Maybank GM Daily - 12 Aug 2015

FX

Global

      Global investors took the yuan devaluation badly with DJI, S&P and NASDAQ erasing their gains from Monday. European stocks were also down, despite a third bailout plan clinched by Greece. There was even news that IMF would participate financially in the bailout in October if Athens’ debt is made more manageable by then. Focus was perhaps more on the FX space amid wild speculations that China might have triggered a currency war. AUD and NZD were the worst hit, down -1.5% and -1.2% respectively. In Asia, SGD, KRW and TWD depreciated more than 1% each as well. Commodities were also hit with crude oil, down to USD43/bbl and other base metals including aluminium, copper and nickel down around 1% by mid-day on Tue.

      Negative sentiments extend into Asia this morning with Nikkei and Kospi down -0.3%. PBOC fixed USDCNY reference rate at 6.3306, 0.1% weaker than its close yesterday, spurring new highs in the USD/AXJs. USDCNY touched a high of 6.4286 while USDCNH was seen at 6.5268 at one point. China is also due to release its Jul retail sales, industrial production and urban FAI data. Markets do not expect strong numbers. Elsewhere, onshore markets in Thailand are closed for the Queen’s birthday. India is due to release its Jun industrial production and Jul CPI in late Asia. Beyond the Far East, Fed Dudley speaks today but focus at the moment will be on the yuan. Elsewhere, State Bank of Vietnam widened trading band to +/-2% from +/-1%.

      Data docket for the rest of the week has Malaysia’ GDP on Thu along with central bank meetings in Korea and Philippines. Singapore’s retail sales should wrap up Asia’s data release for the week. In the US, retail sales for Jul will be eyed on Thu after the decent jobs numbers (215K addition). That should keep the greenback supported on dips.

Currencies

      DXY – Consolidation. The USD was broadly stronger against the AXJs while only marginally stronger against majors overnight. Move was triggered by China PBoC’s one-off devaluation via the USDCNY midpoint and midpoint fixing mechanism change. UST10Y yields fell 8bps to overnight low of 2.14%. Talks of China’s move posing a risk of delay on US rate hike as Fed takes into consideration US data as well as international development and the strength of USD into consideration. And what China did yesterday led to a strengthening of the USD. A strong USD hurts US exporters and could derail its efforts to achieve the 2% inflation target. Question remains whether China will do further “one-off” devaluation. DXY was last at 97.15 levels this morning, softer than overnight high of 97.619, also partly due to EUR strength. We continue to reiterate that disappointment in US data/ Fed speak (Dudley to speak on Wed) could pose USD pullback risk. On technicals, daily/ 4-hourly momentum continues to indicate some downside pressure in the near term. Next support at 96.30/40 levels (50 and 100 DMAs). Interim resistance at 98.30 (trend channel resistance) before 98.70 (76.4% fibonacci retracement of Mar high to May low). Day ahead brings MBA Mortgage Applications (7 Aug); JOLTS (Jun); Fed’s Dudley to speak.

      EUR/USD – Greece to Vote Again. Headlines of a bailout agreement between Greece and the Institutions overnight. The deal could formally be signed off as soon as this Fri and funds will be released before 20^th Aug (deadline for Greece to repay ECB). The next hurdle is for Greek parliament to vote through the 35 pre-requisite actions which include measures like change to tax system, bank recap, remove early retirement, etc. Also of mention is IMF will participate financially in the bailout in October but only if Greece’s debt has been made more manageable by then. IMF’s timeline and hard stance appeared to have softened. While EUR did trade a low of 1.0961 yesterday off the back of China PBoC move yesterday, losses were reversed. EUR traded an overnight high off 1.1088 before closing at 1.1042. Technicals suggest EUR to trade with mild bias to the upside, next resistance to watch at 1.1080/90 levels (50 DMA and 38.2% fibo of Mar low to May high). Intra-day support at 1.0950 (21 DMA). Daily momentum/ stochastics show mild signs of upside risk bias. Day ahead brings EC IP (Jun); FR Current Account (Jun).  

      GBP/USD – Watch Labour Data. GBP was marginally softer amid broad USD strength overnight. Last sighted around 1.5585 levels this morning. Daily MACD/stochastics are not indicating any clear bias for now. Expect to see GBP consolidate in 1.5470 – 1.5670 range in absence of fresh catalyst. Disappointment in employment data and weekly earnings today could push GBP lower. Data remaining for the week ahead includes employment change (Wed); house price balance (Thu); Construction output (Fri).

