Maybank GM Daily - 18 Nov 2014

FX

Global

Equities closed marginally higher overnight, supported by ECB Draghi’s comments that further unconventional measures could include buying sovereign bonds, while weaker than expected US industrial production and empire manufacturing data weighed on sentiment. USD rebounded against most majors including the JPY, EUR and GBP, reversing some of its down moves in Asia yesterday.        This morning, Bank Indonesia has announced to hold an unscheduled monetary policy meeting today to discuss interest rate, in response to the hefty fuel price hike announced yesterday. President Widodo raised subsidized fuel prices by one-third, in an attempt to trim energy subsidies to free up government finances to fund infrastructure, education and healthcare needs. This increase is more than expected, given that global oil prices have declined. Bank Indonesia kept its 7.5% policy rate unchanged at its 13 November meeting.        Day ahead, RBA’s November meeting minutes will be published but is unlikely to provide much colour, given that bank’s forecasts were updated and explained in the recent Monetary policy statement. Focus will instead be on RBA’s Stephen’s speech later. China’s 70-cities property prices and FDI data are also on tap. In the UK, CPI and PPI data are in focus. Look out for further signs of disinflationary pressures. In Europe, November ZEW survey will be published. In the US, NAHB housing market index will be released. On the currency front, recent ranges are expected for the day.

G7 Currencies

DXY - Settling into Range. The USD was broadly firmer overnight in tandem with the rise of the UST 10yr yields which bounced to trade around 2.34% this morning. The greenback remained bid for much of European hours into NY session before reversing back to levels around the 87.90-mark. Overnight data was mixed with empire manufacturing data undershooting expectations with a print of 10.16 for Nov, albeit still higher than the previous 6.17. Oct industrial production slipped unexpectedly by -0.1%m/m and the Sep’s print was also revised a tad lower to 0.8%. Overnight action remained within the 87.20-88.20 range and momentum indicators suggest that the DXY should remain confined within for the session ahead. Oct PPI numbers are due tonight. Watch also the ZEW survey for Nov in the Eurozone as well.        USD/JPY – Consolidation With Upside Bias. After hitting gyrating to a 7-year high of 117.05 pre-GDP and then dipping to a post-GDP low of 115.46, the USD/JPY is back on the bounce this morning to 116.75. Focus continues to be on PM Abe’s call to delay second sales tax and a snap election expected anytime soon. A confirmation on both counts could see the pair re-test yesterday’s high of 117.06 ahead of the next barrier at 117.95. Pair has lost most of its bearish momentum as shown by the intraday chart and RSI is edging closer to overstretched conditions. Any retracement is likely to see support around 116.10 before the next at 115.50. Tomorrow’s BOJ decision will be closely watched, especially after the economy slipped into another recession.         AUD/USD – Inside the upward sloping trend channel. The AUD slipped from its early Mon highs to trade around the 0.87-figure this morning. Intra-day tools suggest that conditions have turned a tad bearish for near-term trades. A violation of the 0.8660-support is needed for bears to take over. Otherwise, the pair could remain in its current upward sloping trend channel. We still look for 0.8860 to cap the corrective bounce. Yesterday, China and Australia signed a Free Trade Agreement that should spur the sluggish Australian economy and job creation. This morning, RBA released Minutes of its Nov meeting today with reiterations that the RBA prefer a period of interest rate stability. Robust housing sector could boost activity in other sectors of the economy though caution that subdued wage growth could weigh on consumption. No fresh impetus from the Minutes and AUD remained around the 0.87-figure.        EUR/USD – Consolidation. EUR/USD fell from its Mon high of 1.2578 to trade around 1.2460 after ECB President Draghi assured markets that the central bank will use “unconventional measures” to stimulate the economy should the outlook worsen. This time, he even suggested the purchase of sovereign bonds. That pulls the currency pair back into consolidative range of 1.2370-1.2510 range and there is little to suggest a breakout at this point unless German ZEW survey disappoints severely today. Watch for sideway gyrations.        EUR/SGD – Two-Way Risk. The EURSGD was choppy overnight as the cross slipped to a low of 1.6155 before steadying around 1.6180 as we write. The tentative floor around 1.6155 suggests that bulls have not entirely given up its fight even as intra-day tools turned a tad bearish. There is two-way risk at the moment with bids to test the barrier at 1.6252 while offers could meet support at 1.6008. Eyes on the Nov ZEW survey later.

Regional FX

       The SGD NEER trades at 0.24% below the implied mid-point of 1.2945. The top end is estimated at 1.2686 and the floor at 1.3205.

