Maybank GM Daily - 29 Oct 2015

FX

Global

      Fed has made it apparent that it can raise rates in Dec, noting that household spending and business fixed investment had been increasing at solid rates in recent months.  The positive assessment of the economy took equities sharply higher. The committee is still data dependent, considering labour market, inflation pressures and financial and international developments. Dollar strengthened across the board, with the DXY touching a high of 97.82.  This was in spite of the fact that ECB Constancio had said that the central bank had not “decided anything on adjusting QE”. His words nudged the EUR a tad higher towards the 1.11-figure before dollar strength dragged the pair towards the 1.09-figure.

      Earlier this morning, RBNZ left rates unchanged at 2.75% though kept easing bias. The central bank expects further reduction in OCR to ensure future average CPI inflation settles near the middle of the target range. In addition, it is premature to say that the recent improvements in dairy prices would sustain. NZD slip -0.3%, extending its overnight slide into early Asia. Elsewhere, JPY strengthened on stronger industrial production that rebounded 1.0%m/m from a fall of -1.2% in Aug. That pared some expectations for more monetary stimulus tomorrow.

      The session ahead has little tier one data out of the region with only Singapore’s jobless rate of note. China concludes its fifth plenum today. Beyond Asia, Germany’s Oct CPI and Europe’s economic, consumer confidence are due. Thereafter, US releases 3Q advanced estimate of GDP and Core PCE.  Pending home sales for Sep will also be released. Fed Lockhart speaks on workforce development.

Currencies

G7 Currencies

      DXY – Rate Hike Hopes Revived; Focus on 3Q GDP Tonight. USD surged post-FOMC overnight. While FOMC decision was to keep rates on hold (as widely expected with 1 dissenter against the decision), markets interpreted the accompanying statement and decision to be a hawkish hold. FOMC statement appears to suggest that the Committee is less concerned about international and financial market development as current statement saw an omission of this line from the Sep FOMC statement - “Recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term”. This was exactly what we were watching out for. While there is no certainty that Fed will hike in the Dec meeting (as Fed remains data-dependent), hopes are definitely rebuilding post-FOMC. Implied probability of Fed move in Dec (implied from Fed Fund futures) has now risen to 48%, from 33% before the FOMC meeting. DXY was last at 97.60. Weekly, daily momentum and stochastics continue to indicate a bullish bias. Key resistance at 97.42 (61.8% fibo retracement of Mar high – Aug low) has now been broken. We had said earlier that a move higher towards 98.55 levels (76.4% fibo and Aug high) is possible on that break. Remain better buyers of USD on dips. Support at 96.50 levels (50% fibo). Week remaining brings GDP, Core PCE (3Q A); Fed's Lockhart speaks; Pending Home Sales (Sep) on Thu; PCE Core (Sep); Fed's Williams Speaks; U. of Mich. Sentiment on Fri.

      EUR/USD – Still Favor Selling on Rallies. EUR slumped to a low of 1.0897 overnight amid USD strength following FOMC’s hawkish hold. EUR was last at 1.0910 levels at time of writing. Daily momentum and stochastics continue to indicate a bearish bias. Key support at 1.0980 (trend line support from Mar and Apr lows), 1.0940 (61.8% fibo retracement of Mar – Aug) have now been broken on daily close basis. We now see further downside towards 1.0830-40 levels (Jul-Aug 2015 support), before 1.0760 (76.4% fibo). Meantime we remain better sellers on rallies towards resistance at 1.1090 (50% fibo) - 1.1110 (200 DMA). Week remaining brings GE CPI (Oct); EC economic confidence (Oct) on Thu; FR PPI, consumer spending (Sep): EC CPI (Oct) on Fri.

      GBP/USD – Downside Risk. GBP fell amid USD strength following FOMC meeting overnight. GBP was last at 1.5270 levels. Daily momentum continues to indicate tentative signs of bearish bias while stochastics is falling. Taken together these imply some downside bias. Next support at 1.5260 (61.8% fibo retracement of Oct low to high), before 1.52 (76.4% fibo) and 1.51 (Oct lows). Resistance at 1.5360 – 1.5380 levels (38.2% fibo and 50 DMA). May see intra-day range of 1.52 – 1.53. Week remaining brings Nationwide House (Oct); Mortgage Approvals (Sep) on Thu; GfK Consumer Confidence (Oct) on Fri.

