Maybank GM Daily - 18 Nov 2015

FX

Global

      European stocks were almost defiant to the terrorist attack with almost all equity indices up more than 2%. Positive sentiments kept the EUR depressed around 1.0645 as we write this morning. The negative CPI print out of UK for Oct had little impact on the FTSE which also clocked almost 2% gains. Across the Atlantic oceans, sentiments were a lot more cautious with DJI, S&P and NASDAQ paring initial gains into close, ahead of the Fed Minutes tonight. Elsewhere, anticipation of further increase in US crude stockpiles weighed on Oil prices which reversed out Mon gains, with WTI and Brent crude future down 2.6% and 2.2% respectively.

      Overnight, the global dairy trade price index fell 7.9% from the previous auction. NZD waffled around 0.6475. In the absence of much USD directional bias, AUD swung to a high of 0.7140 on Tue before tapering off again towards 0.7110. Earlier in Asia, BI held key policy rate, as expected on Tue.

      Day ahead focus is on the Minutes of the Oct FOMC meeting. We are on the lookout for any further clarification on the omission of a key sentence on global risks in the Oct FOMC statement that appeared in the Sep statement – “Recent global 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”. We will also be on the lookout for further cues for Dec meeting.  It is a data light day for Asia and China will release its property prices for Oct. Expect commodity-linked prices to remain capped by strong dollar and weak oil performance.

Currencies

G7 Currencies

      DXY – FOMC Minutes Tonight. USD remained firmed as CPI data released overnight was largely in line with expectations. IP and NAHB Housing index were slightly softer than expected. Implied probability from fed fund futures continue to suggest that market’s expectation for Fed to hike rate in Dec remains un-wavered (implied probability of Fed to hike at 68.7%). DXY was last seen around 99.63 levels. Bullish momentum remains intact. We continue to reiterate interim support at 98.55 (76.4% fibo retracement of Mar high to Aug low) before bigger support at 97.40 (61.8% fibo). Resistance remains at 100.39 (previous 2015 high). Focus for the week ahead on Oct FOMC minutes (tomorrow morning, 3am SGT) – which we are on the lookout for any potential explanation for the omission of a key sentence on global risks from the policy statement. But we do not expect any major surprise out of it. Other data we are watching for the week remaining includes Fed's Lockhart Speaks; Fed's Dudley, Mester, Lockhart Panel; Housing Starts (Oct); Building Permits (Oct); Fed's Kaplan; Fed Releases Minutes from Oct. 27-28 FOMC Meeting on Wed. Initial Jobless Claims (Nov-14); Philadelphia Fed Business Outlook (Nov); Fed's Lockhart Speaks; Fed's Bullard Speaks on Thu; Kansas City Fed Manf. Activity (Nov); Fed's Williams Speaks on Fri.

      EUR/USD – Impetus to Sell on Rallies Remain. EUR slipped to 7-month low of 1.0631 yesterday amid a firmer USD and ECB Praet’s comments – downside risks has likely increased for Eurozone economy. Market took that as further hints that ECB is very likely to ease monetary policy further at its next meeting on 3 Dec.   EUR was last at 1.0644.  Weekly, daily momentum remains bearish bias. Key support at 1.0675 (previous low) has now been broken putting next support at 1.0460 levels (2015 low). Interim resistance at 1.0760 (23.6% fibo retracement of Mar low to Aug high). Impetus to sell on rallies remain but we caution for a built up of excessive shorts. Should sentiment worsens, EUR could be subjected upside risk (given inverse correlation between risk assets and EURUSD). Week remaining brings ECB Mersch, Lautenschlaeger Speaks; Construction Output (Sep) on Wed; ECB's Coeure, Praet Speaks; ECB Current Account on Thu; GE PPI (Oct); ECB's Mario Draghi, Coeure, Praet, speaks; ECB's Constancio Speaks in Frankfurt and then in Berkeley; Consumer Confidence (Nov) on Fri.

      GBP/USD – Range; Slight Bias to the Upside. GBP retraced its earlier losses (from 1.5155 low to above 1.52-handle) yesterday after the release of CPI data. Oct inflation was unchanged (on m/m basis) but core inflation was a touch firmer than expected (y/y basis). GBP was last seen at 1.5215 levels. Daily momentum is flat but stochastics continues to rise. Expect the pair to trade range-bound (with slight bias to the upside) 1.5150 (23.6% fibonacci retracement of Nov high to low) – 1.5270 (50% fibo retracement of Oct high to Nov low) ahead of UK retail sales data tomorrow.

