Maybank GM Daily - 3 Oct 2014

FX

Global

ECB left rates unchanged, as expected. President Draghi decided to hold his fire but stressed that focus remains on more stimulus. Still, investors were disappointed in the lack of details on the size of asset backed securities and covered bonds that the central bank is supposed purchase within the quarter. EUR edged above the 1.2650-mark and hovered thereabout for the rest of overnight session. US reported lower jobless claims at 287K for the week ending 27 Sep but factory orders for Aug fell -10.1%m/m. Stocks had a flat session.

      Onshore markets in China remain closed for National Day. Hang Seng opens after a two-day break today. Expect weekend position adjustments to make up most of the action today as most market players steer to the sidelines ahead of the NFP. Broad dollar selling sent the dollar index to a low of 85.45 at one point on Thu but early Asia saw modest recovery in the greenback. Consensus is 215K, smack in line with the average addition of payroll per month for this year so far. Any print above this could mean that hiring is gaining momentum.

G7 Currencies

      DXY – Eyes NFP. Broad dollar offers brought the DXY index towards the 85.377-support but greenback already made recovery this Asia morning. Initial claims were lower for the week ending on 27 Sep but Aug factory orders fell more than expected by -10.1%m/m. All eyes are on Sep NFP due tonight as everyone expects the print to be the deciding factor of dollar direction ahead of the FOMC meeting at the end of the month. Our within sample NFP model flags greater downside risks for the print. Expect strong pullbacks to meet support around 84.7530. The 4-hourly chart shows strong bearish momentum, though uptrend is still intact. Interim barrier is seen around the 86.218 high observed recently. Next high is seen at 86.962.

      USD/JPY – Range-Bound. USD/JPY is rebounding to 108.70 this morning, underpinned by a bounce in the dollar, after testing the 108-figure overnight on the back of weak global equities and falling UST 10Y yields. Pair is currently trapped in the thick of an intraday ichimoku cloud, suggesting that range-bound trades are likely ahead. We reckon the pair could trade rangy while it awaits the release of the US NFP later tonight. Look for trades within 108.00-109.46 today.

      AUD/USD – Short-term Bulls. AUD/USD hovered around the 0.88-figure this morning, buoyed by the softer dollar tone. Now above the 40-SMA and last printed 0.8792, this pair is still capped by the intra-day ichimoku cloud. Pair is holding a bid tone in early Asia and we expect this pairing to extend consolidation as investors eye the NFP report. A move into the ichimoku cloud, above 0.8812, exposes the next barrier around 0.8884. Expect the latter to cap intra-day trades before the US labour data.

      EUR/USD – Tentative Bulls. The EUR/USD touched a high of 1.2699 after the ECB policy meet and leveled off to mid-1.26 by Asia morning.  The next major swinger of this pair is the US Sep NFP release tonight. Pair has gained bullish momentum on the 4-hourly chart. Barrier is seen around 1.2755 for intra-day upticks. Expect this pair to spend much of Asia and possibly the first half of European session 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 – Capped. The EUR/SGD touched the 40-SMA on Thu before easing to levels around 1.6110. This cross still gains bullish momentum and could test the 40-SM at 1.6139 again. A break here could trigger more bids towards the next at 1.6199, marked by the bottom of the ichimoku cloud. 1.6020 is still the technical support for intra-day trades.

Regional FX

      The SGD NEER trades 0.39% above the implied mid-point of 1.2775 with the top end estimated at 1.2520 and the floor at 1.3029.

      USD/SGD – Rangy. After the retreat yesterday from the recent high of 1.2780, the USD/SGD is now hovering near the bottom of the 1.2700-1.2780 trading range. Pair is sighted currently around 1.2726 and the lack of directional clarity at the moment, could see the pair stay near current levels ahead of the US NFP later tonight. Any surprises could either see the pair head back towards the top end of the range or break below the 1.27-figure towards 1.2681. Onshore markets are closed on Mon for a public holiday.

