Tuesday, August 2, 2016

* After China’s official PMI-mfg came in under expectations at 49.9, the Caixin version

*      After China’s official PMI-mfg came in under expectations at 49.9, the Caixin version surprised to the upside with a significant improvement to 50.6 from the previous 48.6. The report pinned it to an improvement in operating conditions, higher new business and stronger domestic demand. While Hang Seng rose 1.1%, onshore equities slipped into red. Post-lunch in Asia, Fed NY President Dudley warned of complacency on rates and that saw some mild re-establishments of USD across the board.

*      USD clocked gains vs most G10 currencies yesterday. AUD was the laggard, weakened by -0.8% against the USD ahead of key rate decision by RBA today. Asian currencies demonstrated more resilience yesterday although CNH and JPY depreciated a fair bit. KRW and MYR were on the other end of the spectrum, buoyed by positive risk sentiments yesterday. We doubt MYR can sustain the gains later after the 3.2% fall in the Brent crude prices overnight. In the meantime, the typhoon season has started in Hong Kong, markets remain closed as the No.8 signal is hoisted.

*      RBA meets today. Whilst there is certainly room for a rate cut given low tradable inflation and a core inflation that is below inflation target, we think a cut to cheapen AUD might not pay off in this month given supportive iron ore prices. If any, the next cut should be delayed into November ahead of a potential Fed rate hike in Dec. Apart from RBA, US releases Jun PCE Core, Fed Kaplan speaks in Beijing. We also eye Japan’s announcement of the fiscal stimulus which will be a key swinger of USDJPY and possibly rest of Asia, in particular USDSGD.

