Maybank GM Daily - 14 Aug 2015

FX

Global

      The third day into the new yuan regime saw more whispers of central bank intervention in the yuan. Calm returned to the FX markets with KRW strengthening 1.4% after BOK decided to hold its 7-day repo rate. BSP also held overnight borrowing rate unchanged at 4.00% but that was largely expected. Even MYR was able to recover, up 0.4% but gains from the stronger growth number (at 4.9%y/y) were reversed out this morning as overnight slide in Brent dragged again. Offshore yuan weakened the most on Thu but -0.4% was a great improvement from what was seen in the previous sessions. Eyes will still be on China’s yuan fixing today with yuan closing at 6.3982 yesterday.

      Overnight trade did not see much drama with US Jul advance retail sales meeting expectations. Headline rebounded to a growth of 0.6%m/m from previous -0.3%. The core measure was up 0.4%m/m compared to the slip of -0.1% in Jun. Dollar inched higher and closed around 96.4450. NZD is an outlier this morning, down -0.3% against the USD. 2Q retail sales disappointed with a 0.1%q/q print compared to the previous 2.3%. Most of other majors gained against the greenback.

      Data releases for today includes Singapore’s retail sales and India’s trade numbers. Onshore markets in South Korea are away for Independence Day. Beyond the Far East, Europe has growth and inflation numbers due followed by PPI, industrial production and Univ. of Mich. Sentiment out of the US. Expect monetary policy divergence to continue to drive the FX space. US CPI and FOMC Minutes will be out next week. Softer inflation expectations and the recent yuan devaluation could keep the greenback under pressure.

Currencies

      DXY – Consolidation. DXY ended the overnight session a tad higher as Jul retail sales met expectations. The greenback is still under pressure around 96.34 as we write in Asia morning as recent yuan weakness adds another dimension of uncertainty to the timing of the Fed liftoff in the markets. We continue to reiterate that disappointment in US data/ Fed speak (Dudley to speak on Wed) could pose USD pullback risk. Daily/ 4-hourly momentum continues to indicate some downside pressure in the near term. The greenback is being supported by 96.30/40 levels (50 and 100 DMAs). Underlying bullish bias remains unchanged. Interim resistance at 98.30 (trend channel resistance) before 98.70 (76.4% fibonacci retracement of Mar high to May low). Day ahead brings PPI, industrial production and Univ. of Mich. Sentiment.

      EUR/USD – Capped. EUR started Asia slightly softer around 1.1160 after a rise in European equities with DAX up 0.8% on bargain hunting. We had explained that EUR remains a “funding currency” play. This is supported by a pattern we have been highlighting – risk-on sees EUR lower while risk-off sees EUR higher. Technicals continue to suggest EUR is mild bias to the upside, next resistance to watch at 1.1230 (23.6% fibo retracement of Mar low to May high), before 1.1370 (200 DMA). Interim support at 1.1080/90 levels (50 DMA and 38.2% fibo of Mar low to May high), before 1.1040 (100 DMA). Day ahead brings EC, GE, FR GDP (2Q); EC CPI (Jul).

      GBP/USD – Consolidation. GBP was little changed on Thu and was last seen around 1.5620 against the USD. 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 data points could push GBP lower. Data for today includes Construction output (Fri).

      USD/JPY – Consolidation. USD/JPY appears to be in consolidation mode after climbing back above the 124-figure. Pair is hovering around the 124.40-levels this morning as traders await the PBOC next move. Pair has lost most of its bearish momentum and stochastics is showing no strong bias. Pair remains trapped within an intraday ichimoku cloud, suggesting range-bound trades are likely ahead. Further surprises today could see the intraday range widen to 123.80-125.00. Otherwise, price action today should see topside capped by 124.50. Downmoves should find support around 124.20. Further monetary easing could be in the cards following comments by an advisor to PM Abe that China’s devaluation could be offset by the effects of easing monetary policy. Our baseline scenario remains for a BOJ move in Oct 2015.

      AUD/USD – Choppy. AUD edged higher on the back of better risk sentiments and in the absence of dollar strength. With PBOC fixing yuan stronger this morning, AUD could see some support around 0.7380 0.7440 is eyed as the next barrier. This pair is likely to remain choppy within the wider range of 0.72-0.7470. Momentum indicators show slight bullish bias.  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.

      USD/CAD – Downside Risks. USDCAD bounced overnight to around 1.3060, underpinned by the slide in oil prices. We notice that the pair ended Thu on an inside day, signalling some uncertainties in direction though MACD shows bearish momentum. We still hold on to our suspicion that risks have tilted to the downside though daily action should be choppy. 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. Data-wise, we have new housing price index today and manufacturing sales due.