      AUD/SGD – Range-Bound. The AUD/SGD is pulling back slightly this morning on the back of AUD weakness, hovering around 1.1186. Cross is now moving within the thick of an intraday ichimoku cloud, which suggests sideway trades are likely today, especially with the US NFP eyed. Look for the pair to trade range-bound within 1.1094-1.1270 today.  SGD/MYR – Upticks Within Range. The SGD/MYR is on the rebound this morning after the downmoves yesterday. Cross is currently sighted around 2.5566, aided by the relative weakness in the MYR. With our 2.5633-support taken out, look for further downmoves in the near term. In the meantime, cross should trade near the middle of its current trading range of 2.5447-2.5750 today ahead of the public holiday in both Malaysia and Singapore on Mon.

       USD/MYR – Retracement. USD/MYR extended its slide to a low of 3.2478 and found support thereabouts. Pair edged above the 3.25-figure again, underpinned by the 40-SMA. Expectations for the NFP have been ramped higher after the lower jobless claims and higher ADP. Our insample model however flags downside risks. A break of the support at 3.2492 exposes the next at 3.2216. Barrier us seen at 3.2660 ahead of the next at 3.2900. In the bond markets, our traders observed stronger demand for MGS, spurred further by the dollar weakness against the MYR.  Real money foreign flow was also noted in late Thu. 1-month NDF steadied around 3.2620 this morning. Support is still seen around the 3.25-figure. 18-SMA is at the brink of crossing under the 40-SMA which could bearish cue.

      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.   China’s State Council will set a quota for the amount of debt that local governments can take on in a bid to increase supervision, stem financial risks as well as put a stop to the debt arising from bond issuance. They will no longer be allowed to raise money via their local government funding vehicles for government operations. In other news, PMI-non mfg came in at 54.0 for Sep, softer than Aug’s 54.4.

      1-Year CNY NDFs – Sideways. The NDF hovered around 6.2570, in tandem with most USD/AXJs. Support is still marked at 6.2504 and a break here opens the way towards 6.2395. Pair is still bias to the downside despite the choppy morning moves. A technical resistance is seen at 6.2625. USD/CNH – Heavy. USD/CNH hovered around 6.1610 this morning, weighed by the dollar fall in the past session. This pair is still pressured to the downside with support seen around 6.1540. Upticks to meet barrier around the 6.1770-mark. Hang Seng slipped >1% in early trades.

      USD/IDR – Shallow Dips. The USD/IDR continues to pull-back after last week’s jump above the 12100-handle. Pair is currently sighted around 12140 with intraday MACD now showing bearish momentum. Dips though are likely to be shallow given concerns that the president elect’s reforms could meet with hostile opposition in the new parliament, and the lack of progress on the twin deficits issues. These concerns were reflected in the continuing sell-off in equities yesterday where a net USD122.16mn were sold off, weighing on the IDR as well. Risks thus remain on the upside and we continue to expect the pair to hover within 12100-12280 today, ahead of the US NFP later tonight. Any surprises could see the pair either make a move towards the 12300 or slip below the 12100-handle towards 12000. After the slide lower yesterday, the 1-month NDF is back on the uptick, hovering around 12224 at last sight with intraday MACD still showing bearish momentum. The JISDOR was fixed lower again at 12136 on Thu from 12188 on Wed.

      USD/PHP – Congestion. The USD/PHP is back on the uptick this morning, seen hovering around 44.790 on the back of a firmer dollar tone. With the ECB meeting passing without incident, all eyes are now on tonight’s US NFP for further directional clues. Until then, we expect the pair to trade sideways within its current trading range of 44.500-45.050. Any surprises in the NFP could see the pair move towards the either end of the trading range when markets re-opens on Tue (onshore markets are closed on Mon for a public holiday). The 1-month NDF is inching lower this morning, seen around 44.840. An intraday ichimoku cloud is forming ahead of price action currently, which could see the 1-month move sideways should enter into the cloud.