      USD/JPY – Two-Way Trades Ahead of BOJ On Friday. USD/JPY is reversing some of its overnight gains as the dollar softened slightly this morning. The firmer JPY this morning could be attributed to industrial production unexpectedly rising by 1.0% m/m in Sep (Aug: -1.2%) vs. expectations for a 0.6% dip, which sooth concerns that the economy may have contracted in 3Q and which in turn has tilted the risk of further BOJ easing lower for now. Pair is back below the 121-handle at 120.78 after temporarily touching an overnight high of 121.26 as the Fed signalled that a Dec rate hike was still in play. Nevertheless, market remains split over any BOJ moves, though our long-held view remains for the BOJ to add to its easing measures given the lack of inflationary pressures amid sluggish growth. Pair though has lost most of its bearish momentum, and stochastics is indicating bullish bias, suggesting that two-way moves are still likely ahead. Further dips intraday should find support around 120.30 (50DMA), while rebounds is likely to be capped around the 121.56-region (Oct high). Eyes remain on BOJ, Kuroda presser and semi-annual outlook tomorrow. No moves by the BOJ could see the pair head back below the 120-figure at 119.70 (38.2% Fibo retracement) before the next at 118.60. Additional easing measures could see the pair extend towards the 122-figure ahead of 123.15 (76.4% Fibo retracement). Aside from the BOJ meeting, remaining week has Sep CPI (Fri).

      AUD/USD – Bearish Breakout. The downward pressure on AUD rose when the Fed gave a more-hawkish than expected statement. Pair is now at 0.71-figure. MACD shows increasing bearish momentum and next support is seen around 0.7040. Rate cut bets soared after the 3Q CPI softened unexpectedly. We hold our view that Australia is seeing nascent signs of bottoming for the economy as exports growth has become less negative. Fresh resistance is seen around 0.7136 (the 50-DMA). New home sales slipped -4.0%y/y. Import price steadied at 1.4%q/q.  Export price index was flat in the quarter. Fri has private sector credit (Sep); PPI (3Q).

      USD/CAD – Still Upside Bias. USDCAD was on the retreat and touched a low of 1.3090 before reversing higher on the back of dollar strength. Further upmoves could be a grind as RSI has started to flag near overbought conditions. MACD is still on the rise so bias is still to the upside. Support seen at 1.3180 ahead of the next at 1.3080. Next bullish target is seen at the 1.33-figure. Week ahead brings Sep industrial product price on tonight, Aug GDP on Fri. Consensus expects a slower growth for Aug at 0.1%m/m.

      NZD/USD – Stay Short.  RBNZ kept policy rate on hold at 2.75%, in line with our expectation. While rate was on hold, monetary easing bias remains. RBNZ’s accompanying statement said some further reduction in OCR seems likely to ensure future average CPI inflation settles near the middle of the target range (1 - 3%). In particular, it also made reference to the rise in exchange rate since Sep and cautioned that if such rally is sustained, it could dampen the tradable sector activity and medium term inflation. It then added “This would require a lower interest rate path than would otherwise be the case”. This suggests that Kiwi may need to see further weakness, which is in line with our call for further Kiwi weakness into year-end or risk further rate cuts. We continue to reiterate our call to fade against NZD strength. In addition, expectation for Fed to hike rate in Dec (build-up in USD strength), following the FOMC meeting overnight may also weigh on NZD (monetary policy divergence – Fed tightening vs RBNZ risk of further easing, favouring USD strength over NZD). Going back to the RBNZ statement, RBNZ cautioned that it is “too early to say whether these recent improvements (in dairy prices) will be sustained”, which is in line with our scepticism. NZD slumped to a low of 0.6623 post-RBNZ; and has since bounced towards 0.6670 levels at time of writing.  We said that a break below 0.6740 (23.6% fibo retracement of Sep low to Oct high) on daily close basis could suggest further downside towards 0.6650 (38.2% fibo), 0.6600 (100 DMA).  Daily momentum and stochastics are showing further signs of bearish bias. We continue to maintain our call to stay short NZD. Favor adding to shorts on rallies towards 0.6740. Week remaining brings Building permits (Sep); ANZ business confidence (Oct) on Fri.

Asia ex Japan Currencies

      The The SGD NEER trades 0.60% below the implied mid-point of 1.3941. The top end is estimated at 1.3661 and the floor at 1.4221.

      USD/SGD – Limited Downside. USD/SGD is back above the 1.40-handle in the wake of the FOMC meeting that put a Dec rate hike in play. Pair is currently seen around 1.4026 with intraday momentum indicators and stochastics bullish bias, suggesting the potential for further upside ahead. With our resistance level at 1.4020 taken out overnight, new barrier is now at 1.4080 (200DMA). Support is seen around 1.3980 (ichimoku conversion line).

