Maybank GM Daily - 5 Nov 2015

FX

Global

      Dollar rallied overnight, boosted at first by stronger-than-expected private employment numbers and then by Fed Yellen’s testimony. She said that if economic data continue to indicate growth and firmer prices, a Dec rate hike is a ‘live possibility’. That said, she stressed that the Fed has not decided on the timing of a rate increase and the decision is data dependent. Fed Dudley agrees with her on the plausible Dec hike though he is more watchful of inflation. UST 10y yields rose towards the 2.24% in NY session.

       The combination of dollar strength and the EIA report of higher oil inventories triggered the slide in crude prices overnight. Brent was down almost -2%, erasing Tue’s gains. WTI also lost -1.6%. That boosted the USDCAD which spiked towards the 1.32-figure overnight before tapering off to levels around 1.3150 as we write in early Asia.

       Nearer to home, the IMF SDR basket review remains in focus with a statement from the IMF stating that the review is set for Nov though a specific date has not been set. In China however, local press reported a delay in the date of the review, albeit still within the Nov. Uncertainties arising from the SDR review could spark off some volatility in the Renminbi. Elsewhere, Philippines release Oct CPI today before Indonesia’s 3Q GDP. Bank Negara Malaysia decides on overnight policy rate and we expect them to stand pat.

       Beyond Asia, focus is on the BOE tonight. MPC decision, meeting minutes and Nov quarterly inflation report and press conference will be watched. Risk is to the downside if outlook is downgraded and could pose some short-term downside pressure on GBP. More interesting speakers are lined up tonight: Fed Fischer, Harker, Dudley, Lagarde, Lockhart, EU Juncker. Europe has Germany’s factory orders due today followed by EC, GE, FR retail sales. US has its usual weekly initial jobless claims and focus thereafter will be on Oct NFP tomorrow.

Currencies

G7 Currencies

      DXY – Upside Momentum into NFP. DXY rallied overnight, underpinned by Fed speaks. Fed Chair Yellen said a rate hike in Dec is still a “live possibility” should economic data continue to point to growth and firmer prices. Fed Dudley agreed in a separate speech. Implied Fed futures show a 58% chance of rate hike now in Dec. ADP report was a tad better than average forecast with a print of 182K. DXY closed near the 98-figure. Daily MACD shows bullish momentum. Key resistance at 97.42 (61.8% fibo retracement of Mar high – Aug low) was taken out.  We look for a move higher towards 98.55 levels (76.4% fibo and Aug high) on a clean break. Remain better buyers of USD on dips. Support at 96.50 levels (50% fibo), 96 levels (100 and 200 DMAs). Week ahead brings Initial Jobless Claims (31-Oct); Fed’s Fischer, Harker, Dudley, Lagarde, Lockhart speak today. For Fri, NFP, unemployment rate, wages (Oct); Fed’s Bullard, Brainard, Williams speak.

      EUR/USD – Shorts In Favour. EUR extended its decline towards 1.0860 overnight. The growing monetary policy divergence theme between Fed and ECB reinforces the “sell EUR on rally” trade. That said we cautioned against chasing shorts. But EUR’s downside pressure may be limited by EUR’s inverse correlation with risk asset (YTD correlation coefficient between EUR and German DAX recently strengthened to -0.61 out of maximum possible of -1.0). This implies that a turn in risk sentiment may see provide interim support. Technical-wise, daily MACD Forest is at the zero line. Next support is seen at 1.0940 (61.8%) levels for further downside towards 1.0830-40 levels (Jul-Aug 2015 support), 1.0760 (76.4% fibo) to come into play. Week ahead GE Factory orders (Sep); EC retail sales (Sep); EC, GE, FR Retail PMI (Oct) today. For Fri, GE IP (Sep).

      GBP/USD – Blockbuster Thu. GBP softened under the 1.54-figure as we write, under pressure because of broad dollar strength. Expect market players to remain non-committal ahead of BOE rate decision tonight. 100-DMA caps topside for the GBP. Focus is on the release of Quarterly Inflation Report which is expected to address some of the concerns BoE deferred at its last MPC meeting in Oct. Risk is to the downside and could weigh on GBP strength. That said, we remain optimistic of GBP outlook and believe markets could be under-pricing the prospects of BoE rate rise (Consensus looks for BoE to hike in 2017; we expect 1H 2016). Remain better buys of GBP on dips. There is little bias at this point. Resistance at 1.55 levels (100 DMA). If broken on daily close basis, could expose further upside towards 1.5650 (previous high in Sep). Support at 1.5340 – 1.5350 levels (38.2% fibo and 21, 50, 200 DMAs), before 1.5260 (61.8% fibo retracement of Oct low to high), Week ahead brings BoE blockbuster meeting – decision, Quarterly inflation report and press conference today; Sep Industrial, manufacturing production, trade data (Fri).

