Maybank GM Daily - 12 Oct 2015

FX

Global

Equities ended in mild positive terrain on Fri, on the back of expectations for decent earnings reports this week. Oil prices remained on the upmove, lending support to commodity-linked prices. OPEC Chief Abdullah El-Badri expects the oil market to be more balanced in 2016. AUD steadied at 0.73 against the USD this morning, NZD was last seen around 0.6680, CAD at 1.29.

      Focus this week swings back to Asia, especially with China’s trade data (Tue), China inflation data on Wed. Key event is perhaps Singapore’s MAS bi-annual monetary policy meeting and the release of its 3Q GDP (Wed). We expect the MAS to re-center its SGD NEER policy band to the prevailing level on 14 Oct on the weaker growth outlook and upside risks to core inflation in 2016, with no change to the gradual, modest appreciation path. Moreover, the output gap is likely to slip into a slight negative for the next three quarters from 1Q 2016. This could prompt the MAS to ease policy at its Oct meeting via a re-centering of the policy band. Later this week, BI and BOK meet on Thu.

Onshore markets in Japan, US and Canada are away today.  Fed and ECB speaks littered throughout the week could be of interest. For the Fed, Lockhart (Moderate), Evans (Dove), Brainard (Dove) today; Bullard (non-voter; moderate) on Tue; Dudley (Dove), Bullard and Mester (non-voter; hawk) on Thu. For ECB, Mersche speaks in Singapore on Tue and Wed; Constancio, Nowotny, Hanson on Thu; Nowotny and Jazbec on Fri. We expect them to reiterate that ECB could do more QE if need arises to keep EUR strength in check. Other data we are watching includes Malaysia Aug industrial and manufacturing production (today); NZ Sep food prices; UK Sep CPI, PPI, RPI; GE ZEW index (Tue); US Sep PPI, retail sales; Beige Book (Wed); AU Sep employment; BI meeting (no change expected); Indonesia Sep trade; SG Aug retail sales (Thu); US Sep IP; NZ 3Q CPI; Malaysia Sep CPI; SG Sep inflation data (Fri).

Currencies

G7 Currencies

      DXY – Weak. USD remains on a back foot amid a cautious FOMC minutes which reinforced market expectation that a rate hike this year could be fading. Fed’s Fischer spoke over the weekend but contained no surprise; added that labor market still looks good overall despite last 2 NFP data being described as disappointing. DXY was last seen at 94.85 levels. Weekly/ daily momentum and oscillator indicators are bearish bias. Next support at 94.50 (23.6% fibo retracement of Mar high to Aug low). Resistance remains at 95.70-80 levels (21 & 200 DMAs). Week ahead brings Fed speaks from Lockhart, Evans, Brainard (Mon); Fed’s Bullard speaks (Tue); Sep PPI, retail sales; Fed’s Beige Book (Wed); initial jobless claims; Oct empire manufacturing; Sep real average earnings; Fed’s Dudley, Bullard, Mester speak (Thu); Sep Industrial production; Aug JOLTS job openings; Oct Univ. of Michigan Sentiment (Fri). US is out for Columbus Day holiday on Mon.

      EUR/USD – Upside Risk. EUR ended the week firmer amid broad USD weakness. We noted that the previous negative correlation between EUR and risk assets (DAX as proxy) remains but its significance is slowing abating (correlation coefficient at -0.56 vs. -0.68 previously). This could be so due to slowing monetary policy divergence as market expectation of US rate hike appears to be fading. EUR was last seen at 1.1370 levels this morning. Technically, monthly, weekly and daily momentum indicators are now aligned for a bullish bias. Earlier we highlighted that 50 DMA cuts 200 DMA to the upside. Taken together this could suggest further upside risk in the pair, albeit at a grind as ECB rhetoric - “can do more QE if need arises” – acts as an invisible hand to slow any up move. Beware of more ECB speaks lined up for the week ahead which could cap EUR strength. Resistance at 1.1320 (38.2% fibo retracement of Aug high to Sep low) before 1.14 levels (50% fibo), 1.1470 (61.8% fibo).  Support at 1.1170 (21 DMA and 200 DMA), 1.1140 (100 DMA), 1.1090 (Sep low). Week ahead brings GE Oct ZEW; GE Sep CPI; ECB Mersch speaks (Tue); EC Aug IP; FR Sep CPI; ECB Mersche speaks (Wed); ECB Constancio, Nowotny, Hanson speak; EU Summit (Thu); ECB Nowotny, Jazbec speak; EC Aug trade; EC Sep CPI (Fri).

