Maybank GM Daily - 27 Oct 2014

FX

Global

Majority of G10 currencies advanced as the greenback softened from its highs last week. Over the weekend, ECB revealed that 25 of Europe’s 130 biggest banks failed its stress test and 13 are required raise their capital buffers by EUR 10bn. The news did not weaken the EUR as it steadied around 1.2670 this morning.       With a lack of data cues to trade on today, focus will probably remain on President Jokowi’s cabinet lineup that was unveiled on Sunday. A significant proportion of his 34-member Cabinet is reported to be filled by technocrats and the composition had few surprises. Elsewhere, HKEX Li told the press that the Shanghai-Hong Kong stock connect has not received approval to start.

       The Oct FOMC meeting hogs the limelight this week with the wind up the QE programme expected and any hint of hawkish cues eyed on Wed night. Elsewhere, the BOJ meets for the second time this month on Fri. It will release its outlook for Economic Activity and Prices.

      For the rest of the week, there are fewer data releases in Asia. Trade numbers from Thailand are due tomorrow. China’s official PMI-mfg will be out on Sat (1 Nov) and consensus expects a steady print of 51.1. The HSBC version is released on the following Mon (3 Nov).

      Focus to be on the Fed meeting next week. USD/AXJs have been a mixed bag last week and the worst hit is SGD. Noteworthy is that  the SGD NEER has fallen below the implied mid-point according to our model at last sight and could remain thereabouts should this week turn out to be uneventful.

G7 Currencies

       DXY – Rangy. The DXY bounced out of the 85.50-86.70 range, contrary to our expectations for last week and was last seen around 85.67. We have FOMC meeting this week. Investors are on the lookout for hawkish cues once the Fed announces the end of QE. Next barrier is seen around 86.11 ahead of the next at 86.96 while the 40-DMA continues to provide support, last seen around 84.92. This week will also see the release of key data including durable goods order on Tue as well as the advanced estimate of 3Q GDP. Any speaks of low rates for a longer period could keep the DXY in consolidation within 84.50-87.00.

      USD/JPY – Buoyant. This pair bounced above the 108-figure on Fri and hovered thereabouts, awaiting the next bullish cue. This morning, pair continues to be on a similar holding pattern as last Fri, hovering around 108.15 at last sight. Barring any unexpected risk-off events, this pair could be on its way back towards the 110-figure. MACD has tilted north and RSI also indicates bullish condition. With 18-SMA and 40-SMA at the brink of a negative cross-over, pair may remain in consolidative mode with an upward tilt. Next barrier for the pair is seen around 109.50, while 105.59 should be supportive this week. Cues to watch out for this week include Oct CPI and BOJ policy meeting, both on Fri, though we do not expect any major surprises.

      AUD/USD – Consolidation. Last seen above the 0.88-figure, the week ahead has little domestic cues for AUD players and eyes are all the more on the FOMC meeting at mid-week. With RBA unwilling to move rates for fear of fuelling a bubble in the housing sector, the central bank may count on the Fed policy to cheapen the AUD. At this point however, the 0.8660 is still a strong technical support for the pair and prices may remain confined within the 0.8660-0.8860 in this coming week.

      EUR/USD – Rangy. The pair edged higher to print 1.2680 at last sight, underpinned by broad dollar retreat. This pair is dictated by the dollar swings this week given the FOMC meeting as the heavy weight for the week. That said, softer German IFO survey for Oct, due today, could cap the pair with barrier seen around 1.2775. Thereafter, FOMC decision on Wed night is eyed ahead of Eurozone’s CPI estimate on Fri. Technical support is seen around 1.2571 ahead of the next at 1.2453. There is a lack of directional cues from the momentum indicators but this pair remains pressured by the 40-DMA and greater unexpected bounces to meet the MA, last seen at 1.2804.

      EUR/SGD – Rangy. The EUR/SGD softened from its morning highs to levels around 1.6160, weighed by the SGD recovery this morning. This cross has settled into sideway trades since mid Sep. Momentum indicators on the daily chart show a lack of directional cues and this cross could extend its gyrations within the 1.6020-1.6370 for the rest of the week. There are a few data cues to note as we eye a lower German IFO data today that could cap this cross but focus will quickly shift towards FOMC decision on Wed night. Later this Fri, a softer eurozone’s CPI estimate may renew bearish pressure on this cross.

Regional FX

       The SGD NEER trades 0.02 below the implied mid-point of 1.2738. The top end is estimated at 1.2483 and the floor at 1.2992.

