Maybank GM Daily - 4 Sep 2015

FX

Global

      European markets got a boost from ECB Draghi when he pledged quantitative easing support until the inflation target of 2% is met. He then downgraded inflation forecast to 1.1% from previous 1.5%. Growth forecast was also shifted to 1.7% respectively for 2016 compared to the original forecast made in Mar of 1.9%. EUR fell off the 1.12-handle and waffled around 1.1130 as we write.

      US initial jobless claims rose 282K from previous 270K and that dampened rate hike bets as futures implied probability slid to 30% from 32% a day ago. Trade deficit narrowed more than expected to USD41.9bn from previous USD45.2bn. Non-mfg PMI came in firmer at 56.1 from previous 55.2. That supported the greenback. AUD is still pressured at 0.70 although its fellow antipodean rose 0.82% after a second consecutive rebound in the dairy prices. CAD also strengthened 0.7%, a runner up to NZD overnight.

      In Asia today, Philippines’ CPI is due at 0900 (SGT), followed by Malaysia’s trade numbers at noon. Both Thailand and Malaysia are also due to release their foreign reserves numbers. Key focus today is US NFP tonight and the G20 meeting which begins today. China’s economy is a key topic. As for US payroll, consensus expects a mild improvement of 217K for Aug from previous 215K. Any number north of 200K should continue to support the dollar. Average hourly earnings are due tonight as well, expected to steady at 2.1%y/y.

Currencies

      DXY – US NFP the Focus. DXY firmed off amid EUR weakness. US data overnight was mixed – jobless claims disappointed while services ISM surprised to the upside and trade deficit narrowed, DXY was last at 96.30 levels this morning. Daily momentum is showing early signs of turning mild bullish. Focus tonight on NFP numbers. Consensus sees 217K gain vs. previous print of 215k. A weaker number could see downside pressure. Support remains at 96 (100 DMA), 95.60 (38.2% fibo of Mar high to Aug low), 95.00 (200 DMA). Resistance at 96.50 (50 DMA). Technically we remain cautious of 21DMA possibly cutting the 100 DMA, as that could suggests potential downside pressure. 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 initial jobless  claims; Jul trade balance; Aug flash PMI; Aug ISM non-manf (Thu); Aug NFP, average hourly earnings, unemployment rate (Fri).

      EUR/USD – Renewed Downside Pressure. EUR fell further following ECB meeting. While ECB left refi rate and asset purchase size/period unchanged, the ECB sounded more dovish than expected. ECB staff growth and inflation forecasts were revised downwards. At the press conference, ECB’s Draghi reiterated its “willingness and ability to act”, and that ECB QE “provides sufficient flexibility in terms of adjusting the size, composition and duration of the programme”. He also announced a technical revision to its current QE programme by increasing the share limit on individual securities to 33%, from 25%. soft overnight amid market talks of potentially more QE ahead of ECB meeting later today. EUR traded an overnight low of 1.1087; last seen at 1.1120 levels this morning. Daily momentum and stochastics now suggest some downside pressure. Interim resistance at 1.12 (21 DMA) before 1.1280 (200 DMA). Support at 1.1080 (50 DMA), 1.1050 (76.4% fibo of retracement of Aug low to high). Week remaining brings GE Jul factory orders; FR Aug Consumer confidence (Fri). Focus now shifts to US NFP tonight.

      GBP/USD – Bearish Bias. GBP fell to near 3-month low of 1.5219 following the decline in services PMI. Last seen at 1.5250 levels this morning.  Key support at 1.5260 (50% fibo retracement of Apr low to Jun high), if broken on daily close basis could see further downside pressure towards 1.51 (61.8% fibo). Resistance at 1.5350 (200 DMA). Daily momentum remains bearish bias while stochastics is entering oversold territories (early signs of turning higher from oversold levels could form if price action continues to hold up).

      USD/JPY – Rangy. USD/JPY is inching below the 120-handle this morning, pressured lower by the sell-off in the EUR against the JPY and the firmer dollar overnight. Pair is hovering around the 119.87-region currently with intraday MACD showing no strong momentum. This suggests that range-bound trades are likely. Ahead of the US NFP later tonight, we expect the pair to trade rangy within 118.30-121.40 intraday. Dips remain an opportunity to buy as our baseline scenario remains for further BOJ easing in Oct.

