Maybank GM Daily - 13 Oct 2014

FX

Global

Malaysia’s budget did not offer much surprises. The government took great care to minimize the impact of GST implementation on private consumption with more exemptions, greater cash handouts as well as corporate and personal income tax cuts. 2015 growth is seen at 5-6% while inflation could quicken to 4-5%. Elsewhere, European and US stocks ended on a negative note on Fri. S&P downgraded its credit outlook for France to negative from stable.       A quieter week ahead and Japan and the US only start the week on Tue. For the rest of the week, the US has a lighter data docket with only empire manufacturing, retail sales and the Beige Book by mid-week but there are Fed speakers aplenty. Data so far has been supportive of the USD but Minutes of the latest FOMC meeting revealed Fed’s inertia to jolt the rates outlook, citing softer global growth prospect and a stronger dollar. Expect the greenback to remain in sideway trades.       In Asia, Japan releases its Aug industrial production on Wed but focus will be on China. Sep credit numbers are due anytime. Its trade numbers will be scrutinized today, the bellwether of the region. Exports growth is expected to accelerate to 12.0%y/y from previous 9.4%. Imports could slip -2.0%y/y after the previous fall of -2.4%. PPI and CPI numbers should wrap up the data releases on Wed.

      Singapore’s MAS will release its monetary policy statement on Tue along with the advanced estimate of 3Q GDP. Markets expect no change in the slope, width and the centering of the policy band. Focus will be on the statement itself. Thu has Singapore’s retail sales (Cons.: 4.3%y/y) and Philippine’s overseas remittances. Singapore’s NODX (Cons.:2.5%y/y) and Malaysia’s CPI (Cons.:2.6%y/y) are out on Fri.

G7 Currencies

      DXY – Turning Bearish. The DXY hovered around 85.72, still weighed by the dovish comments from the Fed. Concerns on the strength of the greenback as well as the slower Eurozone growth weighed, not helped the least by the latest downgrade of France’s credit outlook to negative by S&P.  This index briefly tested below the 18-DMA last week before reversing a tad above the moving average line. Momentum is bearish. There are not many data releases this week – only empire manufacturing, retail sales and the Beige Book, all on Tue. Industrial production is due the next day. Fed Speaks are aplenty throughout the week. Currently, the greenback is still within its recently held range. Data might be supportive but growth prospects of the Euro area has come to the fore.  Support is seen at 85.1525 (23.6% Fibonacci Retracement of the Jul-Sep rally). Break here exposes the next at 84.0729 (the 38.2% Fibonacci Retracement). Onshore markets are closed today for an extended weekend.

      USD/JPY – Downward Drift. The USD/JPY drifted lower and was last seen around 107.35, weighed by retreating risk appetite. Softer tone in the dollar and concerns the impact of the ailing eurozone area on global growth are the main drags. Break of the support at 108.16 has exposed the next seen around 106.65 (the 38.2% Fibonacci Retracement of the Jul-Oct rally) and that level could be a possible entry point for the next upmove. Upticks to be deterred by the 108.48-barrier, marked by the 40-SMA on the 4-hourly chart. Onshore markets are closed today, to resume tomorrow.

      AUD/USD – Risks to the Downside. Past two sessions have been bearish though the pair have pared much of its bullish momentum on the daily chart. Our call to long AUD/USD also hit stop-loss at 0.8734 and is at the verge of testing recent low of 0.8643. A break here exposes the next at the 85-figure. 0.8820 has become an interim resistance. NAB business survey outcomes are due on Tue, followed by Westpac consumer confidence on Wed.

      EUR/USD – Sideways. The EUR/USD bounced to the firmer end of the 1.2450-1.2820 range last week before easing to levels around 1.2650 by early Asia today.  This pair has started on a corrective bounce with the daily momentum indicators flagging rising bullish momentum. Bids are still resisted by the 1.2822-barrier. Break here exposes the next at 1.2993 which we expect to remain intact by the end of the week.  Beyond the near-term, upticks are still expected to be only tentative.

       EUR/SGD – Tilted to the Downside. The EUR/SGD waffled around the 1.61-figure, still pressured by the downward sloping 18-DMA and 40-DMA. Daily momentum indicators show slight bullish conditions and support is seen at 1.6008 (Oct low). This cross may extend consolidation within the 1.60-1.63 range. Risks are still tilted to the downside with a break of the 1.6008-support to expose the next at 1.5836. There a couple of key releases this week to note – MAS policy statement, Singapore’s GDP as well as Germany’s ZEW survey, all on Tue.

Regional FX

      The SGD NEER trades 0.37% above the implied mid-point of 1.2781. We estimate the top end at 1.2526 and the floor at 1.3036.

