Friday, August 11, 2017

FW: Maybank GM Daily - 11 August 2017



      Risk is Off

The past few sessions have kept the Aug's seasonality patterns intact. Global equities slipped deeper into red as Trump continues to remain engaged in his war of words with North Korea. After a specific missile threat on Guam, the US President warned that "things will happen to them (North Korea) like they never thought possible". Flight to safety is in vogue now with UST yields falling, USDJPY at the 109-figure, gold on its way towards U$1290 and Korea's 5y CDS rose to its year high at 63.07. Early Asian equities also joined western counterparts in red with Kospi down -1.3% and ASX also more than 1% lower. USD was also hurt by the softer-than-expected PPI final demand for Jul, which fell -0.1%m/m vs. the expected growth of 0.1%.

      CNY Surges, Acts as Anchor For Asia

The past two USDCNY fixing has been very much stronger than what our model has projected. CNY was fixed stronger against most trading partners, even against the JPY. With USDCNY and USDCNH well under the 6.70-figure,  there seems to be an anchor for USDAsians even as regional currencies are likely to play out its seasonal patterns. With treasuries yields softer, the USDCNY fixing was "less aggressive" this morning, a 6.6642, 128 pips lower than the previous 6.6770.

      BSP Stands Pat, RBNZ Threatens Intervention, US CPI due

BSP decided to stand pat, as expected by most. Elsewhere, RBNZ Wheeler's less dovish than expected statement was followed by a surprisingly revelation that the central bank is open to FX intervention at his comments to the parliamentary committee yesterday. NZD recorded a -0.85% decline against the USD yesterday, dragging the AUD along with it by -0.2% though the latter is seemingly supported by firm iron ore prices. Expect weak risk appetite to continue to weigh on risk currencies. In the US, CPI is due tonight.




      DXY Bulls Uncertain. USD index was hurt by the fall in UST yields as well as the downside surprise to the PPI print for Jul, which declined -0.1%m/m vs. the median forecast of 0.1%. As a result, this DXY index is still capped by the 21-DMA (93.76), last seen around 93.37. UST 10y yield has slipped to 2.1975% by close. Momentum indicators on the daily DXY index chart are rising, though price action is mixed in reaction to risk-off plays. As US Trump continues to engage North Korea in its war of words, the risk appetite is likely to remain tepid and demand for UST could remain firm. It does not help that Fed William Dudley flagged that it could "take some time" for inflation to reach the 2% target overnight. 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. KRW towards 1130 (almost there now). Our call for AUD and NZD to retrace towards 0.7850, 0.7380 vs. the USD has played out. Week ahead brings Fed's Kaplan, Kashkari to speak today.


       EURUSDEdging Higher. EUR edged higher, underpinned by the 21-DMA (1.1703). Momentum indicators are still bearish but price action is less certain at this point. Might see some consolidation within 1.1616- 1.1870. We also eye further price action today to see if there are any further directional cues. Next support at 1.15, 1.1530. Resistance is seen at 1.1870. Week ahead brings German CPI (Jul) on Fri.


       GBPUSD – Still on the Gentle Decline. GBP remains on the decline after breaking out of its rising wedge, last seen around 1.2980. The intra-day action for Thu was choppy with positive IP lifting the cable at some point, up +0.5%m/m vs. 0.0%. However, the cheer from the positive IP number was short lived with trade deficit widening for Jun and mfg production showing flat growth. Pair ended softer for the session, just slight above the session lows. 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. The overaching them is driving the GBP – with market players 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.


      USDJPY – Eyeing Break Of 109-Levels.  USDJPY slippage overnight extended into the Asian session this morning with the pair touching a new two month low of 109.01 as geopolitical tensions over North Korea intensified after North Korea's missile threat against Guam (a US territory) saw Trump saying that his "fire and fury" response earlier "wasn't tough enough". This aggressive confrontational rhetoric sent global equities lower and a flight to safe haven, which is supportive of the JPY. Safe haven plays saw UST 10Y yield slip below the 2.20% levels to around 2.1425%, while 10Y JGB yield hovered around 0.055%, narrowing the yield differentials between the two. Further narrowing of yield differentials should weigh on the pair intraday. It also did not help that US PPI contracted in Jul, signalling muted inflationary pressures and hence a possible less aggressive Fed rate hike trajectory ahead. US CPI due this evening will be closely watched for confirmation of tame US inflation. Pair was last seen around the 109-levels. Bearish momentum on daily chart remains intact while stochastics remains in oversold conditions. With our support level around 109.60 taken out and the 109-handle threatened, a break here exposes next support at 108.80 (Jun low) before 108.10 (2017 low on 17 Apr). Onshore markets are closed today for a public holiday.


