Maybank GM Daily - 28 Jul 2015

FX

Global

      US and EU equities remained on a back foot, dragged lower by the largest one-day slump in Chinese equities since 2007 (-8.5%). Broad commodity prices continue to slide with Brent hitting 4-month low. Treasuries were a touch firmer. On FX, risk aversion drove funding currencies such as JPY and EUR higher. USD was broadly weaker overnight despite better than expected core durable goods order. AUD remained soft weighed by commodity price declines and China-growth concerns. NZD enjoyed an up-squeeze, partly on stretched NZD-short positioning amid broad USD decline. On crosses, AUDNZD and AUDSGD remain soft. On AXJs, most were weaker against USD, except for SGD and JPYKRW (higher) on risk aversion flows. 

      In particular the AUD outlook remains challenging on multiple fronts. Weak investments in mining and resource sectors as well as the lack of traction in non-mining business investments are expected to weigh on domestic growth. Falling commodity prices as Chinese demand slows is expected to weigh on Aussie terms of trade as well as renewed Chinese equity concerns weighing on risk sentiment. Taken together, there is little to be positive in the AUD especially against an environment of monetary policy divergence (whereby Fed is likely to tighten in coming months while RBA remains on an easing bias with slight risk to a cut).  We continue to see further downside on AUD and AUD cross, especially AUDNZD, AUDSGD.

      For the day ahead some of the key indicators we are watching includes US Jul Richmond Fed manufacturing index (Con. 6); US Jul prelim services PMI (Cons. 55); UK 2Q GDP (Cons. +0.7% y/y). On FX, we continue to favour USD on dips against AXJs including, KRW, THB, PHP. On G7, GBP strength faces its first test as 2Q GDP looms.

Currencies

      DXY – Near-Term Downside Pressure. USD remains on the back foot heading into FOMC meeting tomorrow. DXY continues to push to 9-session low of 96.29 despite stronger than expected durable goods orders as decline in equities overwhelmed.  Focus for the week on FOMC (Thu, 2am SGT). 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. DXY was last at 96.55 levels this morning; 4-hourly stochastics is entering oversold levels while momentum remains mild bearish. On daily technicals, next key support at 96.05 (50 DMA), 95.64 (50% fibonacci retracement of May low to Jul high) while resistance 96.80 (21 DMA). Daily stochastics/MACD is mild bearish bias. Remain better buyers on dip. Week ahead brings May S&P/CS house price index; Jul Richmond Fed, consumer confidence; Jul composite/services prelim PMI (Tue); Jun pending home sales; FOMC (Wed); initial jobless claims (Thu); Jul Chicago Purchasing Manager, university of Michigan Sentiment (Fri).

      EUR/USD – Funding Currency Play. We continue to reiterate that EUR remains a funding currency play - the pattern we have been highlighting where risk-on sees EUR lower while risk-off sees EUR higher continues to pan out well. EUR jumped above 1.11-handle overnight, from 1.0969 lows while equities fell. This relationship is expected to persist for as long as ECB is on unconventional monetary easing. Daily momentum and stochastics are mild bullish bias. Next resistance at 1.11 (50 DMA) if broken, may see the pair extend the move higher towards 1.1230. Support remains at 1.10 (21 and 100 DMAs). Week ahead brings GE, FR confidence (Wed); GE Jul unemployment, CPI; EC Jul confidence (Thu); EC Jul CPI estimate; EC Jun unemployment rate; FR Jun consumer spending (Fri).

      GBP/USD – Consolidation. GBP rose overnight amid broad USD weakness. Last sighted at 1.5565 this morning. We continue to reiterate that GBP remains vulnerable to data disappointment in the short term, given that many positives have been priced in including some BoE members adopting a slight tinge of hawkish stance at recent speeches. Later this afternoon brings 2Q GDP which could see GBP face its first test. Medium term, we are positive and still favor buying GBP on dips amid ongoing economic recovery setting the stage for BoE to hike possibly as soon as 1Q 2016.. Support remains at 1.55 (trend-line support from Apr – Jul lows) before 1.54 (200 DMA). Resistance at 1.5650 (week’s high). Daily stochastics is falling from overbought areas; suggesting possible downside pressure in the near term. Week ahead brings 2Q GDP (Tue); Jun consumer credit, mortgage approval (Wed); Jul GfK consumer confidence (Fri).

