Maybank GM Daily - 4 Aug 2015

FX

Global

      US equities slipped on worse than expected ISM manufacturing, construction spending data overnight. European equities were broadly higher despite the ~16% plunge in Greek equities. USTs continue to firm with 10Y down to 2-month lows. Commodity prices continue to slump overnight – oil prices down to 6-month lows; copper prices to 6-year lows. Commodity-linked currencies are near fresh multi-year lows vs. the greenback. USDCAD through to fresh 11-year highs; AUD still near 6-year lows of 0.7265 levels ahead of RBA meeting today. USD/AXJs were broadly higher, with USDMYR at all-time highs of 3.8690; USD/SGD to 5-month highs above 1.38-handle.

      Focus on the day ahead on RBA and RBI meetings (1230pm, 130pm SGT, respectively. We expect both to keep policy rate unchanged at 2% and 7.25% (repo), respectively. On RBA, focus will be on the tone of the statement. We expect the RBA to reiterate the phrase “a further depreciation in AUD is likely and necessary”, given falling ToT.

      Aussie data- retail sales and trade data just released this morning was slightly better than expected, helping AUD to partially recover lost ground. That said AUD remains under 0.73-handle. 

      Day ahead other data we are watching includes Jul ISM NY; Jun factory orders for US; Jun PPI for Euro-area.  On FX, despite most USD/AXJs (i.e. USDMYR, USDIDR) already at fresh multi-year highs, we still see further upside especially those with falling FX reserves.

Currencies

      DXY – Buy on Dips. USD maintained altitude despite the decline in ISM manufacturing, construction spending data overnight. We continue to reiterate that US data will increasingly be a key focus as we inch closer towards possible Fed tightening in Sep. And this week sees a handful of data including Jul ADP on Wed and NFP/average earnings on Fri.  DXY was last at 97.58 levels this morning. Daily/ 4-hourly stochastics continue to indicate further upside. Near-term support seen at 96.20 levels (50 DMA); resistance at 98.70 (76.4% fibonacci retracement of Mar high to May low). Better buyers on dips. Day ahead brings Jul ISM NY; Jun factory orders.

      EUR/USD – State of Consolidation. EUR closed a touch softer at 1.0950 amid broad USD strength. Athens Stock exchange (ASE) was finally opened yesterday for the first time in 5 weeks; ASE closed lower by more than 16%. Focus remains on monetary policy divergence plays as risk of Grexit abates. ECB is still conducting QE amid subdued inflation while the Fed and BoE are possibly moving a gear higher into tightening bias.  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. The inverse correlation coefficient (between EUR and DAX) remains strong and is likely this relationship continues to persist for as long as ECB is on unconventional monetary easing. EUR was last at 1.0940 levels this morning. Expect EUR to consolidate in the wider range of 1.0860 – 1.1090 (50 DMA) until it breaks out of this consolidation phase. Daily stochastics is mild bearish bias. Day ahead brings Jun EC PPI. Intra-day range of 1.0880 - 1.0980 expected.

      GBP/USD – Downside Risks. GBP eased despite a slightly better than expected manufacturing PMI. Move lower was due to broad USD strength. Big focus on BoE this Thu – as BoE MPC meets, and will publish its Minutes on the same day as well as release its Quarterly Inflation Report – all in the same day.  We have previously noted that BoE Carney and Miles (dove; last MPC meeting) recently adopted a slight tinge of hawkish tone in their recent speeches. We see risks of BoE members Weale and McCafferty (both hawks) to inch towards voting for a rate hike in coming MPC meeting (previous few MPC meetings saw members voting 9-0 to keep rate unchanged). GBP was last at 1.5577 at time of writing. Near-term, many positives appear to have been priced in and that could GBP to the downside. There needs to be further impetus for follow-through moves higher. Key data for the week includes Jul construction PMI (Tue); Jul composite/services PMI (Wed); Jun IP (Thu); data disappointment could see some vulnerability on the downside. Key support at 1.5550 (21 and 50 DMAs), if broken can re-visit 1.54 levels (200 DMA). Resistance at 1.5690 (Wed high). Daily stochastics and MACD are not indicating a clear bias at this point.   But medium term, we remain positive in UK outlook and still favor buying GBP on dips amid ongoing economic recovery setting the stage for BoE to hike possibly as soon as 1Q 2016 (our base line view which is earlier than market expectation in 2Q).