       NZDUSD – Heavy. NZD was hammered lower by "threats of intervention" by RBNZ, last seen at 0.7260. Daily momentum is still strongly bearish though stochastics in oversold terrain. Support at 0.7314 (50-DMA) was broken along with the next at 0.7280 (38.2% fibo). Next support is seen around 0.7190 (50% fibo). Resistance is seen around 0.7320.  Week ahead brings Mfg PMI, Food Prices (Jul) on Fri.


      AUDUSDSupported on Dips by iron ore. AUDUSD was dragged a tad lower by the NZD but dips were noticeably shallower than its fellow antipodes because of the support from iron ore prices. Pair was last seen around 0.7848. With momentum indicators still increasingly bearish, there could be further downside for this pair towards the next support around before another one at 0.7780 (38.2% Fibonacci retracement of May-Jul rally). 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 39bps vs that of the US. RBA Lowe spoke today, reiterating that the markets have misinterpreted RBA's mention of the neutral rate in the Minutes of the last meeting. He also reiterated that " a lower currency would be helpful" for Australia to return to full employment faster. Eyes are on wage price index next week, we prefer to buy the AUDUSD on dips.


      USDCAD Upside Bias. USDCAD hovered around 1.2750, underpinned by the fall in the oil prices. The 21-DMA (1.2596) has become a support level. This pair tests the 1.2739-resistance (23.6% Fibonacci retracement of the May-Jul fall). Stochs flags overbought condition. Prices are likely to remain biased to the upside still with strong bullish momentum seen on the daily chart. Next resistance seen at 1.2850. 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 0.52% above the implied mid-point of 1.3693. The top is estimated at 1.3421 and the floor at 1.3966.

      USDSGD – Stuck-In-Range.  USDSGD move higher stalled around the 1.3654 levels overnight amid safe-haven plays as geopolitical tensions over the situation on the Korean peninsula intensified. Cross-selling of the majors and the MYR against the SGD is putting downside pressure on the pair. 3-month SOR is likely to be pressured lower again intraday given that 10Y UST yield have fallen below the 2.20% level and that the SGD has firmed against the USD and the majors. Downside pressure on the pair was further reinforced by the better-than-expected final GDP print for 2Q. Final 2Q GDP expanded by 2.9% y/y (2.2% q/q sa annualised) vs. the adv. estimates of 2.5% (0.4% q/q sa annualised) underpinned by stronger services growth of 2.4% y/y (adv. est.: 1.7%). Driving services higher was the finance & insurance sector, which grew by 3.8% y/y in 2Q vs. 1Q's 0.7%. Manufacturing rose by 8.1% y/y, little changed from the adv. est. of 8.0%. With the outlook improved led by a recovery in global trade, the Ministry of Trade & Industry has narrowed growth forecast range for 2017 to 2-3% from 1-3% in line with PM Lee's projection of 2.5% for 2017 in his National Day address.  Our economic team is looking for growth of 3.0% for 2017. Pair was last seen around 1.3624 levels. Daily chart now shows very mild bullish momentum and stochastics still climbing higher towards overbought conditions. This suggests risks are still pointing to the upside for this pair. Price action suggests that the pair could have found a bottom around the 1.3545 levels. Support nearby is at 1.3620 (23.6% fibo retracement of the Jul high to Aug low) before 1.3543 (2017 low on 27 Jul). Resistance is still around 1.3670 (38.2% fibo), 1.37-handle (50% fibo).


      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 1.0700, weighed by risk aversion. 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. 1.0672 supports ahead. 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.


