Maybank GM Daily - 19 Aug 2015

FX

Global

      Equities slipped into mild red after an initial rise as investors took into consideration, steady housing data, mixed earnings report and more importantly the Minutes of the Jul FOMC meeting due tonight. Still, dollar held on to its gains against most majors, last seen around the 97-figure. GBP and NZD were noticeably stronger against the greenback, boosted by rising inflation in the UK and a strong rebound in dairy prices respectively.  Early trades saw NZD reversing out its gains, dragged by the -0.2%q/q fall in producer price index in the 2Q, released this morning. Elsewhere, oil prices pared its gains this morning with WTI crude last seen around USD42.38/bbl.

      The data docket is light for today with only Malaysia’s Jul CPI due. Consensus expects inflation to quicken to 2.9%y/y from 2.5% previously. That may be able to provide some cap on the USD/MYR. Eyes are still on the foreign reserves data, due on Fri. For the rest of USD/AXJs, bias is still on the upside given dollar strength.  USDCNY continues to be underpinned by capital outflows and the same goes for USD/KRW.

      Beyond the Far East, German lawmakers are expected to vote for  Greece’s third bailout today. In the meantime, Fitch raised the credit rating for Greece from CC to CCC. ECB lowered ELA at the request of the Bank of Greece amid improving liquidity. Thereafter, US Jul CPI (Cons.: 0.2%m/m) is due before the Fed releases minutes from July 28-29 FOMC Meeting. For FX, expect USD to consolidate against majors in absence of fresh catalyst. On crosses – bias to trade AUDNZD from the long side; buying dips towards 1.1120 levels for upside break on megaphone formation.

Currencies

        DXY – Buy on Dips. USD was broadly stronger thanks to housing starts data overnight. While the rise in housing starts was modest, the level is at its highest since Oct 2007. Day ahead brings FOMC minutes which we do not expect to contain any surprise. Furthermore the FOMC meeting (28-29 Jul) was held before the RMB move on 11 Aug. DXY was last at 96.92 levels this morning. Expect consolidation in absence of fresh catalyst. Interim resistance at 97.20 (21 DMA) while support at 96.30/40 levels (50 and 100 DMAs) should hold intra-day. Bigger support at 95.90 (38.2% fibo of Mar high to May low). Bigger resistance at 98.30 (trend channel resistance) before 98.70 (76.4% fibonacci retracement). Week remaining sees Fed's Kocherlakota Speaks at Bank of Korea Event; Fed's John Williams Speaks in Indonesia at Conference; Initial Jobless Claims (Aug-15); Continuing Claims (Aug-08); Philadelphia Fed Business Outlook (Aug); Existing Home Sales (Jul); Leading Index (Jul) on Thu; Markit US PMI –mfg (Aug P).

       EUR/USD – Sell Rallies. EUR stayed soft amid a firm USD overnight. ECB cuts ELA to Greece to EUR89.7bn, from EUR90.8bn at the request of Greek Central bank citing improving liquidity conditions. On Greek’s 3^rd bailout package, Spain voted overwhelmingly to approve (even though it is not required to vote). German parliament is next to vote tonight.  EUR was last at 1.1030 levels this morning. Bias remains to the downside; next support at 1.10 levels (21 DMA). Intra-day resistance at 1.1080 (50 DMA). Week remaining brings ECB Current Account SA (Jun) on Wed and GE GfK Consumer Confidence (Sep); EC Consumer Confidence (Aug A) on Fri.

       GBP/USD – Consolidation. GBP rose to high of 1.5717 on better than expected CPI inflation data. Jul core inflation rose to 5-month high of 1.2% (vs. 0.8% prior). GBP was last sighted at 1.5665 levels this morning. We continue to reiterate that a daily close above resistance at 1.5690 could see further upside towards 1.59 levels.   Day ahead brings no data. Expect GBP to remain in consolidation phase between 1.5590 (21 DMA) – 1.5720. Week remaining brings Retail Sales Ex Auto Fuel (Jul) on Thu.

       USD/JPY – Still Rangy. USD/JPY is inching lower slightly to around 124.38 on dollar softness and as the JPY is sold off against the EUR this morning. Pair is still trading well-within its current 123.80-125.00 range. Pair is still showing little risks in either direction as indicated by both momentum indicators and oscillators, suggesting that range-bound trades are likely to continue. Even this morning’s Jul trade data release, which showed the trade deficit widening to JPY268.1bn in Jul vs. Jun’s -JPY70.5bn and cons. estimate of -JPY53bn on the back of rising exports of 7.6% y/y and falling imports of 3.2% y/y, had a limited impact on the pair. Unless the other data releases today disappoint significant, we continue to expect the pair to still trade in a tighter range within 124.15-124.80.

