Maybank GM Daily - 9 Oct 2014

FX

Global

Risk appetite improved overnight simply because Fed kept the tone of the Minutes unexpectedly dovish. DJI, S&P and NASDAQ were all up 1.5-2% each by close. Treasuries were bid with the belly of the curve in most demand. Strength of the USD was a concern as the Fed highlighted weak global outlook. The greenback slumped below the 85.50-level on that note.        In early Asia, Australia reported a fall of 29.7K employment for Sep along a huge downward revision in the Aug number from 121K to 32.1K. Unemployment rate inched higher to 6.1%. Most of the drag in hiring numbers came from the fall in part-time employment this time. Full time employment actually gained 21.6K in Sep. AUD pared its recent gains at first before rebounding to around mid-0.88 at last sight.

       Asia has a rather empty data calendar today. Most currencies are likely to take advantage of the overnight dollar slide to strengthen with the help of equity-related inflows as well. Expect the fall in UST yields to boost demand in the regional bond markets. Focus is now on BOE policy meet tonight where majority expects no change. The last meeting had two hawkish voters.

G7 Currencies

       DXY – Consolidation. The DXY index was last seen around 85.30, having slipped under the ichimoku cloud on the intra-day chart. Momentum indicators show bearish momentum and next support is seen around 84.75. Further pullbacks are likely to be shallow as we detect a hint of fear of rising borrowing cost that could pull the rug from under the US economy. The one consensus that has been rather consistent is the fact that any rate adjustment will be dependent on data. This simply means a likely period of consolidation with support seen around 84.75 and near-term upticks to be resisted at 85.84.

       USD/JPY – Congestion. The sell-off in the dollar following dovish FOMC minutes sent the USD/JPY back towards the 108-figure overnight before rebounding currently. Pair is seen around 108.30 this morning with bearish momentum waning according to our intraday charts. The lack of directional cues from the dollar and the ongoing domestic debate on the weakness of the JPY should see the pair remain trading in a tight range for now. We continue to look for bids to meet resistance around 108.76 while offers should see support around 107.50 still.

       AUD/USD – Upside Risks. AUD chopped around the 0.8830-mark this morning after the release of the Sep labour report. The labour report was not as bad as headline afterall as there was a decent addition to full time employment in Sep. The drag on the headline came from part-time employment. The positive indicators in the labour report boosted the pair above the 0.8850 after the initial pullback. The soggy dollar tone which is the result of the dovish FOMC Minutes also lend steam to AUD bulls. With that, the pair has risen above the ichimoku cloud on the intra-day chart. Next bullish target is seen at 0.8948.

       EUR/USD – Overbought. The EUR/USD rallied towards the 1.2755-barrier towards the end of New York session, underpinned by the soggy dollar more than anything. Pair was last seen around 1.2740. Momentum is bullish though RSI flags overbought conditions. Any move above the 1.2755-resistance could extend towards the 1.2822. Overbought conditions imply that we could see some sideway grations with support seen around 1.2650.

       EUR/SGD – Sideways. The EUR/SGD rose above the cloud on the 4-hourly chart and was last seen around 1.6190, off its overnight high of 1.6258. Intra-day momentum indicators show waning bullish conditions and pair has softened towards the upper bound of the cloud. The-1.6140 support should cushion intra-day downticks. Expect some sideway moves with support at 1.6136 today. Having said that, we note that the 1.6213-barrier was also broken overnight and that could open the way towards the 1.63-figure beyond the near-term.

Regional FX

       The SGD NEER trades 0.26% above the implied mid-point of 1.2755. The top end is estimated at 1.2501 and the floor at 1.3010.

       USD/SGD – Sideways. The USD/SGD is bouncing slightly higher after plunging to a 1.2726 overnight on the back of dollar weakness. Pair is sighted around 1.2733 currently with intraday MACD still lacking directional clarity with sideways trade likely today. Given the soft dollar tone today, a re-test of our 1.2780-resistance level seems unlikely today and the recent high of 1.2826 remains safe for now. Hurdle to cross on its way higher today is 1.2760. Any pull-back should still see support around 1.2722 before the stronger support at 1.2701.