      GBP/USD – Buy Dips. GBP eased slightly amid disappointing construction output and widening trade deficit. GBP was last at 1.5325 levels. Daily momentum and stochastics continue to exhibit bullish signals. Next resistance at 1.5420 (50 DMA), 1.5490 (100 DMA). Support at 1.5300/20 levels (21 and 200 DMAs) before 1.5240 (23.6% fibo of Sep high to low). Intra-day could see some downside pressure, as indicated by 4-hourly momentum. Bias remains to buy on dips. Week ahead brings Sep CPI, PPI, RPI; Aug ONS house price (Tue); Aug unemployment rate, weekly earnings (Wed).

      USD/JPY - Stubborn Trades. USD/JPY continues to consolidate around the 120-handle after the BOJ meeting on 7 Oct was a non-event with no new measures and the Governor’s press conference provided no fresh hints. Monthly and weekly momentum indicators are bullish bias but daily momentum suggests bullish bias. We expect the pair to trade sideways in the absence of fresh catalyst and rangy trades within current range of 119.60-120.60 should hold. Bigger support at 118.30 (23.6% Fibo retracement of Aug high to low) before the next at 116.20 (Aug low). Resistance at 120.90 (200DMA) ahead of the next at 121.80 (61.8% Fibo retracement). Week ahead has BOJ minutes; Sep prelim machine tool orders (Tue); Sep PPI (Wed); Aug IP, capacity utilization, tertiary index (Thu). We continue to maintain our long held is for the BOJ to add to its easing measures at end-Oct meeting (the BOJ semi-annual outlook report will be released at the same time) given the lack of inflationary pressures and sluggish growth.

      AUD/USD – Bullish. AUD steadied around the 0.73-figure this morning with 0.7370-target still beckoning the pair. Broad dollar sales and rebound in base metal prices support. We are of the view that Australia is seeing nascent signs of bottoming for the economy as well as for the AUD as exports growth starts to become less negative. In addition, the statement did not reveal more concerns on China’s economy that could imply more easing. Support is seen at 0.7170 (50-DMA) ahead of the next at 0.7120. Weekly/daily momentum indicators are suggesting further upside. Next resistance at 0.7370 (100 DMA). A break above on daily close puts next resistance at 0.7440 levels (Jul highs). Week ahead brings RBA Lowe speaks; NAB Sep business confidence (Tue); Westpac Oct consumer confidence (Wed); Oct consumer inflation expectation; Sep employment change (Thu); RBA Financial Stability Review (Fri). Focus is also on China’s trade numbers.

      USD/CAD – Sliding on Oil. USDCAD bounced off 100-DMA (at 1.2897) and hovered around 1.2945. The CAD was mainly underpinned by the  Asia morning. MACD continues to flag greater bearish momentum though RSI is still at oversold conditions. Broad dollar sales environment and strong oil momentum suggest that bears hold the advantage and next support is seen at 1.2897 (100-DMA). Beyond that is an interim support at the 1.28-figure before the next at 1.2637. Weekly momentum indicators also suggest bearish risks. Resistance is seen at 1.3157. Data calendar is light this week with only existing home sales (Sep) on Thu. BOC Stephen Poliz speaks at NABE tonight. Apart from that, focus will be on the 2015 Canadian federal election, held on 19 Oct.

