Maybank GM Daily - 21 Oct 2014

FX

Global

Risk mood soured in European hours after a positive Asian session on Mon. Poor earnings report from IBM also led the US equity indices lower but recovered to mild black after Apple reported better-than-expected earnings. DJI closed up +0.1%, S&P at +0.9% and NASDAQ at +1.4%. USTs were bid with 10-year yields slightly lower around 2.17% by the end of the session.       Focus turns to Asia today with China’s GDP release at 1000 (HKT) this morning, along with Sep FAI, retail sales and industrial production. Consensus expects a slower growth of 7.2%y/y for 3Q from 7.5% in 2Q. Elsewhere, markets also await the new cabinet appointments by newly sworn in President Jokowi. Ahead of that, RBA just released the Minutes of its Oct meeting and there was not much change in its tone. AUD is still deemed high by historical standards and a cheaper currency will aid the economy better in its restructuring. The central bank considers a period of interest rate stability to be the most prudent course. Later, RBA Lowe speaks on fixed income.

      US existing home sales for Sep is due today. Dollar retained a heavy tone with the DXY index around the 85-figure. That allowed most regional currencies to strengthen this morning. China’s 2Q GDP hogs the limelight now in the absence of other stronger cues. Expectations of further stimulus could cushion risk sentiments in the case of a softer print.

G7 Currencies

       DXY – Range-Trading. The DXY index softened overnight and remained a tad soggy around the 85-figure this morning. The 40-SMA on the 4-hourly chart continued to guard upticks in this pair. The overnight lift in the stock markets as well as USTs failed to inspire much upside in the dollar and intra-day chart also show little directional bias.  Sep existing home sales is due tonight but we expect the action to remain within the confines of 84.532-85.672 for much of today.

       USD/JPY – Rangy. USD/JPY is drifting lower this morning on safe-haven flows ahead of China data releases including GDP. Pair slipped below the 107-figure after hitting a high of 107.39 yesterday, sighted around 106.74 currently. As well, continued speculations of GPIF allocation moves should continue to underpin the pair ahead. Look for this pair to remain under pressure for the time being and to hover in familiar ranges within 105.59-108.12 today.

       AUD/USD – Whippy. Pair steadied around the 0.8790-mark this morning with muted reaction to the Minutes of the RBA 7 Oct meeting. Similar to the statement, RBA notes that the buoyant housing market should continue to support consumption, stability in hiring conditions and the fact that AUD remains high according to historical standards.  There is little momentum depicted on the charts but recent the AUD has risen above the 18-SMA and 40-SMA, suggesting the risks are tilted to the upside. That said, there is still little to suggest that there could be a breakout from the current 0.8660-0.8860 range. Eyes are on China’s GDP next for AUD players. Thereafter, Deputy RBA Governor Lowe speaks at a fixed income conference in Sydney this afternoon. Next tier-one release would be 3Q CPI tomorrow.

       EUR/USD – Room on Both Sides. EUR/USD rose to a high of 1.2817 overnight before inching under the 1.28-figure against this morning. As we have noted before, the EUR bulls are given tentative room to run in the absence of dollar strength. Risks are tilted to the upside with unexpected downticks to meet support marked by the 1.2743 (18-SMA on the 4-hourly chart).  1.2822-resistance is still at risk with next barrier to eye is the 1.2877.

       EUR/SGD – Tilts North. The EUR/SGD was on the gradual upward grind on Mon and the cross was last seen hovering 1.6255 this morning. Prices could edge higher for the rest of the session, guided by the 40-SMA but upticks may not happen in a hurry given the current lack of steam. The short-term upward trend is intact with intra-day momentum indicators not showing signs of divergence yet. We are still wary of the strong barrier seen around the 1.6350-mark while the 40-SMA acts as a support, last printed 1.6224.

Regional FX

      The SGD NEER trades 0.03% above the implied mid-point of 1.2710. The top end is estimated at 1.2455 and the floor at 1.2964.

       USD/SGD – Choppy. The USD/SGD is back on the uptick this morning as the dollar firmed after sliding below the 1.27-figure. Pair is currently hovering around 1.2704. Intraday momentum indicators continue to show little directional cues, though risks are now to the downside given the negative cross-over of thee 18-SMA and the 40-SMA yesterday. Trades today are likely to remain choppy with the pair gyrating within 1.2676-1.2740 today. Onshore markets are closed tomorrow for a public holiday and re-opens on Thu. On Thu, Sep CPI is due and market is expecting headline inflation to remain steady at 0.9% y/y.

