-fire in Ukraine. DJIA rose 0.40%, S&P 500 by 0.5% and NASDAQ by 0.45%.

      A quiet week ahead is expected in the US with retail sales (cons.: 0.3% m/m) and Univ. of Michigan Confidence (cons.: 83.0) likely to be watched. For the eurozone, various manufacturing indicators and inflation are due for the core economies. Regardless, expect some consolidation after the choppy action in the past week.

      Asian markets could be focused on China data instead with exports, new yuan loans and aggregate financing likely to be eyed. BOK, BI and BSP meet this meeting to deliberate on policy, but no action is expected for both BOK and BI. Market though is expecting a 25bp rate hike to 4.0% from the BSP. Elsewhere, Malaysia releases Jul industrial production on Thu.

G7 Currencies

      DXY – Buoyant. DXY – Buoyant. Despite NFP disappointing, the correction in the DXY was short-lived. Dollar has regained its footing this morning, climbing to 83.830 as we write. The 83-figure is well and truly behind us and the uptrend has unmistakably extended. Dollar is well and truly behind us and the uptrend has been unmistakably extended. Look for the index to head towards the next barrier around 84.3680 with interim resistance seen around 84.094. The week ahead has the usual initial jobless claims, retail sales and Univ. of Michigan confidence to watch.

      USD/JPY – Bouyant. USD/JPY was bid to a high of 105.71 last week before retreating back towards levels around 105.15 this morning. Weaker than expected final 2Q14 GDP print and current account surplus out today should keep the pair supported. Though the way above the 105-hurdle has been cleared, strong offers seen thus far at its 105.70 highs imply strong resistance around the level for now. Expect pair to remain buoyant, albeit capped by potential downsides in EUR/JPY. Support is established around 104.76.  2Q14 GDP came in worst than initially estimated at -1.8% annualized vs. preliminary estimates of -1.7%, dragged lower by the sales tax hike in Apr. The current account surplus rebounded in Jul to JPY416.7bn from Jun’s deficit of JPY399.1bn but was below market’s expectations of JPY444.2bn.

      AUD/USD – Stuck in Range.  The past week had been choppy for the AUD/USD and was near the upper bound of the 0.92-0.94. The pair is currently on the slide, hovering around 0.9365 at last sight. Pair has been unable to sustain a move above the 0.9360-barrier for long. We still think that the pair requires a sustained break of this 0.9360-level (at least two daily closes) for range-trading to shift up. 0.9330 supports the pair at the moment. Fundamentally, risks are still to the downside towards 0.9260. Watch for its NAB business surveys (Tue), consumer confidence (Wed) and jobs report (Thu) for cues.

      EUR/USD – Heavy moves ahead. EUR dropped 2 big figures after ECB made the surprise move. While some view the ABSPP and CBPP3 as not equal to the QE that some expected, the combination of the cut in key rates and the stimulus was enough for markets to take Mario Draghi seriously. The tweaks in the growth projections for 2014-2016, albeit slight, gave additional signals that the Governing Council was worried about downside risks. At this point, the pair looks a bit over-extended and some time for digestion is needed. Expect some consolidation within the 1.2820-1.3040 range and price moves to remain heavy.

      EUR/SGD – Consolidation. After Thu’s massive downswing, the cross continues to waffle around the 1.6240-region still. This is not far from the tentative support around the 1.62-figure. A break of this support would expose the next support at around 1.6087. However, this cross remains in oversold conditions, but for now is unlikely to deter further offers. The cross remains in a congestion area within 1.6087-1.6306 and any rebounds may be brief with a barrier around 1.6380.

Regional FX

      The SGD NEER trades 0.22% above the implied mid-point of 1.2556. The top end is estimated at 1.2305 and the floor at 1.2806.

      USD/SGD – Sideways. USD/SGD jumped in the course of the past week lifted by the ECB monetary easing before easing after US NFP disappointed. Pair is still on the slide, sighted around 1.2532 currently. Pair is likely to keep its upside bias though, underpinned by dollar strength. Though pair is back below the 1.2544-barrier, a revisit of Jun’s high of 1.2587 remains a possibility still. Any retreats to meet support around 1.2506.

