Maybank GM Daily - 21 Jul 2014

FX

Global

While the world expressed horror on how pro-Russian separatists hamper investigation and removal of the bodies from flight MH17, US Secretary of State said that the missile system that downed the Malaysian airliner was from Russia. With that in the background, geopolitical risks will still be at the fore of many investors’ minds. Another lighter data week ahead for the US with CPI, durable goods order and home sales data. Out of Europe, PMI-mfg figures are due followed by Germany’s IFO reports. Elsewhere, RBNZ deliberates on policy rate and the underwhelming CPI suggests the central bank may pause on its rate hike cycle and that could weaken NZD further.       Nearer to home, news of an upcoming default by Huatong Road & Bridge reminds investors of underlying downside risks to China despite recent reassuring data. Elsewhere in Korea, the Finance Ministry’s revised economic outlook awaits with more expectations of rate cut to encourage USD/KRW bulls.       Nearer to home, Indonesia’s official election result will be released on Tue (22 Jul). According to the General Elections Commission website, Jokowi is in the lead. Should his rival Prabowo Subianto concedes defeat, expect a spike in the IDR. In the latter part of the week, expect IDR to see some gradual short covering after election-related IDR buying fizzles out. Peso players may watch the trade numbers at home, due ahead of BSP policy meet on 31 Jul. Singapore’s CPI (Cons.:2.5%y/y) on Wed and industrial production (Cons.: 2.2%y/y) is not expected to move the currency much. Japan is away for Marine Day today, back tomorrow.

G7 Currencies

DXY – Buoyant in Range. The dollar index arrived around 80.50 this morning, a tad higher from the start of last week though upsides are met with resistance at around the 80.68-mark. Daily momentum indicators are still bullish on the greenback though price moves show hesitance. Expect buoyant trades within the 80.20-80.68 range this week. There are fewer data indicators this week and focus could be on the geopolitical risks in the Gaza strip as well as heightened tensions between Ukraine and Russia. Safety bids to keep downsides cushioned.       USD/JPY – Slight Downside Bias. USD/JPY was pressured higher towards the end of the week by safe-haven flows over concerns about geopolitical risks. But the pair is off last week’s low of 101.09 (seen on Fri), currently hovering around 101.33 on quiet trades as onshore markets are away today for Marine Day. Data out this week includes Trade (Thu) and CPI (Fri) but these are not likely to move JPY crosses, barring any major surprises. What could be key though is perhaps China’s HSBC flash PMI-mfg for July. We look for sideway trades to continue within 100.77-102.20 this week with a slight bias to the downside.       AUD/USD – Sideways. AUD/USD bounced off lows of near 0.9330 on Fri and was last seen around 0.9390 as we write, back in the middle of the range that has held in the past few weeks. The daily chart shows support from the Ichimoku chart which could guide the pair higher within its current range.  The Minutes for the July meeting emphasized RBA’s preference for “a period of stability” with regards to rates and we can expect the central bank to extend its wait-and-see mode for the rest of the year. Barring any near-term shifts in the Fed, the low volatility carry trade should cushion dips for the pair though upsides will not test 0.9450 so easily lest it provokes the central bank. 0.9320 supports. 2Q CPI is due on Wed and softer number may spur more rate cut expectations.       EUR/USD – Shallow Dips. EUR/USD opened this morning around 1.3530 after recovering from a low of 1.3491 on Fri. Dips below the 1.35-figure could be shallow given the near oversold conditions flagged by the RSI indicator on the weekly chart as well as the lack of bearish momentum on the MACD forest. Nonetheless, risks are to the downside in this pairing with test of the 1.3503-support to meet the next at 1.3477 (Feb low), also the year-low. Eyes are on the Europe PMI-mfg numbers as well Germany’s IFO survey reports.       EUR/SGD – Downside Bias. EUR/SGD was weighed by soggy EUR tone and 18-day MA is still under the 40-day MA. Last seen around 1.6790, the daily bearish ichimoku cloud also adds to the bearish signals and next support is seen around 1.6713 (12 Nov 2013 low). 1.6829 forms an interim barrier ahead of 1.6875.