       AUD/SGD – Still Whippy. AUD/SGD is waffling this morning, pulled in two directions by the relative weakness of USD/AUD and USD/SGD. Cross is sighted lower around 1.1149 with directional clarity still lacking as indicated by intraday charts, though RSI is showing ample room in either direction today. With the RBA minutes a non-event and markets eyeing the slew of China data releases this morning, we look for the pair to remain in choppy trades within 1.1062-1.1217 today. SGD/MYR – Rangy. SGD/MYR remains on the downtick, sighted around 2.5667, underpinned by a firmer MYR this morning. This cross showing little momentum in either direction, thus dips are likely to be shallow. We look for rangy trades likely today with the cross gyrating within 2.5547-2.5834.

        USD/MYR – Supported on Dips. USD/MYR slipped on dollar weakness and was last seen around 3.2615 after touching a low of 3.2570 this morning. Momentum has turned bearish and next support is seen around 3.2480.  There are apparent interests to buy on dips given current cautious sentiments ahead of China’s 3Q GDP. 3.2670 is still a barrier to watch, ahead of which could expose the next at 3.2813 today. 1-month NDF also steadied around the 3.27-figure. Drivers are the same as spot prices. Next support is seen at 3.2503 for this pair.

       USD/CNY was fixed at 6.1410 (-0.0025), vs. previous 6.1435 (+2.0% upper band limit: 6.2663; -2.0% lower band limit: 6.0206). CNY/MYR was fixed at 0.5315 (-0.0018). USD/CNY – Heavy. USD/CNY steadied at open and was last seen around 6.1230, weighed by the lower fixing this morning. 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. Eyes are on 3Q GDP as well as the rest of Sep data releases including, urban FAI, retail sales and industrial production. In news, an editorial by China Securities Journal urged PBOC to encourage two-way flexibility in the CNY.

       1-Year CNY NDFs – Awaiting Cue. The NDF drifted lower on Mon and rest above the 6.2470, at the brink of crossing below the 40-SMA. There is little directional cues at this point. Next support is seen around 6.2395 while topsides are guarded by 6.2600 ahead of the next at 6.2725. USD/CNH – Heavy. USD/CNH waffled around the key support of 6.1320 this morning as investors eye 3Q GDP. Next support is seen around 6.1131. Eyes are on China’s GDP. Expect a softer number to raise expectations of further stimulus to boost growth in 4Q. CNH trades at a discount to CNY. At home, Hong Kong students will meet the government at 1800 (HKT) for a televised dialogue.

       USD/IDR – Oversold. The USD/IDR is back on the slide this morning on the back of a softer dollar tone overnight, slipping to below the 12000-figure before recovering to hovering around 12008 currently. Pair also continues to benefit from the lingering positive sentiments from the inauguration of President Joko Widodo yesterday. This saw also saw foreign funds buy a net USD62.96mn in equities yesterday, and saw this continue, should put further downside pressure on the pair today. Momentum indicators continue to show increasing bearish momentum, though the pair remains in overstretched conditions. Risks are now to the downside with the negative cross-over of the 18-SMA and the 40-SMA. Markets will be watching the new president’s cabinet announcement expected anytime soon and a failure to fill the cabinet with technocrats as promised could lead to a negative reaction and lift the pair higher today. Moreover, further dips are contingent on dissipating political risks and action on fuel prices. Until then, we continue to expect the pair to hover range-bound within 11950-12100 today. After the euphoria of yesterday’s presidential inauguration, the 1-month NDF is back on the uptick, still unable to break below the 12000-figure. The 1—month is sighted currently around 12052 with bearish momentum on the wane as indicated by our four-hourly charts. As expected, the JISDOR was fixed lower at 12041 yesterday from 12222 on Fri and a lower fixing seems likely given the downtick in the spot this morning.

       USD/PHP – Rangy. The USD/PHP is on the retreat this morning on the back of a softer dollar tone with the pair last sighted around 44.780. Bullish momentum as indicated by intraday MACD has totally dissipated and is now showing bearish momentum. Lacking directional cues for now and with expectations that the BSP will hold policy steady on Thu, pair is likely to remain in range-bound trade within its familiar range of 44.500-45.050 today. Foreign funds again sold off equities with a net USD3.4mn sold yesterday but improving risk sentiments could see inflows, helping the pair to ease further today.  The 1-month NDF remains on the slide this morning, hovering around 44.810 this morning with daily MACD still showing bearish momentum.

       USD/THB – Oversold. The USD/THB slipped lower along with its regional peers this morning on the back of a softer dollar tone. Pair is currently sighted around 32.268, after taking out our support at 32.310. Intraday MACD is showing increasing bearish momentum, though the pair is overstretched.  With the bias to the downside today, look for our next support at 32.245 to be tested today. A firm break of this level should expose new support at 32.155. Upticks could be capped by 32.355 today. Foreign interest in Thai assets was mixed yesterday with a net THB0.48mn in equities purchased, while a net THB1.62bn in debt sold. Renewed risks aversion today could cap downside pressure on the pair.

