Maybank GM Daily - 12 Aug 2014

FX

Global

Overnight session was uneventful. Fed Vice Chairman Stanley Fischer expressed concern about how the slowdown in housing and emerging markets could drag on the long-run output of the economy. Still, US stocks managed to eke out some gains by close.  Geopolitical risks are still in the foreground for most investors. With Prime Minister Nouri al-Maliki refusal to accept decision by new President to replace him, political shifts in Iraq are closely eyed as well as Russian troops on the border of Ukraine. Asia is likely to follow suit today.       Australia’s Jul NAB business confidence came in higher at 11 compared to 8 in Jun while that of business conditions came in at 8 compared to 2 previously. The improvement may give tentative relief for AUD bears. The Singapore economy grew 0.1% (q/q) in 2Q. Year-on-year, output expanded 2.4% and 1Q GDP was also revised higher to 1.8%q/q and 4.8%y/y. Philippine’s Jun exports is due shortly at 0900 (HKT). Beyond Asia, the German ZEW survey for Aug will be released.

      Early Asian starters traded in mild positive and the rest of Asia could enjoy the tentative calm in the absence of stronger market catalysts. Expect AXJs to be on the mild uptick for now.

G7 Currencies

       DXY – Static.  The DXY index hovered around 81.47 this morning, resting above the intra-day ichimoku cloud. There is a lack of momentum for the greenback and continue to look for consolidation within the current band of 81.18-81.72. Interim barrier is seen around the 81.60-mark while the 81.30-level could provide tentative support to offers. Fed Fischer’s words did little to the markets overnight and Fed Rosengren and Dudley will have their turn to speak tomorrow.

       USD/JPY – Rebounds. USD/JPY remained on the upmove as risk appetite recovered. Pair was last seen around 102.30 and we are wary of the next barrier around 102.50 ahead of the next at 102.68. With intra-day chart showing near overbought conditions, expect upmoves to be a grind.

       AUD/USD – Heavy. AUD/USD slipped on Mon and was last seen around 0.9250 as we write ahead of the NAB business surveys. Support is found at 0.9239 for further offers but a break here would lead the pair towards the 0.92-figure. NAB business confidence for Jul edged higher to 11 from previous 8 while that of business conditions bounced to 8 from the previous 2. That inspired a modest rebound in the AUD, last seen around 0.9270. Momentum, however, is also lacking in this pair and we expect intra-week action to be less volatile than that seen in the last week. Rebounds to meet resistance around 0.9330. At this point, we reckon the improvement will not eclipse the shocking jump in the jobless rate seen last week.

       EUR/USD – Consolidative. EUR drifted lower again and hovered around 1.3380. MACD forest is still at the zero level after paring all its bullish momentum. Yet, on the 4-hourly chart, there is little room for downsides. Expect consolidation as well for this pair within 1.3316-1.3430. German ZEW survey for Aug is due today and risks are to the downside.

       EUR/SGD – Bears regain control. EUR/SGD slipped towards the intra-day cloud and was last seen around 1.6718. This cross was dragged by a combination of EUR sogginess and SGD strength. Bearish pressure still weighs though prices are closing in on support around the 1.67-figure. German ZEW survey for Aug is also eyed on this pair and a softer number could trigger offers towards the next 1.6640-support. Expect the 1.6830 to cap topsides today.

Regional FX

      The SGD NEER trades 0.18% above the implied mid-point of 1.2520. The top end is estimated at 1.2270 and the floor at 1.2770.

       USD/SGD – Heavy for Now. USD/SGD waffled around the 1.25-figure for much of Mon, weighed by Asian strength. We continue to expect shallow dips in this pairing with offers to meet support around 1.2460.  Intra-day MACD shows bearish bias in this pair though two-way interests could leave the pair in sideway trades for most of the week. Barrier is still marked at 1.2587 (50% Fibonacci Retracement level of the Oct-Jan rally). 2Q GDP came in a tad firmer than expected at 2.4%y/y but hardly inspired new depths in the pair at this point. Eyes are still overseas on geopolitical risk. Expect this pair to trace the regional peers.