      AUD/USD – Choppy. Dollar strength dragged the pair under the 0.7340 this morning. The daily MACD shows some deceleration in the bullish momentum but the clearance of the 0.7328-support is still required for further downside towards 0.7216. Directional bias is unclear at this point but choppy action is certain. Next support is seen around 0.7260 while topsides are capped at 0.7440. We 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 – Mild Bearish Bias. USDCAD edged a tad lower, dragged by the rise in oil prices. Last seen at 1.3060, daily momentum is mildly bearish and we see a move towards the next support at 1.2968. Direction is still largely dictated by oil prices and dollar cues. Key data release for the week includes Jun retail sales (Cons.: 0.2%m/m) and Jul CPI (0.1%m/m) due on Fri.

       NZD/USD –Dairy Prices Rebounded after 10 Straight Declines. The Kiwi briefly traded above 0.66-handle as GDT auction overnight showed the first rebound in dairy prices after 10 back to back declines in GDT auction since Mar 2015 to 13-year lows. Dairy prices were up 14.8%, from its previous level. This is a relief for the dairy sector but remains too soon to call for bottoming-out as Fonterra had recently cut the price it pays farmers by 27% (from $5.25 to $3.85) earlier this month. NZD was at 0.6585 levels at time of writing. Daily momentum and stochastics are indicating a mild bullish bias. Next resistance at 0.6620 (61.8% fibo of Jul high to Aug low), before 0.6655 (61.8% fibo). Bias remains to lean against strength. 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 (first rebound after 10 consecutive declines; now at 2009-lows levels), 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).

Asia ex Japan Currencies

      The SGD NEER trades 0.75% below the implied mid-point of 1.3918. We estimate the top end at 1.3637 and the floor at 1.4198.

       USD/SGD – Consolidating Lower. USD/SGD is on the slide towards the 1.40-figure this morning, weighed by the softer dollar tone. Pair is sighted around 1.4023 with further downside possible given that both intraday MACD and stochastics are bearish bias. However, a thin ichimoku cloud is forming around price action and slippage deeper in the cloud could see range-bound trades ahead. Nearby support is seen around 1.3990 (50DMA) before 1.3945 (lower bound of the cloud). Rebounds should be capped by 1.4080.

       AUD/SGD – Caught In the Cloud. This cross pulled back on a combination of SGD strength and AUD weakness and was last seen around 1.0290. Downtrend channel (since Sep 2014) remains intact. Channel resistance at 1.04 levels. This cross could remain suspended in the thick of the clouds now. Interim support is seen around 1.0278 (conversion line of the ichimoku cloud). A break there exposes 50-DMA at 1.0210, still within the cloud.

       SGD/MYR – Early Signs of Easing? SGDMYR eased away from all-time high towards 2.9070 levels this morning, off the back of mild recovery in Ringgit. While bullish momentum appears intact (albeit early signs of waning bullish momentum) on the daily chart, stochastic is indicating signs of overbought conditions. Next support at 2.8950 levels (23.6% fibo of Jul low to Aug high), before 2.8720 levels (38.2% fibo).

       USD/MYR – Overbought Conditions. USDMYR fell to an intra-day low of 4.0745 levels (vs. yesterday high of 4.1285). Move lower came off the back of oil price rebound and stable USDCNY. Last sighted at 4.08 levels. On technicals, while momentum remains bullish bias, it is indicating early signs of waning bullish momentum. Daily stochastic is also indicating overbought conditions. Taken together these could suggest some consolidation (profit-take of USD-longs). Next resistance at 4.15 levels; support at 4.05 (23.6% fibonacci retracement of Aug low to high). We maintain our stance that Malaysia will neither impose any peg on the Ringgit nor will it impose capital controls as the country’s fundamentals remains strong and is not facing any balance of payment crisis.  Focus this week on FX reserves release this Fri.

