Maybank GM Daily - 24 Jul 2015

FX

Global

      Some misses in the earning reports gave markets the excuse to unwind some dollar longs. The notable ones include those from Caterpillar and American Express. Equities closed in moderate red, ignoring the improvement in initial and continuing claims data.

      NZD was the biggest gainer of Thu session, up 0.6% against the greenback, still reeling from the post RBNZ statement that turned out to be less dovish than expected. GBP gave way overnight, down -0.6% after retail sales (Jun) contracted surprisingly by -0.2%m/m (vs. cons. 0.4%). The dip could lure bargain hunters.

      New Zealand released its Jun trade numbers, registering a deficit of NZD 60mn for the month. Still, the currency was little moved this morning. It was the AUD that was under pressure, weighed by slipping iron ore and copper prices.  Risk aversion extended into Asia as Nikkei slipped -0.4%. Kospi was also lower, down- 0.7%. KRW remained on a losing streak, down -1% yesterday. The currency is seeing some revival this morning, up +0.3% against the dollar. MYR was under pressure, weighed by the recent release of its foreign reserves that dropped to a five year low of $100.5bn.

      The preliminary Markit PMI-mfg for Jul releases kick off from Japan and China.  The latter will be watched more closely for any signs of recovery in regional manufacturing sector. Consensus expects an improvement to 49.7 from the previous 49.4.  Singapore’s industrial production for Jun is up next followed by Vietnam’s CPI. PMI numbers will also be watched in the Eurozone, followed by the same out of the US. US will also release new home sales.

Currencies

      DXY – Buy on Dips. USD was soft overnight despite better than expected CFNAI and jobless claims data as disappointing earnings continue to weigh on dollar. DXY was last at 97.20 levels this morning; day ahead could see range of 96.80 – 97.40; 4-hourly stochastics is showing signs of turning higher from oversold levels. On daily technicals, next key support at 96.50 (21, 100 DMAs, 50% fibo); remain better buyers on dip while resistance remains at 98.40/50 levels (76.4% fibo retracement of Apr high to May low). We continue to maintain our long-held view for the first rate hike (25bps) in Sep as data continues to suggest that growth path remains intact. It remains our base-line scenario for the pace of tightening to be gradual, given that Fed will take into consideration domestic growth and external environment – China rebalancing risk, Greek development and USD strength. Week remaining brings Jun new home sales; Jul prelim manufacturing PMI (Fri).

      EUR/USD – Shorts Squeeze. EUR firmed as Greek concerns waned amid USD weakness overnight. Greek parliament’s approval for bail-out bill suggests that the Institutions can now begin further talks to firm up the 3^rd bail out deal for Greece.  EUR was last at 1.0990 levels; continue to see potential risk of a squeeze higher; 4-hourly momentum bullish bias remains intact.  Resistance at 1.1020 (21 DMA), before 1.1050 levels. Support at 1.0965 (50% fibonacci retracement of Mar low to Apr high) before 1.0810 (trend-line support from the lows in Mar and Apr). Week remaining brings EC, GE, FR prelim manf/services/ composite PMI (Fri).

      GBP/USD – Consolidation. GBP fell on worse than expected retail sales; low of 1.5501 was traded overnight; this morning at 1.5520 at time of writing. BoE tightening talks continue off the back of recent shift from Carney and Miles towards the hawkish camp. McCafferty said that BoE should not delay tightening too late. Could see further hawkish takes on rate outlook from BoE MPC members and upcoming MPC meeting in Aug. We retain our view for BoE to begin its first rate hike in 1Q 2016, and subsequently tighten at a gradual pace, Downside risks that could delay BoE tightening and weigh on GBP includes intensification of Brexit talks and if inflation stays low for longer.  Day ahead could see some consolidation; expect 1.5470 – 1.5640/50 range.

      USD/JPY – Consolidation. USD/JPY is creeping higher this morning on a firmer dollar but remains in consolidative mode within 123.50-124.50. There could have been some speculative outflows as well from the Nikkei deal to buy the Financial Times. Currently just a tad off the 124-handle at 123.94, pair has lost most of its bearish momentum while stochastics is tentatively bullish bias, suggesting range-bound trades remains likely ahead. In the absence of fresh catalyst, we continue to expect the pair to trade in a tight range within 123.50-124.15 intraday. Dips should be an opportunity to buy as our base case remains for the BOJ to ease in Oct 2015.

