Maybank GM Daily - 6 Oct 2015

FX

Global

      Markets decidedly took the Sep payroll number as a sign that the Fed might not hike at all within 2015. The Fed Funds futures implied probability has dropped to a year low. Fed Rosengren opined that a 2% growth is necessary for a rate hike in Dec. He added that strength of the dollar and slower growth of trading partners affects the trade sector. If the prospect of a delay in the rate lift-off excites, rising speculation of more stimulus from BOJ on Wed adds to market exuberance. Even oil prices rose on the back of better risk appetite, leading the MYR and IDR higher and to a lesser extent, other Asian currencies. NZD and AUD also benefitted the most among the majors. The former gained almost 1%, hovering around 0.65 as we write while AUD, lagged at +0.6%. The Trans-Pacific Partnership agreement was also reached yesterday, adding to the buzz.

      Within the region, RBA decides on its cash target rate. The central bank is widely expected to stand pat but focus would rather be on its post decision statement for any hints of further easing given the weakness in China’s economy.  Other releases include Philippines’ CPI for Sep. Australia’s trade deficit widened to A$3.095bn in Aug.Onshore markets in China remain closed until Wed. USDCNH remains tilted to the downside, weighed also by the softer dollar.

      Beyond Asia, US has Aug trade numbers due today. EU Finance Ministers meet today at Luxembourg for a discussion on corporate tax action plan and the Single Resolution Fund for lenders. Germany’s factory orders are due today followed by retail PMI numbers out of the economic blog.

Currencies

G7 Currencies

      DXY – Mixed. Risk on mode overnight following spill-over effects from US NFP data last Fri and ISM non-mfg data yesterday (below expectation), which somewhat deferred expectation for a US rate hike anytime soon. That continued to keep sentiment supported and equities firmed. USD rose against JPY and EUR, but fell against risk proxy currencies including AUD, NZD, and AXJs. Implied probability from Fed fund futures now show 35% expecting a hike in Dec meeting vs. above 40% in mid-Sep. DXY was last at 96 levels. Daily momentum remains bullish but showing early signs of waning while stochastics is now falling. Support remains at 95.70-80 levels (21 & 200 DMAs). A break below on daily close basis should see further downside pressure playing out; next support at 94.50 (23.6% fibo retracement of Mar high to Aug low). Resistance remains at 96.30 (50 DMA) – 96.50 area (previous resistance area that capped DXY from rallying in early-Sep. If broken on daily close basis could push higher towards 97.40 (61.8% fibo retracement of Mar high to Aug low). Week ahead brings Aug trade (Tue); Fed’s Williams speaks (Wed); initial jobless claims; Fed’s Bullard and Kocherlakota speak; FOMC Minutes (Thu); Sep import prices; Fed’s Lockhart, Evans speak (Fri).

      EUR/USD – Consolidation. EUR reversed strength overnight as risk-on sentiment saw EUR lower. We continue to reiterate that the inverse relationship between risk assets and EUR/USD continues to hold. EUR was last seen at 1.1195 levels this morning. Daily momentum remains mild bearish but momentum appears to be waning while stochastics is rising. 50DMA cuts 200 DMA to the upside. This could suggest potential upside pressure. We are biased to buy on dips. Support at 1.1170 (21 DMA and 200 DMA), 1.1140 (100 DMA), 1.1090 (Sep low). Resistance at 1.1320 (38.2% fibo retracement of Aug high to Sep low) before 1.14 levels (50% fibo).  Week ahead brings GE Aug factory orders; EC, GE, FR Sep retail PMI; EU Finance Ministers meeting (Tue); ECB’s Draghi speaks; GE Aug IP (Wed); ECB’s Praet speaks; GE Aug trade (Thu). ECB officials attend IMF annual meeting (Fri – Sun). We continue to reiterate EUR’s status as a funding currency.  Price action continues to suggest that.

      GBP/USD – Focus on BoE on Thu This Week. GBP fell from 1.5250 levels amid disappointing Sep services PMI. Last seen around 1.5150 levels. Support remains at 1.5090 (61.8% fibo retracement of Apr low to Jun high). Break below could see a push towards 1.4890 levels (Apr lows). Resistance remains at 1.5330 (21 and 200 DMAs). See range 1.5090 – 1.5230 intra-day. Week ahead brings Aug Industrial, Manufacturing Production (Wed); BoE Meeting (Thu); Aug trade, construction output (Fri). 