      USD/JPY – Bullish Bias. USD/JPY is back above the 125-figure again following the sharp move lower by the RMB. Pair climbed to a 2-month high of 125.16 but further upmoves have been capped by the sell-off in the EUR and CHF against the JPY.  Currently sighted around 125.07, pair is showing increasing bullish momentum as indicated by intraday MACD with stochastics fast approach overbought levels. With our resistance level at 125.00 taken out, expect further upmoves towards 125.85.  Further dips today should find support around 124.50 (50DMA). We continue to hold our baseline scenario for a BOJ move in Oct 2015; remain better buyers on dips. BOJ minutes for 14-15 Jul meeting produced little new insights with many board members still seeing inflation trend continuing to improve and the ultra-loose easing policy having its intended effects.

      AUD/USD – Choppy. AUD sank below the 0.73-figure this morning after the weaker CNY fixing today, settling around the 0.7260 as we write. This pair is likely to remain choppy within the wider range of 0.72-0.74 with risks of breaking below this range in the rest of the week. Momentum indicators are turning bearish again. 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 neutral to mild easing bias). Medium-term down-trend remains intact, with next big support around 0.72 levels (trend-line support from the low in 2001 and 2008). Monthly momentum remains bearish bias. We caution that a break below this long-term support could expose AUD to further downside beyond 0.70. Consumer confidence survey for Aug came in at 7.8% higher at 99.5. Wage price index picked up pace to 0.6%q/q from previous 0.5%.

      USD/CAD – Rangy. USDCAD rebounded from the 1.30-figure overnight after the oil prices slipped. Last seen around 1.3090, this pair seems to be settling within the 1.30-1.32 range. Daily chart shows bearish momentum with a more negative MACD forest.  Next support is seen at 1.2960 (23.6% Fibonacci retracement of the Jun-Jul rally). This week could be a week of correction for the USDCAD and a break of 1.2960 opens the way towards the next at 1.28-figure. Jul housing starts came in at 193K, narrowly missing consensus at 195K. The week remaining also see new housing price index, manufacturing sales due.

      NZD/USD – Bearish Bias. NZD turned lower this morning following another +1000 pips USDCNY fix. NZD traded down to 0.6468 low, last sighted around 0.6490 levels. Looking ahead, USDCNY fixings is expected to garner some attention, given that antipodeans currencies appear most hit amongst G7s on USDCNY fix for past 2 days. On NZ macro,  we remain bearish bias for NZD on a combination of drivers CPI inflation at 15-year lows with risk of staying low for longer on low oil prices and weak dairy prices, prospect of dairy prices staying low for longer (10th consecutive decline and at fresh 13-year low), benign wage inflation, declining ToT amid weakening demand. We see the risk of another 25bps cut, possibly as soon as the next meeting at 10 Sep (3 more RBNZ meetings till end of 2015 – Sep, Oct, Dec), but acknowledged that RBNZ’s recent statement suggest a slightly less dovish than expected tone. Remain better sellers on rallies towards 0.6630 levels (Past 3days resistance), 0.6680 levels (76.4% fibo of 0.6739 – 0.6491). Mild bullish momentum appears to show signs of waning. We continue to reiterate that a break below 0.65 on daily close basis puts next support at 0.64 in focus.

Asia ex Japan Currencies

      The SGD NEER trades 1.54% below the implied mid-point of 1.3884. The top end is estimated at 1.3602 and the floor at 1.4167.

      USD/SGD – Bullish. USD/SGD continues to hover above the 1.40-figure as linger concerns about China’s growth and PBOC’s next move weighs after jumping over two-big figures yesterday. Pair is currently sighted around 1.4013 with both momentum indicators and oscillators indicating bullish bias. This suggests potential for another leg up intraday. In the absence of fresh domestic catalyst, expectations of further PBOC moves are likely to dominate. Look for topside to be curbed by 1.4170 (19 Feb 2010 high). Any dips should find support nearby around 1.4000.

      AUD/SGD – Watch the 50 DMA Support. AUDSGD reached a high of 1.0339, within striking distance of the 100-DMA at 1.0348 before reversing sharply around 1.0260. This cross is still underpinned by the 50-DMA at 1.0215. Expect this level to remain a support to watch. With RSI showing near overbought conditions, up-move is a grind. Still, MACD shows strong bullish momentum. A clearance of the 1.0300-figure is necessary for further upside extension. We continue to reiterate our earlier caution for technical rebound.

      SGD/MYR – Supported. SGDMYR printed an all-time high of 2.8528 this morning. Last sighted at 2.8300 levels as Ringgit weakness was balanced by SGD weakness. Daily momentum and oscillator indicators continue to indicate a bullish bias. Interim resistance seen at 2.85. Support at 2.8200 (38.2% fibo retracement of 2.77 – 2.85).