      NZD/USD – Cautious of Squeeze Higher, Near Term. NZD is on the backfoot again, underperforming the rest of the majors after 2Q retail sales missed the consensus of 0.5%q/q with a print of 0.1%. Pair was last seen around 0.6535 and intra-day momentum seems a tad bearish. Support is seen around 0.6490. We reiterate our 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 on 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. We do not rule out short term squeeze higher in NZD towards 0.6645 (61.8% fibo of 0.6739 – 0.6491), 0.6680 levels (76.4% fibo of 0.6739 – 0.6491). Remain better seller on rallies. Technical break below 0.65 on daily close basis puts next support at 0.64 in focus.

Asia ex Japan Currencies

      The SGD NEER trades 0.8% below the implied mid-point of 1.3854. We estimate the top end at 1.3575 and the floor at 1.4133.

      USD/SGD – Range-Bound. After climbing to a high not seen since Apr 2009 at 1.4165 (12 Aug), USD/SGD has eased off and is now in consolidation mode. Last sighted around 1.3971, momentum indicators and oscillators are bearish bias, suggesting any upside is likely to be capped. Market focus is now on the Fed’s Sep lift-off and pair could take its cue from further dollar moves ahead. Look for the pair to consolidate within 1.3900 (50DMA)-1.4050 intraday.

      AUD/SGD – Bias Upside. AUDSGD was still capped by the 100-DMA (1.0345) and hovered around 1.0300 as we write this morning. Bias is to the upside as indicated by momentum indicators though it requires a clean break of the 100-DMA. This cross is still underpinned by the 50-DMA at 1.0215. With RSI showing near overbought conditions, upmove is still a grind. 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 continues to push higher, making new all-time highs at 2.8941 this morning. Daily momentum and oscillator indicators continue to indicate a bullish bias. Interim resistance seen at the 2.90-figure. Support at 2.8500 (13 Aug low).

      USD/MYR – Upside Bias. USDMYR remained above the 4.00-handle as the slower 2Q 2015 of 4.9% y/y, lingering effects of the yuan devaluation and mixed oil prices weigh. USDMYR spot was last sighted at 4.0425 with intraday MACD still showing bullish momentum, though stochastics is showing signs of tentatively coming off from overbought levels, suggesting further upside remains possible.  Support remains at 3.9830 (23.6% fibo of Jul low to Aug high), before 3.95 (38.2% fibo). Look for 4.0500 to cap upside today.

      1s KRW NDF – Consolidating Higher. 1s KRW appears to be in consolidative mode, sighted currently hovering lower around 1182.10 (vs. overnight high of 1184.50). The move lower came off the back of broad USD softness and relative calm after this morning’s USD/CNY fix. We continue to see further upside off the back of broad USD strength, JPY and CNY weakness. Near term resistance remains at 1188 (Jun 2012 high); break above on daily close basis puts 1200 in focus. Support is seen around 1173 (50DMA). 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 – Less Dramatic Fluctuations? USD/CNH slipped after the fixing this morning, last seen around 6.4440. Pair could see some retracement today with support at 6.40-figure. This morning, USD/CNY was fixed 35 pips lower at 6.3975 (vs. previous 6.4010). CNYMYR was fixed 7 pips lower at 0.6248 (vs. previous 0.6255).  Some sense of calm has been restored to the market after PBOC clarified that yuan adjustment has been completed and even suggested the yuan could move to an appreciation path given its fundamentals. We still think that a more market driven yuan could mean further weakness in the currency and risks in the medium term is to the upside. Hearteningly, the onshore spot prices have narrowed its gap to the fixing. Gap between CNH and CNY has narrowed to 391 pips. Expect the pair to see further upside pressure in the medium term.

      SGD/CNY – Two-way Risks. SGD/CNY corrected from recent highs and was last seen around 4.5668 this morning, slipping past the 50-DMA at 4.5730. Key barrier is seen around 4.5943 (61.8% Fibonacci retracement of Jun-Aug drop). Daily MACD is positive and we expect more choppy action. Support is seen at 4.5400.

      USD/INR – Retracement. USD/INR was on the rally yesterday as the recent yuan devaluation and slower inflation raise bets of rate cut. With the pair closing at 65.105, momentum indicators seem to be still bullish. 1-month NDF is also on the upmove, last seen around 65.60. Risks are to the upside though RSI flags overbought conditions. Next barrier is seen around 65.56. Support is now seen at 64.2650 ahead of the next 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.

