Maybank GM Daily - 16 Oct 2015

FX

Global

      EUR was talked down by a number of speakers in post Asian hours. First, Bank of Spain Deputy Governor Restoy commented that ECB could extend QE program and non-conventional measures should inflation miss targets. Then, ECB Nowotny said inflation in the euro area is “clearly” below the institution. His words suggest more stimulus may be necessary although the current disinflation is due to the commodity slump.

      While the USD traded stronger against the EUR, the greenback was still on the backfoot against the NZD, CAD and AUD which gained on the back of better risk sentiments. DJI, S&P 500 and NASDAQ closed more than 1% higher, aided by the prospect of a Fed hike delay after US CPI slipped -0.2%m/m in Sep. Core CPI, however, rose 0.2%, beating estimates of 0.1%. Empire manufacturing fell -11.36 accompanied by the Oct Philly Fed which also fell more than expected by -4.5. Focus was on economic data rather than Fed speaks overnight with Mester expecting gradual tightening as she sees firms in her district starting to raise wages. Elsewhere, Fed Dudley said that the Sep decision was due to a economic outlook uncertainty though still expects a lift-off within the year if his forecast is met.

      Nearer to home, New Zealand’s 3Q CPI eased less than expected to 0.3%q/q from previous 0.4%. Singapore’s NODX came in firmer than expected by +0.3%y/y compared to the expected -3.9%, boosted by the electronics component which rebounded 5.7%y/y. Early Asian trade was positive with Nikkei up +1.1% though Kospi was near flat. Positioning might be less aggressive ahead of China’s 3Q GDP release on Mon. AUD and NZD are already paring recent gains while SGD, THB, MYR also trade weaker against the USD in early Asia morning. Beyond Asia, US releases Sep IP. There are more ECB speaks. Europe trade and CPI will also be released.

Currencies

G7 Currencies

      DXY – Soft. USD rebounded back above the 94.45-resistance, in line with the moves of 10-year yields overnight. The greenback was primarily backed by the fall in EUR in post Asian hours. DXY was last seen at 94.54. Overnight data was lacklustre. US CPI slipped -0.2%m/m in Sep. Core CPI, rose 0.2%, beating estimates of 0.1%. Empire manufacturing fell -11.36 and Philly Fed for Oct also slid more than expected by -4.5. Fed Mester expects gradual tightening as she sees firms in her district starting to raise wages. Elsewhere, Fed Dudley said that the Sep decision was due to a economic outlook uncertainty though still expects a liftoff within the year if his forecast is met. That probably boosted UST 10-year yields. In spite of the rebound, weekly/ daily momentum and oscillator indicators remain bearish bias. Resistance remains at 95.70-80 levels (200 DMAs) while support is seen at 93.56.  Data today includes Sep Industrial production; Aug JOLTS job openings; Oct Univ. of Michigan Sentiment (Fri).

      EUR/USD – Buy on Dips. EUR was resisted by the 1.15-figure and waffled around 1.1370-level. The currency was knocked down by prospects of further QE and talks of inflation missing targets. Still, in the medium term, this pair could be underpinned by any risk-off sentiments (the inverse relationship between EUR and risk assets still holds albeit slight weakening of correlation coefficient). Technically, monthly, weekly and daily momentum indicators are now aligned for a bullish setup. But as overnight action has demonstrated what we have cautioned, that upmove could be a grind as ECB rhetoric - “can do more QE if need arises” – acts as an invisible hand to slow any up move. Resistance at 1.1500. Daily chart shows overbought conditions and upmove in the session could be a grind. However, beyond the 1.1470-level, a move towards 1.17-handle should not be ruled out. Support seen at 1.1370 which the pair is testing. Beyond that, supports are seen at 1.1240 (50 DMA), 1.1140/60 levels (100 and 200 DMAs), 1.1090 (Sep low). Week remaining brings ECB Nowotny, Jazbec speak; EC Aug trade; EC Sep CPI (Fri). We previously highlighted 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. We will continue to monitor this.

      GBP/USD – Choppy Moves. GBP bulls were stalled by the 100-DMA and a lack of data cues. Pair was last seen around 1.5470. Pair is still underpinned by recently released labour report with jobless rate lower at 5.4% compared to previous 5.5%. Jun-Aug added 140K of employment, smack in line with consensus. Still, bullish momentum accelerates but RSI flags near overbought conditions. Expect tests beyond the 1.5489 (100-DMA) to be on short leash, with next key resistance seen at the 1.56-figure. Support is at 1.5326, 1.5240 (23.6% fibo of Sep high to low) before 1.51 (Oct low).