Rates

Malaysia

      Local government bond market had a lacklustre start and ended mixed. There were better sellers for front end MGS maturing in 2015. We expect the curve to bear flatten in the near term, with onshore and offshore seeing better sellers on front end bonds. Additionally, the few recommendations to reduce duration on local government securities will add to the selling interest as any rally would be readily met by players fading the move ahead of year-end profit bookings.

      The IRS curve saw better bids in the morning, in line with regional movements, and ended relatively unchanged as Treasuries recovered from weakness. No trades were reported and 3M KLIBOR remained at 3.75%.

      PDS market was relatively quiet with bidding activity focused on GG and AAA papers. Selling pressure was seen in both Aman 2/21 and 5/21. BPMB 29 had the highest traded volume with MYR65m done. Trades were negotiated at the same yield of 4.675%. There was a new book opening for the MYR500m 6y GG PASB paper which closed at 4.10%, within the price guidance of 4.07-4.15%. In view of the dovish Fed stance, improving sentiments in the US economy and the possibility of monetary stimulus in the Eurozone, we believe investors are seeking higher alpha in equity markets and portfolio diversification with high quality GG and AAA papers, which also offers a fairly attractive spread when benchmarked against govies.

Singapore

      SGS yields ended 2bps lower at the 2y benchmark and 1bp lower for the 15y and 20y benchmarks as Treasury futures rallied back to Friday’s levels. SGD bond swap spreads widened about 1-1.5bps as there were some buying interest in belly bonds, but SGD IRS ended giving up gains.

      Asian credits traded on a strong tone with spreads bouncing back to Friday's levels. Investment grade spreads tightened 5-10bps across the board with fast money and PB picking up some of the beaten down stocks. High yields also performed with Kaisa leading the way. The bonds were up about 2.5-3.0pts from previous close. Indonesian papers outperformed today with the official inauguration of President Jokowi. Indonesian sovereign papers like INDOIS 24 was taken up 0.5-0.75pts and corporates played catch up as well. We will have to see whether market is sustainable in the next few days. A few books opened – Hebei Iron and Steel is issuing a 3y bond enhanced with SBLC from Agricultural Bank of China at initial price guidance (IPG) of CT3+210bps, IDBI is issuing a 5y USD bond (rated BBB- by Fitch) with IPG of CT5+300bps, and Swiber is issuing a 3y SGD deal with IPG around 6.50%.

Indonesia

      Indonesia bond market posted gain contributed by positive sentiments from Jokowi inauguration. What is awaited by all Investors is Jokowi’s cabinet announcement specifically who will be posted as the next Finance ministries. If the candidate meets market expectation, than we might experience bond price rise again. Foreigners were seen at buy side during the day. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 7.974% (-14.6bps), 8.057% (-23.0bps), 8.450% (-22.2bps) and 8.557% (-22.4bps) while 2-yr yield shifts down to 7.541% (-6.3bps). Government bond traded heavy at secondary market amounting Rp16,306 bn from Rp10,751 bn with FR0071 (15-yr benchmark series) as the most tradable bond. FR00071 total trading volume amounting Rp3,645 bn with 144x transaction frequency and closed at 104.514 yielding 8.450%.

      DMO issued Rp21.22 tn worth of ORI011 after it received demand of Rp21.34 tn. This issuance size of ORI011 was the largest compared to last ten issuance. 73.93% of ORI011 was bought by investor with their age above 40 years old. Most of them reside at either DKI Jakarta or West Java province. In our view, DMO booked another success this year after successfully proved their front loading strategy.

      DMO to conducted weekly sukuk auction with indicative target issuance of Rp1.5 tn. DMO will conduct their weekly auction today with three series to be auctioned which are SPN-S08042015 (Coupon: discounted; Maturity: 8 Apr 2015), PBS005 (Coupon: 6.750%; Maturity: 15 Apr 2043) and PBS006 (Coupon: 8.250%; Maturity: 15 Sep 2020). We do believe that the auction will be oversubscribe by 1.7x – 2.2x from its indicative target issuance while our view on the indicative yield are as follows SPN-S08042015 (range: 6.780% – 6.810%), PBS005 (range: 9.100% – 9.300%) and PBS006 (range: 8.200% – 8.400%). On total, Indonesia government has raised approx. Rp398.4 tn worth of debt through domestic and global issuance which represent 97.54% of this year target of Rp430.2 tn.

      Corporate bond trading was heavy amounting Rp672 bn (vs average per day (Jan – Aug) trading volume of Rp657 bn). BBRI02 (Subordinated Ii Bank BRI Year 2009; Rating: A+(idn)) was the top actively traded corporate bond with total trading volume amounted Rp150 bn yielding 10.835%.