       AUD/SGD – Trapped. AUD/SGD has slipped from the 1.1600-handle and was last seen around the 1.1565, weighed by the combination of soft AUD tone and SGD strength. This cross is a tad oversold even as bias is still to the downside. Hence, we expect support around 1.1543 to suffice for intra-day offers. Topsides are now capped by 1.1611. SGD/MYR – Upside Risks. SGD/MYR is fast approaching the lower bound of the 2.5550-2.5740 range that has held for much of Jul. A break of the lower bound exposes the next support around 2.5480. Otherwise, we still expect two-way action to continue within the band. Malaysia’s GDP and current account numbers for 2Q are due on Fri at 6pm. Those data should give the cue to trades in the following week. Expectations are for a decent numbers and could lend MYR some support.

       USD/MYR – Choppy. USD/MYR steadied around 3.1970 this morning after another bearish session on Mon. Industrial production came in at 7.0%y/y for Jun compared to 5.9% previously, well above the consensus of 5.0%. This has contributed to the strength of the MYR ahead of 2Q GDP due this Fri. Conditions remain bearish and a test of the support around 3.1945 exposes the next support around 3.1848. Decent expectations of the 2Q GDP and current account should continue to temper upside in this pair. Barrier is now seen around 3.2075.

       USD/CNY was fixed lower at 6.1517 (-0.0005), vs. previous 6.1522 (+2.0% upper band limit: 6.2772 -2.0% lower band limit: 6.0311). CNY/MYR was fixed at 0.5197 (-0.0015). USD/CNY – Bearish pressure petering out. Pair hovered around 6.1540, hardly moved from the start of the week. Mid-point was also fixed only marginally lower. Pair is sticky around the 6.1533-support (50% Fibonacci retracement of the Jan-Apr rally) and we still look for a clean break here to clear the way towards the next support at 6.1264. Unexpected bids could be deterred by the 6.1630-resistance. An editorial by China Securities Journal stated that the yuan could continue to see fluctuations in the second half of the year and not just appreciation.

       1-Year CNY NDFs – Choppy. The NDF was still seen around 6.2275. MACD forest on the 4-hourly chart shows little momentum and support at 6.2250 still deters offers. Next support is seen around 6.2220 and Barrier is marked at 6.2350. Expect pairing to remain biased to the downside intra-day moves could be a grind. USD/CNH – Heavy. USD/CNH hovered around 6.1550 and trades with an upward tilt. Momentum indicators are not giving anything away in the direction bias and more consolidation could be ahead for this pair for the rest of the session. Beyond the near-term, conditions are still bearish in this pair and the downtrend continues. CNH trades at a slight discount to CNY.

       USD/IDR – Bullish Momentum. USD/IDR hovered around 11690 this morning. 4-hourly chart shows little momentum. Expect two-way trades within 11600-11835 this week. Foreign appetite for Indonesia assets gained on Mon with a net USD34.8mn in equities bought on Fri. Risk appetite indeed improved after the positive NY session last Fri. The 1-month NDF drifted lower to around 11746, supported by the lower bound of the intra-day ichimoku cloud which could in turn tilt price action higher. Barrier is seen around 11840 for the pair. A break of the support around 11725 could spur offers towards the 11600-level. The JISDOR was fixed lower, as we had expected, at 11728 on Mon, vs 11822 on Fri. Expect little change in the fixing today given the tentative calm ahead of BI rate decision on Thu.

       USD/PHP – Bearish Risks. USD/PHP extended its slide to around 43.840 this morning and we continue to see scope for further downside in this USD/PHP pairing. Momentum indicators show that much of the upside bias in this pair has pared. Bearish pressure is spurred by foreign interest on Mon with a net USD95.1mn worth of equities bought on Mon. The next support at 43.74 could deter intra-day slides. Rebounds to meet resistance at the 44-figure. Meanwhile, 1-month NDF is also on a downdrift and tests the support around 43.83 at the moment, settling right above it. Momentum is also bearish for this pair on the intra-day chart and barrier is seen around 44.10 while more aggressive offers to expose support at 43.60. Jun exports beat expectations with a print of 21.3%y/y, picking pace from the previous 6.9%, underpinned by broad-based improvement in overseas sales of almost all its commodities.

