Maybank GM Daily - 25 Aug 2015

FX

Global

      The absence of the RRR cut was not well received by Chinese investors. SSEC fell a whopping -8.5% on Mon. Asia ended in a sea of red. Overnight trades saw DJI, S&P and NASDAQ fall another >3% by close. European bourses were hit harder with the DAX down -4.7% and the Euro Stoxx  -5.4% by close. The FX space had a shake-up with the DXY index last seen around 93.50, dragged by the USD/JPY which pulled back towards the 116-figure before rebounding to around 118.90 as we write this morning. To add salt to injury, brent crude touched a low of USD42.23/bbl, down -6.1% overnight. That could provide robust support to the USDMYR and USDCAD last seen at 4.2550 and 1.3280 as we write this morning.

      Calls for a PBOC RRR cut have never been louder with SSEC having erased all gains for the year. 7-day repo rate ticked higher, last seen around 2.85%. The prospect of further monetary easing keeps the yuan soft. In general, negative risk sentiments continue to favour safe haven JPY, CHF and EUR. Some emerging market currencies in Asia have started to recover though IDR and MYR are still on the backfoot. SGD trades above the 3-figure against the MYR.

      Week ahead for Asia, focus on Philippines Jun trade (Tue); SG Jul IP (Wed); Ph 2Q GDP (Thu); China Jul industrial profits (Fri). In the US, new home sales for Jul is due today. ECB Constancio speaks.

      Eyes are still on the rippling impact of Chinese equities apart from US data this week though some bargain hunters have been lured in after the sharp sell-off. Another theme that we have been highlighting is the monetary policy divergence. In the short term, this divergence could be dialled back as markets pared Fed lift-off expectations. Market implied probability of a Sep rate hike has now fallen to 34%, from 48% before the minutes release last week.

Currencies

      DXY – Bearish Bias. Dollar index plunged as risk-off sentiment intensified while 10Y UST fell near 2% overnight. Worries if Fed will delay rate hike, given recent escalated market volatility and recent dovish FOMC minutes in Sep also contributed to weak USD sentiment. Markets are now only pricing in 24% probability of rate hike in Sep (vs. 48% a day before FOMC minutes release).  That said USD remains relatively supported against EM but weak against G7 majors. Fed’s Lockhart indicated he still expect FOMC to raise interest rate in 2015 (3 more meetings remaining – Sep, Oct, Dec). DXY fell to overnight low of 92.61 (Jan levels) before reversing some of its losses; last at 93.59 levels. Daily momentum and stochastics continue to indicate a bearish bias. Resistance seen at 94.75 (200 DMA); support still at 93.13 (May low). Week ahead brings Jun house prices; Aug flash PMI, Richmond Fed Mfg index, consumer confidence; Jul new home sales (Tue); Jul durable goods orders; Fed’s Dudley answers questions (Wed); 2Q GDP; Jul pending home sales; Aug Kansas City Fed Mfg (Thu); Jul personal spending, PCE Core; Aug university of Michigan Sentiment (Fri). Jackson Hole Symposium takes place on Thu- Sat. 

      EUR/USD – 1.18? EUR made another push higher; towards 1.1714 high overnight (levels not seen since Jan 2015).  Intensification of risk aversion and slowing divergence between Fed and ECB continue to be the key drivers. We had explained that EUR remains a “funding currency” play – risk off sees EUR higher while risk on sees EUR lower. Worries of Fed possibly delaying rate hike (implies slowing monetary policy divergence between US and EU) could help support the EUR further in the short-term. This week sees a handful of ECB speaks; EUR strength may not be what the ECB officials are after. We are cautious of ECB jawboning should there be excessive price action to the upside. EUR was last at 1.1570 levels this morning.  Monthly, weekly, daily momentum and stochastic indicators are all indicating a bullish bias. Next resistance at 1.1810 levels (38.2% fibo of 2014 high to 2015 low), before 1.2220 (50% fibo and 200MMA). Interim support at 1.1330 (200 DMA). Week ahead brings GE 2Q GDP; ECB’s Constancio speaks (Tue); ECB’s Praet speaks (Wed); ECB’s Coeure speaks; FR Aug Business, manufacturing confidence; Euro-area Jul M3 (Thu); GE Aug CPI; FR Jul PPI (Fri).

      GBP/USD – Consolidate. GBP firmed off the back of USD weakness overnight.  GBP was last at 1.5760. Next resistance at 1.5790 (76.4%  fibo of Jun high to Jul low), before 1.5930 (year high)  Next support at 1.5630 levels (21 and 50 DMAs). Expect GBP to consolidate, in absence of key data. Week ahead sees little key data except for CBI Aug reported sales (Wed); Aug nationwide house prices (Thu); 2Q GDP (Fri). BoE Carney is due to speak at Jackson Hole Symposium on Sat.