      USD/JPY BOJ Meeting In Focus. USD/JPY is hovering little change above the 120-handle this morning as the GBP, AUD and NZD was sold off vs. the JPY even as dollar softened. This was mitigated by the successful conclusion of the Trans-Pacific Partnership agreement yesterday, which supported the pair, as it committed Japan to push through structural changes needed to create a more competitive domestic market. Intraday momentum is bullish bias, though stochastics is at overbought levels, suggesting a pull-back could be in the works. After the overnight action, pair is likely to consolidate with a bullish tilt intraday as market awaits the BOJ decision tomorrow where it will be watched for hints of shift in dovish stance. While we do not expect any moves this meeting, our long-held view remains for the BOJ to add to its easing measures at end-Oct given the lack of inflationary pressures and sluggish growth. Support at 119.70 (83.2% Fibo retracement of Aug high to low) while resistance is at 120.90 (200DMA) ahead of the next at 121.60 (50DMA). Week ahead has BOJ meeting and Kuroda press conference (Wed); and Aug machine orders and current account (Thu).

      AUD/USD – Watch RBA. AUDUSD spiked above the 0.71-figure before easing to levels around 0.7070.  Trade deficit widened as exports remained mostly unchanged while imports growth rose 1%. The latest number is in line with 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. Focus of the week is on RBA meeting later and cash rate is expected to be kept at 2%, for the rest of the year. However, much scrutiny will be on the statement for any hints of further easing given the weakness in China’s economy. Intra-day trade might be volatile though daily momentum shows more bullish risks. The 50-DMA beckons at 0.7170. Support is seen around the 0.70-figure. Week ahead Aug New home sales (Wed); Sep FX Reserves; RBA Simon speaks (Thu); Aug home loans (Fri). PM Turnbull said that the TPP deal is “a very big win” for Australia.

      USD/CAD – Deeper Correction? USDCAD remained on the decline overnight with the pair around 10.3090. Next support is seen around 1.3016 and MACD is showing greater bearish momentum. Broad dollar sales and rise in oil prices weigh on the pair and a break of the 1.30-figure exposes the next at 1.2867 (100-DMA). Weekly momentum indicators also suggest bearish risks. Resistance is seen at 1.3200, near the 50-DMA. Week ahead brings Sep housing starts (Wed); Aug New housing price index (Thu); Sep labour report (Fri).

      NZD/USD – GDT Auction Tonight; TPP Benefits May Support NZD. Kiwi continued to push higher amid risk-on sentiment and hopes of TPP (which is expected to benefit dairy exporters on tariff cuts and access to new markets. This morning traded above 50 DMA (0.6450);last seen around 0.6485 levels this morning. We previously highlighted that an interim double-bottom around 0.6240-50 levels (Sep lows) has been formed and technicals were signalling a bullish bias. Daily momentum and oscillator indicators continue to show signs of bullish bias. Risk of a move towards 0.6690 (100 DMA) cannot be ruled out on daily close above 0.6450 (50 DMA). Focus tonight on GDT Auction – to see if we get another 4^th back to back increase in dairy prices and that could support the NZD further. Week remaining brings Sep credit card spending (Fri).

Asia ex Japan Currencies

      The SGD NEER trades 1.20% below the implied mid-point of 1.4063 with the top end estimated at 1.3778 and the floor at 1.4348.

      USD/SGD – Trapped In A Cloud. The USD/SGD is back on the rebound towards the 1.4250-levels after slipping lower yesterday as growth concerns continue to mount. Pair is seen around 1.4240 currently with intraday momentum and stochastics bearish bias that could cap further upside. Still, increasing speculation that MAS could ease in light of weak economic data, particularly the lack of core inflation, should keep the pair supported ahead. Moreover, pair is currently trapped within an intraday ichimoku cloud, which suggested that the pair could trade range-bound ahead. Resistance is at 1.4285 (21 DMA) and support at ahead of 1.4170 (100 DMA.

      AUD/SGD – Eyes 50DMA. This cross is still stuck around the 50-DMA and was last seen at 1.0080. AUD strength is leading the pair higher.  Momentum indicators show bullish bias in this cross and next resistance is seen at 100-DMA at 1.0190. Risks are tilting to the upside for short-term trades. Beyond the near-term, this cross remains pressured to the downside with broad downtrend still intact but we look for recent range to hold that could in turn suggest a serious reversal in store. Support is seen around 0.9886/40 and a break there exposes the next at 0.9700.