   G7 Currencies
*      DXY – Downside Risk. Overnight, the USD index consolidated after the decline on Fri. On data, ISM mfg and construction spending data came in weaker than expected. Focus this week on US NFP. Consensus is looking for +180k increase and we think NFP probably has to be much larger than consensus expectation for rate hike expectation to be back on. That said, consistently bad economic data may also send trigger risk aversion and USD could rise on that as well. On Fed speaks, Kaplan (non-voter) said Sep rate hike “very much on the table” while Dudley said investors underestimating policy tightening by end 2017. DXY was last seen at 95.70 levels. Daily momentum is mild bearish bias while stochastics is falling. Support at 95.10 (100 DMA). Resistance at 95.80 levels (50% fibo retracement of 2016 high to low), 96.50 (200 DMA). Week ahead brings PCE Core (Jun); ISM NY (Jul); Fed’s Kaplan speaks on Tue; ADP (Jul); services/composite PMI (Jul) on Wed; Factory, Durable, Capital Goods Orders (Jun); Fed’s Kaplan speaks on Thu; NFP, hourly earnings, unemployment rate (Jul); Trade (Jun) on Fri
*      EURUSD – Mild Bullish Bias. EUR remained supported amid quiet trading. PMIs in EMU, Italy, Spain, and Germany were slightly lower than expected. EUR was last seen at 1.1170 levels. Daily momentum and stochastics remain mild bullish bias. Resistance remains at 1.12 (38.2% fibo retracement of 1.0524 – 1.1616). Support at 1.1070 (50% fibo retracement of 1.0524 – 1.1616, 200 DMA), 1.0940 (61.8% fibo). Week ahead brings Mfg PMI (Jul) on Mon; PPI (Jun) on Tue; Services/Composite PMI (Jul); Retail Sales (Jun) on Wed; ECB Minutes; Retail PMI (Jul) on Thu.
*      GBPUSD – Construction PMI on Tap. GBP fell on worse than expected mfg PMI (in contractionary territories). Last seen around 1.32 levels. Bullish momentum on daily chart remains intact. We continue to caution for the risk of upside in the short term on stretched short positions. Resistance at 1.3320 (23.6% fibo retracement of the decline since Brexit). Support at 1.30 before 1.28 (previous low). Week ahead brings Mfg PMI (Jul) on Mon; Construction PMI (Jul) on Tue; Services/composite PMI (Jul) on Wed; BoE Meeting; Quarterly Inflation Report on Thu; Halifax House Prices (Jul) on Fri. Focus on Super Thursday (BoE Meeting Decision, release of Minutes and Quarterly Inflation Report) – if BoE delivers comprehensive easing. We are expecting a 25bps cut but the exact extent of additional stimulus will be based on Committee’s updated forecast (which is expected to be included in the QIR). We noted that BoE meeting (2 weeks ago) indicated there are preliminary signs that Brexit result has affected sentiment.  Recent PMI/ retail sales as well as sentiment indicators have confirmed that. We do see rising risks of asset purchases potentially targeted at private sector as a mean of credit easing but this is not our base case scenario unless the MPC committee’s updated economic growth forecasts are massively downgraded (these will be made known in the Quarterly Inflation Report this Thurs). We believe a stable GBP is in the BoE’s best interest, and we doubt BoE will want to trigger another bout of GBP weakness on the economic outlook. Sustained weakness could fuel portfolio outflows and destabilize investor sentiment and this is probably not something BoE wants at this stage, given that the country suffers from twin deficit (its current account deficit is already 7% of GDP and cannot afford to have too much outflows). Also large decline in GBP over short period of time may bring about cost-push inflation, and limit the scope for future monetary policy response.
*      USDJPY – Awaiting Details of Stimulus Package and Cabinet Reshuffle. USDJPY is a tad softer this morning ahead of the government’s unveiling of the details of its JPY28tn fiscal stimulus expected today. Rumours suggest that new spending will be around JPY7tn but this is unlikely to be sufficient to please investors especially after the BOJ underwhelm expectations on Fri. This could once again dent market confidence in Abenomics and see the pair drifting lower towards the 100-levels. Moreover, fiscal and monetary expansionary alone in the absence of restructuring of the economy is unlikely to lift the pair significantly higher. The cabinet reshuffle on Wed could provide an indication on moves on this front. Nikkei futures are lower this morning, suggesting further downside is likely for the pair. Pair was last seen around 102.40 levels. Daily momentum remains mildly bearish bias and stochastics is falling towards oversold conditions. Weekly charts though show no strong bias in either direction. Disappointment in the fiscal package could see the pair slip lower towards 101.50 (50% fibo retracement of the 2012-2015 upswing) before 95.75 (61.8% fibo). Otherwise, a rebound could a move bnack towards resistance at 104.10 (21DMA); 105.30 (50DMA) ahead of key barrier at 107.25 (38.2% fibo). Week ahead has announcement of fiscal stimulus details on Tue; Nikkei PMI Service & Composite, Cabinet Reshuffle on Wed; BOJ Iwate speaks in Yokohama on Thu; Labour Cash Earnings on Fri.
*      NZDUSD – Short Term Upside Risks. NZD eased off recent highs, tracking the moves in AUD. Pair was last seen at 0.7180 levels. Daily momentum and stochastics are indicating a mild bullish bias. The pair could potentially test higher. Resistance remains at 0.7320 levels (2016 high). Support at 0.7160 levels (61.8% fibo retracement of Jul high to low) before 0.7050 (50 DMA). Week ahead is relatively quiet. Data of interest includes 2Y Inflation Expectations, GDT Dairy Auction on Tue. Jul house prices data released this morning saw another increase, higher than Jun data.
*      AUDUSD – Eye RBA. AUDUSD hovered around 0.7530 as we write in Asia morning, weighed by the prospect of a rate cut later. Whilst there is certainly room for a rate cut given low tradable inflation and a core inflation that is below inflation target, we think a cut to cheapen AUD might not pay off in this month given supportive iron ore prices. We see a possibility that this could be delayed into November ahead of a potential Fed rate hike in Dec. There is little momentum on the daily charts, suggesting room on both sides. Support remains around 0.7440 levels. Uptrend may extend in case of no rate cut, towards 0.7720 before 0.78. That in itself may be the reason for RBA to act. Doing so could tip AUD towards the 0.7328 at 200-DMA.  Week ahead brings RBA Meeting; Building Approvals (Jun); Trade (Jun) on Tue; Retail Sales (Jun) on Thu; RBA Statement of Monetary Policy on Fri.
*      USDCAD - Eye the 1.30-Support. USDCAD bounced off 1.3040 and hovered around 1.3120, buoyed by the pullback in oil prices. Support is still seen around 1.2987 (23.6% fibo retracement of the Jan- Apr sell off, 100, 50-DMA). A break there could see pair towards the 1.2660. Daily chart showing less momentum or directional bias. The weekly chart shows more bullish promise.   Key barrier is still seen around 1.3310 (200-DMA). Break above could see the pair test higher towards 1.3575 (50% fibo). Support at 1.3140 (before the break out). RBC Mfg index is due tonight for Jul. Jobless rate is due on Fri for Jul.