      USD/JPY – Capped. The USD/JPY plunged briefly towards the 116-figure overnight to a level not seen since Jan this year on safe-haven plays on global risk-off. Since then, pair has rebounded, tracking dollar weakness. Further upticks are likely to be capped given that momentum indicators continue to be bearish bias, though oscillators are climbing out from oversold levels. Further rebounds should meet resistance around 119.88 (38.2% Fibo retracement of the May-Aug downswing). Further dips should find support around 117.30.

      AUD/USD – Choppy. AUD tanked to a low of 0.7050 at one point in overnight trade before making an equally sharp rebound to levels around 0.72-figure. The pair then ground lower below this level and was last seen around 0.7180. Increasing concerns over the Chinese economy continue to drag this pair with next support seen around 0.7140. Pair is on the upmove as overnight dips start to attract bargain hunters amid speculations of RRR cut. Daily MACD forest shows increasing bearish momentum. 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 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. Further downside beyond 0.70 is not ruled out. Data docket has 2Q CAPEX due on Thu. RBA Glenn Stevens’ speech on Wed will also be watched.

      USD/CAD – 11-Year High. USDCAD bounced on the back of the overnight oil slide bids were resisted by the 1.33-figure. A clearance of this level exposes the next key barrier at 1.3430. This pair was last seen around 1.3280. Any retracement could meet support around 1.3157.  Momentum indicators show bullish risks. Direction is still largely dictated by oil prices and dollar cues. The former factor is dominant now. There is no key data release this week. It was confirmed that Prime Minister Harper had sought an audience with Bank of Canada Governor Poloz on the recent equity rout. Harper also said that the country has a “range of tools” it could use if Canada “were to face some obviously much more serious circumstances” (BBG).

      NZD/USD – Sell Rallies. NZD plunged to fresh 6-year low of 0.6130 overnight, tracking the “mayhem” in other currencies, equities, commodity markets. NZD then made a sharp reversal to trade around 0.65 levels at time of writing. Market talks of poor liquidity behind the abrupt price movements as NZD moved about 400pips in 4 ticks according to Bloomberg chart.  That said we continue to 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). Week ahead brings 2Y inflation expectation (Tue); Jul trade data (Wed).

Asia ex Japan Currencies

      The SGD NEER trades 1.16% below the implied mid-point of 1.3934 with the top end estimated at 1.3651 and the floor at 1.4216.

      USD/SGD – Medium-Term Bullish Bias. USD/SGD is edging lower this morning as speculation that the US Fed could be on hold in Sep. Pair has slipped below the 1.41-handle and is now seen around 1.4094, though this is off its overnight lows of 1.4062. We continue to hold that the medium-term bullish bias remains intact, but for the week ahead, some pull-back towards 1.3910 levels (21DMA) cannot be ruled out on overbought conditions and waning bullish daily momentum. We favour buying on dips. In the interim, resistance is around 1.4025 (upper bound of the intraday ichimoku cloud that has formed below price action). Jul CPI remained in negative territory for the ninth consecutive month, down 0.4% y/y vs. consensus estimates -0.2%. Core inflation though edged higher to +0.4% y/y vs. Jun’s +0.2%. As a result of the drop in inflation so far this year, our economic team has revised its inflation forecast for 2015 to -0.5-0.0% from 0.0-0.5% previously.

      AUD/SGD – Bearish. This cross broke below the cloud and support around 1.0150 has turned into a barrier for this cross. This cross has seen made mild recovery and was last seen hovering just a tad below this level. AUD weakness drags this cross and next support is seen around 0.9920. The broader downtrend channel (since Sep 2014) remains intact. Channel resistance at 1.04 levels which coincides with the upper bound of the daily ichimoku cloud. Barrier is seen around 1.0150 and any upticks could meet 50-DMA at 1.0194. Daily MACD shows bearish momentum.

      SGD/MYR – Still in Uncharted Territories. SGDMYR maintained its push higher towards another all-time high of 3.0282 levels this morning. Move higher was due to persistent weakness in Ringgit. Bullish momentum appears intact on the daily chart. Further upside into uncharted territories look set to continue.