      USD/JPY – Bullish Tilt. USD/JPY hit a new high not seen since Aug of 121.72 overnight before easing off back to around the 121.60 levels currently. Pair’s climb was triggered by comments by Fed Chair Yellen that reinforce expectations that a Dec Fed fund rate hike was in play as well as strong US ADP print, which sent the dollar index higher. Policy divergence between the US and Japan is likely to keep the pair bid ahead of the US NFP print this Fri. Intraday momentum indicatrs are still bullish bias, though stochastics remains at overbought territory. Strong resistance remains at 121.80 (100DMA and 61.8% Fibo retracement) that should cap further upside intraday. Any reversal should find support at 120.90 (21 DMA) before 119.66 (38.2% Fibo retracement of 125.8-116.18). We have BOJ minutes on tap today and BOJ Kuroda speaks; Sep leading and coincident index on Fri.

      AUD/USD – Choppy. The AUDUSD pairing slipped towards the 50-DMA, under pressure of the dollar strength and was last seen around 0.7140. Eyes are on the statement on monetary policy for more details on the decision this Fri. Daily MACD is bearish though losing momentum. Interim support is seen at 0.7060. Thereafter, support at 0.70-levels (rising trend-line support from Sep lows) should hold. Weekly chart shows signs of bullish divergence. Immediate resistance is seen at 0.72 (23.6% fibo retracement of 2015 high to low), 0.73 (100 DMA) before 0.7390 (38.2% fibo). Week ahead brings RBA Governor Stevens, Lowe speak; RBA releases Statement of Monetary Policy; RBA Edey speaks; Oct FX Reserves (Fri).

      USD/CAD – Settling into Range? USDCAD bounced on a bearish reversal in crude prices and brute force of dollar strength. Pair ist testing the 50-DMA at this point. The clearance of the 1.3170-barrier exposes the next at 1.3210. There is a lack of momentum at this point though MACD shows slight bullish bias. Pair could head higher towards the upper bound of the 1.3000-1.3300 range. Labour report for Oct is due on Fri (Cons.: 10K net change in employment).

      NZD/USD – Downward Pressure Still.  NZD continued to press lower past the 0.66 cents levels underpinned by the dollar resurgence. Pair is currently hovering around 0.6591 with intraday MACD showing bearish momentum and stochastics at oversold levels. This suggests the potential for a rebound ahead though in the meantime pair could remain under pressure. With our resistance level at 0.6620 taken out overnight, next focus is on 0.65. Any rebound could meet resistance around 0.6610 (200DMA) ahead of 0.6640 (ichimoku conversion line). Government’s 3-month financial statement is due this Fri.

Asia ex Japan Currencies

      The SGD NEER trades 0.64% below the implied mid-point of 1.3931 with the top end estimated at 1.3650 and the floor at 1.4211.

      USD/SGD – Bullish.  USD/SGD climbed to an overnight high of 1.4060 on the back of a resurgent dollar before easing to around the 1.4030-levels currently. Intraday momentum indicators and stochastics are both still bullish bias. With risks still to the upside, further bounce higher should meet resistance around 1.4060 (200DMA) ahead of 1.4080 (23.6% Fibo retracement of the May to Oct upswing). Downticks today should find support around 1.3996 (21DMA).

      AUD/SGD – Choppy Action. AUDSGD was not able to make much progress overnight, slipping only a tad to levels around 1.0020. Momentum indicators on the daily chart show waning bearish conditions. Support is seen at 0.9967 (38.2% Fibonacci retracement of the Aug-Sep pullback) ahead of the next at 0.9890. Prices are about to test barriers around 1.0020/40 region. Actions likely to remain choppy within 0.9860-1.0130.

      SGD/MYR – Capped. SGD/MYR bouncing higher this morning on the relative strength of the SGD. Cross is inching closer to the 3.06-levels at 3.0568 currently with both intraday MACD and stochastics showing bearish bias, which suggest further upside moves could be capped. Still, further weakness in the MYR relative to the SGD could see the cross climb higher intraday with 3.0810 (76.4% Fibo of Sep high to Oct low) capping upside moves. Any dips should find support around 3.0350.

