Maybank GM Daily - 2 Sep 2015

FX

Global

      Risk sentiments remained sour with all NY benchmark indices posting a loss of near 3% each on Tue, following the negative finish across European bourses. China’s weak PMI-mfg was the culprit as the actual Markit PMI-mfg came in at 47.3, the weakest seen since 2009. That sank most Asian equities into red as well.

      The same cannot be said for Asian currencies which strengthened, taking the cue from the CNY which was fixed stronger against the USD. The exception was SGD and IDR though both were only marginally weaker against the greenback. KRW, TWD and MYR finished with the most gains, up more than 0.5% each. AUD and CAD were hit by weak China PMI-mfg with the former taking a peek below the 70 cents at one point, as we write in early Asia. Canada’s GDP came in stronger than expected for Jun at 0.5%m/m from previous -0.2%. The RBC Canadian Manufacturing index was not as supportive for the CAD at 49.4 for Aug vs. previous 50.8.

      Focus today will be on US data ahead of the upcoming rate lift-off at the FOMC meeting on the 17th (wee Asia hours). ADP employment addition for Aug will be watched as a gauge for NFP on Fri. Factory orders for Jul is also due today. Australia’s GDP is due later and consensus expects slower growth of around 0.4%q/q from the previous 0.9%. AUD is already pressed below the 0.70 this morning and will remain under pressure in the near-term, especially with China’s growth concerns at the fore. Singapore’s PMI is also due tonight (Cons.: 49.4).

Currencies

      DXY – Consolidate. DXY stayed soft as ISM manufacturing disappointed. Global PMIs were also weaker than expected, dampening risk appetite. Equities were all in the red. DXY was last at 95.60 levels this morning. Daily momentum is lacking a firm conviction while weekly suggests mild bearish momentum remains intact.  Expect consolidation ahead of ADP employment numbers tonight. Consensus sees 200K gain vs. previous print of 185k. Disappointing number could reinforced further downside pressure.  Support remains at 95.60 (38.2% fibo of Mar high to Aug low), 94.90 (200 DMA). Resistance at 96.40 (21 DMA). Our house view for a 25bps rate hike in Sep 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. Week remaining brings Aug ADP employment change; Jul Factory orders; Fed’s Beige Book (Wed); initial jobless claims; Jul trade balance; Aug flash PMI; Aug ISM non-manf (Thu); Aug NFP, average hourly earnings, unemployment rate (Fri).

      EUR/USD – Inversely Tracking Risk Sentiment. EUR continues to inch higher, inversely tracking risk sentiment (equities fell). Traded an overnight high of 1.1332, last seen at 1.1270 levels this morning. The pair remains supported above the 21 DMA which have held up well in the past 2 dips in Aug – 18/Aug and 31/Aug. Bullish weekly momentum remains intact but 4-hourly stochastics may suggest some downside pressure towards 1.1180 levels intra-day. Interim support at 1.1180 (21 DMA) before 1.1050 (76.4% fibo of retracement of Aug low to high). Resistance at 1.1300 (200 DMA), before 1.1510 (23.6% fibo). Week remaining brings EC Jul PPI (Wed); ECB meeting; Markit Services/composite PMIs for EC, GE, FR, SP, IT; EC Jul retail sales (Thu); GE Jul factory orders; FR Aug Consumer confidence (Fri).

      GBP/USD – Breaking Down. GBP stayed soft as PMI manufacturing disappointed overnight. Key support at 1.5370 (200 DMA) has been broken on daily close basis and that should put 1.5260 (50% fibo retracement of Apr low to Jun high) in focus before 1.51 (61.8% fibo). GBP was last seen at 1.5300 levels this morning. May see a push lower to those levels above-mentioned. Daily momentum and stochastics are indicating a bearish bias. Week ahead brings Aug construction PMI (Wed); Aug PMI (Thu).

      USD/JPY – Still Bearish Bias. The dip in the USD/JPY to 119.22 this morning on the back of concerns over global growth has given way as the pair rallied back above the 120-handle. Pair is hovering now around 120.30 on a dollar resurgence. Still risks to the pair remains to the downside as reflected by both momentum indicators and oscillators, suggesting that further upside moves could be capped. Further upmoves should meet resistance around 121.40, while any dips should find support around118.30. Any dips remain an opportunity to buy as our baseline scenario remains for further easing in Oct.

