Maybank GM Daily - 31 Oct 2014

FX

Global

3Q GDP surprised on the upside with a narrower trade deficit and bounce in defense spending. DXY bounced towards the 86.50-mark before tapering off soon after. Optimism lasted longer in the stock markets as DJI closed 1.3% higher, S&P at +0.6% and NASDAQ at +0.4%, underpinned       BOJ meets today and will release its outlook for economic activity and prices.  Earlier this morning, national CPI eased a tad to 3.2%y/y from the previous 3.3%. The central bank does not seem to be in a hurry to increase stimulus and we expect that to slow the USD/JPY which is still on the rise as we write. USD/JPY has extended its climb overnight and was last seen around 109.30 as we write.       Thailand’s Sep trade numbers are due later in the afternoon. Thereafter, focus will shift towards China’s Oct official PMI-mfg due for release tomorrow, followed by the HSBC version on Mon. Consensus expects a rather steady print of 51.2 for the Sat release compared to the previous 51.1. USD/AXJs have been underpinned by the dollar strength this week but expect weekend positioning to temper upsides.

G7 Currencies

      DXY – Buoyant. The DXY hovered around 86.20 this morning, having softened from its overnight high after investors take in the upside surprise in 3Q GDP. Smaller trade deficit and stronger defense expenditure drove the headline above the consensus, dampening the initial dollar rally. Despite the pullback, risks are still to the upside given current momentum. Look for the greenback to remain supported above the 85.73-support with next barrier seen around 86.74 ahead of the next at 86.96. Next data to note is Europe’s CPI estimate for Oct, out today at 1800 (HKT).

      USD/JPY – Consolidating. The USD/JPY is bouncing above the 109-figure this morning, aided in part by a news report that the GPIF was planning to lower its holdings of domestic debt to 35% from nearly 60% currently and upping its foreign and domestic stock allocation to 25% each. Pair is currently sighted around 109.30 with intraday momentum indicators showing an upside bias today though the pair is still overstretched. Ahead of the BOJ policy decision expected anytime soon (no changes are expected), we expected the pair to remain in consolidation within 108.38-109.90 today. CPI data released this morning showed headline inflation slipping a notch to 3.2% y/y in Sep from Aug’s 3.3%. Core inflation – headline less fresh food – was little changed from Aug, up 3.0% in Sep. Household spending disappointed, coming in at -5.6% y/y in Sep from -4.7% in Aug.

      AUD/USD – Rangy. Positive risk sentiments lifted the AUD against the USD, notwithstanding the bounce in the DXY. The pair came within striking distance of the 0.8860-resistance before retreating to levels around 0.8820. There is a gentle upward sloping trend channel forming on the intra-day chart and we intra-day support is seen around at 0.8750/60. Next barrier ahead of the 0.8860-resistance is marked at the 0.89-figure. Expect action to remain within this range for much of the session today. Eyes on China’s PMI-mfg tomorrow ahead of the HSBC version on Mon.

      EUR/USD – Bearish. The EUR also bounced from Asian lows to a high of 1.2632 by early NY session before tapering off again towards the 1.26-figure. Risks are still to the downside for this pair with the Oct CPI estimate due at 1800 (HKT) today up for scrutiny. Consensus expects a firmer 0.4%y/y for the month compared to the 0.3% in Sep. Any disappointment on that front could lead the pair lower below the 1.2571-support towards the 1.25-figure.

      EUR/SGD – Bearish. The EUR/SGD tracked the EUR/USD in its post-Asian bounce. This cross became tightly wound within 1.6090-1.6130 for the rest of NY, caught in a tug of war between EUR and SGD bears. This cross is still within the wider range of 1.6020-1.6252 and the CPI estimate for Europe will be closely watched for any bearish cues. Any disappointment on that front could pull the pair towards the support around 1.6020. On the charts, MACD has crossed below the signal line and the zero line as well, just another bearish signal on this cross.

Regional FX

      The SGD NEER trades around the implied mid-point of 1.2771 with the top end estimated at 1.2515 and the floor at 1.3026.

      USD/SGD – Choppy. After climbing to a recent high of 1.2806 overnight, the USD/SGD slipped back below the 1.28-figure, buoyed by the strong performance of the US economy, and is currently sighted around 1.2776 this morning. We expect choppy trades to continue today with a re-test of the 1.28 figure a possibility. A firm break of the 1.28-figure exposes the next barrier at 1.2830. 1.2720 continues to be supportive.

