Maybank GM Daily - 2 Oct 2014

FX

Global

US private employers hired 213K in Sep, a tad higher than the 205K expected but market players chose to focus on global manufacturing numbers. PMI-mfg missed the consensus of 57.9 with a print of 57.5. The ISM manufacturing numbers for Sep also softened to 56.6 from the previous 59.0, missing expectations.  Earlier in the session, PMI for Eurozone also slipped from 50.5 to 50.3 in Sep. European equities finished around 1% lower for the day. US benchmark indices made sharper declines. DJI was down -1.4%, S&P at -1.3% and NASDAQ at -1.6%. USD/JPY is now off its multi-year highs at sub-109 levels while flight to safety drove demand for USTs.       Onshore markets in China and Hong Kong remain closed for National Day. Asia has fewer data cues for investors in this session, except perhaps RBA annual report at around lunch time. The major event of the day would be the ECB policy meet. After a series of lackluster manufacturing numbers as well as an even softer inflation estimate, expect President Draghi to retain his dovish tone with some focus on ABS and covered bonds after an underwhelming demand for the TLTRO, launched in Sep. Thereafter, the US releases its factory orders for Aug. Little impact expected as all eyes will then be on the key NFP release tomorrow night.       Asia is in for a choppy session. The overnight dollar slip has led some USD/AXJs lower in initial trades. Expect equity-related outflows to keep USD/AXJs cushion on downsides.

G7 Currencies

      DXY – Shallow Dips. Dollar softened towards the 18-SMA and was seen around 85.87 this morning. Manufacturing numbers for Sep were weaker than expected with some concerns also on the Ebola on US soil. Intra-day chart shows increasing bearish momentum and a break here exposes the next support at 40-SMA around 85.48. Still, we expect pullbacks to be shallow ahead of NFP tomorrow. Consensus at 215K reflects the expectations for a rebound in hiring in Sep from the previous 142K. Barrier is seen at the recent high of 86.218.

      USD/JPY – Buoyant. The USD/JPY continued its slow march towards the 110-mark, underpinned by a firmer dollar tone. Pair is still on the uptick, sighted around 109.77, buoyed by the possibility of further BOJ easing after the sharp deterioration in business conditions in the non-manufacturing sector. We need to see a break of the recent high of 109.85 for bulls to advance towards the 110-figure ahead of the next at 110.66. Though business sentiments for large manufacturers rose in the 3Q Tankan results released this morning, a deeper reading of the survey showed that sentiments of the non-manufacturing sector were sharply lower, suggesting that output could be weak again in 3Q.

      AUD/USD – Downward Tilt. The 0.8660-support was intact despite the poorer retail sales and softer dollar tones gave the AUD/USD bears a breather. Last seen around 0.8750, this pair is now just a touch under the 40-SMA at 0.8771. Intraday MACD shows bullish momentum at this point and the RBA annual report is released at (1315 HKT). Expect the pair to remain in a holding pattern with initial barrier seen at 0.8771 ahead of the next at 0.8853. In data, trade deficit narrowed close to expectations to AUD787mn in Aug from previous AUD1075mn (revised). Building approvals for the same month beat consensus (1.0%m/m) at 3.0%.

      EUR/USD – Sideways. The EUR/USD remained heavy for much of Wed, weighed by the European PMI-mfg numbers. ECB hogs the limelight tonight and President Draghi is expected to keep his dovish tone. Upticks are likely to be tentative. Last seen around 1.2625, this pair should remain within 1.2500-1.2755. A break of the 1.25-figure could see slippage towards the next support nearby at 1.24653.

       EUR/SGD – Downward Tilt. The EUR/SGD came close to testing the recent low of 1.6042 and was last seen around 1.6060 this morning. 18-SMA is under the 40-SMA. Perhaps the stronger PMI-mfg numbers out of Singapore which was a contrast to that of Europe, added to the bearish pressure. Still, no major moves were made as investors are more concerned with ECB policy decision tonight as well as NFP tomorrow. 1.6020 is still the technical support for intra-day trades.

Regional FX

      The SGD NEER trades 0.53% above the implied mid-point of 1.2826. We estimate the top end at 1.2534 and the floor at 1.3042.

      USD/SGD – Sideway Trades. The USD/SGD came off after hitting a high of 1.2780 yesterday, aided by the jump in the USD/JPY above the 110-mark, towards 1.2718. This morning the pair is back on the rebound, lifted by concerns about global growth, with the pair sighted around 1.2724. Ahead of the ECB meeting today and US NFP tomorrow, sideway trades within the confines of 1.2700-1.2780 are likely today. Manufacturing PMI for Sep rebounded to 50.5 from 49.7 in Aug, while  electronics PMI rose to 51.9 from 50.7 previously.