      USD/MYR – Still Bullish Bias. USDMYR continues to run higher; day high so far at 4.2685; last at 4.2530. Oil price decline, rise in oil volatility and intensification in risk-off sentiment contributed to this up-move. Falling FX reserves does not help with sentiment either. On technicals, weekly momentum continues to point to further upside into uncharted territories. That said we continue to reiterate that MYR at these levels is not a reflection of fundamentals and that the weakness is expected to be temporary. Malaysia’s economic fundamentals remain intact. 2015 growth is still expected to come in at 4.9%; current account to GDP remains in surplus.

      1s KRW NDF – Buy on Dips. North and South Korea concluded 3 days of talks by reaching an agreement to ease tensions in the peninsula. This could help to ease some upside pressure on the pair temporarily. KOSPI is small up this morning (+0.45% at time of writing). 1s  KRW retraced from overnight highs of 1210; last at 1195 levels.  Upside risk remains on equity market sentiment remains jittery. Day ahead sees 1185 – 1200 range; we do not rule out any attempts from authorities to smooth FX volatility and support the KRW. 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 bounced overnight, in anticipation of a RRR cut. Pair was last seen around 6.4980 after touching highs of 6.5296 and is still on the upmove this morning. Calls for a RRR cut has never been louder with pressure from the equity rout as well as upticks in repo rates signalling tighter liquidity conditions in spite of recent OMO injections. USD/CNY was fixed 125 pips higher at 6.3987 (vs. previous 6.3862). CNYMYR was fixed 41 higher at 0.6621 (vs. previous 0.6580).  On the longer term, a more market driven yuan could mean further weakness in the currency and risks in the medium term is to the upside. Onshore spot prices have widened its gap to the USDCNH, last seen around 900pips. Expect depreciation pressure on the yuan to sustain this gap. Expect the pair to see further upside pressure in the medium term.  Amid the calls for RRR cut, a PBOC academic says a RRR cut will not add liquidity to stocks.

      SGD/CNY – Bearish. SGD/CNY bounced off the support at 4.5155 and hovered around 4.5430. This cross has closed with a near doji candlestick (daily), signalling some uncertainties and has extended upmove. Barrier is seen around 4.5638 (50DMA) ahead of the next at 4.5940. Intra-day and daily MACD still show waning upside pressure and risks are still tilted towards the downside as of now. Immediate support is seen around 4.5367(50hma) ahead of the next at 4.5155.

      USD/INR – Rate Aversion Spurs Rally. USD/INR touched a high of 66.7325, before closing around 66.6450. Risks are still to the upside with barrier at 66.3270 broken to expose the next at 67.43. 1-month NDF touched a high of 67.62 before easing a tad to levels around 67.3580. Momentum indicators support further upsides. Rate cut speculations and risk aversion continue to support spot and NDF prices. MACD Forest also shows renewed bullish vigour. Indian equities remained hammered by the global equity rout last week. Foreigners sold USD349.3mn worth of equities last Fri. Even the bond market was hit with foreign bond holdings lowered by USD35.7mn on the same day. Finance Minister Jaitley told the press that India’s factory activity and fiscal spending are sound and the government will continue to press on with measures to attract investors. This was after an economic review done with PM Modi.

      USD/IDR – Bullish Bias.  USD/IDR continues its climb higher above the 14000-figure, weighed by weak commodity prices particularly oil, which came off 6%. Pair is currently hovering around 14068 with intraday MACD showing bullish momentum, though stochastics is now at overbought levels. Upside pressured remains on the back of sluggish economic fundamentals (persistent current account deficit, stalled reforms etc.) amid concerns about Chinese growth concerns. Risk-off sentiments saw foreign funds sell a net USD52.54mn in equities yesterday, and removed a net IDR0.56tn from their outstanding holding of government debt on 20 Aug (latest data available). A further sell-off in Indonesian assets could keep the pair supported above the 14000-handle. Look for resistance today around 14150, and support around 13940 (ichimoku conversion line). 1-month NDF is off its multi-year high of 14437 at 14355 this morning with intraday MACD forest showing waning bullish momentum and stochastics tentative signs of falling from overbought levels. A new high was set for the JISDOR when it was fixed at 13998 on Mon.

      USD/PHP – Potential Pull-Back.  USD/PHP is on the slide this morning, tracking its regional peers. Pair is hovering around 46.729, off its recent high of 46.841 yesterday. Intraday MACD is showing bullish momentum, though stochastics remain at overbought levels, suggesting a potential for a pull-back ahead. Look for intraday range of 46.500-46.900 to hold. 1-month NDF is sliding lower this morning to 46.85, coming off from its recent high of 47.240 yesterday with both intraday MACD and stochastics bearish bias. Falling risk appetite led foreign investors to sell a net USD63.15mn in equities yesterday and any continued selling today could limit the pair’s downside. Import data out this morning showed imports rising by 22.6% y/y in Jul, resulting in a trade deficit of USD555mn, which could see a narrowing of the current account.