      AUD/USD – RBA Meeting. AUD continues to trade near 6-year lows of 0.7265 levels this morning. RBA meets (1230pm SGT); widely expected to keep rates on hold; focus is on tone of the statement. 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). 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. But near-term, a technical bounce towards 0.7380 (21 DMA), 0.7470 (23.6% fibonacci retracement of May high to Jul low), 0.7550 (50 DMA) cannot be ruled out. Daily MACD and stochastics are showing tentative signs of rising from oversold levels amid early signs of short-term bullish divergence. Remain better sellers on rallies.  Key data for this week RBA, Jun retail sales, trade (Tue); Employment (Thu); SoMP (Fri).

      USD/CAD – Buy on Dips. USDCAD continues to push higher to fresh 11-year highs off the back of oil price weakness (6-month low) and USD strength. Last sighted around 1.3170 levels. Remain better buyers on dips; next support at 1.3050/60 levels, before 1.2930 (21 DMA). 4-hourly momentum/stochastics are mild bullish bias. Jul Mfg PMI on tap later today.

      NZD/USD – Focus on GDT Tonight. NZD remains on a back-foot amid broad USD strength. 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 (9th consecutive decline and at fresh 12-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. Continue to favor a sell on rallies. Last sighted around 0.6560. Break below 0.65 on daily close puts next support at 0.64 in focus. Remain better sellers on rallies towards 0.6620/40 levels (21 DMA). Daily stochastics is bearish bias. Key focus on GDT auction tonight.

Asia ex Japan Currencies

      The SGD NEER trades 0.65% below the implied mid-point of 1.3712. The top end is estimated at 1.3435 and the floor at 1.3987.

      USD/SGD – Bullish Bias. USD/SGD broke above the 1.38-handle this morning underpinned by the resurgence in the dollar amid both JPY and EUR weakness. Supporting the pair higher as well was weak PMI data, which came in below expectations (50.1) at 49.7 in Jul (Jun: 50.4). Electronics PMI also dipped below the expansion line of 50 to 49.5 in Jul from 50.3 in Jun. The weaker print likely fuelled speculations of a possible MAS move in Oct. Last sighted around 1.3806 – a level not seen since 21 Mar, momentum indicators are bullish bias, while stochastics is now at overbought levels. Lacking fresh impetus, pair is likely to track dollar moves for now. With several of our resistance levels taken out, new barrier is now around 1.3830 ahead of the next at 1.3870. Any dips should find support around 1.3755.

      AUD/SGD – Technical Rebound Underway. AUDSGD continues to hold ground above parity on a combination of SGD weakness; last sighted around 1.0058 levels. We continue to reiterate that a further rebound towards 1.0060 (21 DMA), 1.01 (38.2% fibonacci retracement of Jul high to low) cannot be ruled out. Daily momentum/oscillator indicators continue to point to a technical rebound. Favor selling rallies; continue to see further downside towards 0.9870. We will re-consider bearish bias on another abrupt move and close above the 50 DMA at 1.0290.

      SGD/MYR – Waning Bearish Momentum. SGDMYR continued to push higher above the 2.80-handle on Ringgit weakness this morning. We caution for waning bearish momentum in the near-term. Sustained close above 2.7950 (21 DMA) puts 2.8280 (previous high) in focus.  

      USD/MYR – Another Leg Up. USDMYR pushed to all-time highs of 3.8690 levels this morning off the back of oil price weakness, USD strength, concerns over falling FX reserves and domestic concerns. 1s NDF traded 3.8959 high (1month forward pips widened to +200pips from 120pips).  We have previously cautioned that the pair remains bullish bias with ascending triangle formation in the making - key resistance (interim double-top) at 3.8250/300 levels and upward sloping support at 3.8050 (21 DMA which has yet to see the pair close below since mid-May).  A break above interim-double top resistance (on daily/weekly close basis) could see another leg higher towards 3.88/89 levels.