      NZD/USD – Supported. NZD pushed higher again (Fri high was 0.6722) amid broad USD weakness. Last seen at 0.6680. Move higher saw the pair close above its 100 DMA, which suggests that further upside towards 0.6810 (38.2% fibo retracement of May high to Sep low) cannot be ruled out. Kiwi could well remain supported especially with dairy prices supported (4^th consecutive rise in GDT auction). Week ahead brings Sep food prices (Tue); Sep mfg PMI; Oct consumer confidence; Finance Minister speaks (Thu); 3Q CPI (Fri) – key focus (Cons. +0.2% q/q). If data shows some support, it could lend further strength to the Kiwi.

Asia ex Japan Currencies

      The SGD NEER trades 1.62% below the implied mid-point of 1.3768. We estimate the top end at 1.3488 and the floor at 1.4048.

      USD/SGD – MAS In Focus. The USD/SGD is on the uptick this morning, but still below the 1.40-handle even as we write. The move back below the 1.40-handle was due to unwinding of USD long position amid rising expectation of a Fed delay in rate hike. Last sighted around 1.3979, pair has broken its 50DMA (1.4080) support and technical are suggesting further downside. Key support at 1.3900 (38.2% Fibo retracement) before 1.3805 (100DMA). Key focus on MAS monetary policy meeting on 14 Oct (Wed, 8am). Should there be status quo, further downside towards 1.3760 (50% Fibo retracement) cannot be ruled out in the near term. Aside from MAS meeting, week ahead has advanced estimates for 3Q GDP (Wed); Aug retail sales (Thu); Sep NODX (Fri).  We expect MAS  to re-center its SGD NEER policy band to the prevailing level (i.e. an ‘one-off’ devaluation of the SGD against its trading partners) on the weaker growth outlook and upside risks to core inflation in 2016, with no change to the gradual, modest appreciation path. Thus, dips are opportunities to accumulate towards the MAS meeting.

      AUD/SGD – Bulls Press On. This cross sill extends upmove with support from SGD weakness ahead of the MAS bi-annual meeting on Wed. Prices were last seen around 1.0250. Momentum indicators show bullish bias in this cross though conditions are a tad overbought according to RSI. Recent moves are threatening the broad downtrend that has been held intact and the violation of the 200-DMA at 1.0382 could be a stronger cue that the cross has bottomed. Support is seen around 1.0170.

      SGD/MYR – Consolidation. SGDMYR fell to Fri low of 2.92 levels before closing around 2.96 levels. Move lower came amid MYR strength. We previously highlighted that SGDMYR technical setup looks like a rising wedge which is typically a bearish formation in the making. The move lower saw the cross moved close to its 61.8% fibo retracement of Aug low to Sep high and has now rebounded towards its 50% level. There could be some consolidation around the 50% fibo level (2.95 levels) in the meantime. We continue to reiterate that we see limited upside in the cross due to expected build-up in SGD shorts leading into MAS bi-annual monetary policy meeting (14 Oct). Daily momentum and oscillator indicators remain bearish bias. Next support at 2.95 levels (50% fibonacci retracement of End-Jul to Sep peak), 2.91 levels (61.8% fibo), 2.88 levels (100 DMA). Meantime resistance at 3.0580 (21 DMA) likely to cap rally.

      USD/MYR – Consolidation with Bearish Bias. USDMYR plunged to 2-month low of 4.08 (intra-day low on 9 Oct). The technical break below its 21DMA suggests that downside pressure could persist for longer. Last seen around 4.16 levels. Daily momentum and oscillator indicators are bearish bias. Resistance at 4.21 (21 DMA). Support at 4.1333 {50% fibonacci retracement of the move up from 3.7850 – 4.4800(Jul to Sep peak)} before 4.05 (61.8%). Earlier this morning, BNM Governor said current interest rate support growth; central bank in market to stabilise currency but intervention operations are to smooth out movement of currency and not meant to support any particular level; reiterated mandate is to ensure orderly adjustment in FX market. Malaysian Reserve newspaper reported that Malaysian government will trim fiscal deficit to between 0.6 – 1.0 % by 2020, citing deputy Finance Minister. Budger 2016 will be tabled on 23 Oct.

