Maybank GM Daily - 20 Nov 2014

FX

Global

      US equities closed marginally lower overnight. Dollar was mixed, weighed down by dovish FOMC minutes but supported by firmer housing data. USDJPY was the big mover, soaring above 118 for the first time since 2007. AUD was dragged lower on weaker iron ore prices, EUR found some support on strong current account surplus data and the GBP drifted higher after the BOE minutes, which was seen as more balanced as compared to the recent BOE Inflation Report. Gold eased below 1,200 after the latest poll on Swiss gold vote showed a drop in support.

       Out earlier this morning, both Japan manufacturing PMI (52.1 vs. 52.7E vs. 52.4 prior) and HSBC China Manufacturing PMI came in weaker (50.0 vs. 50.2E vs. 50.4prior), raising growth concerns. Asian equities and AUD retreated marginally. 

       Day ahead In Europe brings a raft of manufacturing PMI releases for the Eurozone, Germany and France. Eurozone consumer confidence and German PPI are on tap. ECB’s Mersch is also due to speak in Dortmund later this evening. In US, Fed's Tarullo and Mester will speak on liquidity and forward guidance, respectively. On the data front, October CPI, initial jobless claims, October existing home sales, October leading index, November Philadelphia Fed Survey, preliminary Markit manufacturing for November are due for release. 

G7 Currencies

       DXY – Range with mild downside bias. USD was mixed overnight, stronger against the JPY and AUD, but softer against the EUR and GBP. FOMC minutes acknowledged further improvement in the labour market. There was also discussion of a possible shift lower in longer-term inflation expectations. There was also discussion on removing the phrase ‘considerable time’ from the post-meeting statement when discussing the likely path of rates, but most members preferred to keep the language in place, anticipating that conditions were likely to warrant keeping rates below normal levels even after inflation and employment reach targeted levels. While we continue to remain constructive of the longer term USD bull trend, technical indicators are however displaying tentative bearish signals on the daily technical charts, hinting of a possible pullback in the near term. 86.90 remains an interim support to watch in the short term, while 88.00 should serve as an immediate resistance.

       USD/JPY – Upside Bias. The USD/JPY hit a 7-year high 118.27 this morning before easing to hover above the 118-figure at around 118.18 at last sight. Continued expectations of a Fed fund rate hike following yesterday’s release of the FOMC minutes, together with BOJ’s continued aggressive loose monetary policy after yesterday’s policy meeting, and uptick in UST 10Y yields all helped to support the USD/JPY at levels not seen since Aug 2007. The post-BOJ meeting conference comments by the governor that core inflation (excluding the impact of the consumption sales tax hike) could fall below 1.0% also probably helped the pair.  With several of our barriers taken out on the pair’s move higher, new barrier is now seen around 118.27 (this morning’s high) with a breach exposing the next hurdle at 119.83 (8 Aug 2007 high) ahead of the 120-figure. Any retracement today is likely to see support around 117.30 before the next at 116.65. Trade data released showed the trade deficit narrowing to JPY710bn in Oct from JPY960.6bn in Sep with exports rising by 9.6% y/y and imports by just 2.7% y/y. 

       AUD/USD – Treading Water. AUD/USD violated our upward sloping trend channel, fell through support at 0.8660 and waffled around the 0.86-figure by Asia this morning. Pair remained soggy, in anticipation of softer HSBC flash China PMI-mfg for Nov that is due at 0945 (HKT). Consensus expects the index to ease to 50.2 from the previous 50.4. Once again, risks have turned bearish with 18-SMA crossing under the 40-SMA. Next support is seen at 0.8541 beyond which the 0.85-figure beckons.

       EUR/USD – Upward Tilt. EUR/USD bids were rejected at the 1.26-figure and the pair eased off to levels around 1.2540. Momentum is a tad bullish on the MACD and we expect shallow dips ahead of the slew of preliminary PMI-mfg numbers from the core economies of EU later today. Thereafter, focus is likely shifted to the US, also due to release its preliminary manufacturing numbers in addition to Philly Fed and Oct existing home sales. Support is now seen at 1.2490 (40-SMA) ahead of the 7-Nov low of 1.2358. Despite the retreat in the second half of NY session, pair still trades with an upward tilt and a break above the 1.26-figure is needed for bullish extension towards the next at 1.2682.

       EUR/SGD – Buoyant. EURSGD touched a high of 1.6435 before reversing sharply to levels around 1.6320 on mysterious SGD strength. This is only a partial reversal to the gains on Wed and we continue to expect the cross to retain its bid tone. More market cues today –first from China’s HSBC flash PMI-mfg, preliminary PMI-mfg numbers from Europe as well as US data. Support is marked by the 18-SMA at 1.6266 while 1.6450 serves as an interim barrier.

Regional FX

       The SGD NEER trades at 0.3 below the implied mid-point of 1.2973. We estimate the top end at 1.2713 and the floor at 1.3233.