      USD/MYR – Rangy Ahead Of BNM. USD/MYR is inching higher this morning as lower global oil prices put upward pressure on the pair. As well, the firmer dollar tone is also lifting the pair higher. Pair is currently hovering around the 4.2890-levels with intraday MACD forest showing waning bearish momentum and stochastics tentatively turning higher, signalling bullish bias ahead. Still pair is likely to trade range-bound for now ahead of the BNM meeting later today. Upticks should meet resistance around 4.3280 (61.8% fibo retracement of Sep high to Oct low) still, while support is seen around 4.2490 (50DMA). Aside from BNM, we also have Sep trade data on tap today. Tomorrow has FX reserves data. We expect Bank Negara Malaysia (BNM) to keep the policy rate unchanged at 3.25%. In fact we do not expect BNM to move in the next 4-5 quarters despite the US policy rate cycle as it needs to maintain accommodative interest rate policy to support domestic demand. The official growth forecast of 4-5% next year means growth is still sustained so there is no need to cut policy rates. There is more upside risk for inflation next year rather than downside and provides further support for a no move, especially in a near zero real interest rate. BNM is likely to focus on market liquidity which is in line with moves to encourage "onshoring" of local corps currency earnings and deposits.

      1s KRW NDF – Bullish Bias. 1s KRW is on the uptick this morning, hovering around the 1140-levels on the back of a firmer dollar tone. Both intraday momentum and stochastics are now bullish bias. Should the NDF close above 1137 today, next resistance at around 1152 (38.2% fibo retracement of Sep high to Oct low) should cap further upmoves. Support around 1125 should continue to hold intraday.

      USD/CNH – Lack of Momentum Now. USD/CNH edged a tad higher towards 6.3590 this morning, testing the interim resistance around 6.3610.There is not momentum at this point and we think there could be some stabilization within 6.3300-6.3600. A break on the upside exposes 50-FMA at 6.3895. CNH is trading at a discount to CNY against the USD, last seen around 200 pips ahead of the onshore market open. USD/CNY was fixed 38 pips higher at 6.3381 (vs. previous 6.3343). CNY/MYR was fixed 22 pips higher at 0.6709 (vs. previous 0.6730). The IMF SDR basket review remains in focus with a statement from the IMF stating that the review is set for Nov though a specific date has not been set. In China however, local press reported a delay in the date of the review, albeit still within the Nov. Uncertainties arising from the SDR review could spark off some volatility in the Renminbi.

      SGD/CNY – Choppy in Range. This cross slipped to 4.5200 in early Asia trade. Momentum is still mildly bearish with risks to the downside. A break out of the 4.5200-4.5700 range widens the range trade to established band of 4.4560-4.6000.

      1s INR NDF – Overbought. 1s USDINR was little moved yesterday, capped by the 50-DMA and last seen around 65.90.  Resistance remains at 66.02 (50-DMA). MACD on the daily chart shows steady upside momentum that could keep the pair to the upper bound of the 64.80-66.10 range. RSI falls from overbought conditions and we see potential retracement in the session. A more unlikely bearish breakout exposes 200-DMA at 64-figure. Tue saw foreigners sold USD57mn of equities and sold USD59.2mn of bonds.

      USD/IDR – Rangy Ahead Of GDP Release. USD/IDR is back on the climb higher, playing catch-up with its regional peers. Pair is seen back around the 13600-levels with intraday momentum indicators showing no strong momentum and stochastics still bearish bias. This suggests that further upmoves are likely to be capped intraday. Ahead of 3Q15 GDP later today and US NFP tomorrow, we expect pair to trade range-bound within 13460-13700 intraday. 1-month NDF jumped above the 13700-levels this morning, though it remains well-within its current trading range of 13360-14100, with intraday MACD and stochastics showing bullish bias. The JISDOR was fixed lower at 13461 yesterday from Tue’s 13594. Risk sentiments improved yesterday with foreign funds purchasing a net USD19.76mn of equities yesterday. Latest data showed that foreign funds added a net IDR1.20tn to their outstanding holding of government debt on 3 Nov. 3Q15 GDP is on tap today  and  our economic team and the market is expecting growth to come in around 4.80% y/y. Tomorrow has Oct foreign reserves on tap.