      USD/JPY – FOMC Minutes, BOJ In Focus. USD/JPY was firmer overnight underpinned by a resurgent dollar. Pair is retracing slightly to 123.41 with intraday MACD still showing mild bullish momentum and stochastics at overbought levels. We expect this slide to be limited given that the stock market is higher this morning. In focus today is the FOMC minutes and tomorrow’s BOJ policy meeting. We do not expect any additional easing measures from the BOJ despite inflation and growth still vulnerable to the downside. Look for the pair to trade range-bound with support seen around 122.95-123.00 (21 and 50 DMAs) and resistance around 123.50-60 levels (Nov high). A break of this level on a daily close could see a bullish extension to 124.50 (19 Aug high). We have Oct trade and BOJ policy statement/Kuroda press conference tomorrow, and BOJ Kuroda speaks on Fri.

      AUD/USD – Range. AUD has been rather choppy since early European trading hours on Tue, touching highs of 0.7140 before easing back to 0.7110. RBA minutes had offered little cues, expecting economic growth forecast to strengthen gradually over next 2 years as drag from falling mining investment wanes and activity progressively shifts towards non-mining sectors. Also noted evidence of spare capacity; low wage growth; lower than expected 3Q inflation outcome and that inflation outlook may afford some scope for further monetary easing if that is appropriate to lending support to demand. AUD was last seen around 0.7110 levels. Weekly momentum continues to indicate a bullish bias while daily MACD forest is at zero. Resistance at 0.7140 levels (21, 50 DMA) could still deter bids, ahead of the 0.72 levels (50% fibo retracement of Oct high to Nov low). Support at 0.7030 levels (upward sloping trend-line support on Sep lows). Intra-day trade is likely to remain within the 0.7050 – 0.7140, eye FOMC Minutes. RBA Debelle suggested to switch reference rates from bank bill swap rates to risk-free rate. He also said that market participants have “no excuse” for not being ready for a Fed rate rise. Wage price steadied around 0.6%q/q for 3Q and 2.3%y/y.

      USD/CAD – Rising Wedge (Bearish Reversal)? USDCAD remained firm; last seen around 1.3330 levels at time of writing. Daily chart reveals possible rising wedge formation in the making; and is nearing the apex 1.3360. While daily momentum remains bullish bias; it is showing some signs of waning. Favor establishing tactical shorts on rally towards 1.3350 levels for a move towards 1.3220 (61.8% fibo retracement of Sep high to Oct low). Tight stop at 1.3385. Week ahead brings Sep retail sales; Oct CPI (Fri).

      NZD/USD – Another Decline in GDT Prices Overnight.  NZD remains heavy, weighed down by 3^rd consecutive decline (-7.9%) in GDT auction overnight (in line with what we are expecting). NZD was last at 0.6470 levels at time of writing. Bearish momentum and stochastics on daily chart remains intact. Interim base at 0.65 appears to have been broken and we continue to stick to our bearish call for a move towards 0.6390 objective. Remain better seller on rallies towards 0.6550 levels (50, 100 DMAs). Week remaining brings 3Q PPI (Thu).

Asia ex Japan Currencies

      The SGD NEER trades 0.96% below the implied mid-point of 1.4105. We estimate the top end at 1.3821 and the floor at 1.4390.

      USD/SGD – Rangy With An Upside Bias.  USD/SGD is ticking higher this morning but still well-within its recent trading range of 1.4156-1.4261 ahead of the FOMC minutes later tonight. Last seen around 1.4244, pair has lost most of its mild bearish momentum, while stochastics is turning higher. With 1.4240 (trendline resistance) taken out on a daily close yesterday, further upmoves towards 1.4261 (9 Nov high) could be in sight. Any retracement should find support around 1.4225 (21DMA) before the next around 1.4210 (50DMA). Remaining week has 3Q15 Final GDP due sometime 19-25 Nov.