      USD/JPY – Rangy; Buy on Dips. USD/JPY is holding steady at around the 123.25-levels this morning, lifted by the selling of the JPY against the most of other majors but pressured downwards by the softer dollar. Pair has slipped into an intraday ichimoku cloud and could trade range-bound as a result. Intraday momentum indicators are mildly bearish bias, while stochastics is at oversold levels. With the pair testing our first support level at 123.20, a firm break here would expose the next support at 122.80. Rebounds could be curbed by 123.80 today. We remain better buyers on dips as our base line scenario remains for a BOJ move in Oct.

      AUD/USD – Bearish. AUD remains soft at around 6-year lows; last seen around 0.7278 levels this morning. Further weakness is expected due to falling commodity prices. We continue to reiterate that the AUD outlook remains challenging on multiple fronts. Weak investments in mining and resource sectors as well as the lack of traction in non-mining business investments are expected to weigh on growth. Falling commodity prices (iron ore, copper) as Chinese demand slows could weigh on Aussie terms of trade. Taken together, there is little to be positive in the AUD especially against an environment of monetary policy divergence (whereby Fed is likely to tighten in coming months while RBA remains on an easing bias with slight risk to a cut).  We continue to see further downside on AUD and AUDNZD cross. AUD weekly momentum remains bearish. Break below 0.73-handle puts next support at 0.7150 in focus. Resistances are seen at 0.7360 (low before the break-down); 0.7455 (21 DMA). Remain better sellers on rally Week ahead brings 2Q import, export prices; Jun housing approval; RBA Stevens speaks (Thu); Jun private sector credit (Fri).

      USD/CAD – Buy on Dips. USDCAD continues to hover at 2009 highs of above 1.30-handle despite USD falling as oil prices also fell. Bullish bias remains intact but some short-term downside pressure could take hold. Daily momentum/ 4-hourly momentum/stochastics are showing tentative signs of mild bearish bias. Next support at 1.2950 (up-trend channel support); before 1.2870 (23.6% fibo retracement of Jun low to Jul high). Resistance remains at 1.31 (Fri high). Week ahead brings Jun IP (Tue); May GDP (Fri).

      NZD/USD –Shorts-Squeeze. NZD remains on a squeeze higher as we cautioned. Move came amid broad USD weakness overnight and stretched short kiwi positioning. We continue to caution for a technical rebound towards 0.6670 (23.6% fibo of Jun peak to Jul low), 0.6780 (38.2% fibo). That said we continue to reiterate our bearish bias for NZD on a combination of drivers including widest trade deficit in 6 years, dairy prices at 12 years low and likely to remain low for longer, weak wage inflation, CPI inflation, etc., Remain better sellers on rallies or favor tactical short AUDNZD trade - further downside towards 1.09 (first support); if broken on a daily basis could spell bigger downside towards 1.0760 level.

Asia ex Japan Currencies

      The SGD NEER trades 0.23% below the implied mid-point of 1.3640 with the top end estimated at 1.3367 and the floor at 1.3914.

      USD/SGD – Still a Buy on Dips. USD/SGD is on the slide this morning, in tandem with the strengthening JPY and EUR. Also, helping was the flight to quality following the Chinese stock market rout yesterday. Pair is sighted around 1.3675 with both momentum indicators and oscillators bearish bias. This could suggest further downmoves ahead. An intraday ichimoku cloud is forming just below price action and further dips could see the pair trapped within. For now, expect the pair to consolidate lower within 1.3640-1.3700. We remain better buyers on dip.

      AUD/SGD – Downside Bias. AUDSGD has been on an extended down-trend since the cross hit its high of 1.3612 in Feb 2012. The cross then traded lower to 76-month low of 0.9922 low (28 Jul) this morning. Downside bias remains intact, as indicated by momentum and oscillator indicators. We previously cautioned that a break below 0.9960 levels is expected to open room for further downside towards 0.9870, before 0.9470 (Mar 2009 low). We are now seeing the move being panned out. Continue to see further downside. We will re-consider bearish bias on another abrupt move and close above the 50 DMA at 1.0290.

      SGD/MYR – Sell Rallies. SGDMYR was last sighted around 2.79 levels (21 DMA) this morning on risk aversion (supported by SGD strength while Ringgit remains a laggard). Bearish momentum appears to be waning and stochastics has already turned higher from oversold levels. We do not rule out potential upside squeeze towards 2.80, 2.81 levels.