      USD/SGD – Two-Way Interests. USD/SGD touched a high of 1.2830 last Fri before pulling back towards levels around 1.2740 this morning. Recent moves have been choppy and daily tools suggest that the pair has turned mildly bearish. There are still two way interests with bounces likely to meet resistance at 1.2830 again. MAS releases its Monetary Policy Statement tomorrow along with the advanced GDP estimate for 3Q. While no action is expected, focus is on the statement itself amid growing concerns over global growth recently. Support is seen at 1.2652 this week (61.8% Fibo retracement of the Jul-Sep rally).

      AUD/SGD – Bearish. AUD/SGD touched a low of 1.1028 before steadying around the 1.1070-mark this morning. This cross is still weighed by the AUD weakness. The week ahead has MPS from MAS. No change is expected but as noted above, focus will be on the tone of the statement. Strong support at 1.1062 has been tested and the cross could extend towards the next support at 1.0980. SGD/MYR – Rangy. MYR softened on the day of the Budget 2015 delivery and the SGD/MYR has arrived at the upper bound of the 2.5400-2.5640 range that has held lats week. Risks are on both sides of the pair as indicated by the momentum indicators. 2.5463 marks the support which coincides with the 40-DMA while bullish extensions could be deterred by 2.5807. MAS releases its monetary policy statement on Tue along with advanced estimate of GDP. Majority do not expect a change but focus will be on the tone of the statement itself amid recent global growth concerns.

      USD/MYR – Choppy. USD/MYR edged higher this morning, extending its rise from Fri and was last seen around 3.2620. Soft dollar tones have kept the pressure on USD/MYR and the pair gained bearish momentum on the daily chart. There is hardly any reaction to Budget 2015, tabled by PM Najib last Fri. BNM Governor Zeti assured that monetary policy stance will support expansion, after noting higher risks to Malaysian growth and inflation. She also reiterated that faster price increases are expected to be temporary and inflation could trend back to the long-term average of 3% by 2016. We hold our view that BNM will not move overnight policy rate until the 2H of 2015. Her comments underscored growth concerns and could pare expectations of a near-term rate hike. Further slides to meet support at 3.2314 (38.2% fibo retracement of the Aug-Sep rally). Topsides to be guarded by 3.2870.

      USD/CNY was fixed at 6.1446 (-0.0024), vs. previous 6.1470 (+2.0% upper band limit: 6.2700; -2.0% lower band limit: 6.0241). CNY/MYR was fixed at 0.5312 (+0.0020). USD/CNY – Bearish. Pair waffled around the 6.13-figure around 6.1330 this morning.  Support is still seen around 6.1290 which was tested briefly on Fri. Next support is seen nearby at 6.1264 and this area could be a strong support region. In news, former PBOC adviser lowered his growth forecast for China to 7.4% from 7.6%, citing the soft property investment. China’s trade balance narrowed to USD31bn from the previous USD48.8bn. Exports quickened to 15.3%y/y in Sep and imports made an unexpected upswing to grow 7.0%y/y compared to the previous decline of -2.4%.

      1-Year CNY NDFs – Bearish. The NDF bounced this morning, despite the lower fixing and was last seen around 6.2465. There is a lack of momentum in this pair but the past few sessions have indicated bullish risks. Next bullish target is seen at 6.2575. USD/CNH – Finding a Floor. USD/CNH steadied around 6.1390 this morning, dragged a tad by the lower fixing and soft onshore spot prices. A strong support is seen at 6.1320 and a failure to break below this level could mean a bullish reversal ahead. Momentum indicators are not showing much directional bias at this point.  Upticks are expected to be resisted by 6.1482. Support is seen at 6.1320. CNH trades at a discount to CNY.

      USD/IDR – Upticks. This pair hovered around 12210 this morning, buoyed by the domestic political concerns as well as expectations of dollar strength. Foreigners sold off USD50.8 mn equities and risk appetite in Asia remains weak this morning.  Expect 12280 to remain the bullish target, underpinned by equity-related outflows.  Support is seen at 12100 this week. The JISDOR was fixed only a tad higher at 12207 on Fri compared to 12190 on Thu. Expect the JISDOR fixing today to be little changed from Fri’s number. 1-month NDF hovered around 12300 with bids met by selling interest seen in the last few sessions.  Still, there is undeniable upside pressure on this pair as well as spot prices. In news, President-elect Joko Widodo told the press on Fri that there will be 18 professional ministers and 15 politicians.

      USD/PHP – Rangy. The USD/PHP ticked higher this morning, last seen at 44.770, 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. RSI shows ample room for trades on both sides. Hence, expect consolidation to extend within 44.500-45.050. Equity-related outflows are expected to cushion downsides as foreign sold off USD34.4mn worth of equities on Fri. Risk appetite is not expected to recover much in Asia today, not after a lacklustre session in NY and Europe last Fri. For the 1-month NDF, prices steadied around 44.81 this morning after a week that is rather devoid of directional bias. While daily MACD shows slight bearish momentum, recent session shows some interest to buy on dips as well. The NDF is thus also expected to move sideways this week until fresh cues emerge.