      AUD/USD – 2Q GDP Due. AUDUSD took a peek below the 0.70-figure at one point this morning, dragged by concerns over China and concomitant impact on its growth, out later at 0930 (SGT). Daily MACD forest continues to be mildly bearish for this pair. A clean break there opens the way towards 0.68. Interim support is seen around 0.6920. At this point, AUD has been hammered by China, by concomitant effects of commodity demands as well as its deterioration in terms of trade. For the medium term, the fall in exports seems 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. We expect downsides to remain supported in the medium term. First barrier for retracement is seen around 0.7211 ahead of the next at 0.7313 (Fib. Retracement of the May-Aug sell off). RBA left cash target rate unchanged as expected. Statement was not markedly different from the last as the central bank remained data dependent. 2Q GDP is eyed next with expectations for a slowdown already somewhat priced in as AUD was dragged under the 0.70 at one point. That tilts risks to the upside should the number be firmer than the consensus 0.4%. In any case, it is widely expected for exports to remain the constraint on growth. It will take time for a cheaper AUD to lift external demand.

      USD/CAD – Bearish Divergence. USDCAD had a very choppy session with Jun growth numbers exceeding expectations with a print of +0.5%m/m. RBC Canadian Manufacturing index was not as supportive for the CAD at 49.4 for Aug vs. previous 50.8. USDCAD spent the second half of the session on the climb and finished higher around 1.32359. MACD is now showing much direction and we thin the bearish divergence is still intact. A break of the 1.3108 support could expose next support around the 1.3016 (23.6% Fibonacci retracement of the May-Aug rally).

      NZD/USD – Bearish Bias; Cautious of Short Squeeze. NZD remained soft, but still held ground above the 0.63-handle while its commodity peers (AUD, CAD) underperformed. Sustained rebound (2^nd back to back rise after 10 consecutive declines since Mar 2015)  in dairy prices overnight (+10.8%) may have lent temporary support to the Kiwi. It remains too soon to tell if demand is improving and led to direct impact on prices as supply was 50% lower than a year ago. It was reported and we mentioned that supply available on the GDT platform has been reduced by Fonterra. NZD was last at 0.6340 levels.  Daily momentum and stochastics are bearish bias, but 4-hourly momentum and stochastic are suggesting signs of NZD turning higher, intra-day. We cautioned for short-squeeze possibly towards 0.64 levels (previous support), before 0.6520 (21 DMA). Still prefer leaning against strength. Released this morning, Aug commodity prices fell 5.2% (vs. prior -11.2%).

Asia ex Japan Currencies

      The SGD NEER trades 1.20% below the implied mid-point of 1.3948. The top end is estimated at 1.3665 and the floor at 1.4230.

      USD/SGD – Range. USD/SGD continues to hover above the 1.41-handle, even as the pair inch lower this morning to around 1.4117. Pair has lost almost all of its bullish momentum, while stochastics is showing no strong bias, suggesting range-bound trade around current levels are likely. Range of 1.0463-1.4169 should hold intraday. We continue to favour accumulating on dips.

      AUD/SGD – Double Bottom? This cross has tested below the year’s low of 0.9922 and was last seen thereabouts as we write in early Asia. We still await the clear of the 0.9922-support. Failure of which could mean a double bottom for this cross. A clean break of that support clears the way towards 0.9790. Risks at this moment are still to the downside with daily momentum pointing south. First barrier is seen around 1.0100 and any further upticks could meet 50-DMA at 1.0160.

      SGD/MYR – Consolidation. SGDMYR inched to more than 1-week low of 2.94 levels yesterday on relative stability in MYR but cross has turned a touch higher (due to renewed MYR weakness following oil price decline overnight) at time of writing.  Cross was last at 2.9710 levels. Daily momentum and stochastics continue to indicate a bearish bias, but near term on the 4-hourly chart, stochastics is showing tentative signs of rising from oversold levels. May consolidate in the range of 2.95 – 2.98 intra-day. Support at 2.95 (38.2% fibo retracement of Aug low to high) continues to hold. If broken on daily basis could see the cross re-visit 2.92 (50% fibo) .

      USD/MYR – Consolidate. USDMYR firmed; last seen at 4.1960 levels this morning (vs. 4.1410 close yesterday). Move higher came off the back of renewed weakness in oil prices. On technicals, daily and weekly stochastics are suggesting tentative signs of turning from overbought areas. But 4-hourly stochastics is rising from oversold areas, which could suggest some upside bias intra-day. Next resistance at 4.20 (38.2% fibo retracement of Aug high to Sep low), 4.22 (50% fibo) while support remains at 4.1780 (23.6% fibo), 4.14 (previous 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. Week remaining brings Jul trade; FX reserves (Fri).

