Maybank GM Daily - 10 Oct 2014

FX

Global

The DXY index rebounded in European session. Initial claims slipped to 287K, the lowest recorded since Feb 2006. Flight to safety underpins a part of the greenback gains as equity indices shrugged off the good data at home with a flat open and sank to close around 2% across the board. There were a couple of factors that weighed on risk appetite – fear of Ebola contagion and a slowly deteriorating Europe. BOE left its benchmark interest rate unchanged at 0.50% as policymakers turn wary of headwinds from the rest of Europe.        Nearer to home, Hong Kong students called for a larger rally after the government cancelled a dialogue with them. Rising uncertainty as well as global growth concerns dragged early starter Nikkei into red, -1.2% at last sight. Elsewhere on Thu, China moves ahead with its CNY internationalization ambition by allowing citizens to delve into overseas stocks and properties via the Qualified Domestic Retail Investor scheme. Domestic firms will also be able to sell CNY-denominated shares abroad.

       For today, focus will be on Malaysia’s Budget 2015 which will be presented live from the Parliament of Malaysia at 1600 (HKT). Asia also has Philippine’s exports, Malaysia’s industrial production. China’s Sep new yuan loans, aggregate financing and money supply M2 may be released anytime starting from today.

G7 Currencies

       DXY – Consolidation. The DXY index made a modest rebound towards the later part of Thu but upticks were still deterred by the 16-SMA on the 4-hourly chart. The greenback was driven by risk aversion during the European session. Initial claims data was the lowest seen in eight years but investors chose to ignore. Safe-haven bids kept the pressure on UST 10-year yields, last seen at 2.30% -a sign that upsides in the DXY will also be resisted. Intra-day chart shows a lack of momentum on either side for the USD at this point and moves are likely to remain sideways within 84.75- 86.00.

       USD/JPY – Consolidation. The USD/JPY broke below the 108-figure yesterday, dragged down by the softer tone in the dollar and concerns the impact of the ailing eurozone area on global growth. Pair is currently holding below the 108-levels around 107.79. The pair remains pressured downwards as reflected in the 18-DMA still lying below the 40-DMA. Further pull-back though could be shallow given expectations of rising yield differentials and could see the pair consolidate with support around 107.50 before 107.00, while rebounds could meet resistance around 108.26 ahead of 108.76.

       AUD/USD – Heavy. AUD retreated towards levels around 0.8760  this morning and gaining bearish momentum on the intra-day chart. Support is still seen around 0.8734, if not at 0.8660.  Home loans slipped -0.9%m/m in Aug, softer than the expected 0.2%. The soft data may drag on the currency. Still, 16-SMA is above the 40-SMA, suggesting some upside risks and next barrier is seen around the 0.89-figure.

       EUR/USD – Sideways. The EUR/USD touched a high of 1.2791 before easing to levels around the 1.27-figure. The pair is still holding itself above the ichimoku cloud on the 4-hourly chart. 18-SMA is still above the 40-SMA after the positive cross-over two sessions ago. 1.2822 remains the barrier to watch ahead of the next at 1.2877. Support is seen at 1.2664. ECB President Draghi urged for structural reforms in the euro area to raise potential output and remains committed to increase stimulus measures. Germany’s current account surplus halved to EUR10.3bn from previous EUR 20.1bn. Both exports and imports recorded single digit declines.

       EUR/SGD – Sideways. The EUR/SGD moved within the ichimoku cloud for much of overnight trade and was last seen around 1.6160. Intra-day momentum indicators show slight bearish conditions and support is provided by the 40-SMA around 1.6117. Expect some sideway moves with barrier around 1.6164 ahead of the next at 1.6210.

Regional FX

       The SGD NEER trades 0.46% above the implied mid-point of 1.2769. We estimate the top end at 1.2515 and the floor at 1.3023.

       USD/SGD – Two-Way Trades. The USD/SGD rebounded from a low of 1.2676 and has remained above the 1.27-figure this morning at around 1.2714. Pair is pulled in two directions today by global growth concerns and expectations of higher global rates, which could see the pair remaining in two-way trades today. 1.2676 – a low not seen since 25 Sep – should provide support today and for bearish extension to continue we need to see a break of this support level. Resistance today is seen around 1.2750.

       AUD/SGD – Downside. After climbing pass our 1.1275-resistance level, the AUD/SGD plunged back towards the 1.1100-levels on the back of AUD weakness. Cross is currently sighted around 1.1144 with intraday momentum indicators tilted to the downside.  Nearby support is seen around 1.1115 before 1.1062. Still, risks are not entirely one-sided with the 18-DMA still lying above the 40-DMA. Rebounds are likely to meet resistance around 1.1275 today.  SGD/MYR – Rangy. The SGD/MYR is on the uptick, sighted around 2.5598 currently. Intraday MACD is showing little directional momentum though the cross is currently trapped in an intraday ichimoku cloud that could see rangy trades today.  Moreover, cautious trades are likely ahead of the Malaysian budget announcement later today. Immediate resistance is around 2.5630 ahead of 2.5664, while 2.5447 should be supportive.