Asia ex Japan Currencies
*      The SGD NEER trades 1.02% above the implied mid-point of 1.3568 with the top estimated at 1.3300 and the floor at 1.3837.
USDSGD – Still Bias To Buy On Dips.  USDSGD is little changed after rebounding yesterday following the pair’s plunged below the 1.34-handle on Fri. Likely profit-taking activities could spur the unwinding of some short USDSGD positions, helping to keep the pair steady so far. But moves in the USDJPY could provide directional cues for the pair. Pair was last seen around 1.3430 levels. Daily momentum still shows tentative signs of bearish bias, while stochastics continues to fall. Weekly momentum indicators continue to show no strong bias in either direction but stochastics is still falling toward oversold conditions. Key support remains at 1.3405. A sustained break below puts 1.3313 (year’s low) in focus. We remain bias to buy on dips. Resistance at 1.3500 (21DMA) ahead of 1.3540 (50DMA). Beyond this level, 1.3650 (38.2% fibo) should act as key barrier. PMI (Jul) is on tap later tonight.
*      AUDSGD – Range-Bound, Eyes RBA. AUDSGD continued to swivelled and hovered around 1.0110. Support at 1.0136 (200 DMA) has been broken and now eyes are on the 1.0060 (50 DMA). Resistance at 1.02 levels (50% fibo retracement of 2016 high to low), 1.0280 (61.8% fibo).
*      SGDMYR – Entering Overbought Conditions. SGDMYR remained well supported amid SGD outperformance while MYR stayed soft on falling oil prices. Last seen at 3.0130 levels. Daily momentum continues to indicate a bullish bias but stochastics suggests the cross is entering overbought conditions. We also see a potential rising wedge formation in the making – potential bearish reversal. Remains too soon to be convicted; we continue to watch price action. Key resistance at 3.0230 (61.8% fibo). Support at 2.99 (50% fibo retracement of Oct high to Apr low, 200 DMA) before 2.9570 (38.2% fibo), 2.9165 (23.6% fibo).
*      USDMYR – Upside Risk Short Term. USDMYR rose amid falling oil prices. Pair was last seen at 4.0440 levels. Bullish momentum on daily chart remains intact but shows signs of waning. Stochastics is also showing signs of falling from overbought conditions. Support at 4.0140 (21, 100 DMAs) before 3.9850 (23.6% fibo). Key resistance at 4.0720 (38.2% Fibonacci retracement of 2016 high to low), before 4.14 levels (50% fibo, 200 DMA). Week ahead brings Jun trade; Jul FX reserves on Fri.
*      1s USDKRW NDF – Cautious at Current Levels. 1s USDKRW continues to trade with a heavy bias amid a weaker greenback post-FOMC and weaker than expected 2Q GDP. Expectations of Fed rate hike continues to fade as well as global monetary conditions to remain loose for longer created the environment for KRW to rally. Pair was last seen at 1108 levels. Weekly/daily technical continues to point to further downside. Next support at 1100 (200 WMA, 61.8% fibo of 2014 low to 2016 high), before 1064 (76.4% fibo). Resistance at 1126 (50% fibo). With KRW at 2016 high vs the USD, we are cautious of central bank engaging in leaning against the wind activities to smooth the rapid gains. Bias to buy on dips towards 1100, for a move back towards 1120. SL at 1192. Week ahead brings Jul FX reserves (Wed).
*      USDCNH – Rebound. USDCNH made a sharp rebound yesterday and was last seen around 6.6490. The CNH seems to be more sensitive to Fed hike expectations recently. Broad dollar weakness to allow room for CFETS TWI to resume its decline. Our target for 6.64 has been met and next support could be seen around 6.6030 (50% Fibonacci retracement of the Jan-Mar sell off) before the next at 6.5656(100-DMA). USDCNY was fixed 174 pips higher at 6.6451 (vs. previous 6.6277). CNYMYR was fixed 30 pips lower at 0.6062 (vs. previous 0.6093). The Caixin PMI-mfg rebounded to 50.6 from previous 48.6. The report pinned it to an improvement in operating conditions, higher new business and stronger domestic demand. NDRC says China is confident of reaching FY economic targets. Uber has sold its China operations to Didi Chuxing.
*      SGDCNH – Back On The Climb. SGDCNH edged higher this morning and was last seen around 4.9550, in tandem with our expectations for CNH to resume its decline against regional peers.  MACD shows decelerating bearish momentum and we see a resumption of the ascent, especially in the absence of USD strength. Next barrier at 4.955 (21-DMA) is being tested before 5.0080 (year high). Support at 4.8950 (38.2% Fibonacci retracement of the May-Jul pullback); 4.8844 (50DMA).