       USD/SGD – Consolidating Lower. The USD/SGD is retreating after the dollar softened this morning. Pair is seen around 1.2975 after having lost most of its bullish momentum as shown by intraday chart. Support nearby is seen around 1.2940 before the next at 1.2908. Rebounds today are likely to meet resistance at the 1.30-figure ahead of the next bullish target of 1.3092.

       AUD/SGD – Sideways. After hitting a high of 1.1391 not seen since 19 Sep, the AUD/SGD is back below our 1.1317-resistance level at 1.1306. Cross is currently little changed from yesterday’s close of 1.1310 and should continue to gyrate sideways today within 1.1211-1.1391 today. 

       SGD/MYR – Upside Bias.  The SGD/MYR appears to be in consolidative trades for the past few sessions, though it is currently on the uptick on the back of a stronger SGD. Cross is currently edging higher around 2.5826 but remains well within its trading range of 2.5715-2.5912. We continue to expect the cross to remain in consolidative trade today within 2.5715-2.5912 with the bias tilted to the upside.

       USD/MYR – Range-bound. USD/MYR bounced on catch up move on the dollar overnight. The pair gapped higher to open at 3.3537 before being pressed lower to trade at sub-3.35 again. Pair continues to trade with an upside bias though strong offers cap bids around the 3.35-figure. 1-month NDF has also ticked lower from its overnight high of 3.3664. This pair still retains a firm tone despite the current downtick. 40-DMA at 3.3501 supports further offers ahead of the next at 3.3330.

       USD/CNY was fixed at 6.1430 (+0.0021), vs. previous 6.1409 (+2.0% upper band limit: 6.2684; -2.0% lower band limit: 6.0225). CNY/MYR was fixed at 0.5460 (+0.0005). USD/CNY – Rangy. USD/CNY slipped despite the lower fixing and traded around 6.1235, weighed by the home-bound flows after the Shanghai-Hong Kong stock connect started. Support is seen at 6.1195, near the 40-DMA. The slightly higher fixing by PBOC suggests that currency stability is still paramount and we look for sideway gyrations within 6.1140-6.1350. In a press interview, a researcher with the Counselors’ Office of the State Council Yao Jingyuan warned of the large economic pressure that China has. Nonetheless, the country should be able to achieve a 7% growth next year. Data-wise, Oct FDI should be released later.

       1-Year CNY NDFs – Tilting Lower. The NDF hovered around 6.2645 this morning with 18-SMA crossing below 40-SMA. Conditions might be turning bearish for this pair and we await the break of the 6.2627-support that should expose the next support at 6.2555.  USD/CNH –Sideways. USD/CNH hovered around 6.1260, static for much of Mon. The 18-SMA and 40-SMA have converged, suggesting sideway trades for now. Momentum indicators also not giving any directional bias. Expect gyrations to remain within 6.1200-6.1375 today. CNH trades at a narrowing discount to CNY. Quota for Northbound (towards Shanghai) was used up by 2pm HKT while that of the Southbound (towards Hong Kong) was not used up.

       USD/IDR – Bearish. Unsurprisingly, the USD/IDR gapped lower at the opening this morning to 12148 from yesterday’s close of 12206 after yesterday night’s announcement of a fuel price hike. Following through on fuel price hike has lifted investors’ sentiments, and this together with the softer dollar tone this morning, is putting downward pressure on the pair. As well, expectations that BI will hike policy rate to anchor inflationary expectations later today is also supporting the IDR. Pair is currently sighted around 12140 with momentum now increasing bearish as indicated by intraday chart. Also, RSI is showing the pair edging closer to oversold conditions. Given the positive sentiments today, we look to dips to be met by support around 12110 before the next at 12050. Yesterday, foreign funds bought a net USD36.25mn in equities, and positive sentiments today should see the buying spree continue, providing further support for the IDR. The 1-month NDF is on the slide following the fuel price hike announcement, currently hovering around 12170. Intraday MACD is showing increasing bearish momentum and RSI is edging close to oversold territory. The JISDOR was fixed lower at 12193 yesterday from Fri’s 12206. President Jokowi followed through with his election promise of raising subsidized fuel prices when he announced a IDR2000 increase in both subsidized gasoline and diesel to IDR8500 and 7500 respectively with effect from today. This, according to the Finance Minister, should free about IDR100tn of state spending and reduce the budget deficit from the current forecast of 2.2% of GDP. However, reallocation of this savings to the government’s spending priorities will need approval from the parliament. Inflation is expected to average 7.3% as a result. BI is holding an extraordinary meeting today to discuss the fuel price hike.

