Maybank GM Daily - 7 Aug 2014

FX

Global

European markets ended Wed in the red amid concerns over Russian retaliatory sanctions. The contraction in Italy’s GDP for 2Q (by -0.2%q/q) certainly did not help sentiments. Risk aversion extended into Wall Street. US trade balance release for Jun was a non-event at -$41.5bn, narrower than the previous -$44.7bn. Equity bourses ended flat. The dollar retreated from its late Asian highs to around 81.40. 10-year yield touched a low of 2.4312% before recovering to around 2.47% this Asian morning.       More excitement in Asia today as China releases its Jul trade numbers, likely around 1000 (HKT). The print is normally an AUD mover but Australia’s labour report was out first, hammering the currency lower. More excitement in Asia today as China releases its Jul trade numbers, likely around 1000 (HKT). The print is normally an AUD mover but Australia’s labour report was out first, hammering the currency lower. The currency was last seen around the 0.93-figure. Resurgence of the CNY has gotten some notice but majority of the USD/AXJs are likely to remain in their current range.

      Beyond Asia, BOE and ECB decide on policy rates today. Interest is always on their economic assessment and outlook. More attention could be focused on ECB Draghi’s press conference after the decision. There are apparent caps on both GBP (1.6890) and EUR (1.3432) against the USD at the moment and they are likely to stay this week.  Weekly initial claims could provide a side distraction in the absence of stronger market cues but any impact could be fleeting.

G7 Currencies

       DXY – Supported on Dips. The greenback touched a high of 81.7160 before slipping retreating towards the 81.40-mark this morning. The intra-day chart shows a tilt to the downside in momentum and we might see further offers towards support around 81.1790. More aggressive offers are likely to see buying interests however. 81.7160 remains the barrier to reckon ahead of the next at 82-figure. Initial claims could be of note today but only because there are no other more important releases out of the US.

       USD/JPY – Downside. USD/JPY tumbled overnight first on weak US equities and then later a sell-off in the dollar, sending the pair to a low of 101.77 before recovering to close at 102.10. Pair is currently waffling this morning and is sighted higher around 102.15. Intraday MACD is still showing increasing bearish momentum, though RSI is indicating oversold conditions. Moreover, a thick ichimoku cloud hangs overhead that could act as barrier to further upticks today. Price action today be rangy with new support likely at 101.76 and barrier around 102.44.

       AUD/USD – Two-Way Risks. AUD zigzagged higher for the past few sessions and was last seen around 0.9350 ahead of the labour report. The currency was hammered back towards the 0.93-figure this morning right after the release. The jump in unemployment rate to 6.4% from previous 6.0% was the shocker. Jul employment fell by 300 but we are wary of buying interests after some scrutiny of the details which turned out to be not as bad as the headlines. Participation rate rose to 64.8% from previous 64.7% and there was actually an addition of 14.5K to fulltime employment which was negated by the fall of -14.8K in part-time employment. Support continues to be seen at around 0.9300, ahead of the next at 0.9274. Bids may meet resistance at 0.9413 with an interim barrier around 0.9390. China’s trade numbers are also due later and any surprise could add to the volatility in the currency.

       EUR/USD – Choppy. EUR/USD bounced to trade around 1.3380 this morning. Intra-day ichimoku cloud thins out ahead and could signal more choppy moves in the pairing. Expect price action to meet resistance around 1.3410. Support is seen around 1.3316. MACD flags less bearish conditions as well and the forest was seen around the zero line. ECB meeting is the main focus today and we look for medium term cues from the press conference.

       EUR/SGD – Choppy. EUR/SGD hovered around the 1.67-figure, underpinned by the EUR upmove towards the end of NY session. MACD forest on the 4-hourly chart is at the zero-line. Intra-day action could be choppy as the Ichimoku clouds thin out. There is little directional bias indicated in the near-term and two-way risk is seen. A break-out of the narrow 1.6680-1.6730 band widens the barriers to 1.6640 on the downside and 1.6760 at the topside.

Regional FX

      The SGD NEER trades 0.45% above the implied mid-point of 1.2537. We estimate the top end at 1.2287 and the floor at 1.2786.

       USD/SGD – Lacking Momentum. USD/SGD hit a high not seen since 25 Jun of 1.2514 yesterday before easing overnight to around 1.2480 currently. Momentum indicators including intraday MACD continue to show little direction clarity currently. Risks however remain to the upside as the 18-DMA continues to lie above the 40-DMA, though the gap is narrowing. We reckon that further two-way trades are likely with key support still around 1.2450. Moreover, an intraday ichimoku cloud lies below price action, which could also provide support for the pair. 1.2502 continues to cap topside.