      AUD/SGD – Two-Way Trades. The AUD/SGD is on the retreat this morning after climbing steadily higher yesterday on the back of AUD weakness and mild SGD strength. Cross is sighted around 1.1268 with our four-hourly chart showing little momentum in either direction. We look for the pair to move in a tighter range today within 1.1200-1.1317. SGD/MYR – Congestion. The SGD/MYR remains in choppy trade, currently seen edging lower at 2.5698 on the back of the relative strength of the MYR. Cross has lost all of its bearish momentum, but is on the brink of a negative cross-over of the 18-SMA and 40-SMA. Though the bias is tilted slightly to the downside, we continue to expect the cross to trade within its current tight trading range of 2.5630-2.5750 today.

      USD/MYR – Buoyant. USD/MYR touched a high of 3.2880 this morning before easing trade around 3.2840. Support is seen at the 40-SMA around 3.2736. A strong resistance is still seen around the 3.29-figure and a break here exposes the next technical barrier around the 3.30-figure. With dollar retaining a buoyant tone, expect the pair to remain sticky to the downside. That said, upmove will be grind rather than a jump given the current momentum. 1-month NDF edged higher but upticks continue to run into offers with upside guarded by the 3.3077-mark. At home, PM Najib’s approval rating deteriorated as concerns over higher living costs rise.

      USD/CNY was fixed at 6.1461 (+0.0004), vs. previous 6.1457 (+2.0% upper band limit: 6.2715; -2.0% lower band limit: 6.0256). CNY/MYR was fixed at 0.5365 (+0.0008). USD/CNY – Heavy. USD/CNY slipped to trade around the 6.1130-mark this morning despite the rather flat fixing. Pair is weighed by the USD/CNH downmove but little momentum is indicated on the intra-day chart. Barrier at 6.1195 should remain intact while support is seen at 6.1087, ahead of the next at 6.1010 (7 Mar low).

      1-Year CNY NDFs – Directionless. The NDF was little moved on Thu and was still see around 6.2380 this morning. Expect this pair to remain within the 6.2260-6.2470 range for the rest of the session in the absence of market signals. Momentum indicators also indicate a lack of directional bias at this point. USD/CNH – Rangy. USD/CNH softened from its Thu highs to trade around 6.1170. This pair remains pressured by the 40-SMA on the intra-day chart and weighed by slight optimism on the Shanghai-Hong Kong Stock Connect. A link test will be conducted by Shanghai on 1 Nov (China Business News). We still think the pair should remain within the 6.1130-6.1280 for the rest of the session. CNH trades at a discount to CNY.

      USD/IDR – Bearish. The USD/IDR continues to trade choppy though it is on the slide this morning, dragged lower by the outperformance of US economy. Also keeping the IDR buoyant is expectations that fuel price subsidies would be cut soon. Pair is sighted around 12083 and has lost most of its bullish momentum as indicated by our intraday chart. This is in line with the 1-month NDF, which is on the retreat this morning, hovering around 12150. Still until the government follows through with the fuel price hike, markets are likely to remain cautious. We look for the pair to continue with its choppy trade with resistance seen around 12200 and support likely around 12000. The extension of positive sentiments today should see foreign funds purchasing Indonesia assets today like they did yesterday where they bought a net USD21.08mn in equities and added a net IDR49.47tn to their outstanding holding of debt on Wed, and that could weigh on the pair today. The JISDOR was fixed slightly higher at 12165 yesterday from 12163 on Wed, and the fixing could be lowered today given the dip in the spot currently.

      USD/PHP – Downticks. The USD/PHP slipped lower this morning, helped by positive sentiments from the stronger-than-expected US growth and is sighted around 44.818. With fresh domestic cues lacking, moves in the USD/PHP is likely be in tandem with its regional peers today. Look for 44.500 to continue to provide support. We still expect resistance around 45.050 today with further upside likely to be guarded by central bank intervention. 44.500 should continue to be supportive. Unlike yesterday where foreign funds sold-off a net USD2.4mn in equities, positive sentiments today could see an inflow instead and this could weigh on the pair today. The 1-month NDF has been bouncing choppily since yesterday and is currently waffling around the 44.85-level this morning with intraday momentum indicators providing little directional clarity.

      USD/THB – Range-Bound. The USD/THB is on the downtick this morning, underpinned by the stronger-than-expected growth in the US. Pair is still hovering above the 32.500-level at 32.529 with bullish momentum almost dissipated as shown by intraday MACD. Month-end data out today is likely to have little impact on the THB today and pair is likely to trade range-bound within the confines of 32.500-32.630 today. Any major surprises in the data in either direction could see the trading range widen to 32.420-32.696. Better risk sentiments today is likely to see foreign funds continue their purchases of Thai assets like they did yesterday with a net THB0.13bn and THB1.27bn in equities and debts purchased, which should weigh on the pair today.