      1s KRW NDF – Buy on Dips. The pair remained supported at 1170 levels. Day ahead expect range of 1165 – 1175; still favour buying but on dips; cautious of interim double top at 1176 levels. Mild bullish momentum is showing early signs of waning. Still see the pair supported on dips as we head into possible Fed tightening in coming months. 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 – Mild Bearish Bias. USD/CNH remained in consolidative mode, hovering around the 6.2195 levels. Intraday MACD and stochastics are showing mild bearish bias, suggesting the potential for further downmoves ahead. With the pressure bias to the downside, look for support nearby around 6.2185 before the next at 6.2135. Any rebounds is likely to meet resistance around 6.2240. The CNH continues to trade at a discount to CNY. We continue to hold the view that the central bank wants to ensure a steady yuan. Week ahead has Jul trade (Wed); and Jul CPI and PPI (Sun). USD/CNY was fixed 6 pips higher at 6.1177 (vs. previous 6.1169). CNYMYR was fixed 62 pips higher at 0.6218 (vs. previous 0.6156).

      SGD/CNY – Bearish. SGD/CNY broke below the 4.5000-levels and is now sighted around 4.4989 on the back of SGD weakness. Further SGD weakness amid a stable CNY is likely to see further downside pressure on the cross today. Cross is now showing bearish momentum, though stochastics is now at oversold levels. Look for further dips to be supported around 4.4900 before the next at 4.5700 (18 Mar low).

        USD/INR – Rangy. USD/INR remained above the 64-handle, though there were attempts to break below. USD/AXJs are broadly higher this morning and pair is likely to track its regional peers higher today. Intraday MACD and stochastics are showing no strong directional bias, suggesting that rangy trades could be possible. We have RBI meeting today and which should be a non-event with the RBI expected to keep rates steady. Any downside surprises on this front could see the pair bounce higher ahead. Expect intraday range of 63.4770-64.5000 to hold.

      USD/IDR – Near Term Relief Possible.  The USD/IDR is on the slide this morning back below the 13500-handle, in contrast to its regional peers. Steady headline inflation, and moderating core inflation, for Jul could have help lift sentiments. Consumer prices held steady in Jul but came in above market expectations of 7.06% at 7.26% y/y, while core inflation moderated to 4.86% y/y vs. Jun’s 5.04%.Still, we expect this relief to be temporary as we expect further upmoves ahead given external (namely US Fed tightening and China growth concerns) and domestic concerns (persistent current account deficit, anaemic economic growth, stalled reforms). Intraday MACD remains bullish momentum, though stochastics is now bullish bias, suggesting the grind higher could be gradual. Continue to expect 13400-13550 range to hold today. The JISDOR was fixed higher at 13492 yesterday – a new historic high. 1-month NDF remained above the 13600-handle with intraday MACD and stochastics showing bearish bias. Foreign funds bought a net USD24.29mn in equities yesterday, but had removed a net IDR0.38tn from their outstanding holding of government debt on 31 Jul (latest data available).

      USD/PHP – Bullish Bias. USD/PHP is on the climb higher above 45.700 on the back of a dollar resurgence. Pair is sighted around 45.755 with intraday MACD showing bullish momentum, though stochastics remains at overbought levels. This suggests that there could be the potential for a pull-back ahead. Any dip is likely to find support around 45.600, while further upticks should meet resistance around 45.850. 1-month NDF remains above the 45.80-handle but is on the slight retreat this morning with intraday MACD showing bullish momentum and stochastics at overbought levels. Foreign investor sold a net USD12.02mn in equities yesterday as sentiments turned sour from Fri. In the news, the central bank governor said this morning that the bank was eyeing risks from a Fed fund rate lift-off and that it was ready to deploy “calibrated measures” to stem market volatility.