      USD/SGD – Two-Way Trades. Pair bounced in the second half of last week but has started the new weak on the slide. Pair is currently sighted around 1.2746 on the back of a softer dollar. This pair is still showing bearish momentum, albeit waning, though RSI is showing ample room in either direction ahead. Barrier is still seen around 1.2830 and there is a lack of domestic data cues in the week ahead. Focus is thus on the Fed and any hawkish hint could see a retest of the 1.2830. Support is seen at 1.2720 ahead of the next at 1.2692. Industrial production data disappointed, shrinking 1.2% y/y in Sep after expanding by a revised 4.0% in Aug on the back of weak pharmaceutical (-18.3%) and electronics (-1.7%) output.

      AUD/SGD – Whippy. AUD/SGD is edging higher on the back of relative AUD strength, sighted around 1.1230 this morning. With most AUD crosses still trapped in range-bound trades, we do not expect this cross to be much different from the rest given SGD’s penchant for stability, relative to other currencies. Nonetheless, we note that the MACD flags bullish condition and suspect that the cross could remain bias to the upside within the wide 1.1020-1.1275 range that has held since mid-Sep. Any breach on the upside exposes the next resistance at 1.1317 which we reckon should remain intact.   SGD/MYR – Uptrend. SGD/MYR slipped to a low of 2.5606 last week before creeping towards the 2.57-figure again on Fri. However, moves above the 2.57-figure was not sustained and the pair has since edged lower to around 2.5659 at last sight, helped by the relative strength of the MYR this morning. Still, we observe an upward sloping trend channel and price is close to the bottom of the channel. There is possibility of further upside that could threaten the 2.5807-barrier. Break of that resistance could expose the next barrier at 2.5940. Support is seen at 2.5547. Eyes on FOMC meeting.

      USD/MYR – Rangy. USD/MYR softened from the top of the range, last printed 3.2712 this morning. A firm dollar tone could continue to keep the risks to the upside but we continue to be cautious of any agents’ offers around the 3.29 level as our traders have warned. The FOMC meeting is the key event to monitor as any rise in the UST yields could also drive a sell-off in the domestic bond markets. On the charts, there is little to suggest a breakout of the current 3.2480-3.2860 but any breach of the upper bounds exposes the next barrier at 3.3020. 1-month NDF also moved in tandem and was last seen around 3.2785. MACD shows slight downside bias and that could keep a lid on upticks.

      USD/CNY was fixed at 6.1446 (-0.0021), vs. previous 6.1467 (+2.0% upper band limit: 6.2700; -2.0% lower band limit: 6.0241). CNY/MYR was fixed at 0.5343 (+0.0019). USD/CNY – Heavy. USD/CNY made fresh seven-month low this morning, last seen around 6.1150 this morning. Pressure is to the downside with next support seen around 6.1010 (7 Mar low). Barrier for intra-week trades is seen at 6.1292. At home, an academic member of PBOC’s policy advisory committee warned that economic growth could slow to 7.2% in 4Q amid softer domestic demand. On the same topic, Xinhua cited Vice Premier Ma Kai that China will ensure stable growth to ensure job creation.

      1-Year CNY NDFs – Steady. The NDF steadied around 6.2465 this morning, not gaining much directional bias this morning despite the lower fixing. We continue to expect action to remain confined within 6.2395-6.2555 with an upside tilt should there be another dollar resurgence. USD/CNH – Tilting Higher. USD/CNH slipped on softer dollar, last seen around 6.1222, weighed also by the lower fixing. Charts show a downside towards the next support around 6.1130. Upticks to meet first barrier around 6.1320 while the recent low of 6.1210 has become an interim support at risk. CNH trades at a discount to CNY.

      USD/IDR – Sideways. The USD/IDR ended the week close to where it had started, around 12069, but is on the slide this morning, dragged lower by the softer dollar tone. Pair is sighted around 12045 currently with momentum still bearish. With the President’s cabinet decision out of the way, focus is now on his policies and action on fuel price subsidies is likely to lift the IDR. We look for support around 11950 this week with resistance likely around 12180. Foreign funds ended the week on a low note with a net USD29.15mn of equities sold on Fri, though a net IDR9.15tn in debt was added to their outstanding holdings since Jokowi’s inauguration. After dipping on Mon, the 1-month NDF has been on the uptick for most of last week but is currently seen inching lower this morning at around 12085. This suggests then that there could be some downside in spot prices today. JISDOR was fixed 12065 to end last week, slightly higher than where it started on Mon at 12041. With spot edging lower this morning, a slightly lower fixing be in the offering today. There were little surprises in President Jokowi’s new cabinet announced yesterday. As promised, the key economic positions were filled by technocrats, including the finance ministry by Bambang Brodjonegoro. But there could be some disappointment as some were holdovers from former President SBY cabinet.