Regional FX

The SGD NEER trades 0.57% above the implied mid-point of 1.2483 with the top end estimated at 1.2235 and the floor at 1.2731.       USD/SGD – Bears Petering Out. USD/SGD was choppy within 1.2390-1.2450 for the whole of last week. Pair is currently sighted lower around 1.2408 to start the week. Still further downsides are not firmed and for bearish extension towards 1.2343 to continue, a clearance of the recent low of 1.2391-support is needed. Otherwise, the pair risk ceding control to the bulls with a possible bullish divergence in the making, which still needs confirmation from price pattern. Offers are seen around 1.2458 this week. Jun CPI and IPI will be released on Wed and Fri respectively but there are not expected to have a major impact on the pair.       AUD/SGD – Downside Bias.  AUD/SGD traded with a downside bias last week, supported by the 1.16-figure. Risks are still to the downside and a break of the 1.16-support exposes the next at 1.1534 (21 May low). Topside is guarded by 1.1735 this week. More bearish risks are likely with the crossing of the 18-DMA below the 40-DMA. Look for a clearance of 1.1600 for more aggressive offers.  SGD/MYR – Capped. SGD/MYR bounced to a high of 2.5734 last week before reversing and is currently seen around 2.5595. A thick ichimoku cloud weighs on the cross, keeping aggressive bulls at bay. Risks are thus to the downside with barrier seen at 2.5750. 50-DMA also guides the cross lower, limiting upsides. We would not be surprised if cross tests the 2.5547-support again this week though a lack of momentum on the daily chart suggest buying interests lurk around that level too. Play within range.       USD/MYR – Heavy. USD/MYR ended the week close to where it started, around 3.1815 on late Fri. For the past week, bids were met with strong selling interests as seen in the past three sessions and 3.2040-resistance is intact for now. Momentum is lacking on both sides. Last seen around 3.1770, we continue to expect price moves within 3.1660-3.2040. The 1-month NDF was also on the downtick, last seen around 3.1840. There is not much momentum on the daily chart and we look for more sideway trades. On Fri, the Trade Ministry stated in an email that approved investments in the manufacturing sector doubled to MYR41.7bn in Jan May from the same period a year ago. 196 new projects were approved in manufacturing sector.       USD/CNY was fixed at 6.1547 (-0.0021), vs. previous 6.1568 (+2.0% upper band limit: 6.2803; -2.0% lower band limit: 6.0340). CNY/MYR was fixed at 0.5158 (+0.0008). USD/CNY – Directionless. Spot remains directionless, last seen around 6.2040. Momentum is only slightly bullish and still within the 6.1950-6.2120 that has confined the pair. Pair is likely to remain suspended within the band for now and we watch for a break on either side for clearer direction indication. The upcoming default by Huatong Road & Bridge will be on the minds of investors with China exposure.       1-Year CNY NDFs – Buoyant. Last seen around 6.2585, guided lower by the lower fixing. This pair is still supported by the technical support at 6.2575. A break here exposes the next support at 6.2542. A break on upside could accelerate bids towards the next barrier at 6.2672. USD/CNH – Downside Pressure. USD/CNH was static around 6.2050 in early trades, not gaining much momentum on either side. Still, we think risk are tilted to the downside with 18-day MA pulling lower and away from the 40-day MA. A clearance of the support around the 6.20-figure is needed for bears to gun for the next target at 6.1950. CNH now trades at a premium to onshore spot.       USD/IDR – Range-Bound In The Interim. USD/IDR is continuing its correction after spiking to a high of 11833 last week and is sighted around 11591 as investors seem to still be positioning for a Jokowi win in tomorrow’s official result announcement. This was also reflected in data showing foreign funds still loading up on Indonesian assets, buying a net US215.20mn in equities last week. Latest unofficial results continue to show Jokowi leading his rival by 52.87% to 47.12% and this should not change with the official announcement tomorrow. Should Prabowo concedes the election, expect the IDR to spike, though we could see some gradual short-covering after election-related IDR buying fizzle out in the latter part of the week. However, should Prabowo dispute the election results, expect the political uncertainty to drag out for at least another month longer with the IDR likely to be weighed lower. Ahead of the official results on 22 Jul, moves lower are remain in range within 11500-11750. Post-election results, a positive outcome for Jokowi could see the pair head pass 11500-support to 11300, while a disputed election result could put 12000 back into focus. The 1-month NDF is in the thick of the ichimoku cloud to start the week. 1-month is currently edging lower this morning, hovering around 11633 with risks still to the downside. The JISDOR was fixed higher at 11706 on Fri to end the week from Mon’s fixing of 11627.       USD/PHP – Rangy. USD/PHP gapped lower at the opening to 43.450 from Fri’s close of 43.510, helped by a sluggish dollar. Pair is edging back higher and is sighted around 43.470. Momentum in either direction remains lacking with 43.185 still limiting downside this week. Still, the cross-over of the 100-DMA below the 200-DMA signals the possibility of further bearish moves ahead. Topside continues to be guarded by 43.855 this week. After hitting a high of 43.800 mid-week, 1-month NDF has bounced lower and is currently sighted still edging lower around 43.480 this morning with daily MACD indicating waning bullish momentum.       USD/THB – Sideways. Since the bearish engulfing move on 9 Jul, USD/THB has been trading in a tight range around 32.050-32.310. While foreign funds have been sanguine about Thai assets, buying a net THB5.98bn they have not been enough for the pair to break out of its trading range in either direction. Pair is currently wobbly around 32.173. We need to see a firm break of 32.050 to expose the next support at 31.800.  Resistance remains around 32.310 ahead of 32.444 this week. The head of the military junta said that customs exports and imports rose by 7.2% and 5.5% y/y respectively in Jun compared to May’s -2.14% and 9.32%. Customs trade data is due next Mon (28 Jul).