      USD/THB – Consolidating. USD/THB continues to trade in a tight range within 32.355-32.500 for the past few sessions. Pair is seen wobbling this morning, sighted around 32.443 with intraday MACD still providing little directional cues. However, foreign selling of a net THB0.61bn and THB0.76bn in equities and debt sold yesterday, and given the sell-off in global equities overnight, could set the tone for the THB today. Moreover, cautious moves are likely ahead of the US NFP later tonight. Look for the pair to remain in consolidation within 32.355-32.500 today with any dips likely to be shallow.

Rates

Malaysia

      Local government bond curve rallied about 2bps lower on the back the UST rally overnight. The USD weakness against MYR today led to buying on the belly to the long end of the curve with 30y MGS 9/43 ending 2bps lower from yesterday. We saw foreign inflows in the late afternoon and the curve ended the day on a bullish note.

      IRS rates were surprisingly lower after the fuel subsidy cut. This was very likely due to stronger MYR and lower UST yields. In addition, market is disappointed at paying on stories of inflation/subsidy cuts while rates do not increase. 2y IRS traded at 3.76%. Paying remains very cheap due to the thin negative carry/roll down in a flat curve environment. However, market is overpaid and the need to square receive risk remains. If players squared off their received rates, rates can probably go higher. 3M KLIBOR was steady at 3.74%.

      While govvies rallied, local PDS remains thinly traded and selling pressure remained with more offers quoted in the market. Notable trades were Manjung and Plus papers which saw demand. Additionally, the government’s move to reduce fuel subsidy of RON95 and diesel by MYR0.20 is seen as a positive move towards fiscal consolidation, thereby increasing demand for govvies.

Singapore

      The SGS market had a fairly exciting start in the morning. We had anticipated SGS prices to be up 9-10bps tracking last night’s UST futures which saw a buying frenzy to about 10-11bps higher. Some first movers in the market sold bonds at the 9bps level before SGS settled at around 6-7bps higher against yesterday's prices towards the end of the day. Bond swap spreads widened by about 2bps. SGS finally outperformed convincingly after a long break. We expect this scenario to continue with little clear direction on rate hike in the US.

      Asian credit market was very quiet as HK and China were closed for holidays. UST rallied during NY trading hours on the back of weaker ISM numbers. However, credit spreads remained relatively firm and the rally pushed up prices for both Indonesian and Philippine papers. There was a new issue by Tuan Sing Holdings of a 5y SGD issue with final price guidance of 4.50%. It was a small issue of SGD80m relative to the book size of almost SGD300m. We expect more action tomorrow with HK reopened. 

Indonesia

      LCY bond market corrected after a three days slide. Bond prices moved higher amid Rupiah depreciation and equity market slumped. Political instability with Prabowo’s camp leading Indonesia parliament seems hasn’t impacted LCY bond market as bond prices are indeed relatively cheap at this point. Trading in the secondary market itself moved mixed as buying appetite was seen in the first trading session of the day while some profit taking were seen post lunch break. There weren’t any market sentiment yesterday other than Indonesia central bank selling the 3-mo bills worth of Rp9.85 tn at 6.39085% and 6-mo bills worth of Rp5.67 tn at 6.68143%.

      5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 8.249% (-4.5bps), 8.473% (-2.9bps), 8.877% (-1.1bps) and 8.995% (-1.4bps) while 2-yr yield shifts up to 7.733% (+2.2bps). Government bond traded heavy at secondary market amounting Rp14,809 bn from Rp16,821 tn with FR0071 (15-yr benchmark series) as the most tradable bond. FR0071 total trading volume amounted Rp4,450 bn with 109x transaction frequency and closed at 100.977 yielding 8.877%.

      Corporate bond traded thin amounting Rp265 bn (vs average per day (Jan – Aug) trading volume of Rp657 bn). MEDC03 (Medco Energi International III Year 2012; Rating: idAA-) was the top actively traded corporate bond with total trading volume amounted Rp60 bn yielding 10.600%.