      USD/THB – Slow Grind Higher.  After consolidating yesterday, the USD/THB is back on the uptick above the 35.100-region on the back of dollar strength as investors fled to US bonds. Intraday MACD is showing bearish momentum, though stochastics is indicating tentative bullish bias. This suggests that further upmoves could be gradual. The pair should remain above the 35-figure given sluggish domestic macroeconomic fundamentals and the government’s weak THB policy amid Fed tightening and China grow concerns. Tomorrow’s BOT monetary policy meeting is expected to be a non-event. Market and our economic team expect the BoT to stand pat tomorrow, keeping its policy rate unchanged at 1.50%, given the steep depreciation of the THB so far. Though the balance of risk for no change, there is a possibility that the central bank could cut the policy rate to 1.25%, a level which was last seen during the global financial crisis in Apr 2009. A rate cut would be in line with the government’s weak THB policy as a mean to increase export competitiveness and hence boosting growth. Such a move is likely to quicken the pace of THB depreciation and could see the further upside is likely to be capped by 35.280 (multi-year high) with any dips likely to find support around the 35-figure. Sentiments were mixed yesterday with foreign funds selling a net THB1.43bn in equities but bought a net THB0.81bn in government debt. Headline inflation came in again in negative territory at 1.05% in Jul, slightly better than Jun’s -1.07%, while core inflation stayed steady at 0.94%.

Rates

Malaysia

      Government bond market participants stayed on the sidelines as the USDMYR touched fresh 16-year high at 3.8550. Hardly any activity but benchmark MGS yields closed few bps lower on direct trades. A notable trade was MYR340m of MGS 11/19s exchanging hands in one single ticket, which we reckon is an offshore seller as the yield was done higher than previous close.

      The 2y IRS traded at 3.80% and the 3y IRS was taken at -75 basis. The basis did not widen despite the much weaker MYR spot as there is still ample USD in the market, bolstered by QE money from Japan and Europe. 3M KLIBOR unchanged at 3.69%.

      Muted day in the local PDS scene as players were sidelined on the weaker MYR. Bids for AAA and GG names widened 3-5bps but offers mostly remained at previous levels. Telekom 24s were given at 4bps wider at 4.46%, while Plus 22s traded 1bp wider. Other than the crossing of MYR100m PTPTN 24s and a small amount of trades on ADB 17s, no other GGs were dealt. Instead, most of the trading was in the AA space as demand grew for short dated papers in this credit curve. YTL 18s tighten 2bps, Westports 23s tighten 4bps and SEB 24s also saw some trades.

Singapore

      SGS started the week with yields down 3-5bps. The SGD curve also reported the same movement. Market may be waiting for the NFP release this Friday to get a feel on when the US rate hike is coming. 10y bond swap spread closed at -13.5bps, about 1.5bp tighter than last Friday.

      Asian credit space was full of sellers trying to take profit on the back of UST movement. Bids were rather defensive ahead of the week chock full of data. Korean and Indonesian names mostly unchanged, while Malaysian names traded 3-5bps wider due to the weakening MYR. Chinese AMC and O&G names traded 5-8bps wider. Market is cautious and looking to reduce risk. Peking University Founder did a retap of USD185m at 100.25. KDB is also taking advantage of cheap CNH funding, coming out with a 3y CNH bond guiding at 4.10%. The bond garnered over CNH2.4b orders. More interestingly, Shanghai Electric Power opened book for a 5y USD bond with guidance at T5+225 (+/-5bps).

Indonesia

IDR bonds were relative sideways yesterday after Indonesia Statistic Agency announced higher than expected inflation data in Jul-15. Some selling occurred after the data came out. Nevertheless, the central bank’s intervention on the buying side made the prices to be flat.  Market players are now waiting to see today’s auction as an indicator of real demands on the assets. Indicative amount of the auction is Rp10 trillion, while participating series and its indicative yields based on yesterday’s closed levels are: SPN12151105 (3 month): 6.25% – 6.50%; SPN12160805 (1 years): 7.25% - 7.50%; FR0053 : 8.40% - 8.50%; FR0073 (new series mature 15 May 2031): 8.85% – 8.95%.