       USD/THB – Consolidation. Onshore markets are away for Queen’s Birthday. USD/THB softened along with rest of USD/AXJs, last seen around 32.08. Intra-day price action has entered into the ichimoku cloud on the 4-hourly chart and could remain neutral in the days to come. Support is seen around 32.0255 while barrier is seen around 32.2005.

Rates

Malaysia

      Local government bond market saw mix trading with most trades done unchanged. Trading activity centered most on the 10y GII. All eyes set on the next auction, the 7y 9/21 re-tap. We expect the WI trade session to start on 12 Aug with an estimated MYR3.5b.

       IRS levels edged higher but no trades were reported. 5y IRS was quoted at 4.05%/4.03%, contrasting the offshore level at 4.09%, with the onshore-offshore spread widened from almost flat to 5bps now. Basis levels remain at multi-year tight. We think the on-going QE stimulus from Europe and Japan should prevent basis from widening significantly. 3M KLIBOR stayed unchanged at 3.61%.

       In the PDS market, buying activities slowed but interest remained strong, with offers shifting 3-5bps lower although little was traded. Credit spreads have tightened against the govvies, and we believe it is good to take some profit off the table at current levels.

Singapore

      The SGS yields rose 2-3bps from the 5y point onward giving up some of the profit from last week’s rally. IRS levels initially jumped as high as 7bps at the opening in the morning but eventually converged toward around 3bps (higher) mark more or less in line with the performance of SGS. Bottom pickers were noted as prices dipped.

       In the Asian credit market, prices rebound from last week’s selloff. There were more activities today around the Chinese property space as well as the HYs. We think it would be good to pick up some SGD high yields but deterred by large bid/ask spread at as wide as 1 to 2 points in dollar.

Indonesia

      Indonesia bond market closed lower for 6 consecutive days. There weren’t any positive sentiment which could move bond prices higher. Buying on dips with multiple orders might be an option to be reconsidered this week as the yields start looking attractive. Our economist has revised down their expectation against Indonesia’s economic growth for this year at around 5.20% from 5.40% attributable to slowing exports and investments growth. On upcoming central bank reference rate publication, our economist sees that Indonesia central bank would halt their reference rate at 7.50% to continue ensuring current account to reach a more healthy level while 2Q 14 current account would reach deficit of 4.08% of GDP due to slower exports, escalating oil and gas imports in 2Q due to Ramadan festival preparation and dividend and debt payment. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 8.008% (-3.5bps), 8.292% (-0.2bps), 8.673% (+0.2bps) and 8.916% (+1.2bps) while 2-yr yield shifts up to 7.694% (+6.1bps). Trading volume was recorded thin amounting Rp5,539 bn from Rp7,091 tn with FR0070 (10-yr benchmark series) and FR0027 (1-yr) as the most tradable bond. FR0070 total trading volume amounted Rp1,317 bn with 42x transaction frequency and closed at 100.531 yielding 8.292% while FR0027 total trading volume amounted Rp746 bn with 18x transaction frequency and closed at 101.807 yielding 7.218%.

       DMO will conduct its weekly auction this week with three series to be auctioned this week are SPN-S13022015 (Coupon: discounted; Maturity: 13 Feb 2015), PBS005 (Coupon: 6.750%; Maturity: 15 Apr 2043) and PBS006 (Coupon: 8.250%; Maturity: 15 Sep 2020). Our view on the indicative yield for the auction are as follows PBS005 (range: 9.240% – 9.340%) and PBS006 (range: 8.200% – 8.300%).

       Corporate bond trading volume was recorded moderate amounting Rp534 bn (vs average per day (Jan – Jun) trading volume of Rp677 bn). WOMF01ACN1 (Shelf Registration I WOM Finance Phase I year 2014; A serial bond; Rating: AA(idn)) was the top actively traded corporate bond with total trading volume amounting Rp178 bn yielding 9.815%.