        USD/MYR – Downside Risks. USD/MYR hovered around 3.2540 this morning. Expect this pair to consolidate ahead of the Budget 2015 presentation by PM Najib later at 1600 (HKT). 18-SMA has slipped under the 40-SMA and flags downside risks. 3.2143 marks the next support. Most expect more details on the GST including our economic team who expects an amended GST list of standard-rated, zero-rated and exempted items. “Sin” and property sectors should be spared this time along with a fuel subsidy mechanism that should be targeted instead of the current blanket system. Fiscal consolidation efforts will be presented with the usual sweeteners and measures to help the lower income group cope with higher cost of living. Upticks are likely capped by the 3.28-figure. Meanwhile, 1-month NDF hovered around 3.26-figure this morning and daily chart shows increasing downside momentum. Next support at 3.2372.

       USD/CNY was fixed at 6.1470 (+0.0009), vs. previous 6.1461 (+2.0% upper band limit: 6.2724; -2.0% lower band limit: 6.0265). CNY/MYR was fixed at 0.5292 (-0.0010). USD/CNY – Bearish. Pair steadied around 6.1330 this morning after a bearish session on Thu.  Support is still seen around 6.1290 and prices are now near the lower bound of the 6.1290-6.1570 range. News of Qualified Domestic Retail Investor scheme likely boosted the CNY and may keep spot prices under pressure. In other news, the Housing Ministry stated that home purchase restrictions will not be removed in Beijing as there were few signs of cooling.

       1-Year CNY NDFs – Bearish. The NDF found floor around 6.2263 and edged higher this morning, last seen around the 6.23-figure. There is a lack of momentum in this pair and we look for sideway trades within 6.2260-6.2395. USD/CNH – Slippery Slope. USD/CNH bounced off Thu low and was last seen around the 6.14-figure, underpinned also by the dollar rise. This pair has reached the 18-SMA and further upticks may be resisted. Momentum indicators are not showing much directional bias at this point. Break of the interim barrier at 6.1419 could open the way towards 6.1482. Support is seen at 6.1320. CNH trades at a discount to CNY.

       USD/IDR – Downside. After climbing pass our 1.1275-resistance level, the AUD/SGD plunged back towards the 1.1100-levels on the back of AUD weakness. Cross is currently sighted around 1.1144 with intraday momentum indicators tilted to the downside.  Nearby support is seen around 1.1115 before 1.1062. Still, risks are not entirely one-sided with the 18-DMA still lying above the 40-DMA. Rebounds are likely to meet resistance around 1.1275 today.  SGD/MYR – Rangy. The SGD/MYR is on the uptick, sighted around 2.5598 currently. Intraday MACD is showing little directional momentum though the cross is currently trapped in an intraday ichimoku cloud that could see rangy trades today.  Moreover, cautious trades are likely ahead of the Malaysian budget announcement later today. Immediate resistance is around 2.5630 ahead of 2.5664, while 2.5447 should be supportive.

       USD/PHP – Rangy. The USD/PHP is on the uptick this morning, sighted around 44.740, but still well-within its current tight trading range of 44.500-45.050. Intraday MACD continues to show bearish momentum, suggesting that rebounds could remain capped. Moreover, risks are now tilted to the downside given the negative cross-over of the 18-DMA and 40-DMA. As well, an intraday ichimoku cloud is forming ahead of price action, which could reinforce the pair’s current trading pattern. Thus, trades today are likely to remain confined within 44.500-45.050. After yesterday’s uptick, the 1-month NDF is on the retreat, dipping slightly to 44.780 at last sight, in contrast to the spot. Intraday momentum indicators are currently tilted to the downside.

       USD/THB – Sideways. Since breaking below the 32.500-levels yesterday, the USD/THB has remained in consolidation around the 32.450-levels. Pair is on the uptick this morning as risk appetite wanes, hovering around 32.455 currently. Pair is currently within a thin ichimoku cloud and sideways moves are likely ahead. Unlike yesterday where foreign funds purchased a net THB1.48bn and THB2.78bn in equities and debt, risk aversion today could see a sell-off, possibly supporting the pair higher. Look for the pair to remain in side-way trades for now with support seen around 32.355 and resistance around 32.500.

Rates

Malaysia

      Local government bond yields fell 1-3bps across the curve after a very dovish FOMC minutes. Foreign names were aggressively buying the 5y benchmark MGS 10/19 and the bond closed 2bps lower. All eyes are on the national budget on Friday.

