Maybank GM Daily - 10 Sep 2015

FX

Global

      Investors on Wall Street took profits from recent gains in the absence of strong market cues. Eyes were on the big Apple event which launched fresh features for a broad range of its products. The fall in its shares underscored some disappointment and contributed to the negative sentiment overnight. Oil prices also rose with WTI crude last seen at $44.20/bbl. Currencies had a divergence with NZD up +0.8% while CAD and JPY traded on the backfoot against the USD.

      That has fully reversed this morning after RBNZ cut OCR by 25bps (as expected by most analysts including ourselves). NZD is down almost 2%. AUD is dragged lower as well, down -0.7%. Risk sentiments are a little shaky this morning and that favoured the JPY, up +0.2%.

      The day ahead brings China’s inflation numbers for Aug. CPI is expected to be on the uptick, boosted by food prices. Consensus expects 1.8% y/y (vs. 1.6% previously). PPI will continue to be on the decline (-5.6%y/y). Australia has employment report with an average forecast of 5k jobs added. For the past few months, the labour report has surprised to the upside, lending support to the retail sector. However, Treasurer Hockey warned of volatility in the jobs numbers as a rule change for job services program could force more people to start looking for jobs. Other data to note includes Philippines’ Jul trade, Malaysia’s Jul industrial production, New Zealand’s Aug REINZ House Sales. China’s liquidity numbers for Aug will be released anytime today.  Beyond Asia, BOE meets today for rate decision. With inflation still soft in UK and at risk of falling further due to oil prices, BoE is expected to stress that external risks have risen and any excessive GBP strength could see further downside risk to inflation and derail the policymakers’ effort to anchor inflationary expectation. US has its usual initial jobless claims to watch.

Currencies

G7 Currencies

      DXY – Soft. USD rose following huge jump in US job openings and positive equities (in Asia and Europe). But early USD strength was reversed as US equities ended negative into the close overnight. Our house view for a 25bps dovish rate hike in Sep (FOMC decision on 18 Sep, 2am SGT) remains. There is a high likelihood of a dovish-biased statement and quarterly projection, in attempt to remind markets that monetary conditions remain accommodative and that the pace of tightening will be very, very gradual. And Fed remains data-dependent. DXY was last at 96 levels. Weekly, daily momentum remains bearish bias. Support remains at 95.60 (38.2% fibo of Mar high to Aug low), 95.00 (200 DMA). Resistance at 96.50 (50 DMA) before 97.40 (61.8% fibo). There could be some softness in the days ahead as market continues to calibrate their position ahead of FOMC meeting next week; we noted that market-implied probability of rate hike in Sep remains near low levels of 28% but this remains fickle. Week remaining brings Jul JOLTS job openings (Wed); initial jobless claims (Thu); Aug PPI; Sep Prelim Univ. of Michigan Sentiment (Fri).

      EUR/USD – Consolidate. EUR firmed as risk sentiment took a turned softer into NY close overnight. Inverse relationship between EUR and risk sentiment still holds. EUR last seen at 1.1220 levels this morning. Daily stochastics continues to show signs of turning higher from oversold territories. Resistance at 1.1230 (21 DMA) before 1.1270 (200 DMA). Support remains at 1.1080 (50 DMA), 1.1050 (76.4% fibo of retracement of Aug low to high).  We continue to reiterate that EUR could be caught between a rock and a hard place – dovish ECB (adds to sell EUR on rallies impetus) meets risk aversion (negative equity sentiment sees EUR supported). Week remaining brings FR Jul IP (Thu); GE Aug CPI; Euro-area Finance Ministers meeting in Luxembourg (Fri). US markets are closed for holidays on Mon.

      GBP/USD – Focus BoE Meeting & Minutes. GBP halted its 2 day rally as industrial production, manufacturing production and trade deficit (widened) disappointed. On technicals, daily stochastics continues to turn higher from oversold areas but momentum is flat.  That suggests price action could consolidate before BoE meeting later. Focus today on BoE meeting and minutes. Previous meeting saw MPC members voted 8-1 in favor of keeping policy rate and asset purchase unchanged. BoE MPC statement and press conference were slightly less hawkish than expected. GBP was last at 1.5360 levels.  Key support at 1.5350 (200 DMA), before 1.5260 (50% fibo retracement of Apr low to Jun high). Resistance at 1.55 (21, 100 DMAs). With inflation still soft and at risk of falling further due to oil prices, GBP strength is not desired as excessive GBP strength could see further downside risk to inflation and derail the policymakers’ effort to anchor inflationary expectation. Key data for the week remaining includes BoE meeting; house price balance (Thu); Jul Construction output; GfK inflation expectations (Fri).