      USD/MYR – Upside Risk. USDMYR continues to hover at multi-year highs of 3.8140 levels at time of writing. The move higher came off the back of risk-off sentiment and the fall in Brent prices. We continue to reiterate our technical view that the 21 DMA continues to keep the pair supported. Next technical support at 3.7940 levels. We note that bearish momentum appears to be gradually waning on the daily chart while stochastics is suggesting further upside. That could put resistance 3.8250 vulnerable.

      1s KRW NDF – Supported. The pair remains at multi-year highs of 1170 levels due to risk-off sentiment as continued slump in Chinese equities sparked off declines in equities elsewhere. Risk off sentiment has also sparked off a huge move up in JPYKRW towards 9.50 levels. Still see the pair supported on risk-off sentiment. We continue to reiterate our bearish view for KRW - on concerns over growth/domestic consumption/ tourism/ foreign investment against a backdrop of subdued inflation, weak activity data, soft exports, 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. 

      USD/CNH – Bearish Bias. The USD/CNH continues on its retreat after spiking towards the 6.2290-levels yesterday. Pair does not appear to be significantly impact by the rout in the Chinese stock market with the pair currently hovering around 6.2191. The CNH continues to trade at a discount to CNY. Both momentum indicators and oscillators are bearish bias, suggesting further downside ahead. Look for the pair to hover within 6.2140-6.2240. We continue to hold the view that the central bank wants to ensure a steady yuan. USD/CNY was fixed 22 pips lower at 6.1154 (vs. previous 6.1176). CNYMYR was fixed 2 pips higher at 0.6146 (vs. prev. 0.6144).

        SGD/CNY – Bullish Bias. SGD/CNY is bouncing higher this morning, helped by a firmer SGD. Cross is currently sighted around 4.5437 with both intraday MACD and stochastics showing bullish bias. Cross is now entering an intraday ichimoku cloud and should it be trapped within, range-bound trading is likely ahead. Further upside should meet resistant around 4.5645 (top of the cloud) while dips should find support around 4.5134 (24 Jul low). USD/INR – Buy on Dips. USDINR continues to hover above the 64-handle at its close yesterday, but should track the rest of USD/AXJs broadly lower today. Intraday MACD continues to show bullish momentum though stochastics remains at overbought levels. Any dips should be any opportunity to buy for move towards 64.50 (rising wedge resistance).

       USD/IDR – Bullish Bias.  The USD/IDR appears to be in consolidative mode, hovering at the upper bound of its current trading range of 13400-13500. Last sighted around 13464, pair continues to show bullish momentum, though stochastics remains at overbought levels. This suggested that further upmoves are possible though a reversal could also be in the making. Still, pressure remains on the upside given external (namely US Fed tightening and China growth concerns) and domestic concerns (persistent current account deficit, anaemic economic growth, stalled reforms). Moreover, month-end dollar demand should also be supportive of the pair. Look for further upmoves to be capped around 13500, while dips should find support around 13400. The JISDOR was fixed at a new historic high of 13453 on Mon from 13448 last Fri. 1-month NDF is on the slide back below 13600 with intraday MACD now showing bearish momentum and stochastics falling from overbought levels. Deteriorating risk appetite resulted in foreign funds selling a net USD42.83mn in equities yesterday and removing a net IDR0.56tn from their outstanding holding of government debt on 24 Jul (latest data available).

      USD/PHP – Bullish Bias. USD/PHP is on the retreat this morning, tracking the rest of the USD/AXJs. Pair is currently sighted around 45.510 with both momentum indicators and oscillators still showing bullish bias. This suggested that further downmoves could be limited today. Dips today should see support around 45.410. Resistance remains at 45.600 (24 Aug 2010 high) and a daily close above that level could see a move towards 45.700. Favour buying on dips. 1-month NDF remains on the retreat back below the 45.60-levels this morning with both daily momentum indicators and oscillators now bearish bias. The sell-off in equities continued with foreign funds selling a net USD26.56mn yesterday.

