Thursday, August 10, 2017

FW: Maybank GM Daily - 10 August 2017



      Minutes The Battle of Words

While Singapore was away on National Day break, the rest of the World was weighed by the battle of words between US President Trump and North Korea. After his comments of "fire and fury", the latter said it could attack Guam, a US territory in the Pacific. USDJPY fell towards mid-109 levels before retracing above the 110-figure. USDCHF plunged more than a big figure 0.96, last seen around 0.9640. USDKRW gapped up this morning after another bullish session yesterday, last seen around 1139. Equities around the world, slipped into mild red. Bear in mind, August is a seasonally bearish month for risk assets as well.

      USD Supported, CNY Anchors, NZD Shorts Unwound

While safe haven assets are in demand for the past two sessions, the USD was supported. PBOC fixed the CNY much stronger (against the USD) than what our model has projected yesterday. That might be anchoring the Asian currencies to some extent. USDCNH slipped under the 6.70-figure yesterday and was last seen around 6.6868. Still, the USDCNH is trading at an increasing premium to the USDCNY, reflecting some depreciation pressure on the renminbi in an environment of weaker risk appetite and a rather supported USD. Elsewhere, NZD rallied above the 0.7350 this morning before tapering off as RBNZ held OCR at 1.75%, keeping its rates outlook and downgraded its projections for inflation. The tone of the statement was perceived to be less dovish than expected given the recent tranche of weaker data, resulting in a rebound in the NZD. .

      BSP Meets, PH Trade, UK IP, US PPI

BPS meets today and we do not expect any move today or for the rest of the year. Our economic team has revised its rates outlook along with a  downward revision in their full year 2017 headline inflation forecast to +3.0% from previous +3.3%. Philippines is also due to release its trade data. Beyond the Far East, UK has IP, mfg production, construction output due before US releases its Jul PPI number. 


      DXY Bulls Uncertain. USD index firmed yesterday, last seen around 93.60, still capped by the 21-DMA. UST 10y yields slipped towards 2.20% before rebounding towards 2.25% into the close of NY session. Momentum indicators on the daily DXY index chart are rising, underpinned to some extent by risk-off plays. Support is seen around 92.70 (4 Aug low). Resistance is seen around the 94-figure, 21-DMA. We continue to favour USD longs vs. selected FX including CHF and KRW towards 0.98 and 1130, respectively. We continue to look for AUD and NZD to retrace towards 0.7850, 0.7380 vs. the USD. Week ahead brings JOLTS Jobs openings (Jun) on Tue; Wholesale Trade Sales, Inventories (Jun) on Wed; PPI (Jul); Fed's Dudley speaks on Thu; CPI (Jul); Fed's Kaplan, Kashkari speak on Fri.


       EURUSDEye The Doji. EUR slipped at one point yesterday but managed to make a quick recovery towards levels around 1.1760. This pair is supported by the 21-DMA and the doji candlestick yesterday suggest a possible recovery in the EUR bulls. Momentum indicators point south though and we eye further price action today with support seen around 1.1684 (21-DMA) before the next at 1.1616. Next support at 1.15, 1.1530. Resistance is seen at 1.1870. Week ahead brings German CPI (Jul) on Fri.


       GBPUSD – Correction. GBP have broken out of its rising wedge, last seen around 1.3010, edging only a tad higher. Next support is seen around 1.2930 (50-DMA) before the next at 1.2880. Resistance at 1.3230, 1.3420 (50% fibo retracement of 2016 high to low) levels. Market players are likely to remain wary of accumulating GBP long after BoE downgraded its macro assessment – from 1.9% to 1.7% for 2017 and from 1.7% to 1.6% last week. CPI forecast was unchanged at 2.2% in 3 years while wage growth forecast was cut to 3% for 2018 vs. 3.5% (May's QIR report). Though inflation has overshoot BoE's target, our stand remains that BoE is not likely to tighten as decelerating growth momentum is expected to weigh on macro-fundamentals and Brexit uncertainties still remain. Recent 2Q GDP data confirms that UK is in "notable slowdown" (according to Office for National Statistics). This is consistent with our long-standing caution that UK growth momentum is slowing. Forward looking surveys including manufacturing, services and construction PMIs all surprised to the downside for Jun while industrial, manufacturing production and construction output continue to shrink in Jun. Week ahead brings IP, Mfg Production, Construction output, Trade (Jun) on Thu.