*      MYRCNH – Still Supported. MYRCNH remained sticky around the 50, 100 DMAs, last seen at 1.6440. We continue to expect it to be supported.  A break of that level could expose the next at 1.6197 (lower bound of upward sloping trend channel). Resistance at 1.6656 (21DMA); 1.7155 (Apr 2015 high) before 1.7617 (2015 high).
*      1s USDINR NDF – 200-DMA broken, Eye GST. 1s USDINR slipped under the 200-DMA amid USD weakness, last seen around 67.10 levels. Daily charts shows bearish momentum and pair is testing support at around the 67-figure before the next at 66.25 (year low). Immediate resistance is still at 67.85 (50% fibo retracement of the Feb-Apr downswing); 68.20 (61.8% fibo). We still hold on to our view that monthly momentum looks very bearish in addition to a double top formation that could see a pullback towards 58. Foreign investors bought USD31.2mn of equity and sold USD62.2mn of debt on 29 Jul. PM Modi’s government has accepted the Congress party’s view on the GST (BBG). Jun key industries’ output rose 5.2%y/y.  
*      1s USDIDR NDF – Rangy. After slipping lower for the past few sessions, 1s USDIDR is on the mild rebound this morning, possible on profit-taking. Pair remains though in its familiar trading range of 13000-13240. Last seen around 13090 levels, 1s NDF has lost most of its bullish bias though stochastics continues to tilt lower. Weekly technical though remain bearish bias with stochastics still at oversold levels. Continue to look for support at 13060 (14 Jul low) with a break here exposing the next at the year’s low at 12995. Resistance is at 13240 (23.6% fibo retracement of the May-Jul downswing). The JISDOR was fixed lower for the fourth straight session at 13080 yesterday from Fri’s 13094. Foreign investor bought USD139.89mn in equities yesterday. They had also added IDR1.09tn to their outstanding holding of government debt on 29 Jul (latest data available). Week ahead has Nikkei PMI Mfg (Jul) on Mon; GDP (2Q) due sometime 5-7 Aug. The central bank governor sees inflation ahead as benign. He said that BI expects inflation to come in below 4% in 2016and could stay at those levels with 2018 inflation expected at 3.5%. He also warned that the BI would always be in the market and that the IDR should reflect fundamentals.
*      1s USDPHP NDF – Two-Way Trades.  1s USDPHP is little change this morning with profit-taking activities likely after having edged lower over the past several sessions. We continue to keep an eye for any possible fallout from potential regional geopolitical tensions as a result of the Permanent Court of Arbitration at The Hague’s decision regarding the South China Sea. The rise in tensions could undermine the domestic economy and increase political instability, and consequently weigh on the PHP. 1s NDF was last seen around 47.13 levels. Daily MACD is still showing mild bearish momentum and stochastics is tentatively tilting lower. Weekly technical continues to show upside risks ahead. Support remains at the 47-figure. A break below exposes next support at 46.80 (50DMA). Any rebound should meet resistance around 47.40 (23.6% fibo retracement of the 2015-2016 upswing); 47.70 (12 Jul high). Trades within a wider 46.80-47.50 range should hold intraday. Foreign funds purchased USD15.62mn of equities yesterday. Week ahead has CPI (Jul); Foreign Reserves (Jul) on Fri.
*      USDTHB – Capped.  USDTHB is edging higher this morning after slipping over for the past couple of sessions and touching a new low for the year at 34.683 yesterday. Unwinding of some long-THB positions is likely on profit-taking ahead of tomorrow’s BoT policy decision. We expect the central bank to stay on hold for the rest of the year as policy is already accommodative with policy rate close to historical lows. Pair was last seen around 34.810 levels. Daily and weekly momentum indicators are showing signs of turning lower and stochastics is at oversold conditions. This suggests the potential for a rebound ahead. The new low for 2016 at 34.683 should be supportive ahead. Resistance is at 35.040 (21DMA). Foreign funds bought THB0.75bn and THB22.49bn of equities and government debt yesterday. Week ahead has BoT benchmark interest rate (Wed); 29 Jul foreign reserves (Fri).