      AUD/SGD – Upside Risks. AUD/SGD bids had indeed brought the cross above the daily ichimoku cloud, well above the 1.1718-barrier that we looked for. The 1.1774-resistance is still the barrier to watch after the cross failed to firmly break above it on Fri. Cross is currently hovering lower around 1.1743 on the back of SGD strength and AUD weakness. Nevertheless, we look for the cross to remain buoyant in the near-term. Overbought conditions are flagged and could temper upsides in this cross.  SGD/MYR – Sideways. The rebound in the SGD/MYR cross was stronger than we thought and prices reached a high of 2.5430 before drifting back to levels around 2.5370 on Fri. This morning the cross gapped lower to 2.5316, aided by the relative strength of the MYR and is currently sighted around 2.5311. 2.5447 caps further bids as of now though momentum indicators still point north. Expect buoyant trades above the 2.5271-support and the 2.5447-barrier to continue to slow upticks.

      USD/MYR – Capped. USD/MYR rallied to a high of 3.1965 on Fri before easing lower pass the 3.18-handle to around 3.1715, breaking below support at 3.1740. Further moves lower are likely to be limited by next support around 3.1653. The next technical resistance is penciled at 3.2032 – the top of the ichimoku cloud on the daily chart. While dollar strength has underpinned the pair so far, the next BNM meeting looms ever closer on the 18th of this month. Expect bids to remain checked by expectations of a rate hike still.

      There is no fixings today as China is away to celebrate the Mid-Autumn Festival. Last week, USD/CNY was fixed at 6.1707 (+0.0041), vs. previous 6.1666 (+2.0% upper band limit: 6.2966; -2.0% lower band limit: 6.0497). CNY/MYR was fixed at 0.5178 (+0.0017). USD/CNY – Range-Bound. Onshore markets closed for the long weekend and re-opens tomorrow. Trades today are likely to be quiet and rangy as a result. Pair is currently trading around 6.1422, well-within its current trading range. We continue to see range-trading within 6.1350-6.1570 this week. Exports came in better than expected in Aug, rising 9.4% y/y vs. expectations of 9.0%, while imports fell 2.4% y/y (cons.: +3.0%). The trade surplus widened to USD49.83bn in Aug (Jul: USD47.3bn) as a result, coming in better than the USD40bn market was expecting.

      1-Year CNY NDFs – Tilted Downwards. The NDF oscillated from a high of 6.3043 to a low of 6.1464 this morning, before settling back to around 6.2227 currently. There is still a lacking of directional clarity fo this NDF and we look for side-way trades to continue within 6.2204-6.2350. USD/CNH – Wider Range. USD/CNH remains on the slide in tandem with the NDFs and hovering around 6.1361 this morning. Though momentum impetus continues to be lacking, the slide in the pair so far have led us to expect gyrations in a wider range of 6.1320-6.1524 this week. CNH trades at a discount to CNY.

      USD/IDR – Back in Range. USD/IDR, which hit a high of 11805 last week, gapped lower this morning to around 11735 on speculation that the Fed could delay normalizing rates. Pair is still on the slide, hovering around 11728 currently though momentum indicators are still showing bullishness, albeit on the wane. Still, the correction could be temporary given concerns 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. Still, foreign funds remain sanguine about Indonesia assets, buying a net USD70.55mn in equities last week, providing some support for the IDR. This week BI meets to deliberate policy and market expects the central bank to stand pat. We do not expect this to have a major impact on the pair this week. We continue to look for range-bound trades this week within 11640- 11800 this week. The 1-month has come-off from its high of 11878 seen last week and is currently hovering around 11773. The 1-month is currently in a thin daily ichimoku cloud that could keep the 1-month rangy for now. Daily MACD is showing waning bullish momentum. The JISDOR was ended the week higher at 11770 on Fri compared to the previous Fri’s fixing of 11717.

      USD/PHP – Capped. USD/PHP has been trade rangy over the past week sessions. Failure of the US NFP to surprise on the upside led to a correction in the pairing this morning. Pair is current sighted around 43.575, still trapped within a thin daily ichimoku cloud. The lack of impetus so far should keep the pair range-bound within 43.528-43.875 this week. A trigger to further push the pair lower later this week could come when the BSP meets on Thu to deliberate on monetary policy. A rate hike here could see the pair inch closer towards our support at 43.528. A break of this support could extend bearish control and expose the next support at 43.208. The 1-month NDF slipped lower to 43.580 to start the week with daily MACD still showing mild bearish momentum ahead.