      USDJPY – Mild Rebound.  USDJPY traded to a low of 109.56 overnight, weighed by heightened geopolitical tensions after Trump's "fire & fury" response to North Korea's threat against US bases in Guam. Safe haven plays saw UST yields slip lower, dragging the USDJPY along with it. Since then, UST yields have rebounded mildly and provided the pair with a lift back above the 110-handle. 10Y UST yield rose to 2.25% this morning from 2.248% yesterday, while the 10Y JGB yield climbed to 0.055% from 0.053%, widening the yield differentials very mildly between the two. Should yield differentials continue to widen, further upside pressure on the pair can be expected intraday. Aside from geopolitical risks, key risk data eyed this week is US CPI due tomorrow evening, where a disappointing print could push UST yields and hence the pair lower. Pair was last seen around the 110.10-levels. Bearish momentum on daily chart remains intact but waning while stochastics shows tentative signs of turning higher from oversold conditions. This signals a risk of rebound. Look for upside to be capped around 111-handle for now. Support at 109.60. Onshore markets are closed tomorrow for a public holiday.


       NZDUSD – Finding Support. NZD has been on the downmove, much in line with our anticipation, last seen at 0.7345. Daily momentum is still bearish though stochastics in oversold terrain.  This pair might engage in sideway trades for now after a number of sessions of decline. Today's monetary policy statement was also perceived to be less dovish than expected given the recent tranche of weaker data. OCR was held steady at 1.75%, record low. While Wheeler acknowledges that the weak USD has been propping ujp the domestic currency, he also said that the strong NZ growth has also helped boost the kiwi. Support seen at 0.7314 (50-DMA) before the next at 0.7280 (38.2% fibo).  Key area of resistance at 0.75 – 0.7550.  Week ahead brings Card spending (Jul) on Thu;  Mfg PMI, Food Prices (Jul) on Fri.


      AUDUSDBuoyed by NZD. AUDUSD was buoyed by the NZD after the RBNZ decision and monetary policy statement. Pair was last seen around 0.7906, hovering just under the 21-dma (0.7922). We continue to look for more downside for this pair. Momentum indicators suggest that the pair is heading lower and the price action affirmed our view that this pair is still in for further retracement towards support at 0.7850 before another one at 0.7770. That said, stochs have reached oversold terrain and there could be some consolidation above the 0.7850 intraday. Beyond the near-term, the broad USD retreat, firm base metal prices such as iron ore and copper should continue to underpin this pair. The Australian 10y government bond yield was last seen around 40bps vs that of the US. The pair came within 3 pips of our tactical target level of 0.7852. We take profit there (0.7855, yesterday low). Week remaining has RBA's Lowe before House Economics Committee on Fri.


      USDCAD Overbought. USDCAD hovered around 1.2700 levels as we write in early Asia, above the 21-DMA (1.2592). This level has become a support level. Stochs flags overbought condition and this pair could see some consolidation between 1.2592-1.2740. Medium term, some stability in oil prices could provide CAD a relatively strong anchor and provide a favourable condition for BOC to continue its tightening cycle. 200WMA is still a key support at 1.2377 before 1.2260 and then at 1.1920.


Asia ex Japan Currencies

      SGD NEER trades at 0.51% above the implied mid-point of 1.3696. We estimate the top at 1.3423 and the floor at 1.3968.

