Maybank GM Daily - 20 Oct 2014

FX

Global

      Fed Chair Yellen’s comments about growing income inequality were taken as another dovish signal, giving relief to the US stocks on Fri. The US data calendar lightens in the coming week (only existing home sales, CPI and preliminary PMI-mfg for Oct) and focus is on China’s 3Q GDP on Tue. Consensus expects a slower 7.2%y/y growth in 3Q and there are already rumours of a rate cut. Over the weekend, PBOC injected CNY200bn into 20 joint-stock Chinese banks. Retail sales, urban FAI, retail sales and industrial production will be out tomorrow. Also, the 4th Plenary Session will start today.

      Thu will also see preliminary PMI-mfg numbers from China, followed Europe and then, the US. On the same day, BSP also decides on overnight borrowing rate (Cons.: no change). Singapore’s CPI (Cons.:0.9%y/y) is also due. Come Fri, Philippines releases the rest of its Aug trade numbers (imports and trade balance) followed by Singapore’s industrial production (Cons.:-2.0%y/y). Thailand’s custom trade numbers will wrap up Asia’s data release for the week.

      Overall, could have potential for further growth concerns next week if any of the forward looking indicators consistently support future global growth weakness. We see limited impact on the trade weighted SGD which has been hugging the mid-point of our band, which suggests current levels are still appropriate despite recent trading partners currency fluctuations. Expect USD/SGD to continue to remain within the 1.27-1.28 range unless the dollar weakens significantly due to the Ebola fears and global growth concerns.

      RBA releases the Minutes of its Oct meeting on Tue, 3Q CPI is out on Wed (Cons.:2.3% y/y). 0.8660 is still a strong support level to break. New Zealand releases its CPI data on Thu, trade figures on Friday. Elsewhere, Oct BOE Minutes is out on Wed. The minutes could press the GBP towards Oct 16 low of 1.5942 if it signals growth concerns. 

G7 Currencies

       DXY – Range-Trading. The DXY index slipped on underwhelming Sep data on Wed, touching a low of 84.472 before recovering above the 85-mark this morning, not mustering much bullish recovery even after the better industrial production prints. The 40-DMA around 84.48 has provided the support for the unexpected pullback. The week ahead has fewer data releases out of the US (only existing home sales, CPI and preliminary PMI-mfg for Oct). Ahead of the FOMC meeting in the following week, expect downsides to be cushioned while the latest data to likely shift range-trading lower to 84.00-85.70. A break of the upper bound exposes the next at 86.11.

      USD/JPY – Two-Way Trades. USD/JPY is bouncing higher for the third straight session, lifted today by speculations that the GPIF reallocation process was about to be initiated and the firmer dollar tone. Pair touched a high of 107.26 before settling to around the 107.11 level currently. Momentum remains bearish, though it is on the wane, while RSI shows ample room for the pair to move in either direction.  Confirmation of the GPIF move into riskier assets, expected in Dec, could provide the next leg up for the in USD/JPY towards 115. For intra-week trades, 105.59 acts as a support while upticks should be capped by 108.12.

      AUD/USD – Whippy. Pair extended choppy trades above the 0.8660-support. Daily tools indicate increasing bullish momentum in this pair but price action offers little cues on its directional bias. Last seen around 0.8770, gains from dollar weakness were unsustainable as domestic data underscores weakness at home. The rise in dwelling prices also prompted warnings from Fitch on the risks it bears on the banking sector on Thu. Prices are still likely to remain whippy within the broad 0.8660-0.8860, notwithstanding speakers from RBA next week along with the release of the Minutes of the Oct meeting. 3Q CPI will also be released. In a speech made this morning, Assistant RBA Governor expects monetary policy to support growth. Inflation should stay within the 2-3% medium-term target.

      EUR/USD – Room on Both Sides. The pair took advantage of the dollar weakness, rising above the 1.28-figure last week before softening back to trade around 1.2760 this morning. 1.2877 is still the nearby barrier to watch and pair still retains bullish momentum. CFTC positioning data indicates net short contracts of -146K for the week ending on 7 Oct. Shorts are still favoured in the long term given the divergence in its policy in contrast to the Fed. However, the latest slip in US data may give EUR bulls tentative room to run. Hence, we see scope on both sides of this pair with a break of the 1.2877-barrier exposing the next at 1.2997.  Slides to meet support at 1.2655.

      EUR/SGD – Consolidation. The EUR/SGD tracks the EURUSD pair closely as the cross softened from its high of 1.6366 last week to waffled around 1.6250. Bullish momentum waned and prices may continue to trend lower towards the 1.6176-18-DMA support. A failure to break support could mean a rebound back to revisit the 1.64-figure. Eyes are on the few US data out this week as mentioned earlier in the report as well as the preliminary PMI-mfg numbers out of the Eurozone. Low expectations of the latter cap gains for this cross.

Regional FX

      The SGD NEER trades 0.04% above the implied mid-point of 1.2744. We estimate the top end at 1.2489 and the floor at 1.2998.