      USD/JPY – Tentatively Bullish. USD/JPY is back above the 119-handle this morning following the USD resurgence overnight. Pair is currently seen around 119.07 with both intraday momentum indicators showing tentative signs of turning higher. This suggests that risks could be now be tilted to the upside ahead. Key support remains at 118.30 (23.6% Fibo retracement of the Aug high and low). Immediate resistance is around 119.30 (212DMA, 29 Sep low) ahead of the next at 120.00 (200DMA). Our long held view remains 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 – Upside Bias in Range. AUD remains choppy and we expect less aggressive positioning ahead of China’s 3Q GDP on Mon. Resistance remains at 0.7355 (100-DMA). Pair was last seen around 0.7305 with the pair on the downtick, downticks were bought recently at the prospect of an extended breather with Fed hike likely delayed into Dec or even into 2016. Support is seen at the 0.72-figure ahead of the next at 0.7160. On the other hand, resistance beyond 0.7355 (100DMA) is seen at 0.7490.  Weekly/daily momentum indicators are suggesting waning upside momentum. Beyond the near term, we hold our 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. RBA releases Financial Stability Review today.

      USD/CAD –Bearish Conditions, Counting Down to Polling Day on 19 Oct. USDCAD bears asserts themselves with the help of the soggy dollar and stabilizing oil prices. Pair was last seen around 1.2870, having taken out the 100-DMA. Momentum is bearish with next support seen at 1.2806 (23.6% fib retracement of the May-Sep rally). 1.30-figure is a viable resistance. Sep existing home sales fell -2.1%m/m and CAD retained strength in spite of the weak data. Focus is clearly on the 2015 Canadian federal election, held on 19 Oct.

      NZD/USD – Limited Downside. NZD uptick has stalled by the resurgence USD overnight as well as expectations remain for a possible rate cut by RBNZ following weaker CPI print in 3Q of 0.3% q/q (2Q: 0.4%). Intraday momentum remains on the uptick with stochastics turning lower at overbought levels, suggesting that further downside could be limited for now. First support on the downside at 0.6752 (21DMA) before 0.6676 (50 DMA). Rebounds could be capped around 0.6897 (yesterday’s high).

Asia ex Japan Currencies

      The SGD NEER trades 0.52% below the implied mid-point of 1.3744. The top end is estimated at 1.3468 and the floor at 1.4020.

      USD/SGD – Capped. The USD/SGD is bouncing higher this morning following the upturn in the dollar overnight. Pair is currently seen around 1.3823, having lost most of its bearish momentum and stochastics turning higher from oversold levels. Still, upticks could be capped given the outperformance of NODX in Sep, which rose by +0.3% y/y vs. expectations of -3.9% and Aug’s -8.4% underpinned by a rebound in electronics exports of 5.7% (cons.: 1.2%; Aug: -2.7%). As well, retail sales rose by a stronger 6.1% y/y (cons.: 1.6%; Jul: 5.2%) in Aug. The stronger performances reinforce the view that the economy has avoided a technical recession in 3Q when the final GDP are released. Look for further upmoves to be capped around 1.3896 (21DMA) with downside supported around 1.3730 (15 Oct low).

      AUD/SGD – Volatility in Range. This cross was stuck around the 50-DMA, as strength of the AUD and SGD waned, last seen around 1.0100. Daily chart shows decimated bullish momentum and MACD is at the zero line. We hold the view that two way trades can continue. Support is seen at 1.0050 ahead of the next at 0.9970. Resistance is seen at 1.0162 (100-DMA) ahead of the next at 1.0235 (76.4% fib. Retracement of the Aug-Sep sell-off).

       SGD/MYR – Upside Risk. SGD/MYR is attempting to break the 3-figure again on the back of the relative weakness of the MYR vs. the SGD on concerns about China’s upcoming 3Q15 GDP release on Mon. Pair is currently seen around the 2.9993 with intraday momentum and oscillator indicators still bullish bias but stochastics is turning lower. Immediate resistance at 3.036 (100 DMA), 3.0830. Support at 2.95 levels (50% Fibonacci retracement of End-Jul to Sep peak).