      USD/IDR – Slow Grind Higher.  The USD/IDR has come off from its multi-year high of 13917 (12 Aug) - not seen since Aug 1998, hovering at last sight around 13768. Pair should remain pressured to the upside given concerns about US Fed tightening and China growth and domestic concerns (persistent current account deficit, anaemic economic growth, stalled reforms). Moreover, foreign selling of Indonesian assets could continue, given that foreign funds sold a net USD83.46mn in equities yesterday, and removing a net IDR0.76tn from their outstanding holding of government debt on Wed (latest data available). Intraday MACD is still showing bullish momentum though stochastics continues to fall from overbought levels, suggesting further grinds higher ahead. Intraday range of 13700-13850T should hold. The JISDOR was fixed lower for the first time since 29 Jul at 12747 yesterday, coming off from the record high fixing of 13758 on Wed. 1-month NDF slipped below the 14000-mark, hovering around 13997 at last sight, after spending most of the past two days above that level. Both intraday MACD and stochastics are now bearish bias. In his first state of the nation address to Parliament, President Jokowi highlighted the problems facing the Indonesian economy, including price instability, wealth inequality, corruption and weak rule of law. To solve these problems, he intends to initiate policies that are more efficient and effective and the changes he made to the cabinet are a manifestation of that effort.

      USD/PHP – Rangy. USD/PHP is ticking higher this morning at around 46.190-levels, in line with the USD/AXJs’ broad move higher. Momentum indicators are bullish bias, while oscillators are bearish bias, suggesting that pair could trade within range ahead.  Resistance remains at 46.340 (26 Jul 2010 high), while support is around 45.940. 1-month NDF is trading range-bound after coming off from the recent high of 46.820 (12 Aug), sighted around 46.480 at the point of writing, with indicating bearish bias. Continuing risk aversion led foreign investors to sell a net USD74.40mn in equities yesterday. The BSP kept its benchmark rates steady yesterday as expected ahead of the Fed fund rate lift-off and as it evaluates the impact of the yuan devaluation on the economy.

      USD/THB – Range-Bound.  USD/THB is in consolidation mode after the jump higher to 35.561 (12 Aug), hovering around 35.180-region. Pair is on the uptick today on renewed speculation that the Fed fund rate lift-off would take place in Sep. Both intraday MACD and stochastics remain bearish bias, suggesting further upmoves could be capped ahead. Still, downside moves could be limited as sluggish domestic macroeconomic fundamentals and the government’s weak THB policy amid Fed tightening and concerns about China growth could keep the pair supported. Look for pair to oscillate in a narrow range within 35.000-35.385 intraday. Yesterday, investor sentiments were mixed with foreign funds buying a net THB3.12bn of government debt, but selling a net THB1.86bn of equities.

Rates

Malaysia

      Government bonds were well bid in the morning as USDMYR gapped lower at open. The belly of the curve saw buying as players took the chance to defend levels, closing 2-3bps lower. However, market took a turn in the afternoon as foreigners dumped off-the-run bonds, hitting wide bid/offer spreads. The market is still very volatile.

      IRS levels lower as MGS rebounded. The 4y traded at 4.00% and 5y at 4.10%, 4.08% and 4.07%, in that order. There appeared to be some flow towards the end of the day after foreigners received. The 5y IRS seem sticky around 4.12-4.07% levels. Someone was widening the short end basis but nothing traded. 3M KLIBOR unchanged at 3.69%.

      Liquidity remains thin in the local PDS market, with a low trading volume of MYR295m. Trading was focused on AAs while the AAA and GG spaces were muted. YTL Power 18s widened 7bps but YTL Power 24s tightened 4bps. There was also some buying on very short dated ADCB 15s.

Singapore

      SGS closed lower, with the exception of those below the 5y which was +1bp to flat. Elsewhere, was up 2-6bps in yields, with a steepening bias in the curve. USDSGD movements to drive market direction for now. We may see more steepening if SGD funding goes lower.

      Asian credit market was better as some calmness and opportunistic buying returned after the “at market” CNY fix by PBoC. Single name CDS traded well, with Malaysia and Indonesia retreating from the wides seen the past 2 days. China IGs tightened by 5bps and tech by 3-8bps. Short covering as well as lower cash prices buying from MYR leading the way. Sovereigns higher by 0.50cts or more, snapping in spreads. CNH papers still a bit volatile as the high CNH funding curve is determining where the papers trade for the time being.

Indonesia

      LCY bond prices recovered after a slump due to PBOC decision of devaluating Yuan. The recovery occurred amid Rupiah depreciation continues. Indonesia finance minister later during the day stated that they were buying back bonds since Wednesday. There were minimum market sentiments during the day as well. 5-yr, 15-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 8.303%, 8.624%, 8.958% and 9.015% while 2y yield shifts down to 7.871%. Trading volume at secondary market was seen thin at government segments amounting Rp8,451 bn with FR0070 as the most tradable bond. FR0070 total trading volume amounting Rp2,048 tn with 73x transaction frequency and closed at 98.500 yielding 8.624%.

      Corporate bond trading traded thin amounting Rp576 bn. JMPD13R (Jasa Marga XIII Seri R Year 2007; Rating: idAA) was the top actively traded corporate bond with total trading volume amounted Rp132 bn yielding 9.320%.