      USD/SGD – Two-Way Interests. MAS kept the SGDNEER policy unchanged as most expected last week and there was hardly any USD/SGD reaction to the decision. Last seen around 1.2736, this pair extended choppy action within 1.2690-1.2800 for the most part of the week. MACD shows bearish conditions on the daily chart but price action continue to indicate two way trades. Sep CPI and industrial production are Thu and Fri but market players are likely to keep their eyes on the US instead of domestic data. For now, sideway gyrations could continue within 1.2690-1.2800.

      AUD/SGD – Whippy. AUD/SGD has been whippy and still lacks a sense of direction at the start of the week, last seen around 1.1168. This cross is still well within the 1.10-1.13 range and there is still little sign of a breakout from the daily chart. Expect this cross to extend choppy trades within this range for now. Eye the Minutes of the Oct RBA meeting due on Tue. So far, RBA has indicated its preference for a cheaper AUD despite the recent slump. Given the CFTC positioning data, there is a net -26.5K short contracts as of 7 Oct and base on historical records, there is room for more short bets. Risks beyond the near-term are still to the downside. SGD/MYR – Shallow Dips. SGD/MYR gapped down at the opening this morning to start the week lower at around 2.5709. Since then, the cross has inched lower and is sighted around 2.5690 currently. This cross is now showing waning bullishness as indicated by MACD, though RSI is indicating ample room for two-way trades.  Hence, expect any downticks to be cushioned by support around 2.5547. Retracements are likely to be shallow. Next barrier is seen at 2.5940.

      USD/MYR – Supported. USD/MYR hovered around the 3.2740 this morning, still supported by the 18-DMA, last seen at 3.2658. Sep CPI slowed to 2.6%y/y from the previous 3.3% on “base effects”. Key drivers include costs of food, housing, utilities and fuels. Risks have tilted to the upside with next barrier seen at 3.3020. We are cautious of any agents’ offers around the 3.29 level as our traders have warned. Expect upsides to remain capped by cautious trades. At this point, there is a lack of momentum on the daily chart. Current softer dollar tone may also temper upsides in this pair. 1-month NDF is also cushioned by the 18-DMA, last seen around 3.2820. China’s 3Q GDP is due on Tue followed by the flash HSBC PMI-mfg number on Thu. Eyes are on Malaysia’s largest trading partner for cues before FOMC meeting starts next weel.

      USD/CNY was fixed at 6.1435 (+0.0028), vs. previous 6.1407 (+2.0% upper band limit: 6.2689; -2.0% lower band limit: 6.0230). CNY/MYR was fixed at 0.5332 (-0.0017). USD/CNY – Bearish. USD/CNY slipped to trade around the 6.1250-level this morning as downsides remained cushioned by the 6.1195-support. MACD shows a lack of momentum and we expect the pair to remain in narrow range-trades within 6.1195-6.1300 today. There are plenty of opportunities of a break out this week. The fourth plenary session kicks off today for three days and focus will be on the rule of law – to continue with its anti-graft campaign, improve on its judiciary system and possibly some tweaks to the hukou system. The final string of Sep data will be released tomorrow including the 3Q GDP. Over the weekend, China already announced an CNY200 bn liquidity injection into the banking system in order to improve credit accessibility.

      1-Year CNY NDFs – Awaiting Cue. The NDF steadied around the 6.25-figure this morning, wary of volatility ahead. Upsides are capped by better sentiments in Asia this morning, taking the lead from the US stock markets last Fri. Barrier is still seen at the 6.26-figure. A break here exposes the next at 6.2725. Support is seen around 6.2395 this week ahead of the next at 6.2263. USD/CNH – Sideways. USD/CNH slipped to trade around the 6.1380 this Asia morning. Support is seen around 6.1375 ahead of the next at 6.1320. Rumours of a PBOC rate cut and overall better sentiments continue to underpin the yuan in spite of the higher fixing. Expect prices to remain heavy with unexpected upticks to meet nearby resistance around 6.1430. CNH trades at a discount to CNY. In Hong Kong, the impasse between pro-democracy protestors and the administration continue with clashes with the police erupting over the weekend despite an upcoming dialogue.

      USD/IDR – Consolidation. The USD/IDR gapped lower this morning to 12088 to start the week as markets digested the news that political rival Prabowo would cooperate with president-elect Jokowi, thereby easing political tensions in the capital. Pair is still on the slide, sighted around 12055 currently. Momentum indicators now show increasing bearish momentum, though the pair edged closer to overstretched conditions. Still, risks are to the upside given the 18-DMA continues to lie above the 40-DMA. Dips continue to be contingent on dissipating political risks and action on fuel prices, with support at 11950 this week. Twin deficit concerns could lift the pair higher ahead. Look for resistance around 12200. Foreign funds sold off a net USD57.23mn in equities on Fri, but improving risk sentiments could provide support for the IDR. The 1-month NDF continues its slide lower, last sighted closing in on the 12000-figure at 12098, in line with the spot. The NDF is now showing bearish momentum, though it is edging closer to overstretched conditions. The JISDOR ended the week higher at 12222 on Fri but should start the week at a lower fixing given the spot’s drift lower this morning.