      AUD/SGD – Capped. AUD/SGD is whippy this morning, seen around 1.0130, still unable to clear the barrier at 1.0133 (61.8% Fibo retracement of the Aug-Sep sell off). Intraday MACD is showing waning bullish momentum. Any further upside should be capped. A break of the 1.0133-barrier is needed for the pair head higher towards 1.0235. Support is seen around 1.0062 (50DMA) before the next at 1.0050 (50% Fibo retracement).

      SGD/MYR – Range-Bound. SGD/MYR remains confined to recent range of 3.07 – 3.08 for the past few sessions. Last seen at 3.0800 levels this morning. Momentum indicators remain flat but stochastics is showing tentative signs of turning lower from overbought areas. Immediate resistance at 3.0810 (76.4% fibo of Sep high to Oct low); if broken above on daily close basis could see the pair push higher towards 3.13 (previous high in Sep). Support remains at 3.05-3.06 levels (21, 50 DMAs). See intra-day range of 3.06 – 3.08.

      USDMYR – Rising Wedge (Bearish) or False Setup? USDMYR was little changed. Last seen at 4.3870 levels. While momentum remains bullish; there are tentative signs of stochastics falling from overbought areas – possible near-term downside pressure. Price action from recent weeks suggests a potential rising wedge (bearish) formation in the making. But remains too early to tell if this is a false setup as prices is still above the 50% fibonacci retracement (4.28 levels, previous high in Sep) of Sep high to Oct low. That said, we continue to watch this potential bearish setup. Immediate resistance at 4.3870 levels (76.4% fibo), before 4.48. Next support at 4.3280 (61.8% fibo) before firmer support at 4.28 (50% fibo). Sustained price action below the 4.28 levels will suggest further downside pressure towards 4.23 (38.2% fibo), 4.1750 (23.6% fibo) before 4.11 levels (100 DMA). A move towards 4.08 (Oct low) cannot be ruled out if the pattern proves to be valid. However price pattern will be invalid if prices remain well above 4.28 levels. Week remaining brings Oct CPI; FX reserves (Fri).

      1s KRW NDF – Drifting Higher. 1s KRW remained supported amid a firmer USD overnight. Pair was last seen at 1174 levels at time of writing. Daily momentum and stochastics continue to indicate a bullish bias. Next resistance at 1184 (76.4% fibo retracement of Oct high to low). Interim support at 1172 (61.8% fibo) before 1162.50 (50% fibo). Week remaining brings Oct PPI (Thu).

      USD/CNH – Bullish Bias. USD/CNH remained firm around 6.4120. MACD is bullish bias and next resistance is seen at 6.4199. CNH is trading at a discount to CNY against the USD of around 300 pips. USD/CNY was fixed 56 pips higher at 6.3796 (vs. previous 6.3740). CNY/MYR was fixed 3 pips higher at 0.6854 (vs. previous 0.6851). At home, Caixin cited PBOC official Zhou Chengjun who urged for accelerating yuan convertibility under financial and capital account.

      SGD/CNY – Steady. SGD/CNY steadied around 4.4775 at last sight. Pair has lost most of its bullish momentum and we continue to expect range-bound trades ahead. Upside moves is likely to be capped by 4.4840 (50DMA). Support nearby is seen around 4.4560.

      1s INR NDF – Waning Bullish Momenutm. 1s USD/INR is a touch higher than its close yesterday and was last seen at 66.38. MACD indicates waning bullish momentum and further upside could be a grind. Nearby support is seen around 66.21 ahead of the next at 65.95 (50-DMA). Foreigners sold a net of USD143.2,m of equities on Mon and USD246.1mn of bonds. At home, Finance Minister Jaitley told Bloomberg TV that PM Modi has the required number of votes to get the GST approved next year. That could revive risk appetite at home.