      USD/MYR – Another Leg Up. USDMYR continued to push to all-time highs; intra-day high of 4.0060 was printed this morning. This was due to another USDCNY fixing (much higher by more than 1000 pips) this morning. 1s NDF traded 4.0923 high. 1m NDF points widened to 850pips! We reiterate that the pair remains bullish bias. Weekly momentum and stochastics remain bullish bias. MYR spot last sighted at 3.9950.

      1s KRW NDF – 1200? 1s KRW get another push higher following another >1000pips higher in USDCNY fix this morning. 1s NDF pushed to an intra-day high of 1194 this morning. We continue to see further upside off the back of broad USD strength, JPY and CNY weakness. Still see further upside in the pair. Near term resistance remains at 1188 (Jun 2012 high); break above on daily close basis puts 1200 in focus in focus. 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 – Reference Rate Fixed 0.1% weaker than close at 6.3306. USD/CNH touched a high of 6.5628 after the fixing before stabilizing around 6.5100 as we write. 6.60-figure is within reach at this rate. While the reference rate is fixed another 1.8% lower than the previous one, the new regime forces the market to look at the closing price of the previous session instead of the previous fixing and it is 0.1% weaker than the close. USDCNY gapped up and was last seen around 6.4240. Gap between CNH and CNY widened to 1007 pips as write. Expect the pair to see further upside pressure in the next few sessions but gap ups might be less dramatic in the next few days Still, 6.50 seems to be within reach for the USDCNY. USD/CNY was fixed 1008 pips higher at 6.3306 (vs. previous 6.2298). CNYMYR was fixed 102 pips lower at 0.6221 (vs. previous 0.6323). PBOC says there is no economic basis for yuan’s constant devaluation.

      SGD/CNY – Rally. SGD/CNY rallied to a high of 4.5454 this morning with upside still meeting resistance around 4.5455 as we write, underpinned by the weaker CNY fixing against the USD. Key barrier is seen around 4.5455 (38.2% Fibonacci retracement of Jun-Aug drop) ahead of the next at 4.5697. Daily MACD has turned positive and we expect more choppy action with risks to the upside. Support is seen at 4.155.

        USD/INR – Bias Upside. USD/INR closed higher at 64.2050, led higher by the rest of USD/AXJs. Support is seen at the conversion line of the ichimoku cloud around the 64-figure ahead of the next at 63.76, market by the 50-DMA and the daily ichimoku cloud. Pair could remain in choppy action within a wider range of 63.76-64.50 with bias likely to the upside given the weaker CNY fixing again today. Jun industrial production and Jul CPI are due today.

      USD/IDR – Gapping Higher.  The USD/IDR gapped higher at the opening to 13745 from yesterday’s close of 13607, tracking its regional peers higher. It did not help that the USD/CNY was fixed lower by 0.1% from its close yesterday. Intraday MACD is still showing bullish momentum though stochastics remains at overbought levels. Aside from concerns about China’s growth and PBOC next moves, concerns about US Fed tightening and domestic concerns (persistent current account deficit, anaemic economic growth, stalled reforms) should pressure the pair higher, we look for new hurdle at 13800 with an eye towards the 14000-figure. Any retracement should find support around 13650. The JISDOR was set at a new record high of 13541 yesterday from Mon’s 13536. 1-month NDF climbed to a high of 13876 but has eased slightly to 13825 currently with intraday MACD showing bullish momentum and stochastics at overbought levels. Yesterday, foreign funds sold a net USD43.28mn in equities and removed a net IDR1.27tn from their outstanding holding of government debt on Mon (latest data available).

      USD/PHP – Bullish. USD/PHP gapped higher at the opening this morning to 46.200 from yesterday’s close of 45.967, tracking its regional peers higher as concerns over China continues to weigh. Pair is currently sighted around 46.183 with intraday MACD showing bullish momentum and stochastics still at overbought levels. In the absence of fresh domestic catalyst, pair is likely to tracking the rest of USD/AXJs ahead. Look topside to be capped by 46.340 (26 Jul 2010 high). Any dips should find support around 45.940. 1-month NDF remains above the 46-handle, sighted at 46.460 currently, with daily MACD showing bullish momentum, though stochastics remains at overbought levels. Deteriorating risk appetite saw foreign investors sell a net USD28.48mn in equities yesterday.