       AUD/SGD – Rebounding. The AUD/SGD is continuing its bounce higher this morning, hovering around 1.1260 on the back of relative AUD strength following the release of a decent labour report. Cross is heading back towards our 1.1275-resistance with a firm break here exposing the next hurdle at 1.1327. Dips though are likely to find support around 1.1216 today.  SGD/MYR – Rangy. The SGD/MYR is on the retreat this morning on the back of relative MYR strength. Cross is sighted around 2.5517 within a thick intraday cloud that has formed around price action. After this morning dip and ahead of the Malaysian budget tomorrow, we expect range-bound trades within the confines of 2.5447-2.5630 today.

       USD/MYR – Downside Risks. USD/MYR slipped under the 3.25-figure this morning and last printed at 3.2475. Pair was weighed by the dollar pullback and risks have tilted to the downside. Next support is seen around 3.2314 (38.2% Fibonacci Retracement of the Aug-Oct rally) while  upticks are likely capped by the 3.28-figure. Meanwhile 1-month NDF touched a low of 3.2510 this morning.  RSI flags near oversold conditions. Expect further dips to be shallow. Resistance is seen at 3.2694 ahead of the next at 3.2877.

       USD/CNY was fixed at 6.1461 (-0.0032), vs. previous 6.1493 (+2.0% upper band limit: 6.2715; -2.0% lower band limit: 6.0256). CNY/MYR was fixed at 0.5302 (-0.0002). USD/CNY – Bearish. Pair slipped further this morning and last printed 6.1334 after the lower fixing. This pair is still well within the 6.1290-6.1570 and is expected to remain thereabouts until fresh cues emerge. In news, Premier Li Keqiang said the government will use “targeted measures” to tackle financing costs and difficulties to support economic growth (BBG).

       1-Year CNY NDFs – Bearish. The NDF was choppy this morning and last seen around the 6.23-figure. Support is still seen around 6.2263. Soft dollar tone keeps the pressure to the downside in this pair. A technical resistance is still seen at 6.2395 for intra-day trades. USD/CNH – Slippery Slope. USD/CNH waffled around the 6.1345-level this morning, still on the slide, 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 at 6.1320. CNH trades at a narrowing discount to CNY.

       USD/IDR – Bearish Risks. The USD/IDR is on the retreat this morning after a brief test of our 12280-resistance, currently sighted around 12185. Despite the slide this morning, the pair remains under upside pressures due to both domestic political and economic factors as well as expectations of dollar strength. Thus dips are likely to be shallow with support still seen around 12100 today. Unlike the sell-off in equities by foreign funds yesterday to a tune of a net USD19.02mn, improvement in risk sentiments today could see greater support for the IDR today though. The softer dollar tone today should curb upside moves today with resistance still seen around 12280. After a brief bounce above the 12300-levels this morning, the 1-month NDF is now on the slide, sighted around 12265 this morning with intraday MACD now showing bearish momentum. The JISDOR was set higher at 12241 yesterday from 12190 on Tue.

       USD/PHP – Congestion. The USD/PHP continues to dip lower on the back of dollar weakness, seen hovering around 44.665 currently. Intraday momentum charts continue to show mild bearishness ahead. Moreover, an intraday ichimoku cloud is forming ahead of price action, which could determine price action ahead. We expect the pair to trade within its current trading range of 44.500-45.050 for now. The 1-month NDF is back on the uptick after slipping lower overnight, climbing slightly higher to 44.66 currently. Intraday MACD is currently showing little momentum in either direction.

       USD/THB – Waffling. USD/THB slipped overnight on the back of a softer dollar tone and is seen waffling this morning around 32.560. Intraday momentum indicators are showing increasing bearishness ahead with the possibility of our support at 32.500 tested again. Still expectations of dollar strength are likely to keep any dips in check. Rebounds today are likely to meet resistance around 32.720. The THB could see some support from foreign buying today, unlike yesterday where they sold a net THB2.56bn and THB2.38bn in equities and debt, given the sanguine global equity markets overnight.