      USD/THB – Downward Tilt. The USD/THB remained pressured to the downside this morning, testing the 18-DMA as we write. A break of the support around 32.355 exposes the next at 32.18. Foreign funds sold off a net USD32.7mn of equities and bought THB155.6mn worth of debt on Fri. Equity-wise, a sea of red is observed in morning trade and we can expect downsides to remain cushioned by equity-related outflows. Look for the pair to trade with a downward tilt to the downside, given the resilient bond market seen thus far. Unexpected bounces to meet resistance around 32.670. BOT Governor Prasarn told the press in the US that monetary policy is sufficiently accommodative and he expects growth to trend towards its long-term potential next year (BBG).

Rates

Malaysia

§  Trading in the local government bond market was concentrated on the belly to the back end of the curve in the morning and 10y-30y MGS closed about 1bp lower. BNM announced an issue size of MYR2.5b for the 15y MGS 4/30 reopening. Nothing traded on when issued (WI) as it was last quoted 4.18/13%. In the national budget, the government continued to show determination to consolidate fiscal position by reiterating 3.5% fiscal deficit target for 2014 and 3.0% for 2015, which in our view is credit positive to the Malaysian sovereign credit. Items announced in the budget were within our expectations.

§  The IRS curve marginally flattened with 1-7y IRS quoted 1-2bps higher and about 1bp lower beyond the 7y point. Still some persistent sellers for 5y at 3.92% as the buying in MGS continues. We favour paying at low 3.90s to mid 3.80s assuming KLIBOR won't go lower. 3M KLIBOR was stable at 3.75%.

§  The PDS market was rather lacklustre due to the budget read. We continue to favour the infrastructure sector for names like Plus and Kesas. We dislike Danainfra with the spread being too tight at this juncture at around 40bps over govvies. For pickup, we are looking at AAA at 5-7y range for almost 15-20bps pickup over the GGs.

Singapore

§  The SGS market was pretty jittery with Treasuries trading lower instead of higher. The day had started with some bids in the belly of the curve before Treasuries led the sell-off in the longer end. We remain defensively received on market jitters on fears of Ebola and tensions among some nations.

§  Asian credit market has widened for most stocks. Sovereigns are 2-4bps wider. We see players slowly moving out from the property space. Malaysian bank papers seem to be doing well, especially after the merger news between CIMB, RHB and MBSB was announced. We continue to favour RHB USD paper, as with more and more details about the merger rolling out, we think the paper may tighten another 5-8bps. Indon rebounded from the previous selloff and we may look to buy on dip selectively. We saw a bit of meltdown on Asian high yield (HY) for names like Kaisa, Yuzhou, and Agile. Agile has been trading 12pts down since the announcement of the company's shelving of the planned rights issue.

Indonesia

§  Indonesia’s government bonds continued to be stronger in last Friday. The country’s bond market heightened as the government lowered its target on the next auction after frontloading sales this year. It will be an indicator of lessening bond supply in the domestic market. Therefore, the government’s bonds demand in the secondary market will increase until the rest of this year. The yield on 10Y government bonds dropped 1.9 bps to 8.39%. The Finance Ministry plans to raise 8 trillion rupiah (US$655 million) from a sale on Oct. 14, the least since June. The nation has completed more than 95% of its Rp406.2 trillion financing target this year. 

§  Moody's Investors Service has assigned a definitive Baa3 rating with stable outlook to PT Pelabuhan Indonesia III's (Persero) (Pelindo III) US$500 million senior unsecured bonds. The proceeds will be used for capital expenditures, working capital requirements and other general corporate purposes Pelindo III is a leading port operator in Indonesia with 43 ports across seven provinces in central and eastern Indonesia. It handled container throughput of 4.1 million twenty-foot equivalent units (TEUs) and 84.8 million tons of dry and liquid bulk cargo in 2013. Pelindo III is wholly owned by the Ministry of State Owned Enterprises and regulated by the Ministry of Transportation.

§  PT Bumi Resources Tbk will fail to make a US$$37.625 million coupon payment on its 10.75% bonds due Oct-17¸ according to a person familiar with the matter. Company now has a 30-day grace period in which to either make the payment or negotiate a solution with bondholders. Holders of 2017 notes had consented last year to a debt-to-equity swap agreement with China Investment Corp. Bloomberg-compiled prices showed that the bonds are trading at 37.763 cents on the dollar to yield 56.038%. They touched 37.409 cents yesterday, the least since May. 

§  Pefindo affirmed _idAA- raing for PT AKR Corporindo Tbk and its bond I/2012. The outlook of the corporate rating is stable. The ratings reflect the stable demand of fuel in Indonesia, the company’s stable volume growth of the fuel business in the long term, and its extensive logistic infrastructure network. However, the ratings are constrained by the risk related to development in the industrial estate and downturn in mining sector which constitutes one of the Company’s main customer segments for its Petroluem distribution business.