       USD/SGD – Retracing. The USD/SGD came close to testing the 1.31-figure this morning before it retreated. Pair is currently sighted around 1.3023 with suspicion that official agents could have entered the market. With is bouncing higher this morning at around 1.2986 but remains within its current trading range of 1.2940-1.3000. With short-end rates on the rise on the back of expectations of a Fed fund rate move and further USD/JPY upticks, retracements are likely to be short-lived with support likely around 1.2977 today. Rebounds today are likely to meet resistance around 1.3099 (today’s high) ahead of the next stronger barrier at 3.150.

       AUD/SGD – Oversold. The AUD/SGD continues to tick lower, despite the relative strength in the SGD this morning. Cross is seen around 1.1206 with intraday chart pointing to increasing bearish momentum ahead, though RSI is showing oversold conditions. With our support at 1.1211 taken out, further dips are likely to see new support at 1.1178 nearby before the next at 1.1130. Any rebounds are likely to meet resistance around 1.1317. 

       SGD/MYR – Rangy.  The SGD/MYR is little changed this morning, seen hovering around 2.5809. Intraday chart continues to tilt to the downside, though risks could tilt to the upside soon given that the 18-SMA and 40-DMA are now converging and on the verge of a cross-over. Even with risks tilted to the upside, we continue to expect the cross to remain in rangy trades within 2.5715-2.5912 today. 

       USD/MYR – Buoyant. With the 3.35-figure behind us, pair remained buoyant around the 3.36-figure, last printed 3.3565. Whispers of agents’ offers continue to slow aggressive upmoves though the pair is undeniably bid. Sluggish oil prices along with the current USD/JPY rally underpin the pair with 3.3742 to cap topsides. Support is marked by the 18-SMA at 3.3467. Conditions are bullish though further upmoves are likely to remain a grind as we observe a slide in the 1-month NDF this morning towards the 3.3670, the 18-SMA.

       USD/CNY was fixed at 6.1417 (+0.0020), vs. previous 6.1397 (+2.0% upper band limit: 6.2670; -2.0% lower band limit: 6.0213). CNY/MYR was fixed at 0.5477 (+0.0001). USD/CNY – Range-trades. USD/CNY bounced this morning as bulls were encouraged by the higher fixing.  This pair pares bearish momentum and is likely to remain in range-trades within 6.1140-6.1292. Eyes are on its HSBC flash PMI-mfg for Nov missed the already softer average estimate (50.2) with a print of 50 compared to the previous 50.4. Along with the disappointing data, north-bound flows from the through-train programme diminished on Wed after a strong start Mon and may also dampen the USD/CNY bears. In news, an editorial by China Securities Journal stated that the yuan will not be under pressure to appreciate continuously nor have “relatively large” depreciation risk” (BBG).

       1-Year CNY NDFs – Tilting Lower. The NDF waffled around 6.2530 this morning, losing bearish momentum on the intra-day charts. Still, 18-SMA remains below 40-SMA with 6.2555 slowing bids for now. Expect sideway trades with 6.2653 to guard topsides while 6.2445 marks support. USD/CNH –Sideways. USD/CNH rebounded on Wed and hovered around 6.1240, capped by the 40-SMA near the 6.1280-mark. CNH is back at a discount to CNY. Risks are tilted to the upside but the pair requires a break of the barrier at 6.1280 to expose the next barrier at 6.1320 while support at 6.1156 should slow offers.

       USD/IDR – Upticks. The USD/IDR has since recovered from its slide to a recent low of 12082 yesterday morning, sighted around 12158 this morning. Intraday MACD though is still showing bearish momentum, though it has waned a little. Expectations of dollar strength, Fed rate normalization and the both the political and economic challenges facing President Jokowi should keep the pressure on the USD/IDR on the upside. Upticks today are likely to meet resistance around 12200 today ahead of the next at 12280, while dips should meet support around 12050. Positive sentiments from the fuel price hike led  foreign funds to buy a net USD35.51mn in equities yesterday, but softer risk sentiments today could see a sell-off,  supporting the pair today. After the overnight slide, the 1-month NDF is on the uptick this morning, sighted around 12181 currently with intraday MACD now showing bullish momentum. The JISDOR was again fixed lower at 12124 yesterday from Tue’s 12146, but the spot’s drift higher today suggest a high fixing could be in the offering.

       USD/PHP – Overbought. The USD/PHP is currently on the uptick, hovering around 45.155, with intraday MACD showing bullish momentum though RSI is indicating overstretched conditions. With our resistance level at 45.130 breached this morning, new barrier is seen around 45.267. Any retracement today is likely to see support around 44.960 before the next at 44.820. Recent flow data showed foreign funds buying a net USD28.2mn in equities yesterday, but softer risk sentiments today could see a reversal, providing further upside support to the PHP today. The 1-month NDF edging higher above the 45-figure, seen around 34.230 at last sight with  intraday chart showing risks still bias to the upside.

      USD/THB – Range-Bound. The USD/THB is on the slide this morning, hovering around 32.826 at last sight. Intraday chart is showing momentum tilted to the upside, suggesting that dips are likely to be shallow. Moreover, concerns about domestic growth continue to weigh on the pair, together with expectations of a Fed fund rate normalization. Net sales of THB2.49bn in debt by foreign funds yesterday offset the THB0.49bn in equities purchases, putting downward pressure on the THB. Mixed sentiments today is unlikely to see much support for Thai assets today and this could limit downside moves in the USD/THB today. We continue to look range-bound trades today within the confines of its current trading range of 32.585-32.966.