       AUD/SGD – Supported.  AUD/SGD has come off after hitting a recent high of 1.1699 overnight. Cross is currently inching lower to around 1.1673 on the back of relative strength of the SGD with intraday MACD forest hugging close to the zero line. Risks though are now biased to the upside given the recent positive cross-over of the 18-DMA and the 40-DMA. Moreover, a thick intraday ichimoku cloud is forming below price action, which could limit downside ahead. Nearby support at the top of the cloud is around 1.1647, while topside should be guarded by 1.1724. SGD/MYR – Upside Risks. SGD/MYR is on the uptick this morning on the back of relative MYR weakness but still well within its familiar trading range. Cross is currently sighted around 2.5656 with intraday momentum indicators showing little directional cues. However, the positive cross-over of the 18-DMA and the 40-DMA suggest further upsides are likely. Price action today should see the pair hover within 2.5547-2.5730 with risks to the upside.

       USD/MYR – Choppy. USD/MYR opened a tad softer and rebounded to a high of 3.2055 this morning before easing off again. Bids were negated by offers on Wed and our traders also noted active trading on the MGS as well as GII in the last session with special buying interest at the long end of the curve. The trade numbers had disappointed for Jun but overall for 2Q, external grade growth picked up pace. Our economists hold their forecast for trade numbers and expect moderating trade growth in the second half of the year. Expect two-way trades within 3.1940-3.2040. 1-month NDF was also on the uptick and was last seen around 3.2130 after a rather choppy Wed. Risks are tilted to the upside for both NDF and spot prices.

       USD/CNY was fixed lower at 6.1670 (-0.0011), vs. previous 6.1681 (+2.0% upper band limit: 6.2929 -2.0% lower band limit: 6.0461). CNY/MYR was fixed at 0.5192 (+0.0010). USD/CNY – Bearish. Pair slipped this morning to around 6.1610 in tandem with the majority of USD/AXJs, edging close to our next support at 6.1533. (50% Fibonacci retracement of the Jan-Apr rally). The spot and fixing have converged recently in tandem with improving fundamentals. The 18-DMA remains well below the 40-DMA and bids should continue to be limited by the 6.1860-resistance. At home, NDRC may expand bond sale requirements for some companied (Securities Times, BBG). Elsewhere, Economic Information Daily reported that local government s announced CNY 6trn worth of investment plans for this year.

       1-Year CNY NDFs – Heavy. The NDF touched a low of 6.2265 before steadying around the 6.23-figure. MACD forest on the 4-hourly chart shows fading bearish momentum and 18-SMA is below the 40-SMA. Expect consolidative trades with 6.2350 seen as a viable barrier for the pair. Next support is pencilled in at 6.2220. USD/CNH – Heavy. USD/CNH has clearly broken the 6.1706-support and is near our next support around 6.1591. MACD shows increasing bearish momentum and 18-SMA is below the 40-SMA. Barrier is seen now at 6.1689 intra-day trade. CNY has caught up with CNH and trades above the offshore yuan, against the dollar.

       USD/IDR – Rangy With Upside Risks. USD/IDR remains in the thick of the intraday ichimoku cloud, hovering around 11760 currently. Intraday MACD is still indicating waning bullish momentum, though risks are still tilted to the upside given the negative cross-over of the 18-DMA and the 40-DMA recently. Still trapped within the intraday ichimoku cloud, rangy trades remain likely ahead within 11650-11850. Foreign appetite for equities tanked with a net USD102.94mn sold yesterday, but a net IDR7.04tn in debt were added to their outstanding holdings in the first two days of Aug (latest data available). Still, upside pressure on the pair could continue should Indonesia assets remain in disfavour with foreign funds. The 1-month NDF is on the slide this morning, sighted around 11833 from yesterday’s close of 11860 with intraday MACD having flipped and is now indicating mild bearish momentum. The JISDOR was fixed higher yesterday at 11756 after it was set lower at 11733 on Tue.