       1s KRW NDF – Uptrend Channel. 1s KRW remained well within the uptrend channel (since mid-Jun); high traded this morning was 1189.65; last sighted around 1187 levels. Day ahead sees 1178 – 1190 range. Medium term, 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 – Dips Will Be Shallow. USD/CNH edged lower around 6.4400, as we write as markets look for another fixing that should not deviate too much from the previous. Intraday momentum indicators show bearish conditions and rebounds could be capped with resistance around 6.4790. Any retracement should find support around 6.4030 (base of the intra-day ichimoku cloud) still. USD/CNY was fixed 3 pips lower at 6.3963 (vs. previous 6.3966). CNYMYR was fixed 56 pips lower at 0.6362 (vs. previous 0.6418).  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 is now around 500+pips. Expect depreciation pressure on the yuan to sustain this gap. Expect the pair to see further upside pressure in the medium term.  In news, Shanghai Securities News published a report from the State Information Centre and China Development Bank which urges more sales of local government bond to boost domestic demand. Separately. Xinhua flagged significant reforms on SOEs, government revenue and tax, finance, judicial system and public welfare.

       SGD/CNY – Upside Risks. SGD/CNY has been on the upmove and was last seen around 4.5600-region this morning. This cross is underpinned by SGD strength and support is seen around 4.5400. Intra-day momentum shows increasing upside pressure. Daily momentum continues to be bullish. Barrier is seen around 4.5698 (50-DMA) ahead of the next at 4.5951 (100-DMA).

       USD/INR – Upticks. USD/INR closed higher yesterday at 65.3150, underpinned by dollar demand from oil importers. On top of that, slower inflation increased speculation of a rate move. Daily MACD forest showing bullish momentum. 1-month NDF though is slipping lower, seen around 65.80. MACD shows bullish bias in this pair and we expect prices to remain elevated. Barrier remains around 65.56, while support is now seen at the conversion line of the ichimoku cloud around the 65-figure. At home, Finance Minister Arun Jaitley urged more rate cuts as the recent fall in inflation has given RBI more scope to do so.

       USD/IDR – Supported.  USD/IDR is on the uptick this morning at 13832 but continues to hover well-within its current trading range of 13750-13920. Though the current account deficit is expected to narrow ahead, this expectation has been more than offset by the sluggish economy and should continue to keep the pair supported. This situation was reflected in yesterday’s data releases and BI meeting decision. Exports fell 19.23% y/y in Jul, while imports slipped 28.44% y/y resulting in a trade surplus of USD1.33bn. While this should help ease pressure on the current account deficit, it reflects an economy that is still struggling. This is also seen in weak motorcycle – an indicator of private consumption – and car sales for Jul (down 21.1% and 39.1% y/y respectively). Meanwhile, the BI held its interest rate unchanged at its meeting yesterday as accelerating inflation and a weakening IDR reduced the room for the central bank to manoeuvre. With dollar softer ahead of the Jul FOMC meeting minutes early tomorrow morning, further upside to the pair could be curbed. We continue to expect barrier around 13920 (12 Aug high) and support at 13750. JISDOR was fixed at a new record high of 13831 yesterday from the previous high of 13763. 1-month NDF is on the slide this morning back towards the 14000-figure, currently sighted at 14022, with risks now to the downside as indicated by both momentum indicators and oscillators. Yesterday, foreign funds sold a net USD37.07mn in equities as investment sentiments soured globally.  In the news, in a bid to curb speculative activities, the BI has mandated that all transactions over USD25000 per month required an underlying basis, up from over USD100,000 a month previously. Also, the new rules also required a tax ID for FX deals over USD25,000 per month.

       USD/PHP – Range-Bound. USD/PHP is inching lower this morning helped by the softer dollar tone. Pair is currently sighted around 46.258 with intraday MACD forest showing waning bullish momentum and stochastics indicating no strong bias, suggesting that range-bound trades are likely. We expect the pair to trade range-bound within 46.080 -46.500 intraday. 1-month NDF is edging lower this morning to around 46.430 with intraday MACD and stochastics now bearish bias. Foreign investors sold a net USD1.22mn in equities yesterday as global risk aversion set in.

      USD/THB – Supported.  Any relief for the USD/THB is proving to be fleeting. Pair is on the uptick to around 35.560 this morning after briefing inching lower to 35.505 earlier. This should not be a surprise as lingering concerns about the bomb attacks are likely to remain amid sluggish economic fundamentals, keeping the pair supported. Intraday MACD forest is showing waning bullish momentum, while RSI has fallen from overbought levels, suggesting further upside could be capped ahead. Nearby support is seen around 35.430 before the next at 35.300 (50DMA). Rebounds today should be capped around 35.655 (yesterday’s high). Despite the bomb attacks, investment sentiments were mixed with foreign funds selling a net THB6.91bn of equities but bought a net THB1.37bn of government debt yesterday. In the news, BoT Governor said that the central bank will continue to monitor economic impact of the bomb attack, though he thinks that it is too early to provide an assessment of the impact on the overall economy. But he did emphasize that the attack is unlikely to threaten economic stability if the situation does not take a turn for the worse.