Rates

Malaysia

MYR bonds opened up early this morning with buyers on the belly. The curve gapped 3-5bps lower on the belly on the back of geopolitical tensions in Eastern Europe and Middle East leading to lower 10-year UST on yield by about 6-7bps at the opening of Asian trading hours. All eyes will be on the Islamic 15-year GII 12/28 auction. Issue size was smaller than expected at MYR1.5b.       The IRS market was reluctant to put on any trades, although the curve was quoted higher at the longer end. We would look to trade in range for the 5-year point, paying at 3.90% and receiving above 4.05%. 3M KLIBOR added 1bp to 3.59%.

      The PDS market was quiet. With the rally in govvies, we see some buying in GG papers. The rally however lasted only in the morning. With prices coming off on the govvies, trading activities in the credit market were little. High grades AAA are giving about 15-20bps above the GG curve. Manjung 2021 and 2022 traded at 4.45% and 4.58% respectively.

Singapore

      The SGD market was fairly volatile with risk off sentiments from overnight events. Taking cue from the UST, the market opened with yields down 2-3bps across the curve. As the day progressed, there were significant interest to buy the long end SGS and the SGS curve flattened. SGS also outperformed against the IRS with the 15-year and the Mar 27 issue leading the way. The market remained well bid although sporadic profit taking interest prevented prices from trading higher, and remained supported even as the UST gave up gains later the day.

      In the Asian credit market, there seemed to be more selloff/profit taking activities taking place, but the interest is mixed with end clients looking to pick up some cheap papers. SGD perps saw more profit taking on names like Genting Singapore and Global logistics Properties Ltd.

Indonesia

      Despite sideways movement along the week, Indonesia bond market booked gain by 1.18 point. Although overall book gained, the increment wasn’t backed by a solid support of the trading volume as average trading volume per day last week was only Rp6.22 tn (vs average per day (Jan – Jun) trading volume of Rp11.18 tn)  and was relatively illiquid with 393x transaction frequency on average (vs average transaction frequency per day (Jan – Jun) of 626x). This week, we see that the bond auction would remain receiving good demand yet the secondary trading would be rather thin as we see foreign investors would not aggressively enter Indonesia bond market and purchase of local investor would be slow since Indonesia bond market would be closed from 28 Jul – 1 Aug due to Ramadan festival. Presidential official result would be published tomorrow. Even if Jokowi won the presidential race, we see Indonesia bond market would only be indulge in positive euphoria and might experience 10-yr bond yield below 8% just for some day. Bond prices would continue moving sideways this week in our view. Yield curve bull flattened with 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 7.826% (+0.1bps), 8.054% (-4.6bps), 8.524% (-4.3bps) and 8.699% (-4.6bps) while 2-yr yield shifts down to 7.424% (-3.2bps). Trading volume remains this as it was noted amounting Rp5,010 bn on Friday. FR0068 (20-yr benchmark series) and FR0069 (5-yr benchmark series) was the most tradable bond during the day. FR0068 total trading volume amounted Rp1,102 bn with 71x transaction frequency and closed at 96.955 yielding 8.699% while FR0069 total trading volume amounted Rp671 bn with 11x transaction frequency and closed at 100.174 yielding 7.826%.

      On the corporate bond segment, trading volume remains thin with total volume amounting Rp264 bn yesterday (vs average per day (Jan – Jun) trading volume of Rp677 bn). BDKI06B (Bank DKI VI Year 2011; B serial bond; Rating: idAA-) was the top actively traded corporate bond with total trading volume amounting Rp50 bn and was last traded at 102 yielding 8.742%.