      USD/PHP – Range-Bound. The USD/PHP is on the slide this morning, hovering around 44.850 at last sight, helped by the improving risk environment.  Pair continues to trade at the upper half of its current 44.500-45.050 trading range. Daily momentum indicators are showing bearish momentum, though RSI is indicating two-way trades. With expectations still for a firmer dollar, dips are likely to be shallow. For bullish extension to continue, we need to see a firm break of the 45.050 level. Otherwise, expect range-bound trading within 44.500-45.050 this week. BSP meets on Thu and consensus expect the central bank to stand pat on policy, but a hawkish statement could provide the PHP with support. Foreign funds sold a net USD224.5mn in equities yesterday but improving risk sentiments could see inflows, limiting any downsides to the PHP this week.  The 1-month NDF slide to 44.880 this morning with daily MACD still showing bearish momentum.

      USD/THB – Congestion. The USD/THB has been waffling between 32.310-32.600 since easing from a two-month high of 32.696. Pair is currently edging nearer to the lower bound of that range, sighted around 32.390 to start the week. Daily chart is showing increasing bearish momentum, but price action continues to indicate two-way trades. With an eye to a firmer dollar, dips should remain shallow with support nearby still around 32.310 before the next at 32.245 for the week. Upticks this week are likely to be met by resistance around 32.600. Equities continued to face the brunt of global risk aversion with a net THB2.66bn sold off by foreign funds on Fri but a net THB0.64bn of debt was added. Easing global concerns this week should ease upside pressure on the pair.

Rates

Malaysia

      Local government bonds traded softer. MGS in general ended the day 1-3bps higher while GII saw selling pressure on the 10y 5/24 which ended 2bps higher. Volatile price actions on global bonds are causing end investors shying away for now. We expect MYR bond players to remain cautious this coming week with fast money accounts holding up the curve. We think most players are inclined toward fading on rally near term.

      The IRS curve shifted higher helped by higher UST yields. However, it seems that the cutting of paid positions has not yet ended. Market remains jittery driven by volatile global rates. 5y IRS was traded at 3.855% and 3.865%. 3M KLIBOR stayed flat at 3.75%

      The PDS market was muted. Some interest was seen on mid duration papers. High grades like Plus and Danainfra are still in demand. Recently some players moved down to the AA curve for yield. The new HSBC Amanah traded lower to 4.18% from printed yield of 4.22%. We think the tight credit spreads in the secondary market is unattractive, and we will probably look to primary market if there is better deal.

Singapore

      SGS yields opened higher tracking the overnight performance of UST. Market seems to have stabilised a bit with good buying interest before lunch. But towards the end of the day sentiment changed to selling. SGS yields in general ended at the morning opening levels, up by 1-4bps across the curve.

      In the Asian credit space, Indon sovereigns traded tighter. INDOIS 2024 has rebounded almost 3 dollars in the past few days. Asian low beta names are still in demand. Korean banks and Malaysian corporates traded tighter. Chinese names were pretty much unchanged. Kaisa Vice Chairman explained over the phone interview denying market speculation about the investigation on the company’s Chairman, but despite so Kaisa continued to trade weaker.

Indonesia

      Domestic political tension eases post Jokowi – Prabowo’s meeting. As a result, this meeting have given a positive sentiment toward equity market as prices escalate closing the JCI at 5,028.95 (+77.33points). Hence, bond prices slump after a 6 days price hike amid political tension eases. Ahead of Jokowi inauguration today, everything seems to be just on track and well. On the other hand, Indonesia Investment Coordinating Board (BKPM) announces the 3Q 14 data which shows a 19.3% yoy rise in total investment while foreign direct investment rose by 16.9% yoy. Indonesia central bank sees that October inflation would be at 0.36% mom or 4.72% yoy. Central banks estimates that a rise of Rp3,000 in subsidize fuel price would generate an additional 3.5% towards inflation is in line with our economist estimation. MTD, foreigners have sold Rp6.55 tn yet Rp2.54 tn outflow was caused by maturing FR0026 and ORI008. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 8.120% (+0.3bps), 8.287% (+1.1bps), 8.673% (+0.8bps) and 8.781% (+0.7bps) while 2-yr yield shifts down to 7.605% (-0.9bps). Government bond traded heavy at secondary market amounting Rp10,751 bn from Rp11,530 bn with FR0069 (5-yr benchmark series) as the most tradable bond. FR00069 total trading volume amounting Rp2,616 bn with 49x transaction frequency and closed at 99.093 yielding 8.120%.

      Corporate bond trading was relatively moderate amounting Rp400 bn (vs average per day (Jan – Aug) trading volume of Rp657 bn). SSIA01B (Surya Semesta Internusa I Year 2012; B serial bond; Rating: _idA) was the top actively traded corporate bond with total trading volume amounted Rp129 bn yielding 10.016%.