*      MGS had a slow start to the week with yields ending 1-2bps lower. Volumes were fair with most trades done on the Islamic GIIs. Most trades centered upon the 7y GII 7/23s and closed with a total of MYR391m trades done.
*      IRS saw the 3y traded at 3.37%. MYR IRS lowered amid stronger MGS prices and MYR as well as lower global rates following a weaker than expected US GDP release last Friday. Onshore views are increasingly diverging from foreigners who are expecting another 25bps rate cut in the near future. Basis tightened with anticipation of further easing from BOJ in September. 3M KLIBOR remained at 3.40%.
*      PDS market traded on a lackluster mode and mainly focused on IPP names. Buyers were looking for names like TBEI, SEB and Tanjung BP. PASB and Prasarana were still the preferred GG names compared to the new JKSB and PTPTN.

*      SGS market opened tracking the UST higher with yields lower by 3-4bps. Sporadic buying and selling was seen with market segmented. Issues maturing in 2023, 2024, 2025 and 2027 continued to trade cheaper compared to the 10y benchmark (6/26).
*      Asian credit market saw Hong Kong Airlines out to retap its existing 2019 paper and the final guidance came out to 5.65%. The book is expected to perform well with the reopening size expected to be USD200-250m vs the order book which came to about USD1.3b. IG spreads traded a little wider to reflect the lower Treasury yields, but more profit takers were seen taking advantage of the higher cash price.

*      Indonesia bond market closed higher as a response to weaker US 2Q GDP as well as higher China Manufacturing PMI which came in at 50.6 and was noted higher compared to expectation of 48.8. Aside from that, Indonesia CPI during the month of July came in at 0.69% MoM or 3.21% YoY. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 6.662%, 6.883%, 7.159% and 7.267% while 2y yield shifts lower to 6.541%. Trading volume at secondary market was seen thin at government segments amounting Rp9,715 bn with FR0056 as the most tradable bond. FR0056 total trading volume amounting Rp1,498 bn with 25x transaction frequency and closed at 110.73 yielding 6.883%.
*      DMO will conduct their bi-weekly conventional auction today with five series to be auctioned which are SPN03161104 (Coupon: discounted; Maturity: 4 Nov 2016), SPN12170804 (Coupon: discounted; Maturity: 4 Aug 2017), FR0053 (Coupon: 8.250%; Maturity: 15 Jul 2021), FR0056 (Coupon: 8.375%; Maturity: 15 Sep 2026) and FR0073 (Coupon: 8.750%; Maturity: 15 May 2031). We believe that the auction will be oversubscribe by 1.5x – 2.5x from its indicative target issuance of Rp12 tn while our view on the indicative yield are as follows SPN03161104 (range: 5.10% – 5.20%), SPN12170804 (range: 6.00% – 6.10%), FR0053 (range: 6.70% – 6.80%), FR0056 (range: 6.90% – 7.00%) and FR0072 (range: 7.20% – 7.30%).
*      Corporate bond trading traded moderate amounting Rp634 bn. BNGA01B (Bank CIMB Niaga I Year 2011; B serial bond; Rating: idAAA) was the top actively traded corporate bond with total trading volume amounted Rp209 bn yielding 7.689%.

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