       IRS curve gapped lower and people sold on panic. Given that the curve is cheap to pay, most players are on paid position. 5y IRS traded at 3.92-3.94%. We are payers now that 5y IRS is 3.92%, but we don’t think it would jump higher convincingly, especially after it traded at 3.97% on Wednesday and gapped to 3.94% on yesterday’s open after heavy trading. The MGS and global bond buying flows are pushing ahead that rates/yields are deemed low, but the market hoped for a rebound in rates which did not happen. 3M KLIBOR was unchanged at 3.75%.

       Local PDS market was relatively quiet compared to the heavy interest on govvies, but there was slight interest on AAA and GG papers from the belly to the long end of the curve. HSBC Amanah newly issued a AAA rated senior unsecured of MYR500m with final guidance of 4.22%. 7y GG is still trading around 40-45bps above govvies. We see more value in AAA names like Telekom 2021 and Manjung 2021 at 4.35-4.39 level which gives about 15-20bps above the GG curve. Given so, most players remain sidelined ahead of the national budget.

Singapore

      SGS yields continue to fall, closely tracking US Treasury yields. The FOMC minutes, which reflected a dovish tone, wasn’t taken well by the market as it expected hints of tapering and rate hikes. Despite a possible moderate pace of economic growth and recovery, the Fed is likely to keep rates low. We expect the curve to steepen as the front end continues to remain depressed.

       Asian bonds generally opened with wider spreads, but overall, price were still higher due to the bull flattening moves on US Treasuries. We saw some absolute yield investors and trading accounts took the opportunity to unwind some bonds from their portfolios. Malaysian names rallied on the CIMB/RHB/MBSB merger news with spreads tightening 2-3bps on the 19 papers for RHB and AMMMK on sympathy move. Chinese corporates also traded a few bps tighter. There was a surge of new book openings in various markets (USD, SGD and CNH) with some of the more prominent issues being Greenland 3y USD (BBB by S&P) with initial price guidance (IPG) of CT3+300bps, Agri Bank of China 3y USD (A1 by Moody’s) with IPG of CT3+160bps, Chip Eng Seng 3y SGD150m with final guidance (FG) of 4.25% and City Development 10y SGD100m with FG of 3.78%. Given dovish FOMC minutes, reckon we will see more issuers rushing to issue in these last few months of the year.

Indonesia

      Indonesia’s government bonds climbed yesterday, driven by the dovish comment from FOMC minute. It sent yields lower on speculation the Federal Reserve will keep interest rates near zero amid concern global growth is slowing. Yields on Indonesia’s government bonds dropped after minutes of U.S. policy makers’ most recent meeting said a slowdown and a stronger dollar posed potential risks to the outlook for the world’s largest economy. Yield on Indonesia’s 10Y government bonds fell 7 bps to 8.41%. 

       Fuad Rahmany, Director-General of Taxation on the Ministry of Finance, stated that his department tries to get more access to personal bank accounts and wants to track car and home purchases to catch evaders and boost revenue. The department is asking parliament to amend the banking law to give it the right to get lenders to reveal customer account details. Rahmany also acknowledged that obtaining access to bank accounts would pave the way for reciprocal information-sharing with other nations. Rahmany also added that Indonesia achieved only 64% of its annual tax revenue target in the first nine months of the year because of slowing economic growth and weak exports. It met 92.1% of the goal in 2013 and 96.5% in 2012. According to World Bank data, Indonesia’s tax ratio is only 12%, lower than 12.9% in the Philippines, 16.1% in Malaysia and 34.1% in Denmark.

       According Standard & Poor's Ratings Services (S&P), the largest Indonesian companies appear somewhat more conservative in their balance sheet management than those in Singapore, Thailand, and the Philippines. S&P also said that big companies in Indonesia seem to be maintaining large cash balances as a buffer against the high country risk of Indonesia. The lack of a deep banking system and domestic capital markets in Indonesia and still high borrowing costs could also be making it difficult for these companies to raise debt, even if they wanted to. More than 80% of the 15 Indonesian companies that reviewed by S&P had a financial risk profile consistent with an investment grade level, with moderate to low debt, steady cash flows from operations, manageable capital spending, and large cash balances. That compares to about 30%-40% in Singapore, Thailand, and the Philippines. However, S&P expect the credit quality of Indonesian companies to erode marginally over the next 12 months as revenues slow and cash outflows increase. Consequently, companies will have to dig into their cash balance and potentially borrow more to finance growth. But the deterioration is likely to be milder than in the other ASEAN countries reviewed because of the Indonesian companies' stronger balance sheets, S&P said.