Maybank GM Daily - 14 Nov 2014

FX

Global

      Market sentiment was mixed overnight. While US equities rose, UST yields declined due to conflicting signals from US labour market data and sharp decline in oil price (to fresh 4-year lows).  The greenback fell overnight on comments from Fed’s Dudley that raising rates too soon risked derailing the recovery and was a bigger risk than raising them too soon. The JOLTS and jobless claims data also sent mixed messages to the mix.

      In China, the data released yesterday was slightly below expectations - retail sales up 11.5% yoy (expectations at 11.6%), IP up 7.7% yoy (versus expectations of 8.0%) and fixed assets investment at 15.9% versus market expectations of 16.0%. There was also talk of China lowering 2015 GDP target, citing information from China Business News.

      Day ahead, Malaysia releases its 3Q GDP (Cons.: 5.6%y/y) and current account (Cons.: MYR 9.1bn), while Singapore releases retail sales number. Later in the day see a slew of preliminary GDP estimates out in a number of European economies including Germany, France and Italy. Also in focus is the Eurozone CPI (Cons.: 0.1% m/m vs 0.5% prior), US retail sales (Cons.: 0.2% m/m vs 0.3% prior) and the University of Michigan Consumer Sentiment (Cons.: 87.3 vs 86.9 prior).

      While the DXY is higher this morning, focus is on Eurozone CPI and US retail sales later today for any follow-through moves. 

G7 Currencies

       DXY – Shallow Dips. DXY was rather static on Thu, still stuck within the 87.21-88.20 range with dips supported by the intra-day ichimoku cloud. Upper bound of the cloud (leading span 1) is marked by 87.63. There is still a lack of momentum on the MACD with the convergence of 18-SMA and 40-SMA. We expect sideway gyrations to continue in Asia ahead of the Oct retail sales release in NY session. Support is seen at 87.21 while topsides are guarded by 88.20.

      USD/JPY – Upside Bias. The USD/JPY remained under upside pressure on the back of persistent speculation that a snap election will be called in December and that the second consumption sales tax would be delayed. Pair has bounced pass the 116-figure at 116.16 – new 7-year high - with the pair having lost most of its bearish momentum though it is edging closer to overbought conditions. With our barrier at 116.10 breached, the next leg up should see the pair head above the 117-figure to 117.30. Support for the pair remains at 115.00 today. Factory output gains appear to be back on track with industrial production rising by 0.8% y/y in Sep, up from 0.6% previously.

      AUD/USD – Downward Tilt in Range. AUD fell from Asia high of 0.8764 before pulling back towards the 0.87-figure. Pair is back within the thick of the ichimoku cloud, likely to remain rangy within the 0.8620-0.8750 range for now. There is more scope for downsides within this range with interim support seen around 0.8660.

      EUR/USD – Range-bound. EUR edged higher overnight but gains were pared this morning and prices hovered around 1.2460. Topsides are guarded around 1.2511 ahead of the next at 1.26-figure. Oct CPI numbers were mostly in line with expectations. Momentum indicators show slight bullish momentum and risks have tilted higher. That said, we have more inflation and growth numbers out today. Any disappointment may pull the pair towards the 1.2368-support.

      EUR/SGD – Bullish Momentum. The EURSGD extended upmove this morning and was last seen around 1.6130, testing the barrier around 1.6126. RSI flags overbought conditions for this cross which has been in range but the current bullish momentum on the 4-hourly chart may be sufficient for a clean break here that could shift focus towards the next resistance level at 1.6252. Eyes are still on growth and inflation numbers, due later. Any disappointment could bring deflationary concerns to the fore and deflate the current bullish momentum.

Regional FX

       The SGD NEER trades at 0.06% above the implied mid-point of 1.2944 with the top end estimated at 1.2685 and the floor at 1.3203.

      USD/SGD – Biased Higher. The USD/SGD continues to bounce higher this morning, hovering around 1.2942, supported by the uptick in the USD/JPY. Intraday charts are showing risks tilted slightly to the upside today with the pair edging closer to overbought conditions. With a firmer dollar still in the cards, further upmoves remains likely. Resistance remains around 1.2977 ahead of the stronger barrier at the 1.30-figure (not seen since Jan 2012), while support remains around 1.2863 before the next at 1.2806.