      AUD/USD – Whippy Trades, Upside Squeeze? This pair is still under bearish pressure, last seen around 0.7345 despite a weaker USD. The steep declines in copper prices and flailing iron ore prices weighed. We still do not rule out an upside squeeze given the lack of bearish momentum on the daily chart. Although RBA Glenn Stevens mentioned that rate cut is still on the table, we see that as merely keeping that option open. We still see a great inertia for the central bank to take cash target rate below 2.00%. Support is seen around 0.7340 which is getting uncomfortably close. Key support thereafter is seen at 0.7260. Nearby resistances are seen at 0.7410, 0.7533 (Apr low). Intra-day chart shows bearish conditions for the pair but there is still a lack of conviction.

      USD/CAD – Bearish Divergence. USDCAD rebounded from intra-day lows and hovered around 1.3025 as we write. Upmove is still a grind as RSI flags overbought conditions on daily chart. The intra-day chart shows sign of bearish divergence and so does the daily chart. This pair might need a corrective downmove before resuming its uptrend. First support is seen at 1.2935, before the next at 1.2886 (tenkan-sen of daily cloud) and then perhaps 1.2700 (38.2% Fibonacci retracement of the Jun-Jul rally). Next resistance is not far away at 1.3065. Retail sales came in firmer than expected at 1.0%m/m in May compared to the slide of -0.1% seen in the month prior.

      NZD/USD – Sell on Rallies. Kiwi’s squeeze higher met resistance at 21 DMA (0.6680 levels). NZD traded softer this morning on trade data; last at 0.6614 levels. While down-trend remains intact, we continue to caution for further shorts-squeeze towards 0.6670/80 levels (21 DMA and 23.6% fibo of Jun peak to Jul trough); remain better sells on rallies. That said continue to reiterate our long-standing bearish bias for NZD on a combination of drivers including expectation of RBNZ cutting rates by another 25bps for 2015; weak dairy prices weighing on dairy sector, falling CPI/ PPI amid weakening demand. Jun trade data (this morning) was a 60mil deficit (vs. 100mil surplus) due to bigger imports. Trade deficit was widest in 6 years.

Asia ex Japan Currencies

      The SGD NEER trades 0.30% below the implied mid-point of 1.3642. We estimate the top end at 1.3369 and the floor at 1.3916.

      USD/SGD – Bullish Bias. USD/SGD appears to be taking a breather this morning, holding steady at 1.3688.  Still, upside pressure remains given expectations of a Fed fund rate lift-off soon. Intraday MACD is showing tentative bullish momentum, while stochastics remains bullish bias, suggesting potential for further upside ahead. Further upmoves today could meet resistance around the 1.37-figure, while any dips should find support nearby around at 1.3670 before the next around 1.3640. We have Jun IPI on tap today and market is expecting a milder contraction of 0.4% y/y vs. May’s -2.3%. Significant downside surprises could see an upside squeeze beyond the 1.37-figure. Yesterday, headline CPI fell by 0.3% y/y in Jun (May: -0.4%) and core inflation picked up marginally by 0.2% y/y (May: +0.1%). The MAS and MTI are now more bearish regarding inflation, expecting both headline and core inflation to come in at the lower half of their forecast range of -0.5-0.5% and 0.5-1.5% respectively. Our house forecast for headline inflation remains at 0-0.5% for 2015.

      AUD/SGD – Upside Momentum Not Following Through? AUD/SGD remained heavy this morning, last seen around 1.0065. Bullish momentum on the daily chart is not gaining much and this cross may be stuck in the 1.000-1.0160 range for a while. The weekly chart shows some indecisiveness and we await more price action for further indication. To the upside, we await the clearance of the 1.0160 for the next at 1.0300. Key support is seen around parity.

      SGD/MYR – Sell Rallies. Cross continues to trade around 2.7820 levels this morning (vs. 2.7850 close yesterday). Day ahead could see some upside pressure as indicated by MACD/stochastics. Upside could re-visit 2.7960/70 levels (21 DMA). Medium term, we continue to see further downside pressure. Favor a tactical sell on rallies towards 2.7970 levels (21 DMA) for a move towards 2.7620 levels (50 DMA). Break below opens way for further move towards 2.74 (61.8% fibonacci retracement of May low to Jul high).