      USDSGD – Sideways.  Onshore market returned with the USDSGD little changed this morning amid a mild USD pullback after climbing higher overnight. Cross-selling of EUR against the SGD, which puts some mild downside pressure on the pair, is mitigated by cross-selling of the SGD against the MYR and most of the other major currencies. The very mild rebound so far in the 10Y UST yield together with a softer USDSGD suggests that the 3-month SOR could hold steady around current levels of 0.84% intraday. Geopolitical tensions and eyes on US CPI data tomorrow evening could keep the pair trading sideways intraday. We also have final GDP print for 2Q tomorrow and our economic team is expecting an upward revision to the preliminary print of 2.5% to 2.8% y/y. PM Lee in his National Day address yesterday said that the economy is expected to expand around 2.5% for the full-year, while our team is looking for growth of 3.0%. Pair was last seen around 1.3634 levels. Daily chart now shows very mild bullish momentum and stochastics still climbing higher towards overbought conditions. Price action suggests that the pair could have found a bottom around the 1.3545 levels. Support at 1.3590 before 1.3540 (2017 low on 27 Jul). Resistance is around 1.3670 (38.2% fibo retracement of the Jul high to Aug low), 1.37-handle (50% fibo). GDP (2Q F), retail sales (Jun) are on tap tomorrow.


      AUDSGD – Correcting. AUDSGD remains in choppy action but this cross is still on a softening bias with fresh lows made every few sessions. The cross was last seen at 1.0768, still supported by some AUD gains this morning. 21-DMA has turned into an area of resistance. Stochs are still tilting lower, though entering oversold terrain. MACD is bearish. August is a bearish month for the AUD. That said, dips likely to be shallow and could provide opportunities to re-establishment of long AUDSGD trades. 50-DMA has crossed above the 200-DMA and there could be some upmove ahead.


      SGDMYRDownside Pressure.  SGDMYR is trading softer after bouncing higher yesterday amid rising geopolitical tensions. This reinforces the bias for this cross to remain on the downside. This cross was last seen around 3.1469-levels, weighed by the cross-selling of the SGD against the MYR this morning. Daily chart now shows mild bearish momentum while stochastics continues to fall from overbought conditions. We continue to caution of risks of correction towards 3.1280 (50% fibo retracement of the Apr-Jun downswing), 3.1160 (38.2% fibo). In the interim, support nearby is at 3.1400 levels. Any rebound should meet resistance around 3.1550 levels (76.4% fibo).


       USDMYR – Range Trades.  USDMYR is trading little changed this morning amid rising geopolitical tensions over North Korea with the pair hovering near the upper bound of its 4.2700-4.2900 trading range that has been in place since mid-Jul. Last seen at 4.2890-levels, pair now shows mild bullish momentum with stochastics is climbing higher towards overbought conditions. This suggests possible upside risks ahead. Look for upside to still be capped around 4.2900-levels. A break here on a weekly close exposes the next resistance level at 4.2960 (23.6% fibo retracement of the Apr high to Jun low). Industrial production (Jun) is on tap later today. In the news, BNM has come out against the recent introduction of MYR futures at the SGX and ICE Futures Singapore, which it says is inconsistent with its foreign exchange administration policy and rules. The central bank reiterated that foreign participants should access onshore MYR FX market to meet their financial needs.


       1m USDKRW NDFGeopolitical Risks Linger. 1m USDKRW spiked to a session high yesterday of 1141 yesterday as geopolitical tensions on the Korean peninsula heightened with the war of rhetoric between the US and North Korea. Since then, 1m NDF has eased mildly to hover around 1139 levels at last sight, possibly on profit-taking activities. Daily chart shows bullish momentum on the daily chart while stochastics is now at overbought conditions. Further upside risks towards 1150-levels (38.2% fibo retracement of 2017 high to low, 200DMA) cannot be discounted. Support at 1130 (23.6% fibo, 50DMA).