      USD/THB – Waffling. USD/THB is waffling this morning, still unable to break firmly above the 32-figure. Pair is currently hovering around 31.990 with daily MACD showing waning bullish momentum. Moreover, risks are still to the downside with the 18-DMA still lying below the 40-DMA. Foreign funds ended the week on a bullish note, buying a net THB1.57bn and THB1.11bn in equities and bonds on Fri, helping to support the THB. Upticks this week should meet resistance around 32.140 ahead of the stronger barrier this week.   

Rates

Malaysia

§  MGS curve bear-flattened after the 3y benchmark MGS 3/17 retap auction. While the BTC was moderate at 1.734, the bond corrected on yields as WI trades saw selling pressure before the auction close. The MGS 3/17 closed 8bps higher as short MGS succumbed on supply pressure at a time when there is a potential of rate hike in the coming MPC meeting.

§  The IRS curve was quoted steeper, but it feels like at this point there still seemed to be more receivers than payers, probably due to position squaring. With 3M KLIBOR at 3.72%, any further decrease in front end rates would likely be limited. 1y was traded at 3.78%.

§  In the PDS market, investors moved slightly to the longer end of the curve. We saw buying interest concentrated mostly on 10 years and above. PTPTN 2024 traded at 4.40-4.41% in decent amount. Short GG and AAA proved to be too tight with the spread over govvies down to below 40bps, although market might think otherwise with if funds are under-invested.

Singapore

§  There was little interest in the SGD rates market but bonds outperformed. Ahead of nonfarm payrolls, we see some profit taking interests ahead of it, and recommend going in with light positions, favouring long USD and paid rates. At market close, the SGS curve steepened with yields rising by around 1-3bps.

§  In the credit space, market talks about Goldman Sachs's plan to debut their Islamic bond. They will be meeting Middle-eastern investors this month on the issuances. The new West China Cement USD paper was printed at 6.50%, down 50bps from its initial guidance of 7.00%, and yet support seemed overwhelming with the price traded up to 100.875 this morning after market opened. Also Asian sovereigns looked quite supportive despite the weakness in US Treasuries. INDOIS 24 closed at around 100.75/100.85. Most players were sidelined ahead of the US nonfarm payrolls data.

Indonesia

§  Indonesia central bank released August 2014 FX reserve which showed an increase of US$0.7 bn of FX reserve to US$111.2 bn compared to July 2014 FX reserve of US$110.5 bn. The increase in FX reserve mainly occurred to receipt of government oil and gas export proceed which exceeded the needs of government foreign debt payments. August FX reserve amount is equivalent to financing 6.3 months of imports and debt payments which is above the 3 month IMF “rules of thumb”.

§  ECB decision to cut push their expansionary monetary policy by cutting their refinancing rate to 0.05%, deposit rate to -0.2% and marginal lending facility to 0.3% while introducing two stimulus packages namely ABS purchase programme (ABSPP) and covered bond purchase programme (CBPP3) have made inflows from European investor to Indonesia bond market. These flows along with FX reserve data have created an incline of bond prices on Friday’s trading session. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 7.857% (-3.9bps), 7.975% (-6.2bps), 8.289% (-8.4bps) and 8.479% (-6.6bps) while 2-yr yield shifts down to 7.514% (-3.2bps). Trading volume was noted heavy amounting Rp16,322 bn from Rp12,437 tn with FR0069 (5-yr benchmark series) and FR0070 (10-yr benchmark series) remains as the most tradable bond with FR0069 total trading volume amounted Rp4,378 bn with 158x transaction frequency and closed at 100.058 yielding 7.857% while FR0070 total trading volume amounted Rp3,142 bn with 134x closed at 102.631 yielding 7.975%.

§  Corporate bond traded heavy amounting Rp683 bn (vs average per day (Jan – Jul) trading volume of Rp684 bn). FIFA01BCN3 (Shelf registration I Federal International Finance Phase III Year 2014; B Serial bond; Rating: _idAA+)) was the top actively traded corporate bond with total trading volume amounting Rp80 bn yielding 10.476%.