      SGD/MYR – Limited Upside. SGDMYR continued to ease lower this morning; last seen at 3.0750 levels this morning. We continue to reiterate that upside could be limited due to expected build-up in SGD shorts leading into MAS bi-annual monetary policy meeting (sometime between 10 and 14 Oct). Daily momentum and stochastics are showing tentative signs of bearish bias. Next support at 3.0580 (21 DMA) before 3.0350 (76.4% fibonacci retracement of Sep low to Sep high). Resistance at 3.1299 (previous high in Sep).

      USD/MYR – Temporary Breather. Ringgit enjoyed a temporary breather off the back of USD weakness (Fed rate hike expectation being pared back) and commodity price rebound. WSJ article over the weekend – Saudi Arabia made deep reductions to the prices it charges for its oil; vowed to keep pumping at high levels as it hopers lower oil prices will stimulate Asian demand and hit rival production in the US; move come as Iran, Iraq and other countries in the Middle East made deeper cuts in their official prices last month – is expected to lend strength to oil prices, and could provide a breather on MYR. On technicals, daily momentum and stochastics are starting to show tentative signs of turning lower. Support at 4.38 (break-out level) before 4.34 levels (21 DMA and 50% fibo retracement of Sep low to high). Resistance at 4.45 levels. 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. FX reserves showed improvement, rising slightly to US$95.3bn (up from $94.7bn prior). 

      1s KRW NDF – Downside Pressure. 1s KRW continued to ease; last seen at 1174 levels this morning. Sentiment is supported despite US bad data as hopes of Fed delaying rate hike (as a result of bad US data) translated into equity gains in US. And that is helping with Korean equities this morning. This could provide some support for the KRW.  Daily momentum remains mild bearish and stochastics is falling. Support at 1169 (76.4% fibo retracement of Sep low to high) before 1158 (Sep low). Little data to focus for the week; risk sentiment to influence trading direction for the week.

      USD/CNH – Bearish. USD/CNH hovered around 6.3500, weighed by softer dollar and capped by the 50-DMA. Onshore markets in China remain closed for National Day until 7 Oct (Wed). MACD continues to flag bearish momentum, possibly towards 6.2970. We eye more volatility without the presence of onshore markets. We will not rule out the possibility that capital flows has turned and to support onshore yuan. On 30 Sep, USD/CNY was fixed 47 pips lower at 6.3613 (vs. previous 6.3660). CNY/MYR was fixed 48 pips higher at 0.6994 (vs. previous 0.6945).

      SGD/CNY – Onshore markets are closed in China.

      USD/INR – Bearish. USDINR gapped down and closed at 65.30 yesterday, weighed by broad dollar sales. Support at 65.3272 (50-DMA) has been cleared. Interim resistance is now marked at marked at 66.6910. Daily MACD indicates that bears continue to hold the upper hand with risks towards 64.50 (100DMA). The daily chart for 1-month NDF continues to show bearish momentum as well and was still seen at 65.58, below the 50-DMA. Still, global risk sentiments could swing the USDINR. Last Thu saw foreigners buy USD14.7mn of equities and sold USD16.8mn of bonds. PM Modi and German Chancellor Merkel signed clean energy pack and PM Modi said he looks forward to greater trade and investment with Germany.  India’s PMI Services and Composite for Sep are due today. Trade numbers for the same month could be released anytime within 9-15 Oct.

      USD/IDR – Bearish Bias.  The USD/IDR is on the slide below the 14500-handle this morning, playing catch up with its regional peers. Pair is sighted around 14470 with both intraday momentum and stochastics bearish bias, suggesting further downside is possible ahead. Still, downside could be limited as domestic growth concerns (sluggish growth, slow pace of reforms etc.) amid concerns about a global slowdown should keep the pair supported. Resistance is seen around 14500 and support at 14350. 1-month NDF is climbing higher this morning at 14675 with intraday MACD showing bearish momentum, though stohcastics is at oversold levels. The JISDOR was fixed lower at 14604 yesterday from Fri’s 14709. Investor sentiments improved with foreign funds buying a net USD22.86mn in equities yesterday, and they removed a net IDR1.09tn from their outstanding holding of government debt on 30 Sep (latest data available). Quiet data week ahead with just Sep foreign reserves on tap (Wed).

