Maybank GM Daily - 8 Sep 2015

FX

Global

      It was a relatively quiet start to the week, with US out for Labor Day holidays. European equities were marginally firmer, led by mining sector stocks amid ECB’s pledge (last Thu) to do more QE if need arises. Glencore pledged to cut debt in an attempt to address the over-leveraged balance sheet. FX markets were little changed with USD mixed. On G7 majors, USD was marginally firmer against “safe-haven” currencies (JPY, CHF) but slightly weaker against AUD, GBP. Meanwhile USD continues to stay supported against the AXJs. Oil prices were weaker overnight on supply concerns again. Iran announced that it is ready to export 200K barrels/day to Spain while North Sea and Nigeria production is set to expand to its largest in 3years in Oct. Meanwhile Russian officials ruled out cooperation on production cuts.

      China Aug FX reserves fell by $94bn to $3.56tn (vs. Cons. $3.58tn vs. $3.65 in Jul). This is the largest monthly decline on record. Day ahead brings China Aug trade data. We expect activity to be negatively impacted in the short term due to explosion in Tianjin Port. We expect exports to remain weak as external demand remains sluggish.

      Day ahead also brings US Aug labor market conditions; EC 2Q GDP; GE, FR Jul trade for the majors. With little data in the way, FX could take cues from equity market sentiment, China trade data and Euro-area 2Q GDP. We expect G7 majors to consolidate in recent ranges; USD to remain better bid on dips against AXJs.

Currencies

      DXY – Mixed. DXY was mixed in a relatively quiet overnight session as US markets were shut for holidays. On G7 majors, USD was marginally firmer against “safe-haven” currencies (JPY, CHF) but slightly weaker against AUD, GBP. Meanwhile USD continues to stay supported against the AXJs.  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 96.20 levels. Weekly momentum remains bearish bias. DXY needs to clear above 98-levels so as to gather momentum for further upside. On the daily chart, momentum and stochastics continue to indicate mild bullish bias. 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) before 97.40 (61.8% fibo).  Week ahead brings Jul JOLTS job openings (Wed); initial jobless claims (Thu); Aug PPI; Sep Prelim Univ. of Michigan Sentiment (Fri).

      EUR/USD – Consolidate. EUR traded a muted range of 1.1122 – 1.1178 overnight. 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). EUR last seen at 1.1160 levels this morning. Daily momentum suggests some downside pressure but stochastics is entering oversold territories. Support remains at 1.1080 (50 DMA), 1.1050 (76.4% fibo of retracement of Aug low to high). Resistance at 1.1220 (21 DMA) before 1.1270 (200 DMA).  Week ahead brings EC 2Q GDP; GE, FR Jul trade (Tue); 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 – Bearish Momentum Waning? GBP reversed 9 consecutive sessions of decline overnight; rising to overnight high of 1.5289. There was no known news that saw the move up from 1.5172; while some attributed the move to positioning adjustment as it may have been oversold (-700pips) in a short space of 9 days. On technical indicators, stochastics has approached oversold territories, and is showing tentative signs of turning higher from those areas. Daily momentum remains bearish bias, albeit early signs of waning. GBP was last at 1.5275 levels.  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). Focus for the week ahead on BoE meeting. 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. 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 ahead includes Jul industrial, manufacturing production, trade (Wed); BoE meeting; house price balance (Thu); Jul Construction output; GfK inflation expectations (Fri).

      USD/JPY – Consolidating Higher. USD/JPY remains above the 119-handle after 2Q GDP print came in better-than-expected. As well, the climb in the Nikkei this morning is also keeping the pair supported. Pair is currently hovering around 119.40-levels with intraday MACD showing little momentum bias, though stochastics is bullish bias. This suggests that pair is likely to remain in consolidative mode around current levels with the bias tilted slightly to the upside. Look for the pair to hover within 118.30 (23.6% Fibo retracement of the Aug high to low) - 120.20 (50DMA). The Japanese economy contracted by less than initially estimated, falling by 1.2% annualized in 2Q vs. -1.6% in the preliminary estimates and better-than-market’s -1.8% expectations. At the same time, PM Abe will be unchallenged at the ruling LDP elections for the party presidency today after his only rival failed to secure the necessary number of nominations. This will secure his position as prime minister for the foreseeable future.

      AUD/USD – Upside Squeeze? AUD firmed overnight tracking moves in copper prices. Last seen at 0.6950 levels. Weekly momentum continues to indicate a bearish bias. But on shorter term technicals, there could be risk of upside squeeze. 4-houly stochastics is now rising from oversold levels while 4-houly momentum is also biased for some upside. Upside squeeze could re-visit 0.6970 before 0.70 levels.