      USD/JPY – Slow Grind Higher. USD/JPY move higher yesterday was cut short by dollar weakness, drop in the Nikkei as well as by exporter sales around current levels (according to press reports). Currently hovering around the 120-region with intraday momentum still bullish, though stochastics is tentatively falling from overbought levels. This suggests that the grind higher is .likely to be gradual. Moreover, pair is currently entering an intraday ichimoku cloud, suggesting range-bound trades are possible. Look for support around 119.80 (21DMA) before the next at 118.97 (bottom of the cloud). Rebounds should meet resistance around 120.80 (100DMA) ahead of 121.40.

      AUD/USD – Bears Reassert. AUD slipped below 0.70-figure and was around 0.6970 as we write. Intra-day momentum indicator has started to turn lower with MACD near the zero line. Support is seen at 0.6908. Upticks should be resisted by 0.7040. Up to this point, AUD has been hammered by China, by concomitant effects of commodity demands as well as its deterioration in terms of trade. The fall in exports seem to have slowed and approaching a bottom and we think that AUD might also be reaching a bottom as well. However, this bottom will be an extended one as the lift-off is not seen yet. It could take some time for cheap AUD to lift exports of tradeable goods and tourism, as well as retail sales before investors and corporates can be convinced to increase business spending. Australia has Aug employment due and consensus expects a mild addition of 5K to employment last month. The labour report has been solid for the past few months and this was owed in part to flexible wages. Treasurer Hockey warned that unemployment numbers could see some volatility due to changes in job services program that forces people previously on welfare to look for jobs.

      USD/CAD –Two Way Action. USDCAD rebounded to levels around 1.3280. First barrier is seen at 1.3300 while support is still marked by the base line of the daily ichimoku cloud at 1.3153. This line has been a formidable support for the pair. A break here might see an extension towards next support around 1.3007 (50-DMA) which is near the 23.6% Fibonacci retracement of the May-Aug rally. Bank of Canada maintained 0.5% benchmark interest rate. The central bank said that the cheaper CAD and sustained household spending is aiding recovery from “shock of lower oil prices”. Governor Poloz said that economic adjustments to lower commodity prices will take “considerable time”.

      NZD/USD – Bears Re-emerged. RBNZ cut rates by 25bps to 2.75%, as expected. The cut came off the back of slowing economic activity due to plateauing of construction activity in Canterbury, weakening in business and consumer confidence. RBNZ mentioned that economy is now growing at an annual rate of around 2% (vs. previous quarterly statement where it mentioned 2.5%).  Growth outlook for 1Q 2016 has been revised down to 2.2%, from 2.3%. RBNZ added that some further easing in the OCR (policy rate) seems likely; further depreciation is appropriate (given sharp decline in NZ export commodity prices). NZD was above 0.64-handle and traded down to 0.6257 low following the RBNZ announcement. NZDremains well within the downtrend channel since Apr. Weekly, daily momentum remains bearish bias. Next Support at 0.6250 (previous low in Sep), before 0.60. Looking ahead we expect RBNZ to cut OCR by another 25bps to 2.50% by end-2015, amid downside risks to dairy sector, growth and inflation. 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 (although recent auction saw the 2nd back to back increase after 10 consecutive declines), benign wage inflation, declining ToT amid weakening demand. Week remaining brings BusinessNZ Aug Mfg PMI; Food Prices (Fri).

Asia ex Japan Currencies

      The SGD NEER trades 1.06% below the implied mid-point of 1.4080. We estimate the top end at 1.3795 and the floor at 1.4365.

      USD/SGD – Bullish.  USD/SGD sold off ahead of the general elections tomorrow, pushing the pair above the 1.42-handle this morning. Onshore markets will be closed for Polling Day tomorrow and back on Mon. Pair is currently seen around 1.4233 with intraday MACD forest showing waning bearish momentum, with stochastics tentatively bullish bias. Par should find support around 1.4115 (100DMA), while barrier is seen around 1.4296 (fresh-5 year high seen on 8 Sep).

      AUD/SGD – Mild Downside Risks. This cross was dragged lower  along with most AUD crosses by the slump in its fellow antipodean after RBNZ cut OCR this morning. Last seen at 0.9890, daily MACD shows waning bearish momentum while intra-day MACD still points to more downside. As such, dips towards 0.9830 might be supported. Barrier is seen around 0.9970, which coincides with the 4-hourly ichimoku cloud.