      AUD/SGD – Downside Bias. AUDSGD remained heavy and was last seen around 0.9960 at last sight. MACD shows increasing bearish momentum. 1.0050 is still the resistance to cap near-term up moves. Should the pair clear the 0.9967 support on daily close, next support is seen at 0.9880.

      SGD/MYR – 50DMA Continues to Hold Up. SGD/MYR remains supported above its 50DMA. Cross was last seen at 3.0660 levels. Weekly/ daily momentum and stochastics remain flat. Key levels to watch out for include - support remains at 3.0320 (50 DMA); break below on daily close basis could re-visit 3.01 (50% fibo retracement of 2.9230 – 3.0970) before 2.99 (61.8% fibo). Resistance at 3.0560 (23.6% fibo). Expect range trading between 3.04 – 3.08.

      USD/MYR – Range-Bound; Upside Risks. USD/MYR edged higher amid USD strength overnight post FOMC’s “hawkish hold”. Pair was last seen at 4.30 levels. Daily momentum and stochastics continue to exhibit tentative signs of mild bullish bias. Some levels to watch include – support at 4.27 (50 DMA). Resistance at 4.3170 (23.6% fibo retracement of Jul low to Sep high). Expect the pair to consolidate in 4.27– 4.32 range. Little data to note for the week.

      1s KRW NDF – Upside Risks. 1s KRW inched higher amid USD strength post-FOMC overnight.  Pair was last seen at 1143. Daily momentum and stochastics are indicating a mild bullish bias. Support at 1129 (200 DMA) is expected to hold. Next resistance at 1140 (23.6% fibo of Oct high to low), if broken on daily close basis could revisit 1152 (38.2% fibo). Week remaining brings Nov business survey manufacturing; Sep IP (Fri).

      USD/CNH – Capped. USD/CNH was still capped by the 50DMA (6.4030) and is still stuck at 6.3880 despite strong dollar move overnight. Daily chart shows mild bullish conditions. Break of the barrier at 6.4060-barrier (50DMA) is required for stronger bullish attempts. That is also close to the inversion point of the ichimoku cloud. However, barrier at 6.40 seems formidable and we do not rule out the possibility that PBOC may use intervention to keep the barrier intact ahead of the SDR review. Spread between CNH and CNY narrowed to 300pips. USD/CNY was fixed 60 pips higher at 6.3596 (vs. previous 6.3536). CNY/MYR was fixed 6 pips higher at 0.6691 (vs. previous 0.6685). China moves into the last day of its fifth plenum.

      SGD/CNY – Bearish Risks. This cross has drifted into the thin daily ichimoku cloud, last seen at 4.5340. Prices are on the way towards the bottom of the daily cloud. Strong support is seen at 4.5222 which coincides with the base line of the ichimoku cloud as well as the 50-DMA. MACD forest has slipped into negative. Risks are to the downside within the established 4.52-4.62 range in the near term.

      1s INR NDF – Steady. 1s USDINR has been guided higher overnight though capped by the ichimoku cloud on the daily chart. This pair was last seen around 65.47, still within the 64.89-65.59 range. Resistance remains at 65.63, marked by the base of the ichimoku cloud ahead of the next at 66.09 (50-DMA). MACD on the daily chart shows increasing upside momentum that might nudge the pair towards the upper bound of the 64.80-66.10 range. A more unlikely bearish breakout exposes 200-DMA at 64-figure. Tue saw foreigners bought USD10.5mn of equities and sold USD22.8mn of bonds. The World Bank has lifted India’s ranking in ease of doing business to 130 out of 189 from 142 last year, citing more supportive environment of private sector activity. Sustained efforts to improve the business environment will reap potential gains in economic growth and job creation.

      USD/IDR – Range Trades With Upside Bias. After touching a low of 13474 yesterday, the USD/IDR has bounced higher back towards the 13600-levels this morning post-FOMC meeting. Pair is now seen around 13570 with intraday momentum indicators still bullish bias, though stochastics is showing no strong bias. Though risks are to the upside, pair is still hovering well-within its current trading range of 13350-13810. We continue to expect the pair to trade within that range with further upmoves to meet resistance around 13700 while any dips should find support around 13460. After climbing to an overnight high of 13975, the 1-month NDF has eased to around 13821 this morning with intraday MACD and stochastics are both showing no strong bias. The JISDOR was fixed higher at 13630 yesterday from Tue’s 13626. Risk sentiments waned yesterday with foreign funds selling a net USD27.31mn of equities. Meanwhile, foreign funds added a net IDR0.84tn to their outstanding holding of government debt on 27 Oct (latest data available).