      NZD/USD – Still Bearish. NZD remained soft amid weaker than expected 2Q manufacturing activity (weighed by dairy and meat). Markets’ focus remains fixated on RBNZ meeting this Thu. Markets is pricing a 25bps cut at this meeting. 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. We expect RBNZ to cut OCR by 25bps to 2.75% at the next meeting on 10 Sep. NZD last seen at 0.6260 levels, well within the downtrend channel since Apr. Weekly, daily momentum remains bearish bias. Next support at 0.60. Week ahead brings RBNZ Meeting; REINZ Aug House Sales (Thu); BusinessNZ Aug Mfg PMI; Food Prices (Fri).

Asia ex Japan Currencies

      The SGD NEER trades 1.41% below the implied mid-point of 1.4089. The top end is estimated at 1.3803 and the floor at 1.4375.

      USD/SGD – Leg Higher Towards 1.45?  USD/SGD continues to make fresh 5-year highs, edging close to the 1.43-handle this morning. Currently seen around 1.4291, intraday MACD is showing bullish momentum, though stochastics is at overbought levels. This suggests that there is potential for a pull-back ahead. In the interim, watch for the 1.43-handle to be tested with a clean break exposing the 1.45-handle. 1.4215 (21DMA) should be supportive today.

      AUD/SGD – Upticks. This cross edged higher towards the parity level this morning before easing to around 0.9920. Intraday MACD is showing bullish momentum. Next support is seen at 0.9790 ahead of the 0.96-figure. First barrier is seen around 0.9980 which marks the bottom of the intraday ichimoku cloud ahead of the next at 1.0017.

      SGD/MYR – Upside Pressure. SGDMYR continued to push higher towards 3.0557 high this morning amid MYR weakness..  Cross was last at 3.0560 levels. Daily/4-hourly momentum continues to indicate mild bullish bias. Interim resistance at 3.05 (previous high), if broken could see moves towards 3.0840 (123.7% fibo projection of Aug high to Sep low). Support at 3.0290 (76.4% fibo) before 2.9990 (50% fibo).

      USD/MYR – Upside Pressure. USDMYR continues to make fresh highs of 4.3713 (day so far). Last seen at 4.3605 (vs. Close of 4.33) amidst USD strength (against AXJs) and oil price weakness. Daily/ 4-hourly momentum suggest some upside bias. Next resistance at 4.3790 (150% fibo projection of Aug high to Sep low). Support remains at 4.30. 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 continues to push higher amidst broad USD strength against most AXJs. Last seen at 1209 levels. Daily momentum and stochastics are showing signs of bullish bias. Next resistance at 1210, before 1220 (123.6% fibo projection of Aug high to Sep low). Support at 1185 (21 DMA). BoK meets Fri. 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).

      USD/CNH – Edging Higher. USD/CNH is on the climb towards the 6.50-handle this morning after hovering range-bound yesterday. Pair is seen around 6.4931 currently with intraday momentum still bullish. Further upside today is likely to be capped around 6.5035, while dips should find support around 6.4687 (top of the intraday ichimoku cloud). Prospects of further yuan depreciation dim after Premier Li assured that there is no basis for further yuan depreciation. USD/CNY was fixed 55 pips higher at 6.3639 (vs. previous 6.3584). CNY/MYR was fixed 73pips higher at 0.6743 (vs. previous 0.6671).

      SGD/CNY – Downside Pressure. SGDMYR continued to push lower towards 4.4536 (fresh 6-year low) amid SGD weakness. Next support at 4.45 if broken on daily close basis could target further downside towards 4.40 (2009 low). Weekly/daily momentum and stochastics are bearish bias.

      USD/IDR – Bullish Tilt.  USD/IDR continues on its climb higher though this was off the fresh high of 14298 (not seen since the Asian financial crisis) touched yesterday. Still, currently at 14283, a re-test of that high cannot be ruled out given concerns about the sluggish domestic economy amid global growth and imminent US Fed fund rate hike concerns. Intraday MACD is showing mild bullish momentum, though stochastics remains at overbought levels. Further upside is likely to be a slow grind with barrier at 14350. Any dips are likely to find support around 14200. 1-month NDF hit fresh highs of 14559 (not seen since the AFC) before easing off to hover around 14518 currently with intraday MACD forest is now showing waning bullish momentum though stochastics is tentatively falling from overbought levels. A new record fixing was set for the JISDOR yesterday when it was fixed at 14234. Risk appetite remained weak with foreign funds selling a net USD34.20mn of equities yesterday, but was positive for debt with a net IDR0.32tn added to their outstanding holding of government debt on 4 Sep (latest available data).