      USD/THB – Consolidating Lower.  USD/THB is seeing a respite from its upmoves, helped by a softer dollar tone. Pair is currently consolidating around 32.845-region, after hitting a recent high of 35.033 (24 Jul). Both intraday MACD and stochastics are bearish bias, suggesting pressure is likely to be on the downside ahead. Still, domestic growth concerns and the government’s weak THB policy amid Fed tightening and China grow concerns should continue to support the pair. For now, expect the pair to remain in consolidative mode within 34.765-35.000 ahead of the FOMC meeting and the public holiday on Thu. Investor sentiments were mixed yesterday with foreign funds selling a net THB1.50bn in equities but purchased a net THB0.33bn of government debt. Custom trade data released yesterday showed exports and imports contracting by 7.87% and 0.21% y/y respectively in Jun, resulting in a narrower trade surplus of USD0.15bn vs. May’s USD2.41bn.

Rates

Malaysia

      Government bond market had almost no liquidity as MYR broke the strong support at 3.808. Trades were mainly focused on front end bonds with most being dealt directly. Benchmark yields ended mixed with the 5y closing 1bp lower on slight buying. All eyes are on the US FOMC meeting later this week.

      Quiet IRS market with no trades reported. Rates unchanged to higher by 1-2bps. 3M KLIBOR stayed the same at 3.69%.

      PDS market muted against a backdrop of weaker oil prices and MYR. Bids generally wider by 2bps, but Plus 13y and 21y papers did tighten 1bp. Plus 24s traded unchanged on continued buying interest for 9y AAA papers. Although Telekom 24s were not dealt, bids were tightening. In the AA space, most names widened 1-2bps, except for Benih Restu 25s which traded 2bps tighter.

Singapore

      SGS prices inched higher with yields up 1-2bps from the 5y to the 20y, while SGD rates ended slightly lower in lackluster trading despite a rally in UST after equities dived across Asia. The IRS curve closed flatter as the front end was supported by short dated Fwds remaining well bid even as USDSGD retreated from intraday highs.

      Asian credit space was quiet and the slump in Shanghai Composite did not help. Liquidity seems to be drying up as more traders go away for the summer holidays and coupled with soft commodity prices. More players were on the selling side trying to reduce risk. Chinese IGs and HYs mostly traded wider, with property names lower by 0.25-0.75pt. The new COSL last traded at 240/235, while INDON EUR 2025 was last given at 97.50. Shinhan Bank (Aa3) opened book for a 3y CNH bond guiding at 4.30% area. Players expected to stay on the sidelines ahead of the FOMC meeting this Wednesday.

Indonesia

      Indonesia bond market closed lower on yesterday’s trading more due to global sentiments rather than domestic. Negative sentiment came from a significant slump in China equities market. However, the fall in LCY bond prices wasn’t significant amid depreciation of Rupiah currency as positive sentiment came from Indonesia Investment Coordinating Board of 2Q 15 FDI release which rose by 18.2% YoY. 5-yr, 15-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 7.877%, 8.286%, 8.410% and 8.468% while 2y yield shifts down to 7.622%. Trading volume at secondary market was seen moderate at government segments amounting Rp11,260bn with FR0071 (15y benchmark series) as the most tradable bond. FR0071 total trading volume amounting Rp2,359tn with 91x transaction frequency and closed at 104.720 yielding 8.410%.

      DMO will conduct their sukuk auction today with five series to be auctioned which are SPN-S15012016 (Coupon: discounted; Maturity: 15 Jan 2016), PBS006 (Coupon: 8.250%; Maturity: 15 Sep 2020), PBS007 (Coupon: 9.000%; Maturity: 15 Sep 2040), PBS008 (Coupon: 7.000%; Maturity: 15 Jun 2016) and PBS009 (Coupon: to be set; Maturity: 25 Jan 2018). We believe that the auction will be oversubscribe by 2.5x – 3.5x from its indicative target issuance while our view on the indicative yield are as follows SPN-S15012016 (range: 6.710% – 6.850%), PBS006 (range: 8.480% – 8.600%), PBS007 (range: 9.100% – 9.250%), PBS008 (range: 7.650% – 7.800%) and PBS009 (range: 8.000% – 8.200%). Most of the incoming bids would cluster in the front end series specifically in the newly offered PBS009.

      Corporate bond trading traded thin amounting Rp164 bn. APLN02 (Agung Podomoro Land II Year 2012 bond; Rating: idA) was the top actively traded corporate bond with total trading volume amounted Rp25bn yielding 11.045%.