       USDCNH – Plummets. USDCNH slipped past the 6.70-figure and hovered around 6.6700, guided by the strong CNY fixing against the USD and as well as against currencies of most other trading partners. The CNY fixing yesterday and today have also been on the strong side, suggesting that the PBOC wants to deter market players from speculating against the yuan. Even though the USDCNH and USDCNY have been trending lower in the past few days, USDCNH seems to be retaining a persistent premium against the USDCNY. In an environment of possibly USD recovery and into a seasonally bearish month for most Asian currencies, PBOC might want to ensure yuan stability. This could suggest that they are serious planning to widen the trading band but they want it to be done when yuan stability is ensured, ahead of the 19th Party Congress. Persistent USD slide could mean a breakout of the 6.72-6.86 range that has held since May. Beyond this range, support is pencilled in at 6.6840 before 6.6688 before 6.6420. The CGB-UST yield differential was last seen around 142bps. USDCNH trades close to par to USDCNY, suggesting little speculative pressure on the CNY. PBOC fixed USDCNY reference rate at 6.6770, 305 pips lower than the previous 6.7075 and 27 pips higher than the USDCNY official close yesterday at 6.6743. CNYMYR was fixed 28 pips higher at 0.6417 vs. previous at 0.6389. Week ahead has monetary data anytime between 10-15th.


      USDINR – Retracement. 1M NDF hovered around 64.00, buoyed by USD strength. Stochs are rising from oversold condition. Support is seen around 63.90. Further upward retracement could meet resistance around 64.40 (21-DMA). Foreign investors bought U$297.8mn of equities and bought U$146.1mn of bonds on 8 Aug. Whilst the month of Aug could be bearish for the INR, we retain our rather bullish view of the INR in the medium term as we look for another rate cut before the end of the year. The government and the central bank are still focused on resolving bad debts and recapitalizing PSBs. As we have said before, RBI is likely to deliver the next 25bps cut once there is more progress on that front, saving ammunition for a time when the monetary transmission mechanism is more efficacious.


      1m USDIDR NDF – Bullish Bias. 1m USDIDR NDF traded to a near monthly high of 13402 yesterday amid rising geopolitical tensions, breaking out of its 13300-13380 trading range. 1m NDF has since eased slightly to hover around 13390 levels. 1m NDF could remain under upside pressure should the global sell-off in equities weigh on Indonesian assets. Yesterday, foreign investors had purchased USD11.96mn in equities. But they had sold IDR0.53tn of debt on 8 Aug (latest data available). Bearish comments by the central bank governor yesterday that the economy recovery was not as good as before, hampered by sluggish consumer spending and exports did not help the IDR yesterday. He nevertheless reiterated that growth would still come in 5.0-5.4% in 2017 and that the BI had no plans to revise its 2017 growth forecast. Last seen around 13389 levels. Both daily momentum indicators and stochastics are bullish bias. A clean break of our 13380 resistance level on a weekly close could see the 1m NDF revisit the 13400-levels (38.2% fibo retracement of the Jan high-to-low), 14445 levels (61.8% fibo). Support is around 13370 levels (38.2% fibo), 13300-levels where market whispers suggest that official agents have been in the market to support the IDR around that level. The JISDOR was fixed at 13324 yesterday, 5 pips higher than Tue's fixing. Current account (2Q) is on tap tomorrow.