      USD/PHP – Bullish Bias.  USD/PHP crossed the psychological 47-figure this morning, hitting fresh 5-year highs. Hovering around 47.030 currently, pair has lost most of its bearish momentum though stochastics is fast approaching overbought levels. This suggests that the pair could be poised for further upside ahead. With our resistance level at the 47-figure taken out, new barrier is now seen around 47.080 (26 May 2010 high); next hurdle at 47.127 (25 May 2010). Dips should find support around 46.750 (21DMA). 1-month NDF remains above the 47-figure at 47.260 with intraday MACD showing bullish momentum and stochastics still at overbought levels. Weak risk appetite saw foreign funds sell a net USD4.64mn of equities yesterday.

      USD/THB – Consolidating Higher.  USD/THB appears to be in consolidative mode hovering around the 36.120-levels after closing above the 36-figure yesterday. Continued concerns about the domestic economy amid global growth concerns and possible imminent US Fed rate hike and weak THB policy together with the added concern about political instability following the rejection of the draft constitution by the military-backed National Reform Council should keep the pair supported. Momentum indicators remain bullish bias, though oscillators are at overbought levels, suggesting potential for a pull-back. In the interim, look for the pair to consolidate higher within 36.000-36.200. A clean break above the 36.200-handle could see the pair head towards 36.500. Risk aversion continued to weigh on Thai assets with foreign funds selling a net THB1.94bn and THB1.44bn in equities and government debt, supporting the pair.

Rates

Malaysia

      In the government bond market, foreign selling was seen on 7y and 10y MGS benchmarks as USDMYR rose to a new high. Trades mostly centered on the 7y MGS 9/22s, with the bond ending 3bps higher. Players look to the next auction which is a new 3y benchmark MGS 3/19.

      Nothing traded in the IRS market as local players appear reluctant to pay up at these levels. This could be due to MGS holding on fairly well so some players are unwilling to pay IRS and incur negative carry. Basis surprisingly was tightening and well bid, probably due to profit taking. 3M KLIBOR remained at 3.73%.

      PDS started the week on a very quiet note. Traded volume was less than MYR100m, focused mainly on short dated papers. Prasarana 16s traded wider by 14bps to 3.87% from MTM of 3.72%. However, Danainfra 34s traded tighter by 4bps to 4.90%. Investors are still very cautious in view of the weak USDMYR yesterday and lack of interest in the MGS market. Will probably get more direction from MGS going into the week.

Singapore

      SGS prices fell, mainly driven by SGD IRS. The yield curve flattened slightly as the 5y and below rose 7-12bps while beyond that was 7-9bps higher. SGD IRS moved in tandem, with the 2y and below up by about 14bps. Front end SGD forwards remained soft, bond swap spreads still wide and bonds traded very softly.

      With US market out on Labor Day holiday, Asian credit market was quiet with thin flows. China reported lower foreign exchange reserves, from USD3.65t in Jul to USD3.56t at end-Aug. Selling of Chinese names continued with little bid interest, mostly on the AT1s. Better buying on MALAY names from Middle Eastern investors, and INDON sovereigns saw better buyer as well. On rating changes, Fitch upgraded China Orient Asset Management’s rating to A from A-.

Indonesia

      Indonesia bond market prices slumped in response to U.S. labour data publication, increasing possibility of FFR on upcoming FOMC meeting and ahead of several China economic data publication. However, intervening by the central bank seems to help the bond market during the day. Post market close, central bank published Aug foreign reserve which falls to US$105.35 bn while on the other hand, Indonesia finance minister stated that the country would seek additional financing worth of Rp37 tn this year from multilateral program and not from the market. Use of proceeds of the financing is expected to cover tax revenue deficit. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 8.577%, 9.100%, 9.286% and 9.222% while 2y yield shifts up to 8.086%. Trading volume at secondary market was seen moderate at government segments amounting Rp10,423 bn with FR0070 as the most tradable bond. FR0070 total trading volume amounting Rp3,144 bn with 101x transaction frequency and closed at 95.760 yielding 9.100%.

      DMO will conduct their sukuk auction today with four series to be auctioned which are SPN-S09032016 (Coupon: discounted; Maturity: 9 Mar 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 of Rp2.5 tn while our view on the indicative yield are as follows SPN-S09032016 (range: 6.780% – 6.880%), PBS006 (range: 8.800% – 8.900%), PBS008 (range: 7.400% – 7.500%) and PBS009 (range: 8.250% – 8.350%).

      Corporate bond trading traded heavy amounting Rp734 bn. ADMF03ACN2 (Shelf registration III Adira Finance Phase II Year 2015; A serial bond; Rating: idAAA) was the top actively traded corporate bond with total trading volume amounted Rp233 bn yielding 8.749%.