      SGDMYRNear-Term Upside Pressure.  SGDMYR is trading bid this morning amid rising geopolitical tensions that is spurring quasi-safe haven flows into the SGD. This cross was last seen around 3.1505-levels. Daily chart now shows mild bearish momentum while stochastics continues to fall from overbought conditions. Resistance is around 3.1550 levels (76.4% fibo), 3.1600 (Jul high). With risks still pointing to the downside for now, 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.


       USDMYR – Upside Bias.  USDMYR is trading mildly firmer this morning amid growing geopolitical tensions over North Korea. Pair has breached the upper bound of its 4.2700-4.2900 trading range that has been in place since mid-Jul. Last seen at 4.2955-levels, pair now shows mild bullish momentum with stochastics is fast approaching overbought conditions. This suggests possible upside risks ahead. As we had cautioned yesterday, we look for a weekly close above our resistance level 4.2900 for bullish extension towards 4.2960 (23.6% fibo retracement of the Apr high to Jun low), 4.3045 (Jul high). Industrial production rose 4% y/y in Jun, beating estimates of 3%, driving by gains in manufacturing (up 4.7% y/y). ratchet


       1m USDKRW NDFGeopolitical Tensions Persist. 1m USDKRW continued to climb higher amid rising geopolitical tensions on the Korean peninsula heightened by the continued war of rhetoric between the US and North Korea. Tensions on the peninsula was ratcheted up with Trump's warning that his early "fire and fury" comments "wasn't tough enough", lifting the 1m NDF higher. 1m NDF was last seen around 1146 levels. Daily chart shows bullish momentum while stochastics remains at overbought conditions. We watch for a break of the 1150-levels (38.2% fibo retracement of 2017 high to low, 200DMA) on a weekly close to confirm bullish extension towards 1160 (50% fibo). Support remains at 1130 (23.6% fibo, 50DMA).


       USDCNH – Rebound. USDCNH made a strong rebound and was last seen around 6.6890 after the USDCNY was fixed less aggressively this morning. We believe the fixing was predicated on the moves of the USD overnight as well as that of the UST yields that suggests that USD recovery remains weak. The CNY fixing on Wed and Thu have 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 147bps. USDCNH trades at an increasing premium to USDCNY at 0.0208. PBOC fixed USDCNY reference rate at 6.6642, 128 pips lower than the previous 6.6770 and 172 pips higher than the USDCNY official close yesterday at 6.6470. CNYMYR was fixed 29 pips higher at 0.6446 vs. previous at 0.6417. Week ahead has monetary data anytime between 10-15th.


      USDINR – Retracement. 1M NDF has been on the upmove, buoyed by the risk-off mood, last seen around 64.40. Stochs are rising from oversold condition. Support is seen around 63.90. Pair is testing resistance around 64.40 (21-DMA) at this point, beyond that, this pair could see another resistance level at around 64.58. Foreign investors bought U$67.3mn of equities and bought U$209.2mn of bonds on 9 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 –Pressured Higher. 1m USDIDR NDF traded to a near monthly high of 13446 in the Asian session amid rising geopolitical tensions over North Korea. 1m NDF should remain under upside pressure as the global sell-off in equities is likely to weigh on Indonesian assets. Foreign investors had sold USD4.96mn in equities as risk sentiment deteriorated. But they had purchased IDR0.4tn of debt on 9 Aug (latest data available). Last seen around 13440 levels. Both daily momentum indicators and stochastics are bullish bias. With several of our resistance levels taken out on the way up, next resistance is at 13525 levels (May high). Support is around 13400 levels (50% fibo of the Jan high to low), 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 13338 yesterday, 14 pips higher than Wed's fixing.