      1s KRW NDF – Soft. 1s KRW remained soft; last seen at 1176 helped by lower USDCNY mid-point this morning.  Daily momentum and stochastics remains bearish bias.   Weekly, daily stochastics are also showing early signs of bearish bias. Momentum also appeared to have shown signs of fatigue. Pullback could re-visit 1169 levels (76.4% fibo retracement of Aug low to high). Resistance at 1183 (50% fibo), before 1190 (38.2% fibo). While we do not go against technicals, we remain cautious of risk appetite. Negative risk sentiment/ further declines in equity markets could see USDKRW come under renewed upward pressure. 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). Week remaining brings Aug FX reserves; 2Q final GDP (Thu).

      USD/CNH – Downside Pressure. USD/CNH slumped towards the 6.4030 figure yesterday after PBOC fixed the yuan stronger. We see strong support around 6.4030. Prospects of further yuan depreciation dim after Premier Li assured that there is no basis for further yuan depreciation. PBOC also imposed a 20% reserve requirement for FX forward trading sales. Reserves are to be denominated in USD and no interest is paid.  USD/CNY was fixed -133 pips lower at 6.3619 (vs. previous 6.3752). CNYMYR was fixed 1pips higher at 0.6514 (vs. previous 0.6513). Equity markets may be supported on dips by presence of pension funds and supportive liquidity injections. 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 maintained gap to onshore prices at 500pips. The latest clamp on FX forward sales of yuan is likely to discourage speculative sales of yuan forwards on yuan depreciation expectations. We still expect depreciation pressure on the yuan to sustain this gap given the downside pressure on the economy. Expect the pair to see further upside pressure in the medium term. Caixin PMI-mfg came in at 47.3, weakest since 2009.

      SGD/CNY – Capped By the Cloud. SGD/CNY remained on the decline, last seen around 4.5060. This cross is still capped by the cloud with bids now resisted by the 50-DMA at 4.5511. Next support is seen around 4.4670. Intra-day and daily MACD show bearish trades with the forest under zero.

      USD/INR – Waning Bullish Bias. USDINR reversed out Mon’s gain and closed at 66.2175. Daily indicators suggest bearish momentum and we eye support around 65.9444. There could be some bearish risks ahead and a break of the 65.9444 by spot prices opens the way towards 65.24. That said, expect action to be two-way as INR is also not spared from global mood swings. Foreigners sold USD84mn on Mon while foreign bond holdings rose by USD47.7mn on the same day. In addition, rate cut speculations and risk aversion has been supporting spot and NDF prices. Intra-day trade could see spot prices in a tug of war within range of 65.90-67.00. Overnight, FinMin Arun Jaitley said foreign institutional investors will not have to pay tax on profits earned before Apr 2015.

      USD/IDR – Upticks.  USD/IDR is on the uptick this morning on the back of dollar resurgence. Pair is hovering around 14111 currently with momentum indicators showing no strong bias, and stochastics at oversold levels, suggesting the potential for a further upside ahead. The slow pace of introducing a stimulus package, unlike Thailand, is likely to weigh on the already sluggish economy amid global uncertainty regarding growth and hence support the pair. Further upside should meet resistance around 14200 while support remains around 13930. 1-month NDF is consolidating lower around the 14300-region this morning with intraday MACD showing no strong momentum, though stochastics is showing tentative signs of falling from overbought levels. The JISDOR was fixed higher at 14081 yesterday from Mon’s 14027. The respite for the stock market was short with foreign funds once again selling equities yesterday to the tune of a net USD16.52mn. Similarly, foreign funds removed a net IDR0.90tn from their outstanding holdings of government debt on 31 Aug (latest data available). Aug CPI surprised on the downside, coming in at 7.18% y/y, beating both consensus and our economic team’s predictions of 7.42% and 7.52% respectively. Higher food prices (9.26%) was offset by the more moderate increase in housing and transport costs, keeping headline inflation in check.

      USD/PHP – Two-Way Trades.  USD/PHP is on the bounce higher this morning, supported by the resurgence dollar. Pair is currently hovering around 46.759 with intraday MACD showing bearish momentum, though stochastics is indicating no strong bias. This suggests that two-way trade around current levels could be possible ahead. In the absence of fresh catalyst, continue to watch for pair to track dollar moves ahead. 46.500 should be supportive today while 46.900 should curb upside. 1-month NDF is back on the uptick this morning towards the 46.900-levels with both intraday MACD and stochastics showing no strong bias. For the first time in nearly a month, foreign funds purchased a net USD18.98mn in equities yesterday as risk appetite improved.