      AUD/USD – Bullish Divergence. AUDUSD is unwilling to let go of the big 0.70-figure though the pair is certainly pressured to the downside at the moment. Momentum is still bearish though we are still wary of a bullish divergence. First barrier for retracement is seen around 0.7116 ahead of the next at 0.7261 (Fib. Retracement of the May-Sep sell off). Support is seen around 0.6982 ahead of the next at 0.6920. 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. 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. PM Abbott told the press that he is determined to get China FTA legislated this year. This could be crucial to lift the exports sector. Eye US NFP tonight.

      USD/CAD – Bearish Divergence. USDCAD remained in two-way trades and was last seen around 1.3200. This pair was dragged by mild recovery in the oil prices and MACD is now showing increasing bearish momentum. We stick to our view that the bearish divergence can still play out. A break of the 1.3147 support could expose next support around the 1.3016 (23.6% Fibonacci retracement of the May-Aug rally), which coincides with the 50-DMA around 1.2987. Topside is capped by 1.3354.

      NZD/USD – Bearish Bias; Cautious of Short Squeeze. NZD firmed despite USD strength against most currencies. Last seen at 0.6380 levels. Sustained rebound (2^nd back to back rise after 10 consecutive declines since Mar 2015) in dairy prices on 1Sep auction (+10.8%) continues to lend temporary to the Kiwi. Daily momentum remains bearish bias. But near term we do not rule out short-squeeze move (NZD higher). Still prefer to fade rallies. 4-hourly stochastic is showing early signs of turning lower from overbought areas. Next resistance at 0.64 levels (previous support), before 0.6520 (21 DMA).

Asia ex Japan Currencies

      The SGD NEER trades 1.08% below the implied mid-point of 1.4011. We estimate the top end at 1.3728 and the floor at 1.4294.

      USD/SGD – Capped. USD/SGD remains in consolidative mode, hovering around the 1.4170-region. Pair has lost most of its bullish momentum, though stochastics is still falling gently from overbought levels. This suggests further upside today could be capped. We continued to see upmoves to be capped by 1.4188 (2 Sep high). For bullish extension towards the 1.42-handle, we need to see a firm break of that level. Downticks should find support around 1.4120.

      AUD/SGD – Eye Break of 0.9925. This cross waffles around 0.9925 0.9925 as we write in early Asia. MACD shows bearish momentum. Failure to clear the 0.9922-support could mean a double bottom for this cross. A clean break of that support clears the way towards 0.9790. First barrier is seen around 1.0017 and any further upticks could meet 1.0100 which marks the bottom of the daily ichimoku cloud.

      SGD/MYR – Mild Upside Bias. SGDMYR inched back above 3 on renewed MYR weakness amid USD strength.  Cross was last at 3.0050 levels. 4-hourly momentum and stochastics are indicating mild bullish bias (near term). Interim resistance at 3.05 (previous high). 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 – Renewed Upside Pressure. USDMYR firmed amidst USD strength and weak equity sentiment yesterday. Foreign net sell in local equities resumed after 2 days of net purchases. Foreign net sales of local equities YTD has reached nearly 2.4x of FY2014 net selling. With domestic concerns still persisting, sentiment could further be dampened and this could weigh on the MYR. Day ahead brings Jul trade and FX reserves data. Focus will be on reserves – if pace of decline increased.  Pair was last seen at 4.2580 levels this morning (vs. 4.2485 close yesterday). 4-hourly stochastics and momentum suggest some upside bias. Next resistance at 4.26 (76.4% fibo retracement of Aug high to Sep low), before 4.30 (previous high). Support remains at 4.20 (38.2% fibo), 4.1780 (23.6% fibo). 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 –Upside Pressure. 1s  KRW firmed amidst broad USD strength against most AXJs. Daily stochastics continues to show tentative signs of turning while bearish momentum is showing tentative signs of waning. Interim support at 1183 (21 DMA); resistance at 1195 (61.8% fibo retracement of Aug high to low) before 1201 (676.4% fibo). 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/CNH – Sideway Trades. Onshore markets are closed for the rest of the week for Victory Day. USD/CNH hovered around 6.4000, above the 6.43.53 support. Momentum is still bearish but we think 6.4030 could be a tough nut to crack. Sideway trades seen within 6.4030-6.4740 with downside bias. Prospects of further yuan depreciation dim after Premier Li assured that there is no basis for further yuan depreciation. On 2 Sep, 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 widened gap to offshore prices to 900pips. 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. At home, PBOC adviser Fan Gang recommends individuals not to make speculative investments in the stock market (BBG).

      SGD/CNY – Bearish. SGD/CNY remained on the decline, last seen around 4.4840, guided by the declining daily ichimoku cloud. The 50-DMA at 4.5481 is a formidable resistance level. This cross is now approaching support at 4.4670. Intra-day and daily MACD show bearish trades with the forest under zero.

