Maybank GM Daily - 27 Aug 2014

FX

Global

US stocks rose modestly overnight despite a stunning jump in durable goods order and an upside surprise in consumer confidence.       Durable goods orders accelerated 22.6%y/y in Jul from the previous 0.7%. Consumer confidence also made a solid improvement to 92.4 in Aug from the previous 90.3. It is thus, no surprise that dollar crept higher though further upticks were kept in check by overstretched conditions.       Even as the USD index held its bid tone this morning, Asian currencies showed strength as current environment remained conducive for carry trades. The feel-good factor extended with USD/JPY still on the rise along with Nikkei also in modest black. KRW is in the lead among its peers. This session lacks further cues with geopolitical risks in Ukraine-Russia, Israel-Hamas and Iraq-Syria abated for now. Only Thailand’s custom trade numbers are due.       Exporters’ offers to keep USD/KRW on a downside bias. The present risk-on mood could continue to underpin majority of Asian currencies.

G7 Currencies

DXY – Buoyant. The DXY index edged higher to around 82.70, in lock-steps with UST 10-yr yields which came within striking distance of the 2.4% level. With the 82.625-resistance out of the way, next barrier at 83-figure is exposed though current overbought conditions continue to keep aggressive bids in check. The greenback remains firmly on the uptrend, backed by solid data and a very bearish EUR outlook. We continue to expect tentative retreats to meet support around 82.35.       USD/JPY – Upticks. USD/JPY resumed its uptick above the 104-figure, underpinned by gains in equities overseas, after hovering most of yesterday below that handle. Pair is seen hovering around 104.14 currently with intraday MACD still showing mild bearish momentum. However, risks are still to the upside given that the 18-DMA still lies above the 40-DMA. Continued strength in the equities market today should bolster the pair with the next hurdle still around 104.36 ahead of the next at 104.61. Support remains around 103.43.       AUD/USD – Supported on Dips.  AUD/USD extended choppy trades overnight and was last seen around 0.9320, on its way to test the 0.9330-barrier again. Pair is underpinned by bullish AUD/JPY and AUD/NZD though upsides are still guarded by the 0.9330-barrier owed to the dollar strength and possible disappointment at the 2Q CAPEX release tomorrow. At the moment, carry trade rules the roost and continue to keep the pair supported on dips. Technical support is seen at 0.9272.       EUR/USD – Bearish. EUR remained on the slide with strong US data adding to its bearish story. Support at 1.3160 is being tested this morning and further offers could take prices towards the next support around 1.3105 (Sep 2013 low). Resistance is now seen around 1.3208. There are some data release that could be of interest – France’s manufacturing confidence and Italy’s consumer confidence. These survey numbers could be on watch but there seems to be little expectations of an improvement. The increasing policy divergence from the US simply means that bearish risks will dominate.       EUR/SGD – Bearish. The cross broke below the 1.6468-support overnight and extended its slide to around 1.6430 this morning. With the cross now at its lowest in more than a year, focus is on next bearish target around 1.6306. The combination of Asian strength and soft EUR continues to drag on prices and risks are undeniably to the downside. Survey data out of France and Italy today are unlikely to inspire any upmove.