      USD/PHP – Still Bullish.  USD/PHP gapped higher again at the opening this morning to 46.855, playing catch-up with its regional peers post-FOMC meeting.  There is unlikely to be much relief for the pair as BOJ meeting is on tap tomorrow. Pair remains on the uptick, seen around 46.880 currently, with intraday momentum indicator still showing bullish bias and stochastics remaining at overbought levels. With risks still to the upside today, further upmoves remains likely and could meet resistance around the 47-figure. Support is seen around 46.700. 1-month NDF is fast approaching the 47-figure, currently hovering around 46.95, with intraday MACD still showing no strong momentum, and stochastics still at overbought levels. Philippine equities remained in the doldrums as foreign funds continued their sell-off with a net USD25.85mn in equities sold yesterday.

      USD/THB – Limited Downside.  USD/THB hit a recent high of 35.742 overnight on a resurgent dollar after the FOMC signalled that a Dec move remained a possibility. Pair has since eased to hover around 35.650, possibly on the back of profit-taking and ahead of BOJ meeting tomorrow. Still dips could be short-lived as reflected by intraday MACD showing bullish momentum and stochastics remaining bullish bias. Support is seen around 35.385 and resistance at 35.785. Risk aversion yesterday saw foreign funds again selling a net THB1.07bn and THB1.00bn in equities and government debt, which was supportive of the pair. Tomorrow has Sep Mfg production index; Sep Trade; Sep current account balance; and 23 Oct foreign reserves on tap. In the news, the Finance Ministry has revised downwards its 2015 growth outlook to 2.8% from 3.0% and expects the economy to expand by 3.8% in 2016 on the back of stimulus spending.

Rates

Malaysia

      Government bonds ended 1bp lower in yields at the belly as continued buying seen on the 10y MGS benchmark by foreign parties. The 7y MGS 9/22 is the most traded for a second consecutive day, closing 1bp lower. Nothing dealt on the 20y new GII with wide WI quoted. All eyes on FOMC rate decision.

      IRS ended as much as 5bps lower with some trades reported on the 5y, led by choppy offshore markets. Market should stabilize from here with focus on FOMC language.

      Activity picked up in the PDS market. Buying was seen on the AAA curve at the belly and longer end with most papers being traded unchanged to -1bp. Rantau 22s were dealt again, wider by 2bps from previous done. AA space was also active with WCE papers at the longer end seeing most of the action. But take note that the papers are rarely traded. WCT 22s widened 4bps. Players look to the FOMC outcome for further direction.

Singapore

      In the SGS market, short-dated papers got sold off ahead of MAS 1y T-Bill auction. 2y SGS ended 3bps higher while the rest of the curve was 1-3bps lower. The auction cutoff at 1.28% with average yield of 1.09%. Swap spreads at the long end continued to widen vis-a-vis an almost unchanged SGD IRS curve. 10y swap spread was around 40bps mid, a recent high.

      Asian credit space was rather lackluster ahead of the FOMC meeting. IGs were dealt 2-3bps wider with Tech and O&G names slightly more active. INDON sovereigns and quasis traded weaker about 1pt down. Sri Lanka’s new 10y sovereign issue of USD1.5b printed at 6.85%. The bond traded down 0.50pt and was last seen dealt at 99.125/99.50. Future Land is planning to issue 2y USD paper to call back its existing 2018 paper. Korea Housing Finance Corp (Aa3) is also in the pipeline to issue USD covered bond.

Indonesia

      Indonesia bond market closed positive ahead of the FOMC meeting as buying appetite increased. We believe that this occur on the note of a dovish statement expectation as U.S. economy data were relatively sluggish. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 8.411%, 8.563%, 8.879% and 8.919% while 2y yield shifts up to 8.236%. Trading volume at secondary market was seen heavy at government segments amounting Rp16,469 bn with FR0056 as the most tradable bond. FR0056 total trading volume amounting Rp5,455 bn with 139x transaction frequency and closed at 98.625 yielding 8.570%.

      Corporate bond trading traded thin amounting Rp334 bn. ASDF02BCN5 (Shelf registration II Astra Sedaya Finance Phase V Year 2015; B Serial; Rating: AAA(idn)) was the top actively traded corporate bond with total trading volume amounted Rp72 bn yielding 9.205%.