      USD/MYR – Gapped Lower. USDMYR gapped lower at the opening this morning to 4.1718 after onshore markets re-opened after a public holiday yesterday as the pair played catch-up with its regional peers. Last seen around 4.1158, pair has lost most of its bullish momentum and stochastics is showing signs of turning lower. Resistance seen at 4.2047 (21DMA) while support is seen around 4.0800 (9 Oct low). Week remaining focus on Sep CPI inflation (Fri).

      1s KRW NDF – Capped. 1s KRW NDF is back on the climb higher despite higher risk appetite (equities higher) as the firmer dollar tone outweighed. Pair was last seen at 1130 levels this morning. As we had been reiterating, daily stochastics has slipped into oversold territories. 4-hourly momentum/stochastics suggest downside risk intra-day. Still, this suggests that further upside moves today could be capped. Support is seen around 1122 (yesterday’s low) and resistance at 1140 levels (21DMA).

      USD/CNH – Two-way Action. USD/CNH hovered around 6.3520 this morning. This pair seems to be settling into sideway trades with support at 6.3094 (100-DMA). Resistance is seen around 6.3780 ahead of the next at 50-DMA at 6.4042.   Spread between CNH and CNY is around 60pips. USD/CNY was fixed 34 pips lower at 6.3436 (vs. previous 6.3402). CNY/MYR was fixed 32 lower at 0.6485 (vs. previous 0.6517). In news, China Top planning agency wrote in People’s Daily that China should be careful about pushing price reform. Business News also reported that China may make significant change to “one-child”
policy. Sep aggregate financing topped estimate with a print of CNY1.3trn compared to previous CNY1.08ttrn. New yuan loans increased by CNY1.05trn. Money supply M2 slowed to 13.1%y/y from previous 13.3%.

      SGD/CNY – Rally.  This cross stalled around 4.5910, on the downtick as SGD strength wanes. Resistance is still seen at 4.6191 (Aug high). A break there exposes the next at 4.6723 (Jun high) though we think it is highly unlikely at this point. Daily chart shows RSI falling from overbought conditions. Support still holds at the 200-DMA at 4.5770. Next support is seen at 4.5490.

      1s INR NDF – Steady. 1s USDINR is still pressing on the 100-DMA this morning, last printed 65.10. The 50-DMA at 66.07 remains a resistance. Daily MACD shows that bearish momentum has weakened. The lack of momentum implies two-way trades to continue in the near term within 64.80-66.10. A break to the upside exposes next resistance at 66.38 while a bearish breakout exposes 200-DMA at 64-figure. Wed saw foreigners bought USD23.8mn of equities and USD109.6mn of bonds.  RBI Deputy Governor Patel urged banks to pass through more of RBI rate cut. Governor Rajan also said that the central bank is working with government to ensure greater transmission of the interest rate cut.

      USD/IDR – Gapped Higher; Consolidation.  The USD/IDR gapped higher at the opening to 13489 from yesterday’s close of 13418, playing catch-up with its regional peers amid a firmer dollar tone. The BI decision yesterday had limited impact on the pair. BI held its policy rate and other key interest rates steady as expected by our economic team and the market. The reference rate was kept on hold at 7.50%, while the Deposit Facility and Lending Facility remained at 5.5% and 8.0% respectively. Though the recent rebound in the IDR has provided some room for the central bank to cut its policy rate to spur growth, it could be too soon for a rate adjustment given the risks of a Fed fund rate lift-off remain. Pair is seen around 13563 currently with intraday MACD and stochastics both mildly bullish bias. We continue to caution against complacency as domestic concerns (sluggish growth, slow pace of reforms, twin deficits etc.) remains and the current euphoria could prove to be temporary. Resistance is around 13846 (21DMA) while support is around 13300.The 1-month NDF is on the uptick this morning back above the 13600-levels at 13654 with intraday momentum indicators and oscillators mildly bullish bias. The JISDOR was fixed lower at 13288 yesterday from Tue’s 13557. In the news, the central bank expects growth to come in at 4.7-5.1% in 2015 on the back of the government’s stimulus package. A well, exports failed to meet expectations, declining by a bigger 17.98% y/y in Sep (cons.: -15.00%; Aug: -12.12%), while imports also slipped by a steeper 25.95% y/y (cons.: -20%; Aug: -16.18%). This resulted in a wider trade surplus of USD1.017bn in Sep vs. Aug’s USD0.434bn.