      1m USDPHP NDF – Awaiting BSP Decision. 1m USDPHP NDF's climb higher appeared stalled amid a pullback in the USD and softer EU yields (given the pair's positive correlation to EU 10Y yield). The global sell-off in equities overnight is likely to weigh on Philippine equities despite foreign funds purchasing Philippine equities for the past two sessions, putting upside pressure on the 1m NDF. This could mitigate any downside pressures from softer EU 10Y yields. All eyes will be on BSP meeting today. Our economic team no longer expects BSP to hike its policy rate this year given that inflation remains well-within the central bank's comfort zone of 2-4%. Instead, the team now any rate hike to come only in 2018 with them penciling in two 25bp rate hikes next year. Last seen around 50.76-levels, 1m NDF continues to show very mild bearish bias, while stochastics continues to climb higher from oversold conditions. This suggests potential further upside ahead. Look for the pair to trade sideways ahead. Support is around 50.50 levels (38.2% fibo retracement of the Apr-Jul upswing), 50.44 (50DMA). Resistance at 50.90, 51-handle. In the news, trade print disappointed in Jun with exports expanding by just 0.8% y/y (May: +14%) vs. market expectations of 14.3% and imports contracting by 2.5% y/y (May: +16.6%; cons.: +11.6%). Consequently, the trade balance remained in deficit of USD2.15bn, though this was narrower than the USD2.75bn in May.

      USDTHB – Still Consolidating But Upside Risk Remains.  USDTHB touched a new low for 2017 at 33.214 this morning amid a pullback in the USD. Heightened geopolitical tensions spurred safe haven plays including for gold that also helped also put downside pressure on the pair (given their negative correlation).  Still, the global sell-off in equities overnight could weigh on Thai assets. Already, foreign funds had sold THB3.37bn of debt yesterday that more than mitigated their purchases of THB0.86bn of equities. Further sell-off in Thai assets could limit any downside to the pair intraday. Last seen around 33.238 levels, pair now shows very mild bullish bias on the daily chart, while stochastics remains in oversold conditions. We see some signs of rebound risk from its recent downmove consequently. We look for the pair to remain in consolidation around the 33.200-33.450 range. A break in either direction on a weekly basis could see the pair trade in a wider 33.00-33.600 range. Foreign reserves (4 Aug) is on tap tomorrow.



      At the start of Asian trading time, USTs rallied due to heightened geopolitical tension. In Malaysia, government bond yields moved 1-2bps lower at the front end to the belly on the back of better buying. Volume picked up compared to the last few days as market heads closer to the end of the week when US CPI data will print.

      MYR IRS had another quiet session other than the 7y trading at 3.86% when the rally in European bonds tightened the bid-ask spread. 3M KLIBOR remained the same at 3.43%.

      MYR corporate bonds traded weaker amid risk off sentiment. AAA front ends widened 1bp and GG Danainfra's long end was also more or less 1bp wider. Tenaga 2037 saw some keen buying interest but at previous day's levels. The AAs, however, traded tighter led by BGSM 2023, which closed 1bp tighter and saw MYR40m exchange hands.


      Singapore market closed for National Day public holiday.

      Despite UST rallying on increased geopolitical tensions between North Korea and US President Trump, Asian credit space was lacklustre and volume remained thin. Market was overall weaker with China IGs wider by 2-3bps in spreads. Country Garden Holdings is in the primary space looking to retap its existing 2022 USD bonds, pricing at 4.778%.


      Indonesia bond market closed higher on Wednesday trading amid Singapore market close due to National day. The heavy demand during previous day demand with awarded bids approx. half of the demand may have supported bond participant which fail to win their bids during auction to chase in the secondary market. Aside from that, expectation of easing monetary and fiscal policy continue to envelope IGS market. Upcoming Q217 current account data would positively impact the IGS market if the deficit narrows more than expected. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 6.590%, 6.809%, 7.270% and 7.544% while 2y yield moved lower to 6.382%. Trading volume at secondary market was noted heavy at government segments amounting Rp16,672 bn with FR0061 (5y) as the most tradable bond. FR0061 total trading volume amounting Rp5,419 bn with 79x transaction frequency.

      Corporate bond trading traded thin amounting Rp381 bn. APLN01CN1 (Shelf Registration I Agung Podomoro Land Phase I Year 2013; Rating: idA-) was the top actively traded corporate bond with total trading volume amounted Rp61 bn yielding 8.932%.



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