      USD/IDR – Whippy. USD/IDR is whippy this morning with the pair seen around 13750. There could be some support for the IDR though from yesterday’s mildly upbeat economic forecast by BI as well as the planned cut to the primary reserve requirement that could help to spur economic growth. Both intraday MACD and stochastics are still showing bullish momentum, suggesting that risks are still to the upside ahead. Pair remains trapped within an intraday ichimoku cloud, which suggests range-bound trades are likely. Ahead of the FOMC minutes later tonight, we expect range-bound trades to prevail with support seen around 13630 (21DMA) before the next around 13560 (lower bound of the cloud). Resistance remains around 13800. 1s IDR NDF is edging lower this morning to 13880 levels with intraday MACD showing bearish momentum and stochastics bearish bias. The JISDOR was fixed lower at 13711 yesterday from Mon’s 13732. Selling in the equity market continued yesterday with a net USD12.23mn sold by foreign funds. BI left its policy rates unchanged as expected with the reference rate, lending facility rate and deposit facility rate at 7.50%, 8.0% and 5.5% respectively. The cautious stance by the central bank was in anticipation of the imminent hike in the US Fed’s target fund rate and a guard against further IDR weakness. However, further cuts cannot be discounted given BI Senior Deputy Governor’s comments that BI could “probably” cut rate should market reaction to a Fed rate hike in Dec be muted. In a nod to further monetary support for the economy, the BI plans to cut the primary reserve requirement rate to 7.5% from 8.0%, effective 1 Dec, after taking into account the inflation rate and current account deficit. BI expects that this could add IDR18tn lending capacity to the financial system. At the same time, BI provided updates to its economic forecasts. It expects the current account deficit at 2% of GDP for 2015, and inflation and growth to come in below 3% and 4.7-4.8% in 2015 respectively. For 2016, inflation and growth are expected to come in at 4.7% and 5.2-5.6% respectively.

      USD/PHP – Closed For APEC.  Onshore markets are closed for APEC-related holidays for the rest of the week and re-opens on Mon. 1s PHP NDF holding steady at around 47.36 this morning after climbing higher overnight on the back of a firmer dollar. Intraday MACD is showing increasing bullish momentum and stochastics is now bullish bias, suggesting the potential for further upticks ahead.

      USD/THB – Two-Way Trades. After climbing to an overnight high of 36.040 on the back of a firmer dollar, USD/THB is easing slightly back below the 36-figure to 35.970 currently. Pair is still showing no strong momentum, suggesting two-way trades are likely ahead. Further dips should find support around 35.885 (50DMA). Upticks should meet resistance around 36.082 (61.8% Fibo retracement of the 36.670-35.130 downswing). Outflows continued with foreign funds selling a net THB0.74bn each in equities and government debt yesterday. Data release upcoming is 13 Nov foreign reserves (Fri).

Rates

Malaysia

      Local government bond market continued to see mixed trading. Traded volume was heaviest on short term 3y MGS 3/19. Buying was seen on 10y MGS 9/25s which ended -2bps lower from previous done.

      IRS market was lackluster with levels ending flat to a tad lower. Meanwhile, basis sustained its tightening trend. 3M KLIBOR stayed unchanged at 3.75%.

      PDS trading picked up marginally, with bids mainly for AAA papers at the belly but at 1-3bps wider. Elsewhere, GG and AA spaces were muted.

 Singapore

      SGS prices dipped in line with the overnight movement in UST. There were some selling interest but bids in short-dated bonds helped hold up the market. This led SGD IRS to ease off from intraday highs, ending 3-4bps higher. SGS yields closed 1-2bps higher.

      Asian credits were stronger on good buying across the board from real money and short covering. MALAY, PETMK and Axiata papers also did well. A couple of new issues from Singapore-based companies, including STATS ChipPAC coming to the market for the first time since Temasek cashed out to issue USD400m 5NC3 bond. The order book looked decent. Noble still trading negatively, with its bonds down 2-3pts, as Moody’s is reviewing it for a possible downgrade after 3Q results missed. In CDS, market was still better seller. INDON moved lower but cash bonds did not follow in the same magnitude. HRAM complex rebounded from previous day’s widening by 3-5bps.

 Indonesia

      The government bond market was unchanged yesterday as the market players have a focus to the central banks’ meeting. Bank Indonesia decided to retain the policy rate at 7.50%. This decision was the central bank’s stance to maintain national macro stability amidst the global pressures that mainly coming from the Fed’s uncertainty on the normalization policy. On the other side, there is an intention from the central bank to support local economic growth through slashing the primary reserve requirement in Rupiah from 8.0% 7.50%, effective on 1st December 2015. It is expected to give more liquidity for driving economic growth. However, there were no reaction can be seen on the spot market since the decision came after market close while on the bonds side yields went lower by around 5bps particularly on 10-15yrs buckets.  Furthermore, the government also held a Sukuk auction with Rp2 trillion of indicative targets. From the auction, the government has successfully absorbed Rp3.17 trillion from total Rp3.97 trillion of incoming bids.