      USD/PHP – Range-Bound. The USD/PHP continues to trade in familiar ranges of 44.495-45.050 even as it edges lower this morning. Pair is hovering around 44.750 at last sight on the back of a softer dollar tone with momentum still mildly bearish. In the absence of domestic cues, markets are likely to eye the FOMC meeting for further directional clarity. Look for the pair to continue to trade range-bound within 44.500-45.050 this week. Week-to-date, foreign funds have sold off a net of USD8.8mn in equities and current positive risk sentiments should weigh on the USD/PHP. The 1-month NDF continues to tilt lower, sighted around 44.790.

      USD/THB – Consolidation. After last week’s uptick, there was some relief for the USD/THB to start the week. Pair is on the slide this morning, sighted around 32.390 currently on the back of a softer dollar tone. Bearish momentum is dissipating, though the RSI suggest ample room for moves in either direction this week. Ahead of the usual month data releases (including exports) this week as well as the FOMC meeting, we expect the pair to gyrate within 32.245-32.586 this week.

Rates

Malaysia

§  Local government bonds ended last week largely range bound with most trades done on the front end 2015 maturities. Most players were on the side lines throughout the holiday-shortened week. This week, the market will turn to the 3y GII 11/17 retap.

§  IRS curve was bid up, possibly on some flows in the market. 3y and 5y IRS traded higher at 3.82% and 3.90% respectively. This ties in with the normalization of Treasury yields as 10y yield has rebounded about 40bps from the low of 1.86%. 3M KLIBOR stayed at 3.76%.

§  Local PDS market saw trading activity pick up slightly with buying focused on the AA yield curve, especially for longer dated papers. Notes issued by Tanjung Bin Energy and Westport were somewhat actively traded. In the high grade space, notes issued by BPMB, Danainfra and Khazanah remain well offered in the market. We believe this is due to yield plays and increasing investor appetite. We think spreads are tight at the moment, and in view of the selling pressure, we will likely remain on the side lines for high grade local papers for now. We may look to pick up some AA range short dated papers which saw some good demand last week.

Singapore

§  SGS market saw strong bidding interest for SGS 9/22 and the 5y benchmark from 2 names early in the day. At closing, bond swap spreads widened by about 2bps. We reckon this would persist as we move into November. Activity in the market seems to be slowing down towards the end of the year.

§  Asian credits opened last Friday on a firm tone but pulled back some gains after news of a doctor in New York tested positive for Ebola. Emerging market sovereigns closed mostly unchanged. Chinese investment grade papers traded tighter by 2-3bps, while high yields closed largely unchanged after the fantastic rebound in the last few days. The new Citic 2019 traded tighter on the break, but profit taking set in and it closed slightly wider from the reoffer spread of 205. The outperformer was Dai Ichi Life’s issue which traded as high as 2.5pts from its reoffer with buys from fast money and PB accounts.

Indonesia

§  Indonesia government bonds ended this week by a gain, driven by euphoria momentum of the new President Joko Widodo’s inauguration on last Monday (20 Oct-14). The gains pushed down yields on all tenors. Indonesia government bonds’ yields on 5-year, 7-year, and 10-year fell 2.5 bp, 3.2 bp, and 2.5 bp to 7.89%, 8.01%, and 8.01%, respectively.

§  Bond investors remained optimist against current Indonesia’s situation that giving high expectation against further leadership under Jokowi. The new government will boost further economic growth by shifting the budget for subsidy expenditures to the public development oriented expenditures. President Jokowi plans to raise subsidized-fuel price by Rp3,000 per liter to Rp9,500 per liter, Kontan newspaper cited.

§  President Joko Widodo planned to inaugurate the new cabinet on next Monday and name his ministers before then, Detik.com reported. Jokowi will inaugurate the new cabinet after Corruption Eradication Commission, or KPK, returns its assessment of Widodo’s candidates to create a clean cabinet under his regime. Jokowi ruled out eight ministerial candidates for failing screenings by the nation’s anti-graft agency, delaying the formation of his cabinet, he said on Oct. 22. The Corruption Eradication Commission didn’t clear 10 of 43 names submitted, spokesman Johan Budi said the same day, adding that it’s the first time a president asked the agency to screen candidates.

§  Foreign investors boosted holdings of local-currency debt to a record after the inauguration of President Joko Widodo. Overseas funds bought Rp9.2 trillion (US$758 million) more notes than they sold this week through yesterday, pushing foreign ownership to Rp453.3 trillion, finance ministry data show. The government has raised 98% of its 2014 bond sales target, after it sold Rp21.2 trillion of retail notes this month, according to official data.