      USD/INR – Waning Bullish Bias. USDINR ended Thu, hardly moved around 66.2425. MACD forest has lost all bullish momentum and forest is near the zero line. There could be some risks towards 65.9444 for spot prices and a break there 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 USD230.5mn on Wed while foreign bond holdings rose by USD7.80mn 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 with some bias to the downside. Yesterday, Junior Finance Minister said that RBI will take into account India and GDP data. A reasonable monsoon season may see India achieve 8% GDP growth and he notes strong underlying demand. 

      USD/IDR – Tilting Higher.  USD/IDR upmoves yesterday was capped at 14200 – our resistance level – and has since come off this morning. Pair is now hovering around 14186, having lost most of its bearish momentum and stochastics bullish bias. This suggests that further upticks are likely ahead, and a re-test of the 14200-handle is possible. A clean break here could expose the next hurdle at 14300. The sluggish economy amid global uncertainty regarding growth should continue to put upside pressure on the pair. Dips today should find support around 14055 (21DMA). 1-month NDF continues to hover around the 14350-region this morning with intraday MACD forest showing waning bullish momentum, and stochastics falling from overbought levels. The JISDOR was fixed higher at 14160 yesterday – a new record high. Sentiments remained weak with foreign funds selling a net USD21.18mn of equities yesterday.

      USD/PHP – Bearish Bias.  USD/PHP is edging lower this morning on the back of a softer dollar tone. Pair is seen around 46.750 with momentum indicators showing bearish bias, while stochastic is indicating no strong bais. With risk tilted to the downside, we look for the pair to find support around 46.500 still. Any rebound should meet resistance around 46.900. 1-month NDF briefly touch the 47-figure yesterday before bouncing lower to 46.930 currently with intraday MACD showing waning bullish momentum and stochastics falling from overbought levels. Foreign funds continued to sell equities with a net USD19.26mn sold yesterday. In the news, BSP governor commented that inflation remained well-within forecast and on track to meet target for 2016 and 2017. However, he added that the BSP was ready to act to ensure liquidity on global shocks.

      USD/THB – Bullish Tilt.  USD/THB is inching higher this morning, trading at the upper half of its current trading range of 35.655-36.000 at 35.839 currently. Continued sluggish domestic growth amid global growth concerns as well as the government’s weak THB policy continues to be supportive of the pair. With risks to the upside, continue to expect further upticks to meet resistance around the 36-figure, while slippages should find support around 35.735 (50DMA). Continue to expect the pair to trade rangy within 35.655-36.000 range intraday. Sentiments remained biased to the downside with foreign funds selling a net TH1.65bn and THB5.58bn in equities and government debt.

Rates

Malaysia

      Government bond market was better seller in the morning as the yield curve opened higher by 2-3bps on continued profit taking and position reduction ahead of US NFP. In the afternoon, there was buying flows in the 5y benchmark MGS, which ended 1bp lower from previous close.

      Despite the choppy spot and MGS market, there was not much trading interest on IRS. The curve ended a tad higher with no trades reported. 3M KLIBOR remained at 3.73%.

      PDS market was extremely quiet on the eve of NFP release. In the AAA space, only Telekom 24s were traded with 10/24s and 12/24s tightening by 5bps and 2bps respectively. Bids disappeared for GG and AA papers, with the exception of YTL Power 18s last seen quoted at 4.36/4.33%.

Singapore

      SGS declined with yields higher by 1-2bps, in line with the movement in US Treasuries. SIBOR unchanged at 1.07%.

      Asian credit space was quiet due to the holiday in HK and China. US Treasuries moved in a range of 1-2bps. There is still buying interest in the Korean and Chinese financial spaces. INDON and PHILIP sovereigns mostly remained unchanged due to thin volumes. Most players are staying away ahead of NFP release.

Indonesia

      Indonesia bond market booked losses ahead of U.S. labour data release and depreciating local currency. Market sentiment remains minimal and market player seem to avoid entering the bond market at current point. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 8.487%, 8.870%, 9.092% and 9.089% while 2y yield shifts up to 8.064%. Trading volume at secondary market was seen heavy at government segments amounting Rp13,959 bn with FR0070 as the most tradable bond. FR0070 total trading volume amounting Rp2,636 bn with 68x transaction frequency and closed at 97.075 yielding 8.870%.

      Corporate bond trading traded heavy amounting Rp940 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 Rp193 bn yielding 8.974%.