      AUD/SGD – Shallow Dips. The AUD/SGD is retracing this morning on the back of the relative weakness in the AUD and is seen around 1.1253. Cross is losing most of its bullish momentum as shown by our intraday chart. Dips are likely to be shallow given that an intraday ichimoku cloud lies below price action today with technical support likely around 1.1211 today. Rebounds are likely to meet resistance around 1.1317 today.  SGD/MYR – Two-Way Trades.  The SGD/MYR is inching lower this morning but continues to trade range-bound within its current trading range of 2.5750-2.5940. Intraday momentum indicators are showing little directional clarity with RSI showing possibly two-way action today. We continue to expect the cross to gyrate within the current trading range of 2.5750-2.5940 today. However the underperformance of the Malaysia GDP print today could lift the cross back towards the upper bound of the trading range.

      USD/MYR – Range-bound. USD/MYR edged higher this morning, underpinned by the slide in oil prices and resilient dollar. Last seen around 3.3435, the barrier at 3.3510 is still a tough barrier to challenge. Despite the upmove this morning, momentum indicators is still a tad bearish and next support is seen around 3.3180, marked by the 40-SMA. 1-month NDF hovered around 3.3530, also supported by the ichimoku cloud. The leading span 1 hovers near the 40-SMA around 3.3479. 3Q GDP is due today and growth is expected to slow to 5.6%y/y from 6.4% while current account surplus is expected to shrink to average of MYR10.6bn from MYR 16.0bn in 2Q.

      USD/CNY was fixed at 6.1399 (-0.0019), vs. previous 6.1418 (+2.0% upper band limit: 6.2652; -2.0% lower band limit: 6.0195). CNY/MYR was fixed at 0.5451 (+0.0018). USD/CNY – Rangy. USD/CNY gapped down on lower fixing. PBOC has been keeping the fixing flat. Risks are to the downside as we anticipate greater yuan demand for  the Shanghai-Hong Kong Stock Connect. Stability in the currency is still key and we look for sideway gyrations within 6.1140-6.1300. Data-wise, Oct credit numbers are still outstanding and could be released anytime. China’s property market still needs to lower inventories, according to an editorial by China Securities Journal.

      1-Year CNY NDFs – Two-Way Trade. The NDF slipped overnight and rebounded a tad to levels around 6.2670 as we write, underpinned by support around 6.2653. Momentum indicators are mixed and we see room on both sides of the pair. 6.2725 remains a barrier for this pair while 6.2555 supports. USD/CNH –Downside Risks. USD/CNH also steadied around 6.2650. Expect gains to remain capped as Hong Kong gears up for the Shanghai-Hong Kong Stock Connect to be launched on Mon. With no limits on the amount of yuan conversion for residents, demand for CNH should rise. 6.1375 remains a barrier for this pair and support is marked by 6.1280, near the 40-SMA. A break here exposes the next at 6.1131.

      USD/IDR – Upside Bias. The USD/IDR is on the uptick this morning at around 12214, with the pair having lost most of its bullish momentum. Still, expectations of a firmer dollar tone are likely to keep the pair elevated today. Even the narrowing current account deficit to 3.07% of GDP (or USD6.8mn) did not provide any relief for the pair as it remained well-above the 2.5% target of BI. Upticks today are likely to meet resistance at 12280 while 12050 should remain supportive today. Recent flows data showed foreign funds purchasing a net USD12.28mn in equities yesterday but removed a net IDR0.3tn in debt from their outstanding holdings on Tue. The 1-month NDF is on the slide this morning to 12266 after closing at 12270 yesterday with intraday MACD showing bearish momentum. The JISDOR was fixed lower at 12191 as expected yesterday from Wed’s 12205, but the uptick in the spot currently could see a higher fixing today. As expected, BI held its reference rate steady at 7.50% yesterday, preferring to maintain its hawkish bias ahead of the impending subsidized fuel price hike.

      USD/PHP – Edging Higher. The USD/PHP is on edging higher this morning after retreating yesterday, sighted around 44.916. Pair is within striking distance of the 45-figure and a re-test of that level is possible today given the firmer dollar tone. Resistance remains at 44.050 with a firm break exposing the next at 45.130. Support continues to be seen around 44.820. Recent flows data showed foreign funds buying a net USD12.1 and the uptick in global equity markets yesterday could see further foreign buying, helping to cap the USD/PHP. The 1-month NDF continues to edge lower after the overnight surge pass the 45-figure. After bouncing higher to 45.11 yesterday, the 1-month is on the retreat this morning back below the 45-figure, sighted around 44.97. Intraday momentum indicator showing risks tilted to the downside.