      USD/PHP – Range-Bound.  USD/PHP is bid this morning as its tracks the USD/AXJs broadly higher. Pair is seen around 46.881 currently with intraday MACD still showing no strong momentum, while stochastics remains bearish bias. This suggests that further upmoves could be capped ahead. Ahead of US NFP tomorrow, range-bound trades should hold. Resistance is seen around the 47-figure, and support around 46.740 (21DMA). 1-month NDF is inching higher towards the 47-levels this morning, currently seen around 46.980, with intraday MACD showing no strong momentum, and stochastics mildly bullish bias. Risk appetite improved yesterday with foreign funds buying a net USD4.56mn in equities. We have Sep trade and end-Oct FX reserves on tap tomorrow. Headline inflation rose by 0.4% y/y in Oct (Sep: 0.4%), in line with estimates, still weighed down by lower housing and utility costs and food prices.  Core inflation was on the uptick, rising by 1.5% y/y in Oct (Sep: 1.4%).

      USD/THB – Turning Bullish.  USD/THB is whippy this morning. THB initially found support not only from accommodative policy rates but more importantly, improved confidence from the government’s THB53-54bn fiscal stimulus measures that impact the economy from late 4Q15 into 1Q 2016. The BoT stood pat on policy as expected despite inflation remaining benign. The central bank continues to expect rates to be accommodative but believes that government spending should take the lead in supporting economic recovery. Still, the firmer dollar tone is now pressuring the pair higher. Pair is currently edging higher to around 35.550-levels with intraday MACD showing tentative signs of turning higher, though stochastics is indicating bullish bias.  Further upticks could be capped by 35.655, while any dips should find support around 35.490 (100DMA) before the next at 35.350. Risk appetite for Thai assets was again mixed yesterday with foreign funds buying a net THB0.16n in equities while selling a net THB0.72bn in government debt. On tap this Fri is 30 Oct foreign reserves.

Rates

Malaysia

      Local government bonds saw range bound trading, with trades mostly on the 3y benchmark MGS 3/19 at previous levels. Volume was enlarged by switch auction trades. Market was still waiting for the MPC decision on Thursday evening.

      IRS market was rather quiet, with the curve ending 1-4bps higher. No trades were reported as market awaited the rate decision and language in the MPC statement.

      Local PDS market traded on a weaker note, but saw a slight pick-up in activity. Telekom, Cagamas and Celcom papers at the short end and belly traded 1-2bps wider. Short-dated GG papers however were dealt 2bps tighter. The AA space saw some trades at the short and long ends, closing flat from previous levels.

Singapore

      SGS market remained volatile with prices falling in the morning as lower UST provided impetus for selling pressure but reversing in the afternoon on the back buying flows. Though it seems most primary dealers were light and merely quoting. SGS yields ended +1bp to -2bp and so did the SGD IRS rates.

      Asian credit market were focused on new issues again. ICBC Leasing’s 3y and 5y bonds came in better by 8bps and 4bps respectively. The massive performance in Latin America overnight helped support Asian sovereigns with cash paper as CDS embarked on a tightening spree. INDON and MALAY CDS recorded double digit gains, and the INDON/MALAY spread normalized back to 25bps. For spreads, INDON cash was 10bps better, while PHILY was 2-4bps better. On rating changes, 1) Yanzhou Coal downgraded by 1 notch to Ba3 by Moody’s as declining thermal-coal prices weakened credit profile; 2) Alam Sutera downgraded to B from B+ by S&P, citing higher leverage and lower sales prospects; 3) S&P also downgraded Mongolia to B from B+ on weakening fiscal and external performance.

 Indonesia

      Indonesia bond market closed positive during the day amid minimum market sentiments. We see that possibility of LCY bond prices to decline today on the note of a rather hawkish Fed Yellen statement as well as better ISM non-manufacturing and ADP employment change compared to consensus expectation. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 8.543%, 8.668%, 8.923% and 9.032%. Trading volume at secondary market was seen thin at government segments amounting Rp8,432 bn with FR0064 as the most tradable bond. FR0064 total trading volume amounting Rp984 bn with 34x transaction frequency.

      Corporate bond trading traded thin amounting Rp451 bn. INDF07 (Indofood Sukses Makmur VII Year 2014; Rating: _idAA+) was the top actively traded corporate bond with total trading volume amounted Rp120 bn yielding 9.625%.