Maybank GM Daily - 8 Oct 2014

FX

Global

US stocks sank overnight amid a slew of bad news released on Tue. First, German industrial production shrank more than expected by -4.0%m/m, raising concerns over the unmistakable slowdown in Europe. IMF also cut its global growth projection for this year and 2015 to 3.3% and 3.8% respectively. Despite the dismal European data, EUR/USD stuck to the higher end of its recent range, last printed 1.2653. USTs were well bid as flight-to-safety ensued. DJI, S&P 500 and NASDAQ were down >1.5%. USD/JPY slipped to sub-108 at one point before steadying above the handle.       In early Asia, Japan’s current account came in more positive than expected at ¥287.1bn, albeit narrower than the previous ¥416.7bn. Philippines’ CPI eased to 4.4%y/y in Sep from 4.9% previously. Onshore markets in China resume after the long National Day Golden Week and regional players eye USD/CNY fixing guidance from PBOC. China’s HSBC PMI-services is due. Thereafter, focus today will be on the Minutes of the Sep FOMC meeting, released after lunch in New York session.

      Expect most currencies to consolidate ahead of the FOMC Minutes tonight.

G7 Currencies

       DXY – Consolidation. The DXY slipped toward the lower bound of its recently held range and was last seen around 85.77 this morning. The greenback was dragged by slump in UST 10yr yields overnight and seems to have settled into consolidation mode with choppy action confined within 85.377-86.962 for now. A break of the lower bound exposes the next support at 84.753. Eyes are on the Minutes of the Sep FOMC meeting, out tonight. Any hint of a sooner-than-expected rate hike could nudge the USD higher.

       USD/JPY – Rebounding. Concerns about global growth sent USD/JPY sliding overnight below the 108-levels. Also not helping was BOJ governor Kuroda’s comments that the central bank could closely monitor the exchange rate and PM Abe’s warning that the JPY weakness was hurting small companies and households. Since then, the pair has rebounded to trade around 108.25 at last sight with intraday MACD showing increasing bearish momentum. New support is seen around 107.50. Given expectations of a stronger dollar ahead, rebounds today are likely to meet resistance around 108.76 ahead of 109.10. Yesterday’s policy meeting saw the BoJ leave monetary policy stance unchanged and reiterating their commitment to increasing the monetary base by JPY60-70 trillion in the BOJ acknowledging the weakness to factory output from the impact of the sales tax hike.

       AUD/USD – Upside Risks. AUD was nudged higher against the USD after RBA’s steady rate decision, last seen around 0.8810. Post-policy statement indicates some concerns about growth as the central bank now expects growth to be below trend for the “next several quarters” instead of just “the year ahead”. While there is still spare capacity in the labour market, low interest rates have spurred home prices. The focus on the housing market and RBA’s reiterations that a period of interest rate stability is preferred pared expectations of a near-term rate cut. Attention is now on the upcoming labour report on Thu. Intra-day trade may be confined within 0.8660-0.8850. Risks are tilted to the upside given the bullish momentum on the 4-hourly chart. 0.8910 marks the next barrier.

       EUR/USD – Capped by the Cloud. The EUR/USD edged to a new high of 1.2682 in overnight session before easing off to trade around 1.2640.  The intra-day cloud remains a barrier to prices with next barrier seen at 1.2736 ahead of the next at 1.2755. Bulls have maintained momentum for much of Tue into early Asia this morning but are still not strong enough to churn a rebound. Expect this pair to extend choppy trades 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 – Upside Tilt. The EUR/SGD penetrated the ichimoku cloud on the 4-hourly chart and was last seen around 1.6150. With prices now within the cloud, expect the cross to gyrate sideways with a slight tilt to the upside. Intra-day momentum indicators show bullish conditions and we sill eye barrier at 1.6213. Beyond the near-term, pair is still on a downtrend and could break the 1.60-figure sooner or later. In a less likely case of a rebound, bulls require a move above the 1.6213-barrier for greater extension.

Regional FX

       The SGD NEER trades 0.18% above the implied mid-point of 1.2802 with the top end estimated at 1.2547 and the floor at 1.3058.

       USD/SGD – Two-Way Trades. After edging lower to 1.2743 overnight on safe-haven plays, the USD/SGD is back on the uptick, seen around 1.2760 this morning. There continues to be a lack of momentum in the charts but renew dollar strength is likely to lift the pair towards the 1.2780-resistance level. A firm break of this hurdle would extend bullish control towards the next major resistance at 1.2826 – a high not seen since Jan. Any pull-back should see support around 1.2722 before 1.2701. Flash estimates for 3Q14 GDP will be released next Tue 14 Oct and consensus is expecting growth to edge higher to 2.7% y/y from 2.4% in 2Q. At the same time, MAS will be announcing its exchange rate policy decision and market broadly agrees that there will be no change in policy at this point in time.