      AUD/SGD – Range-Bound. The AUD/SGD continues to test our 1.1094-support, but have so far failed to firmly break below that level. The cross is now back above that support-level, sighted around 1.1139, aided by a rebound in the AUD. Lacking any directional cues for now, we look for the cross to trade range-bound within 1.098-1.1215 today with the ECB meeting and US NFP eyed.  SGD/MYR – Bearish Risks. The SGD/MYR is on the slide, helped by yesterday’s move for fiscal consolidation in Malaysia. The cross is sighted around 2.5672 with further moves lower cannot be discounted. Support remains around 2.5633 (38.2% Fibo retracement of the Jan-Aug downswing) and we need to see a firm break here for bears to take control with the next support seen around 2.5547. Resistance remains around 2.5750 today.

      USD/MYR – Retracement. USD/MYR was well bid in the first half of Wed before whispers of agents dragged the pair under the 3.28-figure. Pair remained offered this morning, last seen around 3.2650. The barrier at the 3.29-figure is still eyed. With rumours of agents at the top, the bonds markets received buying interests. Our traders noted demand for 10yr MGS and GII throughout Wed. Next technical support for spot prices is seen around 3.2492. 1-month NDF extended its fall this morning, slipping past the 40-SMA on the 4-hourly chart and waffled around 3.2650. Next support is seen around the 3.25-figure. In news, the Malaysian government announced another 20sen hike for subsidized fuels (RON95 petrol and diesel prices) to MYR2.30/litre and MYR 2.20/litre respectively with effect on 2 Oct (today). Our economic team keeps 2014 inflation forecast at 3.5% but adjust 2015 inflation rate projection to 4.5-5.0% from the previous 4.0-4.5%. Next event to watch is the revamp of the fuel subsidy mechanism.

      As of 30 Sep, USD/CNY was fixed at 6.1525 (-0.0014), vs. previous 6.1539 (+2.0% upper band limit: 6.2781; -2.0% lower band limit: 6.0319). CNY/MYR was fixed at 0.5298 (-0.00210). USD/CNY – Onshore markets closed for National Day Holiday.   PBOC eased property curbs for second home buyers, allowing lower down payments and mortgage rates once they paid off their first mortgage.

      1-Year CNY NDFs – Sideways. The NDF drifted lower, in tandem with most USD/Asians and was last seen around 6.2665. Support is still marked at 6.2625. Pair gained bearish momentum overnight and next support is seen at 6.2575. USD/CNH – Onshore markets are closed for China’s National Day.

      USD/IDR – Upside Risks. The USD/IDR remains in a tight trading range between 12000 and 12280. Last sighted around 12151 currently, the pairing’s bearish momentum has completely dissipated. Still we expect any dips to be shallow given concerns about the incoming president’s reforms could meet opposition in the new parliament, and the twin deficits concerns. Moreover, waning risks appetite should weigh on the IDR as seen in the recent sell-off of Indonesian asset by foreign funds with a net USD31.85mn in equities sold yesterday and a net IDR0.39tn in debt removed from their outstanding holdings of debt on 30 Sep. Given these concerns and expectations of even more dollar upticks, further upside seems likely. We continue to see upside capped around 11280, while downsides should be supported around 12100. The 1-month NDF remains on the slide, hovering around 12228 currently with intraday MACD still showing bearish momentum. After three consecutive higher fixing, the JISDOR was fixed lower at 12188 on Wed from 12212 on Tue. Sep CPI accelerated by 4.53% y/y (Aug: 3.99%) on a low base of comparison as the impact of the fuel price hike last year faded. Core inflation though moderated to 4.04% in Sep from 4.47% in Aug. Meanwhile, exports and imports rebounded strongly, rising 10.63% and 13.69% y/y in Aug respectively after contracting -6.03% and -19.31%to expand by 8.65% and 9.40% y/y. The trade balance deteriorated to a deficit of USD318m in Aug from Jul’s revised USD42mn.

      USD/PHP – Bearish Tilt. The USD/PHP remains on the retreat this morning, hovering lower around 44.755, possibly on the back of the continuing pullback in the EUR/PHP. Pairing has lost its bullish momentum and is now showing mild bearishness instead. The 45-figure continues to be the hurdle to cross this risks BSP intervention. Still, dips are likely to be shallow given expectations of dollar strength. Support for the pair remains around 44.580 today, while resistance is seen around 45.050. The 1-month NDF slipped lower this morning towards key support at 44.670. The NDF was sighted around 44.780 currently with intraday MACD still showing increasing bearish momentum.