      SGD/MYR – No Interim Double Top; Push Higher Continues. SGDMYR defied its interim double-top, breaking its resistance and continues to trade all-time high of 3.0769 this morning. Move was due to Ringgit weakness. On technicals, the potential interim double-top formation we mentioned remains pre-mature according to price action. We cautioned that Interim resistance remains at 3.0560 levels (previous high) if broken could see moves towards 3.0840 (123.7% fibo projection of Aug high to Sep low). Daily momentum and stochastics continue to indicate further upside.

      USD/MYR – Turned Higher. USDMYR continued to push higher in the open following oil price weakness and weak US equity sentiment overnight. Pair was last seen at 4.3770. On technicals, price action yesterday suggested a shooting star candle formation but we cautioned that further confirmation is needed. Price action and close yesterday suggested that downside move may not materialised. We continue to monitor price action and close further today for indication. Support remains at 4.33, 4.30 levels. Next resistance at 4.3790 (150% fibo projection of Aug high to Sep low). We continue to reiterate that MYR at current 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 – BoK Meeting. 1s KRW traded a low of 1186 levels yesterday but turned higher tracking the negative risk sentiment (from US equities overnight).  Focus today on BoK meeting. We expect BoK to keep policy rate on hold at 1.5% (on Fri BoK meeting) amid tentative signs of pick up in domestic consumption and implementation of supplementary budget. 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). Last seen at 1200 levels. Continue to favour buying on dips towards 1210, before 1220 (123.6% fibo projection of Aug high to Sep low).

      USD/CNH – Two-Way Trade. USD/CNH extended its rise this morning, supported by weaker risk sentiments and was last seen around 6.4690. Current momentum is bearish but we still see strong support around 6.4353 ahead of the next at 6.4030. Range-bound trade is expected to be within 6.4030-6.5150. We recall that prospects of further yuan depreciation dim after Premier Li assured that there is no basis for further yuan depreciation. As of 9 Sep, USD/CNY was fixed 7 pips lower at 6.3632 (vs. previous 6.3639). CNY/MYR was fixed 22 pips lower at 0.6721 (vs. previous 0.6743). China Guangdong and Hong Kong are In the midst of expanding cross-border yuan borrowing.  MOF announced a series of fiscal polcies with acceleration of major constructions, further tax deductions for small businesses and more duty free zones to boost consumption. To alleviate public debt, the government will also encourage public private partnership to boost private investment.

      SGD/CNY – Double Bottom? This pair is back on the decline and was last seen around 4.4870 but daily momentum shows bearish momentum is still waning. The conversion line of the daily ichimoku cloud seems to be guiding the cross lower for now but support is seen around 4.4560. Given a lack of momentum, expect some support on dips now.

      USD/INR – Two-Way Trade. USDINR gapped down yesterday and closed at 66.4113. MACD shows little momentum on either side and we continue to expect two-way action to dominate within 65.70-67.00. Price action suggests that bias is still to the upside. 1-month NDF hovered around 66.97. Support is still seen around 66.38. Dips continue to be supported by portfolio outflows. Foreigners sold USD95.3mn of equities on Tue and UD94.5mn of bond holdings. Better risk sentiments of late may provide some anchor for the rupee though expect rate cut expectations to support the USDINR on dips. RBI Deputy Minister Mundra said that the central bank does not defend any specific levels for the rupee and that there is progress towards 6% CPI target by 2016. PM Modi will end the latest parliament session and the next parliamentary meeting will happen in late Nov. This could affect chances of a GST implantation by Apr next year.

      USD/IDR – Capped.  USD/IDR remains on the uptick, inching within striking distance of the 14300-handle. The stimulus package announced by President Jokowi yesterday (see below) failed to excite the markets.  Concerns remain about the sluggish domestic economy amid global growth concerns and imminent US Fed fund rate hike. Pair is currently hovering around 14293 with momentum indicators showing no strong bias and stochastics falling from overbought levels. This suggests that further upside could be capped ahead. Further upside today should still see resistance around 14350, while any dips should find support around 14200. 1-month NDF continues on its climb higher at 14520-region with the bias now tilted to the upside. The JISDOR fixed lower at 14244 after Tue’s record fixing of 14285. The sell-off in Indonesian equities continued with foreign funds selling a net USD30.05mn of equities yesterday. Yesterday, the government announced a slew of measures to liberalize the economy, revising 89 regulations out of the 154 proposed, as part of the stimulus package. As well, a second stimulus package aimed at boosting competitiveness and business certainty would be announced at end-Sep.