Rates

Malaysia

      Bearish sentiment in the local government bond market persisted throughout yesterday. The 5y benchmark MGS 10/19 rose 4bps from last done, and the overall MGS curve shifted 1-4bps higher from the front end to the belly. Players were bidding the curve defensively to keep internal positions intact. Any upside would likely be met by sellers ahead of the year-end.

       IRS quoted higher again yesterday amidst weaker sentiment on MGS. Short end IRS dealt higher with trades on the 1y at 3.77%, 1.5y at 3.79% and 2y at 3.785-3.79%. Unsurprisingly, 3M KLIBOR rose 1bp to 3.79% and may look to rise again.

       Local PDS market saw decent volume, but most trades were dominated by portfolio rebalancing. We noticed longer dated and higher yielding Sarawak Energy and Kesturi papers have resisted more selling pressure compared to other bonds. High grade bonds saw plenty offers at the belly and the shorter end of the curve. We heard PTPTN 24 was given at 4.40%, which was a 3bps premium to its MTM yield. YTL Power 18 was also done at 5bps above MTM levels in the morning, but eventually recovered in the afternoon with buying at its MTM level of 4.33%. The only high quality papers that were supported were the longer dated Plus 24 and 28. We prefer to overweight the infrastructure sector on names such as Plus, Kesas and Tenaga NE due to steady cashflow.

Singapore

      SGS market was quiet again with the exception of one primary dealer selling the 15y SGS. Both SGS and SGD IRS yield curves flattened, and bond swap spread reversed the previous day’s gain to tighten about 1.5bps. Expectations of a rate hike remain low given mixed data and easy monetary policy theme from the central bank.

       Asian credit space saw heavy issuances yesterday and might see this all the way till next week. Notable issuances were: 1) Caterpillar Financial Services (A2 by Moody's) 3y CNH issue at 3.40%; 2) Bank of China Amipeace (A by S&P) 3y and 5y USD issues at T3+150 +/- 5bps and T5+165 +/- 5bps; 3) New South Wales Treasury Corp (AAA by S&P) 1y CNH issue at 2.75%; and 4) NTPC Limited (BBB- by S&P) 10y USD issue at T10+230bps. Of the deals, we like Caterpillar and NTPC due to their scarcity value. Caterpillar’s final guidance gives another 5-10bps upside, while we are looking at fair level of around T10+215bps for NTPC. Supply will be heavy this coming weeks and we are waiting for the release of FOMC minutes. Market was surprisingly more active, with continued selling on Tencent and Baidu as players make way for Alibaba’s USD8b deal. There were a lot of pricing requests on Indonesia sovereigns after the interest rate hike and Indons traded slightly higher.

Indonesia

      Indonesia bond market was seen recording gain post Indonesia central bank shockingly increased its reference rate by 25 bps to 7.75%. To maintain macroeconomic and financial system stability as well as support sustainable economic growth, BI uses a policy mix. Now why did Bank Indonesia increase 25 bps when it is not necessary? Current BI Governor is known to take a pre-emptive forward policy which means that he likes to be ahead of the inflation in order to ease inflation earlier. The decision of raising its reference rate is inevitable as BI increased its Lending Facility rate to 8% while maintaining Deposit Facility rate at 5.75%. BI also introduced Modified LDR (Third Party Fund + Issued Bond + Issued MTN + Other securities / Loans) replacing current LDR (Third Party Fund / Loans). BI also maintained banking industry upper level LDR at 92% and its lower level at 78%. By implementing Modified LDR, banking industry LDR which is currently at 89% (as of 3Q 14) would significantly fall, thus creating room for an additional loan disbursement. Loan growth (flush of funds by banks) will generate additional inflation as well. This means that Indonesia will be dealing with double inflation (inflation from subsidize fuel price hike and loan growth). Therefore, to prevent a larger inflation, BI decided to increase 25 bps of its reference rate. Theory wise, an increased in reference rate would cause bond prices to slump. Expectation of a stronger and better fundamental has made bond prices relatively stable on today’s trading.

       SBR001 coupon rate remains at 9.00% (LPS Rate: 7.75% + Spread: 1.25%) for the period of 21 Nov 2014 – 20 Feb 2015. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 7.784% (-3.2bps), 7.906% (0.0bps), 8.222% (-1.3bps) and 8.345% (-2.1bps) while 2-yr yield shifts down to 7.436% (-1.3bps). Government bond traded moderate at secondary market amounting Rp18,581 bn from Rp15,495 bn with ORI011 (3-yr) as the most tradable bond. ORI011 total trading volume amounting Rp4,481 bn with 1,687x transaction frequency and closed at 101.397 yielding 8.010%.

       Corporate bond trading was thin amounting Rp402 bn (vs average per day (Jan – Aug) trading volume of Rp650 bn). JMPD13R (Jasa Marga XIII Seri R Year 2007; Rating: idAA) was the top actively traded corporate bond with total trading volume amounted Rp80 bn yielding 9.616%.