      USD/THB – Waffling. USD/THB waffling this morning pulled in two directions by the government’s pump-priming measures and deteriorating risk environment. Pair is currently sighted around 32.417 with intraday MACD signalling little directional clarity. Foreign interest in Thai assets was mixed yesterday with a net THB1.64bn in equities purchased but with a net THB3.77bn in debt sold. However, dips are likely to be shallow given expectations of a dollar resurgence with support seen around 32.355 today. The barrier to cross remains around 32.500. Sep headline CPI eased further, moderating to 1.75% y/y (Aug: 2.09%), while core inflation eased to 1.73% (Aug: 1.83%). The moderation in headline inflation could be attributed to falling energy prices as well as weakness in food prices. Given this development, the government now expects inflation to average 2.14% in 2014 from 2.21% previously, though our economic team is maintaining their 2.25% forecast.  Meanwhile, the government announced yesterday that it was pumping THB364.5bn (USD11bn) into the economy for the remainder of the year to jump-start the economy and create jobs.

Rates

Malaysia

§  The local government bond market saw better buying interest on 10y MGS and GII throughout the day. 10y MGS 7/24 ended 2bps lower while GII 5/24 ended unchanged from yesterday’s close. There were active trading volumes on these two stocks despite MYR weakening against USD. We expect the flows to continue at a gradual pace ahead of the national budget on the 10 Oct.

§  IRS market traded slightly lower in view of richer MGS and UST markets. 2y to 4y IRS had some decent trades. 3M KLIBOR unchanged at 3.74%.

§  In the local PDS market today, we saw buying interest for GGs at the belly of the curve for papers issued by DanaInfra and PASB in line with the buying interest in MGS. However, there was more selling pressure for the overall market with Dana given at 4.20% and Rantau traded at the same yield twice today. Investors might be waiting on the sidelines ahead of the national budget.

Singapore

§  SGS market had a very quiet day today after a few busy days. Players are awaiting the non-farm payroll (NFP) this Friday. Previous report was weak at 142k and consensus is expecting around 210k this time. Bonds at the long end continued to trade at better values as swap spreads stabilise below -5bps as opposed to front-end bonds up to the 5y point trading at -30bps to -40 bps. We anticipate swap spreads widening towards the end of the year.

§  The Asian credit market was slightly quieter today due to the Hong Kong holiday. Market is cautious of the outcome of the protest which seems to have gained momentum. Meanwhile, Indonesian names have stabilised on the back of rumours that the Indonesian government will raise fuel price by IDR3000/liter in November. There was buying interest across the sovereign and Indonesian names, alongside the new PLBIII 2024. Although the PBOC relaxed mortgage rules such as lower down payment and mortgage rates, the market is not convinced that the move will boost the property market as we saw more selling interest across Chinese property names.

Indonesia

§  Indonesia statistics issued September inflation which eased to 0.27% (m-t-m) from 0.47% (m-t-m) in previous month. However, yearly inflation in September 2014 rose to 4.53% (y-o-y) from 3.99% (y-o-y) in a month earlier. The rising yearly inflationary pressure is caused by the deflation in September last year due to the expiration of the impact of fuel price hike. Meanwhile, yearly core inflation in September 2014 decreased to 4.04% (y-o-y) from 4.47% (y-o-y) in the previous month.

§  Trade balance in August 2014 returned deficit of USD 318 million compared with a surplus of USD 42 million in one month earlier. Exports in August stood at USD 14,475 million, rising by 2.49% (m-t-m), and increasing by 10.64% (y-o-y). The improving export performance was driven by increase in non-oil and gas exports to USD 11,877 million from USD 11,628 million in the previous month data. Furthermore, non-oil and gas export rose due to rising exports of vehicle & parts (28.54%mom) and machinery/electrical appliance (10.66%mom). Furthermore, oil and gas export also rose to USD 2,598 million in August from USD 2,496 million in the previous month. Total imports spiked to USD 14,793 million, rose by 5.05% (m-t-m), from USD 14,082 million in one month earlier. The improving growth of imports is driven by rising non-oil & gas imports by 14.99% (m-t-m). The improving non-oil and gas import was triggered by rising imports of machinery/mechanical appliance, and Plastics & the article thereof by 21.15% (m-t-m), 20.32% (m-t-m), and 12.54% (m-t-m), respectively.

§  Indonesia bond market continues its slide as trade balance data came in worse than consensus estimates. Buyers were seen during second trading session period. The decision for capping deposit rate by OJK also would give positive contribution to Indonesia bond market. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 8.294% (-2.0bps), 8.502% (+1.0bps), 8.888% (-0.3bps) and 9.009% (-4.2bps) while 2-yr yield shifts down to 7.712% (-2.2bps). Government bond traded heavy at secondary market amounting Rp16,821 bn from Rp10,156 tn with FR0071 (15-yr benchmark series) as the most tradable bond. FR0070 total trading volume amounted Rp4,434 bn with 144x transaction frequency and closed at 99.180 yielding 8.502%.

§  Corporate bond traded thin amounting Rp301 bn (vs average per day (Jan – Aug) trading volume of Rp657 bn). ADHI01BCN2 (Shelf registration I ADHI Phase II Year 2013; B serial bond; Rating: _idA) was the top actively traded corporate bond with total trading volume amounted Rp56 bn yielding 11.243%.