       AUD/SGD – Wobbly. The AUD/SGD is wobbling this morning on the back of relative weakness of the AUD with the cross sighted lower around 1.1234. Look for the cross to trade sideways today on the back of global risk aversion, which is likely to cap upside today with resistance still seen around 1.1275. Dips though are likely to find support around 1.1216 today.  SGD/MYR – Range-Bound. The SGD/MYR is inching higher this morning, aided by the relative weakness of the MYR. Cross is currently seen around 2.5578 with intraday MACD showing bearish momentum dissipating. A thick intraday ichimoku cloud lies ahead that could see range-bound price action within the cloud. Topside today is likely to be curbed by 2.5664-resistance ahead of 2.5750, while downside should see support around 2.5465.

        USD/MYR – Supported. USD/MYR hovered around 3.2675 this morning, on the uptick from its open at 3.2595. Reaction to the Aug trade numbers was muted and the pair tracked the USD lower towards the end of Tue. Exports firmed to 1.7%y/y from 0.8% previously. Imports swung to a growth of 7.6% from the previous -0.7% decline, leaving a narrower-than-expected trade surplus of MYR3.86bn. Downticks in the USD/MYR were cushioned by the 40-SMA on the 4-hourly chart which was last seen around 3.2570 and bearish momentum is weaker than before. As for the 1-mth NDF, this pair is caught in sideway trades within 3.26-3.28 for much of Tue, last seen at 3.2760. Expect a period of consolidation within 3.2500-3.2870 ahead of the National Budget on Fri.

       USD/CNY was fixed at 6.1493 (-0.0032), vs. previous 6.1525 (+2.0% upper band limit: 6.2748; -2.0% lower band limit: 6.0287). CNY/MYR was fixed at 0.5304 (+0.0006). USD/CNY – Bearish. Pair slipped to trade around 6.1360 this morning after the lower fixing though support is still seen around 6.1348. This pair is still well within the 6.1290-6.1570 and is expected to remain thereabouts until fresh cues emerge. In news, the Ministry of Commerce said that retails sales during the long National Day Golden Week holiday rose 12.1% from a year before to CNY975bn. Elsewhere, the IMF expects a 7.4% growth for China, in line with that of the World Bank who recently lowered its 2014 China’s growth forecast as well.

       1-Year CNY NDFs – Bearish. The NDF is still on the slide though last seen at 6.2380, a tad firmer than its open at 6.2445. An intermediate support is seen around 6.2350 ahead of the next at 6.2263. Soft dollar tone keeps the pressure to the downside in this pair. A technical resistance is still seen at 6.2470. USD/CNH – Heavy. USD/CNH hovered around 6.1450 this morning, weighed by the overnight USD slide as well as the lower USD/CNY fixing by PBOC. This pair is still pressured to the downside with support seen around 6.1375 ahead of the next at 6.1320. CNH trades at a discount to CNY.

       USD/IDR – Bullish. The USD/IDR is edging higher this morning on the back of global risk aversion and the resurgence in the dollar. Pair is currently sighted around 12248, within striking distance of our 11280-resistance. Pair is currently overstretched. Aside from dollar strength, domestic political and economic factors continue to keep the pair supported. Indonesia equities saw some relief yesterday with foreign funds buying a net USD8.55mn yesterday but this might not be repeated today given waning global risk appetite and this could weigh on the IDR today.  Immediate resistance is still seen around 12280 ahead of the next at 12375, though watch for BI intervention to smooth out volatilities. Dips today are likely to find support still at 12100. The 1-month NDF jumped back above the 12300 level today and is sighted around 12340 though bullish momentum has almost dissipated. After two consecutive sessions of being fixed higher, the JISDOR was set lower yesterday at 12190 compared to 12212 on Mon. As expected, BI held its reference rate steady at 7.50% and the FASBI rate at 5.75% yesterday in view of the end of the US QE program and as a guard against inflationary pressures, particularly from any fuel price hike.

       USD/PHP – Upside Risks. The USD/PHP continues to bounce higher, underpinned by a firmer dollar tone. Also not helping were inflation risks flagged by the BSP with tweaks to monetary policy possible. Pair is currently hovering around 44.781 with intraday MACD still showing mild bearish momentum with support still around 44.500. With risks still tilted to the upside given that the 18-DMA lies above the 40-DMA, further upside should meet resistance at 45.050. The 1-month NDF continues its climb higher towards the 45-figure, sighted around 44.820 currently. Headline CPI rose by 4.4% y/y in Sep (Aug: 4.9%), just a tad better than consensus’ 4.5%. Core inflation was little changed, rising 3.4% y/y in Sep – the same pace as in Aug, though this was slightly higher than market’s 3.3%.