Rates

Malaysia

Local government bond prices were overall softer post-FOMC. In a quiet session, 5y MGS benchmark traded unchanged, while other benchmarks were not traded. 3y GII 11/17 was reissued with an average yield of 3.667%, a high of 3.678% and low of 3.655%. Post-tender, the paper traded around 3.67% on thin liquidity, despite high BTC of 2.128x.       IRS rates were quoted higher alongside weaker global bond sentiment, but no trades were reported. However, we note receiving interest is still keen, possibly due to profit takers who paid at recent lows and reluctant dealers who did not stop out entirely when rates dropped. Recent payers in IRS had been local banks looking to hedge. Short end basis also appeared to be on slight widening pressure, likely the result of lower FX forward points as spot got bid up. 3M KLIBOR remain at 3.76%.       The local PDS market was fairly muted. Bid-offer turned slightly wider yesterday after FOMC’s meeting. We noticed majority of activities were due to asset reallocation at the end of the month. We think players would remain focused around GG and AAA papers given activities going on in the govvy space.

Singapore

SGS market saw sentiment improve somewhat after the previous day’s announcement on 2015 issuance calendar. To recap, there will only be 7 issuances compared to 9 this year. With supply seemingly a lesser concern, SGS saw better bids throughout the day, starting with short covering on 'squeezed' issues at the open. Tracking the bear flattening in USD and SGD IRS curves, the belly underperformed long dated bonds, but swap spreads widened about 3 bps as the rise in SGS yield lagged SGD IRS. Towards close, selling at the long end intensified as Treasury futures fell. SGS yield curve closed 1-3 bps higher.       Asian credit space was mostly quite biddish after last night’s FOMC. New issue CHITRA tightened by 5-6bps, while new HUWHY traded softer by about 2bps. WESCHI traded almost 1-2pts lower on profit warning. We are rather positive on Malaysian and Korean names in the USD space, such as Sime Darby, Ambank, RHB Bank and KDB, given the continuous local demand seen supporting them. A couple of new issuances came in yesterday. New World China Land is issuing a 5y USD paper with final guidance of 5.50% +/- 5bps from an initial guidance of 5.75%. The book was well received given its strong parent, New World Development. Asian Development Bank (rated AAA) came out with 5y CNH at 3.35% price guidance. We also saw Tata International issuing SGD Perp NC 5y at final guidance of 6.7% +/-5 bps.

Indonesia

Our economist sees that September 2014 trade balance would come in at a deficit of US$0.17 bn with export reaching US$14.73 bn (vs Aug 14: US$14.48 bn) and imports to reach US$14.90 bn (vs Aug 14: US$14.79 bn). October 2014 CPI on the other hand is expected to creep up to 4.76% YoY mainly due to the effects of the long dry season. Core inflation is expected to increase to 4.19% YoY as well.       Bond market moved lower on the note of Fed Hawkish statement in the first session. Prices started to creep up in the second session as there were rumours that DMO might conduct front loading for 2015 government bond issuance with an increase in global bond issuance. This would be legit if DMO would like to take the advantage of acquiring a cheaper cost of fund before an increase in FFR. This would also mean that bond supply in local currency would decline thus increasing investors demand. Other than this rumour, positive sentiment also came as DMO sets an indicative target issuance of Rp5 tn for upcoming conventional bond auction. Post hawkish statement by Fed chairman, investors was awaiting the 3Q 14 US GDP which came in at 3.50% or higher compared to economist consensus of 3.00%. This shows that US economy is indeed recovering. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 7.901% (+1.1bps), 8.114% (+5.3bps), 8.465% (+6.1bps) and 8.568% (+7.1bps) while 2-yr yield shifts down to 7.499% (-0.5bps). Government bond traded heavy at secondary market amounting Rp12,888 bn from Rp13,597 bn with FR0071 (15-yr benchmark series) as the most tradable bond. FR00071 total trading volume amounting Rp3,389 bn with 128x transaction frequency and closed at 103.925 yielding 8.519%.       Corporate bond trading was heavy amounting Rp591 bn (vs average per day (Jan – Aug) trading volume of Rp657 bn). JPFA01CN1 (Shelf registration I JAPFA Phase I Year 2012; Rating: idA+) was the top actively traded corporate bond with total trading volume amounted Rp98 bn yielding 10.883%.