      1s KRW NDF – Some Support Intra-day. 1s KRW NDF fell to Fri low of 1141 levels amid broad USD weakness. Last seen at 1149 levels this morning. Daily momentum continues to indicate a bearish bias. Stochastics is entering oversold territories. 4-houlry momentum/stochastics suggest risk of support for the pair intra-day. Next resistance at 1155 levels. Support at 1148 (bearish trend channel support), 1141 levels (previous low). Week ahead focus on BoK meeting (Thu). While inflation is subdued and activity/exports data have been weak, we expect the BoK to keep policy rate on hold at 1.5% amid signs of improving domestic demand and supplementary budget effects to feed through.

      USD/CNH – Bearish Momentum Waning. USD/CNH hovered around 6.3400 this morning, still slightly pressured to the downside, in line with regionals. Pair is unwilling to test lower with MACD indicating waning bearish momentum. Next support is still seen around 6.3040. We will not rule out the possibility that capital flows has slowed. The current risk-on sentiments kept CNH stronger than the CNY with a premium of around 40. Given the strong CNY REER, we expect PBOC to keep fixing relatively stable for a natural downward adjustment in the REER. USD/CNY was fixed 12pips lower at 6.3493 (vs. previous 6.3505). CNY/MYR was fixed 44 pips lower at 0.6547 (vs. previous 0.6591). The Ministry of Commerce reported sales of CNY1.082 trn at restaurants and retailers for the 1-7 Oct Golden Week period,  recording a 11%y/y rise. 

      SGD/CNY – Resisted.  This cross reversed a little lower, resisted at the 100-DMA at 4.5495. SGDCNY still posts strong bullish momentum though SGD weakness is a little pronounced ahead of MAS meeting on Wed. Support is seen at 4.5210, 4.5125(50 DMA). We still see potential for further extension towards 4.5788 (200-DMA) though MAS dictates the swing.

      1s INR NDF – Bearish. 1s USDINR rested above the 100-DMA, last printed 65.07. The 50-DMA at 66.0060 remains a resistance. Daily MACD indicates that bears continue to hold the upper hand. The clearance of the 100-DMA at 64.89 clears the way towards 63.98. We remain cautious that a turn in global risk sentiments could swing the USDINR. For now, risk-on seems to be pressing the pair lower. Last Thu saw foreigners sold USD6.7mn of equities and USD135.7mn of bonds. The sudden interest in domestic bond market is due to the fact that overseas investors can buy as much as INR500bn ($7.7bn) of state dent starting from today through 2018.

      USD/IDR – Still Bearish For Now.  The USD/IDR has returned all the gains since Aug and has slipped below the 13500-handle last week amid speculation that the Fed could delay hiking rates this year, which resulted in short-covering. 1-month NDF is on the slight rebound this morning, back up above the 13500-handle, after climbing sharply lower in the past week. Daily momentum indicators remain bearish bias and this rebound could be capped. With the 1-month NDF edging slightly higher this morning, we could see the pair playing catch-up and move higher as well. Nevertheless, daily momentum indicators continued to show bearish bias, suggesting that any upside could be capped. Weekly and monthly indicators though are showing mild bullish bias, suggesting that upside pressure these positive risk sentiments continue to offset domestic concerns (sluggish growth, slow pace of reforms, twin deficits etc.) and could prove to be temporary and a rebound could occur should risk appetite wane. Resistance is seen around 13750, while support is around 13000. The risk-off sentiments continued to benefit Indonesia assets with foreign funds buying a net USD161.80mn in equities last week. As for government debt, they added a net IDR2.12tn to their outstanding holdings on 5-6 Oct (latest data available). Week ahead has BI policy meeting and Sep trade on Thu. Onshore markets will be closed on 14 Oct for Hijriyah New Year and re-opens on Thu.

      USD/PHP – Bearish Tilt.  USD/PHP slipped lower for the past week, slipping below the 46-figre on Fri, dragged lower by increasing expectations of a Fed fund rate hike delay. Daily momentum indicators are bearish bias but those for weekly and monthly suggest a tilt to the upside. 1-month NDF is edging higher this morning after closing below the 46-figure on Fri. The 1-month is sighted around 45.77 currently with daily MACD showing bearish momentum, suggesting that further upside could be capped. Similarly, we could expect the USD/PHP to track the NDF higher this morning but expect upmoves to be capped. Look for topside to be curbed around 46.20 and support around 45.50. Foreign appetite for Philippine assets proved to be short-lived with foreign funds selling a net USD12.34mn in equities last week.  Quiet data-week ahead with just Aug overseas remittances due (Thu)..