Rates

Malaysia

      Local government bonds remain weak, but there was some buying in the afternoon with the MGS curve ending 1-5bps lower. Issue size for the 3y SPK auction was announced at MYR500m. There was only a bid at 4.20% but no offers.

       IRS market was quiet in the morning, with the 5y sold at 4.12%. In the late afternoon, the 5y was taken at 4.15% and stayed around that level before quickly trading down to 4.14% and 4.13%. This coincided with buying in MGS and MYR recovering to 4.08. Other trades included 1y IRS at 3.825% and the 4y at 4.045%. We suggest to take receive positions. 3M KLIBOR remained at 3.69%.

       PDS market was more active and better bid for papers maturing <1y as players reduce duration amid the volatility in local markets. There were also trades at the belly on AAA and AA names which generally widened 3-5bps from MTM levels. YTL Power continues to be well bid, with bids coming in 3bps tighter than MTM, rare in current market condition. The company has good credit fundamentals with diversified earnings and the papers offer some value. The longer end was quiet due to the govvy movement on Monday. Bids widened significantly, but sellers remained firm on their offer price.

Singapore

      SGS curve steepened a little as the short end funding rate softened slightly. Yields mostly 1-2bps lower, except for the 5y which was down by 4bps. Bond swap spread for the 10y SGS benchmark remain unchanged at -16bps as the bond closed 2.61%.

       Asian credit space remain muted. Spreads appear to be holding up well, with small buying seen on IG names which traded 2-3bps better on overnight UST movement. News of Pertamina postponing its USD4b bond issuance, supposedly for 2015, sparked small buying in INDONS, but not much follow through amid concerns on the weak IDR. PHILIP also saw better buying, alongside MALAYS which tightened 1-2bps. For new issuances, Bank of Communications is selling 5y USD and 3y EUR bonds at T5+170 and 3mE+115-120 respectively. The order book is over USD2.5b with interest skewed towards the USD issuance. OCBC sold AT1 Perp NC5 at 3.80%. It had overwhelming interest as the book was over SGD2b relative to the issuance size capped at SGD500m.

Indonesia

      Indonesia bond market closed with a gain on the note of July 2015 trade balance surplus which reached US$1,332 mn which is highest level YTD. However, exports and imports growth continue to grow negatively. On the other hand, Bank Indonesia board of governor decided to maintain their BI rate at 7.50% level. 5-yr, 15-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 8.240%, 8.582%, 8.929% and 9.066% while 2y yield shifts down to 7.810%. Trading volume at secondary market was seen heavy at government segments amounting Rp20,758 bn with FR0056 as the most tradable bond. FR0056 total trading volume amounting Rp6,119 bn with 27x transaction frequency and closed at 98.125 yielding 8.640%.

       Indonesian government conducted their conventional auctions yesterday and received incoming bids of Rp20.89 tn bids versus its target issuance of Rp8.00 tn or oversubscribed by 2.6x. However, DMO only awarded Rp12.00 tn bids for its 7mo, 5y and 11y bonds. Incoming bids were mostly clustered on the FR0053 and FR0056 series. 7mo SPN was sold at a weighted average yield (WAY) of 6.63470%, 5y FR0053 at 8.40462%, while 11y FR0056 was sold at 8.56968%. FR0073 bid was rejected during the auction. Bid-to-cover ratio during the auction came in at 1.41X – 2.40X. Foreign incoming bids during the auction were noted Rp7.00 tn or 33.5% of total incoming bids. However, only Rp4.63 tn bid (38.6% of total awarded bids) were awarded to foreign investors. Till the date of this report, Indonesian government has raised approx. Rp48.52 tn worth of debt through bond auction which represents 77.0% of the 3Q 15 target of Rp63.00 tn.

       Corporate bond trading traded heavy amounting Rp1,022 bn. APLN01B (Agung Podomoro I Year 2011; B serial bond; Rating: idA) was the top actively traded corporate bond with total trading volume amounted Rp220 bn.