      USD/PHP – Two-Way Moves.  USD/PHP remains on the uptick, tracking its regional peers higher. Pair is hovering around 46.958, within striking distance of the 47-figure again. The better-than-expected export print (-1.8% y/y vs. consensus’ -3.9% and Jun’s 1.8%) though could possibly be slowing the pair’s grind higher this morning. A daily break above the 47-figure could see the pair re-test the high seen on 28 May 2010 at 47.080. Risks are still mildly to the downside as indicated by both momentum indicators and oscillators. Any dips should find support around 46.670 still. 1-month NDF is back above 47-figure at 47.160 with the 1-month having lost most of its bearish momentum, and stochastics is bullish bias, suggesting further upside is likely.  The sell-off in equities continued unabated with foreign funds selling a net USD30.98mn of equities yesterday. Exports fell by 1.8% y/y in Jul, a pace similar to Jun’s, but better-than-consensus’ -3.9%.

      USD/THB – Upside Bias.  USD/THB remains on the uptick, testing our resistance at 36.250. With risks now to the upside as indicated by both intraday MACD and stochastics, a re-test of our resistance level is likely. A clean break of that level could see the pair headed towards the 36.500-levels. Continued domestic concerns (growth, politics) amid global growth concerns and possible imminent US Fed rate hike and weak THB policy should keep the pair supported. Dips should find support around 36.090 (21DMA) before the next at 35.930 (50DMA). Thai assets sell-off continued with foreign funds selling a net THB1.44bn and THB2.61bn in equities and government debt, keeping the pair supported.

Rates

Malaysia

      In the local government bond market, there was buying at the belly of the curve as the 7y MGS 9/22 and 10y MGS 9/25 ended 7-8bps lower. Players turn to the next auction of a new 3y benchmark MGS 3/19.

      IRS levels mostly lower, with the 5y trading at 4.23%. Onshore players differed from offshore players as we noted reluctant onshore payers and hopeful receivers at every uptick. The pressure was heavier yesterday as MGS rallied. Basis saw further tightening bias and we believe players may have shaken off the fear of higher USDMYR. 3M KLIBOR remained at 3.73%.

      Local PDS space saw better buying, with keen interest for longer dated Plus papers. Plus 26, 27 and 28 tightened 3bps with MYR55m traded in total. At the belly, Telekom 24s and Dana 24s tightened 4bps and 2bps respectively. The AA space was mixed, with Kesturi widening 3bps and SEB tightening 3bps at the long end. With lower govvy yields, we begin to see liquidity return to the PDS space as real money is picking up papers. We think 9y GGs may offer value at current MTM levels.

Singapore

      SGS market relatively quiet compared to previous days. Yields closed 2-4bps lower which gave PD accounts a chance to take a breather as most are long on bonds. Swap spreads remain wide, with the 10y at -21bps. We suggest to stay cautious as higher USDSGD would push funding rates back up and SGS to underperform.

      Asian credit space was very active as Chinese equity markets were up. Asian CDS opened tighter with decent buying interest and credit buyers took advantage of higher US Treasuries. Chinese IGs tightened 5-10bps on average, with tech and financial names bidded up. INDON sovereigns traded 0.50-1pt higher ahead of economic stimulus announcement. Primary market was fired up led by financial names. Shanghai Pudong Development Bank (Baa1/BBB+) issuing 3y USD bond with guidance at T3+175bps. Export-import Bank of China (Aa3/AA-) coming out with 5y and 10y USD bonds with guidance at respective T5+135bps and T10+165bps. Korea Development Bank (Aa3/A+) opened book for 10y USD bond guiding at T10+135bps. We also heard China Construction Bank may be in the pipeline for a 3y AUD bond. On rating changes, China Oriental was upgraded to B2 from B3 by Moody’s.

Indonesia

      Indonesia bond market corrected slightly positive after a slump of prices for the past several days amid minimum market sentiments. This occurred on the note of expectation of government “big stimulus” announcement which was announced later post market closed. However, the second package of the stimulus seems to be more on regulation by simplifying several regulations or deregulating. On the other hand, central bank also announce measure to help the local currency including improving the management of foreign exchange flows. Market player may be disappoint by the announced stimulus as what they really are aiming is government infra stimulus in short disburse of funds to productive assets o boost the economy. We see bond market may move sideways with a negative tone today. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 8.667%, 9.043%, 9.301% and 9.364% while 2y yield shifts up to 8.228%. Trading volume at secondary market was seen thin at government segments amounting Rp9,489 bn with FR0070 as the most tradable bond. FR0070 total trading volume amounting Rp1,417 bn with 59x transaction frequency and closed at 96.088 yielding 9.043%.

      Corporate bond trading traded heavy amounting Rp968 bn. BEXI01BCN3 (Shelf registration I Indonesia Eximbank Phase III Year 2013; B serial; Rating: idAAA) was the top actively traded corporate bond with total trading volume amounted Rp278 bn yielding 8.778%.