      USD/PHP – Bearish Bias.  After gapping lower yesterday, the USD/PHP is back on the uptick towards the 46.500-levels. Both intraday momentum and stochastics are bearish bias, suggesting that upside could be capped. Look for resistance is seen around the 47-figure, while support is around 46.740 (21 DMA), while support is seen around 46.300. 1-month NDF is on the rebound back above the 46.50-levels with intraday MACD showing bearish momentum and stochastics still in oversold conditions. Sentiments continued to improve yesterday with foreign funds buying a net USD2.81mn in equities.  Week ahead has Sep foreign reserves (Wed); and Aug exports (Fri). Headline inflation rose by 0.4% y/y in Sep (Aug: 0.6%), below market estimates of 0.6%, while core inflation rose 1.4% y/y (Aug: 1.6%).

      USD/THB – Consolidating. USD/THB is consolidating around the 36.300-region after easing from the multi-year high of 36.670 (2 Oct) as sluggish domestic growth amid global growth concerns remained in focus. Intraday momentum is showing bearish momentum with stochastics is fast approaching oversold conditions, suggesting a potential for a rebound ahead. Look for the pair to consolidate within 36.140 (100DMA) – 36.435 (21DMA) intrday. Risk aversion continued with foreign funds selling a net THB0.21bn and THB1.45bn in equities and government debt yesterday. Week ahead is relatively quiet with 2 Oct foreign reserves on tap (Fri). In the news, Deputy PM Somkid Jatusripitak said that additional stimulus measures to boost growth in the next three-to-six months would be submitted to the cabinet in the next 2 weeks. The measures will centre on incentives and other measures to boost private investment in 4Q15 and 1Q16.

Rates

Malaysia

      Government bonds held steady with strong buying seen at the front end in the afternoon when USDMYR declined. The 7y benchmark MGS 9/22 also saw decent buying interest, ending -1bp from previous close.

      IRS levels lower after the disappointing US NFP number, with the 10y being dealt at 4.61%. Local rates are elevated as MYR underperformed other emerging market currencies. But our house views that an OPR hike remains unlikely. 3M KLIBOR stayed at 3.74%.

      Quiet day for PDS space. 1y AA papers traded 1-3bps wider, while AAA Aquasar 16s traded 1bp tighter. Long-dated GGs and AAAs saw good two way interest but bid/offer spreads continued to be wide as players remain cautious and liquidity still low. Nonetheless, we think spreads have become attractive.

Singapore

      SGS rose on short covering, though some profit taking took place in the afternoon. Bonds closed 6-9bps lower in yields. Bond swap spreads seemed to be unwinding subtly. SGD rates may see some softness going into midweek if USDSGD continue to decline. An MPC meeting will be held next week and some are calling for easing.

      Asian credit space had more two way interest, with most credits tightening 3-5bps in spreads. INDON sovereigns were actively traded and the long end got bidded up by about 1.5pts. INDOIs were equally active, with demand seen for the 22s and 24s. But EUR papers lagged the rally, up by only 0.25-0.50pt. Chinese property names continued to be sought after, with Country Garden leading the way, post the property easing measure. Flows are somewhat mixed at the moment, with bottom fishing interest picking up. We like 5y or shorter IG papers, preferably financials or tech names that are liquid.

Indonesia

      Indonesia bond market closed positive supported by sluggish U.S. labour data. We see potential of a limited strengthening of the LCY bond market and believe that investors might be cautious on several data publication events such as China and Indonesia foreign reserve data as well as Sep FOMC minutes release within the week. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 8.952%, 9.079%, 9.200% and 9.177% while 2y yield shifts down to 8.718%. Trading volume at secondary market was seen thin at government segments amounting Rp9,213 bn with FR0070 as the most tradable bond. FR0070 total trading volume amounting Rp958 bn with 39x transaction frequency and closed at 95.902 yielding 9.079%.

      DMO will conduct their sukuk auction today with three series to be auctioned which are SPN-S07042016 (Coupon: discounted; Maturity: 7 Apr 2016), PBS006 (Coupon: 8.250%; Maturity: 15 Sep 2020) and PBS009 (Coupon: 7.750%; Maturity: 25 Jan 2018). We believe that the auction will be oversubscribe by 1.5x – 2.5x from its indicative target issuance of Rp2.0 tn while our view on the indicative yield are as follows SPN-S07042016 (range: 6.850% – 6.950%), PBS006 (range: 8.900% – 9.000%) and PBS009 (range: 8.300% – 8.400%).

      Corporate bond trading traded moderate amounting Rp614 bn. ASDF02ACN5 (Shelf registration II Astra Sedaya Finance Phase V Year 2015; A serial bond; Rating: idA) was the top actively traded corporate bond with total trading volume amounted Rp150 bn yielding 11.950%.