      USD/PHP – Inching Back Towards 46.  USD/PHP is back within striking distance of the 46-figure, currently seen around 35.973, underpinned not only by the resurgent USD overnight but also by the weak Aug overseas remittances print. Aug overseas remittances fell by 0.6% y/y against consensus estimates for a 2.4% gain (Jul: +0.5%), which was the first drop in 12 years. Pair has lost most of its bearish momentum, while stochastics is still bullish bias, which should keep the pair supported ahead. Resistance is around 46.156 (21DMA) while support is seen around 45.690 (yesterday’s low). 1-month NDF is back above the 46-figure this morning with both intraday MACD and stochastics now turning bullish bias. Risk appetite for Philippine assets continued to sour with foreign funds selling a net USD1.48mn of equities yesterday. 

      USD/THB – Bullish Tilt. USD/THB is on the uptick this morning following the firmer dollar tone overnight but appears to remain in consolidative mode. Pair is currently hovering around 35.190 with intraday MACD showing no strong momentum and stochastics still at oversold levels, suggesting a possible rebound in the works ahead. We remain concerns about sluggish domestic growth amid global growth concerns, which could support the pair higher should risk appetite turn for the worse. Look for the pair to consolidate within 35.050-35.385 intraday. Risk appetite improved yesterday with foreign investors buying a net THB0.92bn and THB11.83bn in equities and government debt yesterday, which weighed on the pair. 9 Oct foreign reserves are on tap today.

Rates

Malaysia

      Local government bond yields ended lower by 2-6bps. Better buying was seen on the 15y MGS 4/30 with foreigners buying the bond and the rest of the curve followed. All eyes on the next 7y MGS 9/22 retap auction estimated to be MYR3b.

      IRS rates quoted lower by 2-6bps compared to Tuesday’s closing levels, with the 5y IRS being dealt at 4.18%. It seems the risk-on mode drove global rates lower. 3M KLIBOR remained the same at 3.74%.

      In the PDS market, the GG space was most active with better buying seen at the belly and long end. Dana 25y and 30y papers tightened 4bps and PASB 5-10y papers tightened 1-4bps. For AAA, three tranches of Telekom 9y papers traded 2-4bps wider. Gas Malaysia 16 had a significant amount of trades done totaling MYR105m, ending 1bp wider. AA space was quiet with mainly crosses.

Singapore

      SGS rallied with good bidding interest the entire day. The yield curve lowered by 8-12bps on a bull flattening move with the long end outperforming the short end. SGD IRS rates declined 8-11bps following lower short-dated Forward premiums. The drop in short end rates will continue to underpin SGS prices.

      Broad USD Asia weakness benefitted Asian credits, where Indonesian names opened tighter and quasi sovereigns were bidded up. Spreads for Chinese, Korean and Japanese names tightened 2-3bps. Financial and Tech names in the IG space continued to be favored. For Chinese HY, property names traded up steadily to 0.25-0.50pt higher on real money and PB flows. On rating news, Moody’s assigned Aaa rating to Singapore’s Housing and Development Board (HDB) which is equalized to the government’s rating due to HDB’s key policy role in housing and close linkage with the government.

Indonesia

      Indonesia bond market open quite solid in the morning and started to move sideways post opening. Despite of several published data which came in better then expectation and government fourth stimulus announcement, Indonesia bond market closed with a loss. Indonesia September trade balance came in at US$1.01 bn or higher compared to US$0.33 bn a month earlier as a result of a sharp decline in imports rather than the decline of exports numbers. On the other hand, BI Board of Governor Meeting decide to halts its reference rate at 7.50% while also maintaining its deposit and lending facility at 5.50% and 8.00% respectively. Indonesia government also announced its fourth stimulus package emphasizing more on welfare of worker and development of SME and micro business and implementation of a new formula to calculate the provincial minimum wages. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 8.366%, 8.621%, 8.870% and 8.993% while 2y yield shifts up to 8.038%. Trading volume at secondary market was seen heavy at government segments amounting Rp18,010 bn with FR0072 as the most tradable bond. FR0072 total trading volume amounting Rp7,812 bn with 107x transaction frequency and closed at 93.544 yielding 8.940%.

      Corporate bond trading traded heavy amounting Rp629 bn. BEXI02BCN6 (Shelf registration II Indonesia Eximbank Phase VI Year 2015; B serial bond; Rating: idAAA) was the top actively traded corporate bond with total trading volume amounted Rp128 bn yielding 9.170%.