       USD/THB – Rangy. USD/THB is on the uptick this morning as global risk appetite wane amid a resurgent dollar. Continuing risk aversion today should put the pair under upside pressure again like it did yesterday where foreign funds sold a net THB0.14bn and THB0.25bn in equities and debt. Pair was last sighted around 32.605 but still well-within its current trading range of 32.500-32.710. In the absence of directional cues, we continue to expect the pair to range-bound within 32.500-32.720 today, though risks remain to the upside given expectations of dollar strength ahead.

Rates

Malaysia

      Local government bond market saw a slow start to the week with mixed trading ahead of the national budget this Friday. We saw some selling pressure in the late afternoon after export figures came in much better than expected. While volumes were thin for the day, we don’t expect much to happen on the MGS curve before the national budget announcement.

       Nothing traded in the IRS market. Market was still squaring off paid positions but there were no aggressive payers. Basis widened by about 5-10bps across the board, probably on flows. 3M KLIBOR unchanged at 3.74%.

       The PDS market was quiet again. Most players are sidelined for this week's budget. Kesas opened its book with Maybank as the sole arranger. The company is issuing 2-9y papers with an average amount of MYR90m per tranche and selldown levels ranging from 4.08%-4.75%. For a AA2 name, we think the levels are just fair but not much upside for investors.

Singapore

      SGS was remained quiet even after last Friday’s nonfarm payrolls. SGS yields started the day higher before offers were taken closely tracking lower Treasury yields. SGS yields fell 2-4bps across the curve. Bond swap spreads ended about 1-1.5bp wider. With the SGD funding coming off further, we should slowly see SGS outperform.

       Asian credits opened firmer with better buyers on some sovereigns that were hammered of late. Indonesia sovereigns and quasis managed to get some bids and were up 0.50-0.75pts. It was a tad quieter for investment grade papers with spreads mostly unchanged. The high yield segment felt heavy with news on AGILE’s trading halt pending an announcement. Market took it negatively and AGILE was down by almost 5pts. We saw some bottom fishing in the afternoon from some PB accounts. Overall, market was fairly muted. On new issues, Korea Exchange Bank announced a USD300m 10y Basel III Tier 2 Reg S rated BBB with a guidance of CT 10 + 210. Fair value on this credit will probably come around 180-185bps. Market is saying the book size is nearing USD3.5b. We expect to see more new issues going into the final quarter of the year.

Indonesia

      Bond prices moved higher yesterday in line with Rupiah appreciation and higher stock prices. BI decides to halt their reference rate at 7.50% which came in similar to what our economist and consensus believes. Aside halting their reference rate, BI also kept their deposit facility rate and lending rate unchanged at 5.75% and 7.50% respectively. Foreigner was still noted on the seller side amid bond prices hiked. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 8.242% (-7.2bps), 8.464% (-7.5bps), 8.838% (-7.6bps) and 8.990% (-6.1bps) while 2-yr yield shifts down to 7.714% (+3.6bps). Government bond traded thin at secondary market amounting Rp6,610 bn from Rp3,955 tn with FR0034 (7-yr) as the most tradable bond. FR0034 total trading volume amounted Rp948 bn with 9x transaction frequency and closed at 122.559 yielding 8.363%.

       Indonesian government held a series of auctions yesterday and received a total of Rp3.45 tn bids versus its target issuance of Rp1.50 tn or oversubscribed by 2.3x. However, only Rp1.51 tn bids were accepted for its 5-mo and 6-yr bond. Incoming bid during the auction came in slightly lower by 5.71% compared to Sep 23rd, 2014 sukuk auction amounting Rp3.66 tn and were mostly clustered at the 5-mo benchmark series. The 5-mo SPN-S was sold at a weighted average yield of 6.81782% while 6-yr PBS006 was sold at 8.47700%. Bid-to-cover ratio on today’s auction came in at 1.06X – 2.43X. PBS005 (30-yr) bids was rejected during the sukuk auction. Overall, we consider auction as quite average. On total, Indonesian government has raised approx. Rp386.4 tn worth of debt through domestic and global issuance which represent 89.81% of this year target of Rp430.2 tn.

       Corporate bond trading remains thin amounting Rp498 bn (vs average per day (Jan – Aug) trading volume of Rp657 bn). INDF07 (Indofood Sukses Makmur VII Year 2014; Rating: idAA+) was the top actively traded corporate bond with total trading volume amounted Rp104 bn yielding 10.123%.