      USD/THB – Consolidating Lower.  USD/THB appears to be in consolidative mode after slipping lower yesterday, hovering around the 35.740-region. Pair is seeing some relief following the capture of the allege bomber as well as the government’s approval of the short-term stimulus package.   Both intraday MACD and stochastics are now bearish bias, suggesting risks are to the downside intraday. Still, the sluggish economy amid China growth concerns and government weak THB policy could limit downside ahead. Look for 35.655-36.000 range to hold intraday. Foreign funds bought a net TH0.89bn in equities yesterday, but continued their sell-off of a net THB0.77bn in government debt. CPI came in worse than market and our economic team’s expectations of 1.01% and 0.8%, falling by a steeper 1.19% y/y in Aug compared to -1.05% in Jul. The bigger drop in consumer prices was largely due to non-food items, which fell by 2.52% in Aug vs. +1.27% for food. Core inflation moderated slightly to 0.89% y/y in Aug from Jul’s 0.94%. Also in the news, the government has approved a short-term stimulus program worth THB136bn, of which, THB60bn will be injected into village funds; THB36bn for projects at the district levels; and THB40bn for speeding up state-run projects worth less than THB1m.

Rates

Malaysia

      Local government bonds staged a strong relief rally on the back of strong buying interest on 10y MGS 9/25, which closed 11bps lower and the rest of the curve followed suit. Players were adding back risk after the weekend rally ended peacefully.

      IRS rates down by 1-5bps, underperforming govvies. The 5y IRS closed at 4.20%. 3M KLIBOR stayed unchanged at 3.73%.

      Liquidity returned to the local PDS space, with AAA and GG names well bid due to the rally in govvies. There was even foreign enquiries on local credit. 7-10y GG papers traded 3-6bps tighter, while long dated AAA Plus papers traded unchanged from MTM levels. Telekom 22s widened 6bps but this was before the rally in 10y MGS. We expect to see further tightening and better liquidity in the market.

Singapore

      SGS market was driven by funding as the curve steepened with the easing in front end funding rate. The 5y and below saw fairly strong demand, while the back end was slowly given back towards the end of the day. SGS yield curve ended lower by 1-3bps, with the 10y closing at 2.83% and its swap spread wider at -20bps.

      Asian CDS widened 2-3bps following the continuous selloff in Chinese equity. O&G names had mixed interest, while Korean and Chinese financials saw good demand. IGs trailed off slightly weaker as real money was selling them, pushing most down by around 0.25pt. Market appears to lack conviction and recent volatility kept most players at bay. Rating update of note is the affirmation of China Hongqiao at BB/stable by Fitch.

Indonesia

      Indonesia bond market moved mixed during the day. Market sentiments were mixed during the day. On one side, China PMI came in below the 50 level which may have disappoint the market player while on the other hand, domestic Aug inflation came in at 7.18% YoY which is lower compared than market consensus of 7.37% YoY and created a positive sentiment. On the note of bond auction, we had predicted that the incoming bids would be oversubscribed by 1.5x – 2.5x of its target backed by sluggish domestic conditions, falling commodity prices, China economy condition as well as recent CNY devaluation and ahead of FOMC meeting. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 8.408%, 8.736%, 9.015% and 9.075% while 2y yield shifts down to 8.030%. Trading volume at secondary market was seen heavy at government segments amounting Rp15,867 bn with FR0053 as the most tradable bond. FR0053 total trading volume amounting Rp4,185 bn with 68x transaction frequency and closed at 98.977 yielding 8.471%.

      Indonesian government conducted their conventional auctions and received incoming bids of Rp16.38 tn bids versus its target issuance of Rp10.00 tn or oversubscribed by 1.6x. However, DMO only awarded Rp10.00 tn bids for its 3mo, 1y, 5y, 11y and 21y bonds. Incoming bids were mostly clustered on the FR0053 series. 3mo SPN was sold at a weighted average yield (WAY) of 5.86700%, 1y SPN at 6.73175%, 6y FR0053 at 8.50360%, 11y FR0056 at 8.72928% while 20y FR0072 was sold at 9.07930%. No bids were rejected during the auction. Bid-to-cover ratio during the auction came in at 1.15X – 2.95X. Foreign incoming bids during the auction were noted Rp4.31 tn or 26.3% of total incoming bids. However, only Rp2.96 tn bid (29.6% of total awarded bids) were awarded to foreign investors. Till the date of this report, Indonesian government has raised approx. Rp61.02 tn worth of debt through bond auction which represents 96.9% of the 3Q 15 target of Rp63.00 tn. We see that DMO issuance in 3Q 15 would exceed its target of Rp63.00 tn as DMO still has two conventional auction and sukuk auction respectively scheduled within September.

      Corporate bond trading traded heavy amounting Rp1,330 bn. BBRI01BCN1 (Shelf registration I Bank BRI Phase I Year 2015; B serial bond; Rating: idAAA) was the top actively traded corporate bond with total trading volume amounted Rp200 bn yielding 9.169%.