Regional FX

The SGD NEER trades 0.24% above the implied mid-point of 1.2518. We estimate the top end at 1.2268 and the floor at 1.2768.       USD/SGD – Range-Bound. USD/SGD slipped below the 1.25-figure despite dollar strength with the pair pushing lower to around 1.2488 at last sight. Momentum remains lacking in either direction lacking, though risks are still bias to the upside with the 18-DMA above the 40-DMA. With directional cues lacking and risks still bias upwards, dips are likely to be shallow with range-bound trades within 1.2472-1.2521 still likely. IPI rose 3.3% y/y in Jul (Jun: 0.8%) in line with expectations. Driving factory output higher was pharmaceuticals, which rose 28.0%, rebounding from Jun’s -0.4%, though this was mitigated by continued weakness in electronics, which contracted 2.9% y/y.       AUD/SGD – Edging Higher. AUD/SGD is on the uptick, breaking above our resistance at 1.1640, to hover around 1.1642 currently. Relative strength of the AUD this morning is lifting the cross higher. A firm break of our 1.1640-handle today could extend bullish control with the next barrier around 1.1683 ahead of 1.1718. 1.1590 continues to be supportive. SGD/MYR – Heavy. SGD/MYR continues to swivel within its tight trading range of 2.5280-2.5400 with attempts to break lower proving futile so far. Cross is sighted lower around 2.5286 currently with intraday MACD forest still hugging close to the zero line, suggesting two-way trades are likely. A firm break of 2.5280 would expose the next support at 2.5176.       USD/MYR – Downward Tilt. USD/MYR remained on the downward drift in tandem with most of USD/AXJs and was last seen at 3.1575. Expect USD/MYR to remain tilted to the downside with support seen next at 3.1471. Topsides are guarded by the 3.1709-resitance ahead of the 3.1823-barrier. 1-month NDF is also heavy around 3.1635, weighed by the prospects of rate hike in Sep. Aggressive downsides are unlikely in this session as market players anticipate the more closely watched US GDP due tomorrow. Support is seen at 3.1609 ahead of the next at 3.1540. At home, BNM Governor Zeti noted risks to inflation but these are likely temporary. She also said that the Statutory Reserve Requirement ratio tool will only be adjusted when “there are fundamental shifts that result in fundamental changes in liquidity conditions”. Open market operations will still be utilized to absorb excess liquidity.       USD/CNY was fixed lower at 6.1658 (-0.0005), vs. previous 6.1663 (+2.0% upper band limit: 6.2916; -2.0% lower band limit: 6.0449). CNY/MYR was fixed at 0.5126 (-0.0011). USD/CNY – Sliding in Range. Pair slipped to trade around 6.1479. Bullish momentum is waning for the pair on the 4-hourly chart and next support is seen around 6.1420. At home, CRBC has ordered banks to draw up a recovery plan under stress conditions.  Shanghai Securities News also reported that banks have curbed loans amid rising non-performing loans.       1-Year CNY NDFs – Back on the slide. The NDF slipped to around 6.2265, weighed by Asian strength and retains bearish momentum on the intra-day chart. Next support is seen around 6.2238 while 6.2307 caps upticks this week. USD/CNH – Rangy. USD/CNH slipped to levels around 6.1470, in tandem with its peers. Bearish momentum is gaining for this pair which has slipped into the intra-day ichimoku cloud. With support at 6.1505 out of the way, next support is seen at 6.1426, ahead of the next at 6.1375. CNH trades in tandem with CNY now.       USD/IDR – Wobbly. USD/IDR continues to trade in a tight range within 11600-11750. Pair is currently wobbly, hovering around 11707 at last sight. Momentum is still bullish as indicated by intraday MACD, but is waning. Still risks are now to the upside given that the 18-DMA has just crossed above the 40-DMA. Dips though could be shallow as markets remain concern about the president-elect’s cabinet choices, his ability to build a parliamentary majority and most importantly, his determination to deal with the problems facing the economy, particularly fuel price subsidies and nationalistic policies. Also, risk appetite were mixed with foreign funds selling USD17.26mn in equities yesterday while adding a net IDR4.22tn to this outstanding bond holdings on 21 and 22 Aug (latest data available). Look for the pair to trade at the upper-end of its current trading range of 11600-11750 still. The 1-month NDF broke out of the intraday inchimoku cloud and is edging lower around 11745 currently. Four-hourly MACD is now showing increasing bearish momentum, though risks are now bias to the upside with the positive cross-over of the 18-DMA and the 40-DMA. The JISDOR was fixed marginally higher at 11715 on Tue compared to Mon’s 11714.       USD/PHP – Downside Risks. USD/PHP finally broke free of the intraday ichimoku cloud that had entrapped for the past several sessions. Pair is currently sighted hovering lower around 43.716 despite dollar strength. Intraday MACD forest is still hugging the zero line closely, though risks remains to the downside as the 18-DMA remains below the 40-DMA. With support at 43.750 broken, look for new support around 44.528 today. Resistance today is seen around 44.000 still. The 1-month NDF also broke out of the intraday ichimoku cloud and is edging lower around 43.740 currently. Four-hourly MACD is now showing increasing bullish momentum ahead. 2Q14 GDP is due tomorrow at around 10am (Singapore time) and market is an improvement in the economy over 1Q with growth likely to expand by 6.1% y/y in 2Q (cons) vs. 1Q’s 5.7%. Strong consumer expenditures, manufacturing and exports are likely to have boosted economic activity but tempered by slower government spending. Our economic team is slightly more bullish, forecasting growth of 6.3%.

      USD/THB – Sideways. USD/THB finally broke out of the intraday ichimoku cloud this morning, hovering around 31.921 at last sight. Pair had been trapped in the cloud for the past few sessions. Intraday momentum indicators such as the MACD are still not providing any directional cues, though the risks are still bias to the upside with the 18-DMA remains above the 40-DMA (though the gap is narrowing). Foreign appetite for Thai assets improved with a net THB0.14bn in a net and THb4.59bn in equities and debt purchased yesterday, and continued risk-off today could weigh on the pair higher ahead. Pair is likely to trade rangy within 31.865-32.050 today ahead of trade data out later today with upside surprises possibly lifting the THB. Still, two-way trades remain likely unless we see a firm break in either direction for moves towards a wider 31.740-32.245 trading range. Customs trade data are eyed today and Market expects exports to rise by 4.0% y/y and imports to contract by 8.9% y/y in Jul from 3.9% and -14.03% respectively. Trade balance is expected to narrow to USD500mn in Jul from Jun’s USD1.79bn

Rates

Malaysia

      The MGS curve traded rangebound today as the BNM announced the issue size on the 10y Islamic GII 5/24 retap at MYR3b. WI trades were done at 4.16% and 4.155% while the cash stock was done at 4.15%. We expect this stock to be supported by local real money account. The auction will be held this Thursday for issue date on Friday 29th August.

      The IRS curve flattened as front ends inched higher but the longer end remained offerish. 2y IRS was dealt at 3.83% and 3.84%, while 3y IRS was dealt at 3.89%. 3M KLIBOR continued its upward trend, climbing 2bps to 3.69%.

      In the PDS market, bids for HG were higher but the bid-ask spreads widened, probably investors turned their focus onto the primary issues. Some GGs were actively quoted. Interestingly, longer tenure issues were sought after with more trades done for GGs such as Dana 7/44 and Prasa 24, as well as certain AAA names such as Caga 7/29 and Telekom 3/24.

Singapore

      SGD rates market was pretty quiet with little activity in the PD community. UST futures hit a high of 126-04 but that didn't spur much interest in buying up bonds. We reckon received positions will still be preferred ahead of the new month. Bond-swap spreads continued to tighten about 1-2bps in the longer end.

      In Asian credit, market remained firm with sentiment still tilted toward the bid side. HG property names generally tightened by about 3-5bps, while we noted some profit taking activities on HY especially the Indon names which were at recent high prompting players to take some profit off the table. On new issuance, China Orient’s 5y and 10y papers (with a keepwell deed) settled at final guidance of +230bps and +280bps respective, tightened by about 20-25bps from levels when it was initially marketed at on overwhelming response. Meanwhile, Link REIT is selling USD1b 10y paper (rated A by S&P) with final guidance of T+130/135bps.

Indonesia

      There is no write-up today.