      USD/MYR – Fade Rallies. USDMYR opened higher at 3.8120; traded high of 3.8145 this morning, tracking 1s NDF higher overnight (3.8369 printed). The bid tone came off the back of falling FX reserves to 5-year low of 100.5bn. At time of writing, the onshore spot has eased towards 3.8070 levels on broad USD weakness. We continue to reiterate our technical view that the 21 DMA continues to keep the pair supported. Next technical support at 3.7940 levels. Daily momentum continues to show tentative signs of bearish bias. A decisive close below 21 DMA could see the pair ease further towards 3.7580 levels (23.6% fibo retracement of Apr low to Jul high). Meantime resistance remains at 3.8250.

      1s KRW NDF – Buy on Dips. The pair resumed its move higher overnight on broad USD strength. 1s NDF traded back above 1160-handle; last seen at 1161.50 this morning (vs. 1158 close overnight). Bullish formation remains intact, with momentum supporting further upside. We continue to see further upside, towards 1167 (bullish trend channel resistance) especially on the technical break above 1140 last week. Day ahead, 4-hourly momentum/stochastics are mild bias to the upside; better buyers on dips; expect 1155 – 1165 range. On macro thoughts, we continue to reiterate our medium term bearish view for KRW - on concerns over growth/domestic consumption/ tourism/ foreign investment against a backdrop of subdued inflation, weak activity data, soft exports, weak JPY undercut Korea’s export competitiveness, and rising household debt (165% of annual household disposable income). USD strength on Fed rate lift-off in Sep (house view) could further provide further support for the pair.  2Q GDP was slightly softer than expected at 0.3% q/q (Cons. 0.4%), authorities cited MERS affecting 2Q growth significantly.

      USD/CNH – Back to Range Trades. USD/CNH managed to close above the 100-DMA and was still hovering atop that key level, around 6.2140. CNH discount to CNY re-emerged and hovers around 45 pips.  A clear breakout of the 6.2000-6.2240 range is still needed for better directional cues for the USDCNH. We continue to hold the view that the central bank wants to ensure a steady yuan. Key support for USDCNH is still seen at 6.2054 (200DMA). On 23 Jul, USD/CNY was fixed 4 pips higher at 6.1172 (vs. previous 6.1168). CNYMYR was fixed 7 pips higher at 0.6133 (vs. prev. 0.6127). Markit PMI-mfg for Jul is due at 0945 (SGT) and consensus expects the preliminary gauge to show improvement to 49.7 from previous 49.4. In News, a IMF spokesperson said that the decision to include yuan in the SDR basket should be made on the basis of short-term market movement. Focus is on financial-market reforms and he acknowledged that there is progress in that area.

      SGD/CNY – A Bit More Downside To Go. This cross is still on the downmove, last seen around 4.5376. Key barrier is seen around 4.5645. Pair is on its way towards the support level around 4.5213. The daily MACD reflects slower downside momentum in the pair. The weekly momentum indicators are a tad more bearish and we may even see a dip towards the 4.4560.

    USD/INR – Tilting Higher. USDINR finished Thu higher at 63.7675, above the 50-DMA. While this pair remains suspended in the thick of the cloud, the daily MACD forest is still above the zero line. Key barrier is seen around 63.80. We see rising upside risks. 1-month NDF drifted higher overnight and took a breather this morning, around 64.17, as RSI indicates overbought conditions. Resistance is seen around 64.3325. We await a breakout of the cloud for greater directional clue for the pair. The IMD expects more monsoon rain in the coming, easing concerns of negative supply shock for food and agflationary risks.

      USD/IDR – Slow Grind Higher.  The USD/IDR tested briefly our resistance level at 13450 yesterday before pulling back to end the day at 13420. This morning, pair is again on the uptick and another test of our 13450 resistance level is possible. Upside pressure from external (US Fed tightening) and domestic concerns (persistent current account deficit, anaemic economic growth, stalled reforms) remain. A firm break here could see the pair head towards 13500. Momentum indicators continue to be bullish bias, though stochastics is showing no directional bias, suggesting the grind higher could be gradual. Retreats today should find 13400 supportive. Another historic high was set yesterday when the JISDOR was fixed at 13394 from 13368 on Wed. 1-month NDF is on the retreat below the 13550-levels after surging higher towards 13590 with both intraday MACD still showing bullish momentum though stochastics now at overbought levels.  Yesterday, foreign funds sold a net USD10.28mn in equities and remove a net IDR0.04tn from their outstanding holding of government debt on 22 Jul (latest data available).. 