       USD/PHP – Consolidating Higher. The USD/PHP is on the uptick this morning, hovering around 44.932, within striking distance of the 45-figure. Intraday chart is now showing the pair losing most of its bearish momentum. Still the pair remains within its current trading range of 44.820-45.050 and should remain in consolidative trades today. Foreign funds bought a net USD4.6mn in equities yesterday and improved risk sentiments today could see further buying that should cap upside to the pair today. In contrast to the spot, the 1-month NDF is edging lower this morning, hovering around the 45-figure with intraday MACD showing waning bullish momentum. Overseas remittances rose 7.9% y/y in Sep from 6.0% in Aug – the highest since Dec 2013.

       USD/THB – Consolidation With Downside Bias. The USD/THB is on the slide this morning on the back of a softer dollar tone, hovering around 32.780. Pair remains well within its current trading rate of 32.585-32.966 though. Risks are now tilted to the downside with the negative cross-over of the 18-SMA and the 40-SMA. Pair is also currently trapped within an intraday ichimoku cloud that could keep the pair moving sideways today. Look for consolidative trades within 32.585-32.966 still. Foreign funds sold a net THB0.30bn in equities yesterday but bought a net THB0.69bn in debt, though positive sentiments today could see further interest in Thai assets, which should provide further support for the THB today. 3Q14 GDP disappointed yesterday, expanding by just 0.6% y/y vs. expectations of 1.0% (Maybank: 1.5%). The weaker GDP print could be attributed to poor external demand that offset improving consumption and investment.

Rates

Malaysia

Local government bonds started the week on a better note with buyers seen on the 10y GII 5/24 and it dipped 1bp from last week’s close. The sentiment supported the 10y MGS 7/24 at last done levels, although gains were quick to give in during the afternoon session which saw firmer bids on the onshore IRS curve and strong bids on the USDMYR pair. 3y MGS 3/17 ended the day 2bps higher from last close.       The IRS market seem to have decent sized flows that went through yesterday afternoon and local banks were seen lifting offers in succession. We think this may be due to some IRS flow. 3M KLIBOR remained at 3.78%, but may be looking to hit 3.79% this week which could further flattened the already flat curve.       Local PDS started the week as quiet as the previous week, with possible portfolio rebalancing seen in some trades. The market was mostly well offered across all durations. Rantau 19 was the most actively traded bond yesterday with trades as low as 4.09% before widening by 3bps to 4.12% at session close. GG Prasa 23 also traded up about 1bp. As the year-end approaches, and coupled with the global economic uncertainties, investors have become more defensive.

Singapore

SGS prices opened 5bps higher with yields down after Japan’s disappointing GDP data. Bond swap spread narrowed about 1bp. Sentiments were clearly risk-off yesterday with major equity indexes across Asia down.       Asian credits saw some light selling from investors yesterday as the lower Treasury yields and an unexpected recession in Japan dampened investors' sentiment. Buying interest was generally limited in the Chinese high yield space and we saw the notes trade wider. Newly issued notes didn’t fare any better as they exchanged hands by about 2-5bps wider. Interestingly, Chinese oil companies were well bidded in spite of the weakness in oil price. Shui On Development opened books to a new 3y USD paper at 9.0%, which later tightened to 8.70% at final guidance. We think that at a spread of 25bps from the existing Shui On 18, the IPG is at its fair value with a potential upside of 5bps.

Indonesia

Indonesia bond market recorded gains with expectation that Indonesia government might raise subsidize fuel price lower compared to its initial plan of Rp3,000 per liter as WTI crude oil price is currently at US$75 per barrel. This would also mean that Bank Indonesia may keep its reference rate at current point as the one-off inflation might remain manageable. We see that bond market would be rangy this week with FR0070 (10-yr benchmark series) yield to move within range of 7.900% - 8.100%. With all domestic fundamental data issued, Indonesia bonds price volatility this week would be more affected by domestic political condition, market sentiments and future expectation, global sentiments and foreign inflows or outflows. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 7.810% (-4.0bps), 7.906% (-4.1bps), 8.256% (-4.1bps) and 8.379% (-2.7bps) while 2-yr yield shifts down to 7.424% (-7.6bps). Government bond traded moderate at secondary market amounting Rp19,448 bn from Rp15,003 bn with ORI011 (3-yr) as the most tradable bond. ORI011 total trading volume amounting Rp11,729 bn with 4,537x transaction frequency and closed at 101.080 yielding 8.159%. Offshore buyers were seen bidding in the bond market.       Corporate bond trading was heavy amounting Rp655 bn (vs average per day (Jan – Aug) trading volume of Rp650 bn). BIIF02A (BII Finance II Year 2013, A serial bond; Rating: AA+(idn)) was the top actively traded corporate bond with total trading volume amounted Rp150 bn yielding 9.459%.