      USD/THB – Pulling Back.  USD/THB saw some relief following the steep plunge in the dollar overnight with the pair now hovering around 35.650-region, down from its multi-year high of 35.915 yesterday. Risks to the pair are now to the downside as indicated by momentum indicators and oscillators. This suggests that we could see some easing bias ahead with resistance around 35.510 (50DMA). In the medium term, pressure remains on the upside given the sluggish economy, which is likely to be exacerbated by the impact of the recent bomb blasts, amid growth concerns in China. Any rebound should continue to be capped by the 36-figure for now. Global risk aversion yesterday saw foreign funds selling a net THB4.78bn and THB6.42bn in equities and government debt yesterday, and further selling today could weigh on the THB.

Rates

Malaysia

      Local government bond market continued to be plagued by bearish sentiment as the relentless weakening in MYR push players out. Government bonds ended 2-9bps higher, with most trades done on 3y MGS 10/17s and 10y MGS 9/25s which ended +8bps and +5bps respectively.

      IRS rates rose as USDMYR continued its upward trend. Foreign players pushed short end rates much higher due to fear of an interest rate hike. The 1y traded at 3.98-3.99%, 2y at 4.05-4.08%, 4y at 4.15% and 5y at 4.23-4.25%. 3M KLIBOR rose 1bp to 3.70%.

      Local PDS market was largely quiet. In the high grade space, Aman 23s tightened 3bps, ADCB 17 Mar and Nov tranches tightened 3bps, while Telekom 24s traded unchanged. In the AA space, investors picked up 14y SEB and TBEI papers which traded 11-21bps higher than previous levels, but note that these papers are not frequently traded.

Singapore

      SGS saw intermittent buying, but yields moved up nonetheless on higher funding as USDSGD spiked up. The yield curve ended 1-5bps higher in a bear flattening move, with the back end outperforming the rest of the curve. SGD IRS curve also ended higher by 1-5bps. Bond swap spreads generally widened as the rise in bond yields lagged the rise in rates. Market sentiment was risk-off mode.

      Thin liquidity in the Asian credit space despite the 10y UST breaking below 2.00%. Bid-offer spreads were wide, with market skewed towards selling. CDS are dealing much wider, with INDON 5y going +12bps, MALAYS 5y +15bps and Korea +5bps. Selloff on INDON sovereign continued, with a small exception for the 45s. Chinese IGs 10-15bps wider in spreads and HYs traded wider with small buying seen on selected property names. Liquidity will be an issue for the time being. On rating changes, West China Cement was upgraded from B1 to Ba3 by Moody’s.

Indonesia

      Indonesia bond market slumped on the first day of this week trading following the slump of other bond market within the EM Asia market. As written in the BII weekly report, the only two players which could support the bond market from a significant slump are Bank Indonesia and DMO. Both of these players were present in the LCY bond market yesterday which made LCY bond price to stable and gave confidence to the rest of the player in the market. Hence, we see that the chance for further slides of bond prices may continue. Depreciating Rupiah to above Rp14,000 level have added up the pressure as well. 5-yr, 15-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 8.751%, 8.967%, 9.227% and 9.277% while 2y yield shifts up to 8.029%. Trading volume at secondary market was seen heavy at government segments amounting Rp16,822 bn with FR0069 as the most tradable bond. FR0069 total trading volume amounting Rp2,963 bn with 68x transaction frequency and closed at 97.300 yielding 8.751%.

      DMO will conduct their sukuk auction today with four series to be auctioned which are SPN-S05022016 (Coupon: discounted; Maturity: 5 Feb 2016), PBS006 (Coupon: 8.250%; Maturity: 15 Sep 2020), PBS008 (Coupon: 7.000%; Maturity: 15 Jun 2016) and PBS009 (Coupon: 7.750%; 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-S05022016 (range: 6.780% – 6.880%), PBS006 (range: 8.800% – 8.900%), PBS008 (range: 7.500% – 7.600%) and PBS009 (range: 8.300% – 8.400%).

      Corporate bond trading traded heavy amounting Rp1,316 bn. BEXI01BCN3 (Shelf registration I Indonesia Eximbank Phase III Year 2013; B serial bond; Rating: idAAA) was the top actively traded corporate bond with total trading volume amounted Rp580 bn yielding 9.058%.