Rates

Malaysia

      Local government bonds traded mixed as market saw the auction of the 7y SPK 10/21 re-opening at an issue size of MYR1.4b. The bid-to-cover (BTC) was strong at 2.85x which reflects local demand for high yield papers and, to a lesser extent, the small issue size. Players will look to tonight’s Fed minutes and the upcoming national budget for the next catalyst.

       3y IRS traded at 3.81-3.82% and 5y IRS at 3.97%. KLIBOR is higher while IRS declined. There is still a very strong receiving interest as market players remain considerably paid and are desperate to receive. 3M KLIBOR rose by 1bp to 3.75%.

       Local PDS market seem to have continuous demand for AAA and GG names. On that note, we saw more switching from shorter papers to the longer ones. We foresee the market will be muted ahead of this Friday’s budget.

Singapore

      SGS had fairly good buying demand amidst the rally in Treasury yields, but bond swap spreads tightened back 1-1.5bp. Risk-adverse sentiment continues to persist with the longer ends underperforming, but bonds around the 10y region are seeing good demand. It seems that the 10y Treasury yield looks set to test 2.20% should 2.30% be broken and opens below it tomorrow.

       Asian credit market traded mixed in the morning. IMF's move to cut its global growth forecast from 4.0% to 3.8% drove the rally in US Treasuries with 10y notes up by almost 8bps. There was more demand for Korean and Chinese state owned entity names. Korea Exchange Bank’s new issue was priced at T10+185bps and traded down to +176 level. This pretty much prompted more buying on Hana Bank and Woori Bank as well. Woori just announced a roadshow for upcoming issuances. Korea Water Resources is also issuing USD300m 3.5y paper with guidance of T3+125bps. The deal should be interesting given the recent strong demand for Korean names.

Indonesia

      IDR Government bond market weakened on the trading session yesterday. All yields in IDR Government Bond increased, except the yields of IDR Government Bond that have tenors on 3 years or below. The yield on the 10Y government bonds climbed almost three basis points to 8.48%, according to the Inter Dealer Market Association. The negative sentiment came from domestic market as Indonesian lawmakers elected an opposition politician to the post of upper house speaker. The market players on yesterday’s trading session also still waited the Federal Reserve publishes the minutes of its most recent policy meeting.

       Zulkifli Hasan from Partai Amanat Nasional, or PAN was elected to the post of upper house (Majelis Permusyawaratan Rakyat/MPR) speaker. He gained 347 votes out of 680. Hasan, recently the Forestry Minister in outgoing President Susilo Bambang Yudhoyono’s government, beat Oesman Sapta Odang, who was nominated by Widodo’s coalition. PAN is part of losing presidential candidate Prabowo Subianto’s coalition. The win in the upper house follows the election of candidates from Prabowo’s coalition to key positions in the main lower chamber earlier this month. President-elect Joko Widodo, known as Jokowi, may face obstacles in pursuing reforms in Indonesia economy when he takes office on Oct. 20. The lower house formulates laws, while the upper house inaugurates the president and has the ability to impeach him. Meanwhile, Partai Persatuan Pembangunan or PPP, an Islamic party that was part of Prabowo’s coalition, has switched to Jokowi’s camp. That gives Jokowi’s alliance 44% of seats in the lower house.

       Recent Bank Indonesia’s decision to keep the policy rate at 7.5% amid recent benign inflation trend is a signal of BI’s vigilance against further inflation risks and anticipates an end to U.S. monetary easing. BI will continue to monitor various inflation risks, particularly those associated with price corrections to subsidized fuel. Normalization of the Federal Reserve’s monetary policy is expected to commence earlier, in around second quarter of 2015. The central bank is also grappling with the need to contain a current-account gap that’s hurt the rupiah. The current-account deficit could place the rupiah on the weak position if the event of capital reversal, when the Fed begins to lift its police rate, occurs.