      USD/PHP – Bullish Bias. USD/PHP continues to trade above the 45.400-handle this morning, underpinned by a firmer dollar. Further upside is likely given that both intraday MACD and stochastics are bullish bias. Pair has taken out several of resistance level on its way up. Upticks today could meet resistance around 45.500 and any dips should find support around 45.330. 1-month NDF is on the uptick above the 45.500-levels today with both momentum indicators and oscillators bullish bias. Risk-off sentiments continue to dominate with foreign funds selling a net USD12.35mn of equities yesterday. May imports fall 13.4% y/y in May (Apr: -12.2%), leading to a trade surplus of USD509mn, a reversal from Apr’s deficit of USD337mn.

USD/THB – Range-Bound.  USD/THB climbed to a multi-year high of 34.906 before easing to end the day at 34.800 on domestic growth concerns and government weak THB policy amid Fed tightening and China grow concerns (see our report issued yesterday – Maybank FX Flash-THB: Breakaway Towards 35.00). These concerns were probably reflected in the sell-off of Thai assets yesterday where foreign funds sold a net THB2.74bn and THB1.56bn of equities and government debt. After the rapid jump in the USD/THB, more rangy trades could be possible ahead as reflected in intraday MACD forest showing waning bullish momentum but stochastics falling from overbought levels. Look for consolidative trades within 34.645-34.910 intraday.

Rates

Malaysia

      Local government bonds ended unchanged from previous day’s levels despite the broad USD/Asia strength overnight. Trades done were mostly on the off-the-runs with real money coming back in after being underweight. Malaysia’s international reserves fell by USD5.0b in the first 2 weeks of July to USD100.5b.

      For IRS, nothing was dealt in the market and rates were relatively unchanged. 3M KLIBOR continued to remain at 3.69%.

      Local PDS market was very active, with bidders seeking long dated high grade names. Dana 8-14y papers tightened about 1bp. PTPTN 24s, which lagged the previous days rally in Dana and BPMB, rallied 5bps yesterday.  Bids for 9y AAAs tighten by 2-3bps, though remained above the 4.40% psychological level. Quotes on Plus 24s were tight at 4.41/40% but nothing was done. Despite the strong bidding interest in the AAA space, offerers held firm as few trades were done in the space. Putra 20s traded 2bps tighter to 4.12%.

Singapore

      SGS yield curve bear flattened with yields ending higher across the curve. The front end was up by 3bps, the belly by 1-2bps and the back end by 1bp. The 10y SGS closed at 2.67%.

      Asian credit space saw another day of heavy primary issuances. Secondary market was also busy with the overnight print of Fukoku and Softbank. Fukoku rallied up 1pt, while Softbank did not really perform across except for its 7y EUR. Other tech names such as Huawei, Tencnt and Bidu also traded lower amid disappointing results from the US tech giants. CCB Leasing traded back to +190/+192. A few issuances on the table yesterday: 1) China Minmetals (A3) issuing 5y and 10y USD bonds with guidance at T5+200bps and T10+250bps;  2) China Oilfield Services Ltd (A3) opened books for 5y and 10y USD bonds at T5+210bps and T10+245bps; 3) Beijing Capital/Juda (BBB) issuing 3y CNH bond with final guidance at 5.25%; and 4) Indonesia (BB+) opened book for 10y EUR at MS+260bps.

Indonesia

      Indonesia bond market closed higher amid depreciated rupiah currency and minimum market sentiments. Inflows to the bond market have caused a spike in bond price. With minimum market players available, any significant purchase would cause bond prices to hike. Based on rumours, DJPPR was conducting their Eurobond road show yesterday and is expected to issue Eurobond worth of €1 bn. 5-yr, 15-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 7.880%, 8.251%, 8.393% and 8.450% while 2y yield shifts up to 7.685%. Trading volume at secondary market was seen thin at government segments amounting Rp8,192 bn with FR0069 (5y benchmark series) as the most tradable bond. FR0069 total trading volume amounting Rp1,107 tn with 26x transaction frequency and closed at 99.966 yielding 7.880%.

      Corporate bond trading traded thin amounting Rp230 bn. BEXI01BCN2 (Shelf registration I Indonesia Eximbank Phase II Year 2012; B serial bond; Rating: idAAA) was the top actively traded corporate bond with total trading volume amounted Rp98 bn yielding 8.209%.