      USD/THB – Bullish.  USD/THB hit a new multi-year high of 35.489 overnight but which was not sustained, closing lower at 35.348, taking out our resistance level at 35.280 along the way. Pair is back on the rebound towards the 35.400-levels this morning on uncertainty over the PBOC’s next move. Intraday MACD and stochastics are both bullish bias, suggesting further upmoves are possible ahead. Concerns about China growth, together with sluggish domestic macroeconomic fundamentals and the government’s weak THB policy amid Fed tightening, should keep the pair supported. Resistance is around 35.500 today ahead of 35.750, while 35.140 (50DMA) should be supportive. Foreign fund sold a net THB1.21bn and TH0.12bn in equities and government debt yesterday amid global risk aversion.

Rates

Malaysia

      Local government bonds saw a selloff, with foreigners selling off-the-runs as selling pressure mounted on the benchmarks as well. The curve rose 2-11bps, with most trades done at the belly. The 5y benchmark MGS 10/20 auction drew poor demand as bid/cover was low at 1.742x, with little foreign participation, and auction results tailed, with a high of 3.918% above WI levels. This is despite a huge MYR10b maturity of MGS 8/15s on Wednesday, indicating that roll-overs are minute. The selling could continue as foreigners may still have some bonds on hold given the rush to pay swaps higher this past week.

      IRS market saw good trading volume amid the depreciating MYR and weak govvy auction. 1y and 2y IRS traded at 3.80%, 3y at 3.90-3.92% and 5y at 4.05-4.08%. 3M KLIBOR remained at 3.69%.

      Muted PDS market as investors remain sidelined given the bearish sentiment in capital markets. Trades focused on short dated papers, with Caga 18s and Putra 16s tightening 2bps and 4bps respectively. For long dated papers, Prasa 30s tightened 1bp and Danga 30 had some bidding interest at 4.75%, possibly due to yield play. In the AA curve, KEVSB 16s tightened 2bps while other trades were crosses.

Singapore

      The surprise after the long holiday was the devaluation of CNY which pushed USDSGD higher. SGS yield curve flattened, in line with the SGD IRS curve. The front end up to 5y yield was unchanged to 4bps higher and lower by 2-3bps beyond that. The 10y SGS closed at 2.58% with bond swap spread tighter at -11.5bps.

      Asian credit space opened slightly firmer, with buying interest on some IGs in the morning. However, the market was later shocked by the sudden devaluation of CNY by PBOC. USD/Asians moved higher while UST yields moved lower as investors flocked for safe asset. Sellers were seen across IGs and HYs as players tried to reduce risk in a thin market. MALAYS and PETMKs traded wider, while INDONs and PHILIPs were lower by 0.25-0.50pts to unchanged. KEXIM is selling a 5.5y fixed and/or floating AUD issuance with guidance at 3.85% and 3M BBSW+120bps respectively. Tencent and BABA will release earnings today, and this will certainly weigh on the performance of Tech names.

Indonesia

      Indonesia bond market closed lower on the note of Yuan depreciation by PBOC. Post the announcement, IDR currency depreciated and closed above Rp13,600 per USD while bond investors were seen on the selling side. On the contrary, Incoming bids during the sukuk auction came in quite decent and were the highest since Feb 20th. 5-yr, 15-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 8.163%, 8.534%, 8.825% and 9.012% while 2y yield shifts down to 7.743%. Trading volume at secondary market was seen moderate at government segments amounting Rp10,622 bn with FR0068 as the most tradable bond. FR0068 total trading volume amounting Rp1.69 tn with 119x transaction frequency and closed at 94.294 yielding 9.012%.

      Indonesian government conducted their sukuk auctions yesterday and received incoming bids of Rp11.83 tn bids versus its target issuance of Rp2.50 tn or oversubscribed by 4.7x. However, DMO only awarded Rp3.59 tn bids for its 5mo SPN-S which was sold at a weighted average yield (WAY) of 6.62500%, 9mo PBS008 at 7.37500%, 2.5y PBS009 at 8.12938% while 5y PBS006 was sold at 8.52446%. Incoming bids were mostly clustered on the front end tenors. PBS007 bids were rejected during the auction. Bid-to-cover ratio during the auction came in at 1.09X – 7.83X. Till the date of this report, Indonesian government has raised approx. Rp36.52 tn worth of debt through bond auction which represents 58.0% of the 3Q 15 target of Rp63.00 tn.

      Corporate bond trading traded thin amounting Rp334 bn. TAFS03B (Toyota Astra Financial Services III Year 2013; B serial bond; Rating: AAA(idn)) was the top actively traded corporate bond with total trading volume amounted Rp90 bn yielding 8.598%.