      USD/THB – Upticks. The USD/THB is on the uptick despite the softer dollar tone overnight and the pick-up in global equity sentiments. Pair is seen moving higher at around 32.833 but is still well-within its current trading range of 32.585-32.966. Expectations of further dollar strength are likely to keep the pair on the uptick today with resistance still seen around 32.966. Any dips today are likely to be short-lived with support likely around 32.585 still. Foreign funds bought a net THB0.41bn and THB0.59bn in equities and debt yesterday and positive global sentiments overnight could lift appetite for Thai assets and hence cap USD/THB upside today.

Rates

Malaysia

      Local government bonds opened defensive in the morning as the market saw the 10y MGS 7/24 retap auction at a size of MYR3.5b. Average auction yields came in at 3.854% with a high of 3.88% and a low of 3.833%. The weak bid-to-cover (BTC) ratio of 1.557x didn’t help the overall sentiment as better sellers were seen on the belly of the curve in the afternoon. Yields on belly bonds parallelly shifted higher by +2bps from the previous day’s closing. Players will now turn to today’s 3Q GDP data with consensus at 5.6% (previous print was 6.4%).

      Shorter end IRS saw good bidding interest after the underlying 3M KLIBOR rose 1bp to 3.78%. Trades were reported on 2y IRS and the curve ended a tad higher.

      Liquidity in the local PDS market remained low yesterday, with wide bid-ask spreads and just over MYR200m trades done. Overall, we saw more interest in higher rated papers. There was buying interest on Rantau 19 with around MYR20m trades done in the morning. Longer dated Dana and Plus papers were also picked up. Yesterday’s highlight was Maybank Islamic's 10y sub-debt which saw about MYR75m worth of trades and exchanged at 1-2bps lower than MTM levels. Given the upward movement in the govvy yield curve over the past few days, we think credit spreads have been compressed and buying activity will slow down for the high grade bonds at the belly of the curve.

Singapore

      SGS bonds opened 0.5bp lower and eventually closed 1bp weaker, while SGD IRS gained about 2bps towards the end. There was little incentive to do much. Bond swap spreads widened back by 1bp after yesterday’s rather quiet trading day.

      Activity in the Asian credit space were rather muted yesterday. Players seem to be paying more attention on the new issuance. Beijing Infrastructure Investment came out with 3y and 5y USD issuances. The 3y paper was last seen guiding at T3+170-175bps and the 5y paper at T5+170bps (+/- 2.5bps). Comparing with the existing BEIJII '19, both 3y and 5y papers seem fair, though the 3y looks slightly more attractive. Another issue that caught investors' attention is Bank of East Asia’s Basel lll Tier 2 10NC5 sub-debt with initial price guidance at T5+300bps.

Indonesia

      Indonesia Bond market continues closing flat amid Indonesia central bank halts its reference rate at 7.50% (as expected). Market seems to keep on waiting for President Jokowi to arrive back from his APEC trip and announce the subsidize fuel price hike. At current point, Indonesia health card and smart card which was launched by Jokowi this month are been distributed to the needy one and we see, once all card are evenly distributed, Jokowi will directly announce a subsidize price hike which will be in line with what Vice President Jusuf Kalla mentioned earlier this month. Aside then holding its policy rate, Bank Indonesia also kept its overnight deposit facility rate unchanged at 5.75%. BI Rate increase might come in at around 1Q 15 by an additional of 25bps if the subsidize fuel price hike occurs. Bank Indonesia also suggests Indonesia government to lift fuel prices in one step. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 7.871% (+0.5bps), 7.993% (-0.7bps), 8.340% (-0.8bps) and 8.434% (-0.7bps) while 2-yr yield shifts down to 7.470% (-0.2bps). Government bond traded moderate at secondary market amounting Rp19,439 bn from Rp9,597 bn with ORI011 (3-yr) as the most tradable bond. ORI011 total trading volume amounting Rp10,825 bn with 3,688x transaction frequency and closed at 101.04 yielding 8.206%. The heavy trading of ORI011 occurred as the asset past its 1 month holding period and is eligible to be traded at the bond market.

      Corporate bond trading was thin amounting Rp314 bn (vs average per day (Jan – Aug) trading volume of Rp650 bn). MFIN01ACN2 (Shelf registration I Mandala Multifinance Phase II Year 2014; A serial bond; Rating: idA) was the top actively traded corporate bond with total trading volume amounted Rp50 bn yielding 11.146%.