      1m USDPHP NDF – Back Above 51-Handle. 1m USDPHP NDF again broke above the 51-handle overnight amid escalating geopolitical tensions over North Korea that weighed on risk assets. The global sell-off in equities overnight should slow inflows into Philippine equities. Already, foreign inflows into equities have sold to USD3.34mn yesterday from USD9.08mn on 8 Aug. Slower inflows into equities could weigh on the PHP, putting upside pressure on the 1m NDF. The BSP policy meeting yesterday did not provide any significant support to the PHP. BSP kept its policy rate unchanged at 3.0% as expected as inflation remained "manageable" and growth on the uptick. The BSP though did note that the "balance of risks to the inflation outlook continues to be on the upside" due to higher oil prices while the planned tax reforms could exert upside pressures on prices. In this environment, central bank revised up its full-year forecast for inflation to 3.2% for both 2017 and 2018 from 3.1% and 3.0% previously.  For now, our economic team continues to expect any rate hike to come only in 2018 with two 25bp rate hikes likely next year. As well, post-meeting comments by deputy governor Guinigundo that the PHP was 'expected to continue to show some depreciation' on expectations of rising imports of capital goods, raw materials, intermediate products weighed on the PHP. The BSP governor though suggested that effect of the tax reform is unlikely to persist and inflation conditions remain 'quite benign'. He also did not see risk of overheating in the economy. Last seen around 51.23-levels, 1m NDF now shows bullish bias and stochastics continues to climb higher towards overbought conditions. This suggests potential further upside ahead. 2017 high at 51.28 (on 11 Jul) should cap upside for now, but a break here on a weekly close could see next resistance at 51.50 levels, 51.70 levels. Support at 50.90 (61.8% fibo retracement of the Jul high to Aug low).

      USDTHB – Sideways.  USDTHB is bouncing off from its new 2017 low of 33.214 (on 10 Aug) this morning amid rising geopolitical tensions on the Korean peninsula.R Rising gold prices though is helping to cap upside to the pair given their negative correlation. Nevertheless, THB remains weighed by the sell-off in global risk assets. Foreign funds had sold THB3.67bn of debt yesterday that more offset their purchases of THB0.68bn of equities. Further sell-off in Thai assets should be supportive of the pair intraday. Last seen around 33.252 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 trade sideways within the 33.200-33.450 range intraday. 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 later today.




      MYR government bonds strengthened another 1-2bps amid still good buying interest on the front end and belly bonds, despite a small jump in USDMYR during the session. New 3y benchmark MGS 2/21 issue size came in slightly smaller than expected at MYR3.5b. In WI, it was quoted in the range of 3.45/40% but no trades were done.

      The IRS curve was under slight pressure from squaring needs by banks. 5y IRS traded from 3.76% to 3.74%. Otherwise, market was bereft of any conviction to trade either way. 3M KLIBOR stayed unchanged at 3.43%.

      In corporate bonds market, better bids were seen in the AAA front end which closed 2-3bps tighter. GGs also saw bids at the long end, trading 1bp tighter. AA long ends were unchanged, while the front end and belly tightened 1bp. Overall, corporate bonds market was rather quiet.



      SGS opened unchanged in line with the subdued UST in the past two days. Volume was low with mixed interest despite a general risk off sentiment. SGS yield curve shifted 1bp lower from previous level and SGD IRS curve closed circa 1bp lower as well. Expect market to be stable in the interim given a lack of catalyst and stable funding cost.

      Asian credit market was fairly active. There was more selling due to geopolitical risk and ahead of a Fed speaker Thursday night Asian time and CPI data on Friday. Indonesia and Philippine sovereign bonds fell 0.15-0.25pt. Notable issuances in primary include Medco Energi with 5NC3 USD bond at 8.875%, which looks attractive, and Greenland Holding with a new 3y deal at 5.30% guidance.



      Indonesia bond market closed slightly lower during Thursday trading session as tension between U.S. and North Korea continue to escalate. Aside from that, we believe several bond participant might have started to take profit. There will be 2Q17 Current Account data release today with economist consensus expecting a widening deficit. A better data than expected would be positive for the IGS market today. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 6.606%, 6.856%, 7.292% and 7.554% while 2y yield moved higher to 6.384%. Trading volume at secondary market was noted heavy at government segments amounting Rp16,894 bn with FR0059 (10y benchmark series) as the most tradable bond. FR0059 total trading volume amounting Rp2,652 bn with 110x transaction frequency.

      Corporate bond trading traded heavy amounting Rp1,040 bn. BBNI01CN1 (Shelf Registration I BNI Phase I Year 2017; Rating: idAAA) was the top actively traded corporate bond with total trading volume amounted Rp101 bn yielding 7.752%.



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