       USD/PHP – Upside Risks. USD/PHP took out our resistance at 43.750 on its way up yesterday, closing at 43.764. This morning the pair is bouncing higher again, sighted around 43.887 with intraday MACD showing slight bullish momentum, though RSI is indicating near overbought conditions. With our resistance at 43.750 taken out, pair could be headed towards the stronger hurdle at the key 44.000-handle. Bids remain limited by 43.528 today. 1-month NDF is on the uptick this morning, hovering around 43.920 with intraday MACD showing mild bullish momentum.

       USD/THB – Still Rangy. USD/THB is wobbling this morning and is currently inching higher to around 32.187 after coming off its overnight high of 32.287. Yesterday’s BoT policy decision also had little discernible impact on the pair. Foreign appetite for Thai assets was mixed yesterday with foreign funds buying a net THB1.05bn in equities but selling a net THB4.32bn in debt, which on a net-basis, likely pressured the pair higher. Intraday MACD forest is hugging close to the zero line, suggesting two-way moves are possible today. We continue to look for rangy trades within 32.050/32.310 today. As expected, the BoT held its policy rate steady at 2.00% yesterday as inflationary pressure remained contained. Our economic team does not expect any further moves this year but expects a 25bp rate hike in 2H15 to normalize monetary policy in line with the global interest rate upcycle.

Rates

Malaysia

§  Volumes in local government bond market picked up across the curve with the 3y and 10y MGS benchmarks 3/17 and 7/24 seeing most of the action. The 7y (3/21) and 10y GII (5/24) also saw active trading with better buyers throughout the day. Worth noting is the steady dip in yield on the long end part of the curve with the 20y and 30y MGS 4/33 and 9/43 done 3bps and 1bp lower respectively.

§  The IRS curve has barely moved in quiet trading with no trades reported. We however saw slightly better receiving interest with rates shifting lower. 3M KLIBOR stayed flat at 3.60%.

§  In the PDS market, buying interest continued in line with the slight rally in govvies. Focus was, as usual, on GGs like Prasarana, Danainfra, and PTPTN. AAA names were equally well bid with offers hardly come around. Given the thin primary pipeline, we expect the market to remain biddish near term.

Singapore

§  SGS curve flattened with yield on the 5y point rising 1bp while yields on 10y to 20y sector down by 1-2bps. Market opened broadly flat from yesterday’s close in the morning, but yields started to inch down in the afternoon and toward closing in line with stronger UST on escalating tensions between Russia and Western nations over Ukraine.

§  In the Asian credit market, KEXIM priced the 5y and 12y USD papers at T+72.5bps and T+85bps respectively. Both papers traded 4-5bps wider from reoffer this morning. Meanwhile, the new China Merchant 5y piece was priced at T+162.5bps, and traded roughly 5bps from reoffer amid weak sentiment. We generally saw better sellers in the past few days.

Indonesia

§  Indonesia bond market continues moving lower for 3 day consecutive day. Uncertainty of global situation such as increasing Russia – Ukraine tension combined with domestic issues such as weaker economic data publication along with Prabowo beginning his court challenge of the July 9^th presidential election has somewhat contributed to bond prices weakness. Bond prices fail to strengthen amid foreigner adding up portfolio in Indonesia bond market. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 7.998% (+4.9bps), 8.216% (+4.7bps), 8.575% (+1.9bps) and 8.830% (+3.9bps) while 2-yr yield slightly shifted down to 7.473% (-0.1bps). Trading volume remains heavy amounting Rp15,045 with FR0068 (20-yr benchmark series) and FR0070 (10-yr benchmark series) was the most tradable bond during the day. FR0068 total trading volume amounted Rp4,137 bn with 144x transaction frequency and closed at 95.777 yielding 8.830% while FR0070 total trading volume amounted Rp2,146 bn with 86x transaction frequency and closed at 101.030 yielding 8.216%.

§  Indonesia Debt Management Directorate General (DMO) release bond ownership data as of Aug 4^th, 2014 which showed a significant purchase by foreigners as they have added Rp7.04 tn between 24 Jul – Aug 1. The significant inflows haven’t caused a rally in bond price as what have occurred during the month of Feb despite the inflow had taken through the secondary market. Foreign ownership now stood at its new peak at Rp419.07 tn (36.60% of total outstanding of government bond). Banks were the largest seller amounting Rp11,310 bn within the same period.

§  Corporate bond trading volume remains thin amounting Rp159 bn (vs average per day (Jan – Jun) trading volume of Rp677 bn). SSIA01B (Surya Semesta Internusa I year 2012; B serial bond; Rating: _idA) was the top actively traded corporate bond with total trading volume amounting Rp54 bn.