      USD/THB – Near-Term Bearish. USD/THB turned lower, edging closer to the 35.500-handle as we write on the back of a relief rally driven by increasing expectations of a Fed rate hike delay. Pair was last sighted around 35.510 with daily momentum indicators showing bearish bias, though monthly and weekly momentum indicators are bullish bias. This suggests that pair is near term bearish but bullish in the medium-term. In the absence of fresh catalyst, continue to expect improving global risk appetite to weigh on the pair. Support is around 35.280 (25 Aug low) before the next at 34.911 (100DMA). Rebound should be capped around 35.790 (50DMA) ahead of the next at 36.060 (21DMA). Improving risk appetite saw foreign investors buying a net THB5.16bn and THB39.77bn in equities and government debt last week. Quiet data-week ahead with just 9 Oct foreign reserves on tap (Fri).

Rates

Malaysia

      Local government bonds opened on a bullish note as the curve bull flattened on the long ends being lower by -5bps led by foreign buying on the 15y MGS 4/30. The rest of the curve followed suit despite some profit taking along the way. Substantial amounts were done on the 15y as it was seen as among the cheapest on the curve after the 7y MGS 9/22. Afternoon news on 1MDB saw the USDMYR pair gapping higher before sellers on the pair stepped in.

      IRS levels shifted lower led foreign players in line with the MYR strength. 5y IRS traded at 4.18%, 1y IRS traded at 3.83%. 3M KLIBOR was unchanged at 3.74%.

      MYR PDS market was generally quiet with some two-way prices on the newly priced Rantau Abang and Alliance Bank. 7y RACB WI was traded last at 4.535%. Some decent amount of PASB 16s GG went through at 3.45%, which we find tight in comparison with other short AAAs or CPs in the market. Most players are cautious still, focusing on AAA and GG. The upcoming Country Garden MYR should give some indication on the risk appetite of the market.

Singapore

      The SGS curve continued the steepening stance with lower front-end and higher long-end yields. The 10y SGS snapped a three consecutive day of uptick in yields, ending the day 1bps lower at 2.51% with the USDSGD forward retreating lower in line the with regional currency strength.

      Asian credit was firm alongside the CDS levels, with Indon and Malays leading the way. Most credit like financials, Korean and Chinese IGs traded 5-8bps tighter. AMC and oil and gas names outperformed. HRAM, CITPAC, and PETMK all saw net buying. Indon sovereign long end was up 1-1.5pts, while the rest of Indon corporates continued to see demand on the back of stronger IDR. China Construction Bank is looking to issue CNH paper targeting around next week. Also, market is talking about PBOC issuing up to 5b Yuan worth of one-year bill in London.

Indonesia

      Indonesia bond market posted gains on the final day within the week thus confirming the largest weekly gain from begin of this year. Combination of several factors and events such as weakening of U.S. labor market, local government and central bank third stimulus packages, appreciation on the local currency as well as shifting expectation of FFR hike to 2016 have resulted in such significant surge of bond prices. However, investor should remain cautious ahead as current strengthening of the bond market is not supported by a solid fundamental data as well as volume size. Market might slightly correct today ahead of the bond auction tomorrow. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 8.371%, 8.508%, 8.728% and 8.866% while 2y yield shifts down to 8.228%. Trading volume at secondary market was seen moderate at government segments amounting Rp11,679 bn with FR0070 as the most tradable bond. FR0070 total trading volume amounting Rp2,701 bn with 102x transaction frequency and closed at 99.201 yielding 8.508%.

      Corporate bond trading traded thin amounting Rp446 bn. TLKM01ACN1 (Shelf registration I Telkom Phase I Year 2015; A serial bond; Rating: idAAA) was the top actively traded corporate bond with total trading volume amounted Rp140 bn yielding 9.638%.