Maybank GM Daily - 23 Sep 2014

FX

Global

Wall Street ended on a mild negative note after existing home sales disappointed in Aug. DJI was down -0.6% by close, S&P at -0.8% and NASDAQ at -1.1%. Fed New York President Dudley said that markets focus too much on the dotted diagram which projects the Fed Fund Rate, stressing that there is still uncertainty around those estimates. Elsewhere, Fed Minneapolis President Kocherlakota suggested that Fed may allow inflation to surpass the 2% target in order to lower unemployment. In fact, he expects inflation to remain below target in the next few years.  Despite the rather dovish comments overnight, the USD retained its buoyancy into Asia, helped also by the rather heavy EUR.       On Mon, ECB President Mario Draghi commented that the central bank will actively control its balance sheet to ensure its aid to the real economy. His comments spurred speculation of more monetary stimulus. EUR remained a tad heavy after his comments, last seen around 1.2850. A slew of preliminary PMI-mfg figures are due out of the Eurozone, along with France’s final 2Q GDP. But before that, China’s HSBC flash PMI-mfg is in the limelight this morning, at 50.5 and above consensus. Singapore’s Aug CPI is due as well after lunch.       A bid dollar tone could keep most Asians on the backfoot, not helped the least by the soured sentiments that had extended from overnight trades. Expect USD/AXJs to remain buoyant today. Onshore markets in Japan are away for Autumnal Equinox Day, to resume tomorrow.

G7 Currencies

DXY – Buoyant. The DXY index remained in tight swivels around the 84.70-mark, not gaining much direction from overnight Fed Speaks which were a tad dovish. Overnight, Fed Dudley reckoned that markets focused too much on the Sep Fed fund rate projections which were a tad higher than Jun. This morning, Fed Kocherlakota views inflation to remain below the 2% target for the next few years. He urged Fed to be more proactive in achieving the 2% inflation goal, rather than allowing the inflation subdued for too long a time. Expect the dollar to remain elevated, albeit capped by the 85-figure ahead of the next barrier at 85.377. The preliminary PMI-mfg print for Sep is out today.       USD/JPY – Sideways. The USD/JPY is still on the slide this morning after failing to break above the 109-figure again. Pair is seen hovering around 108.74 currently with intraday MACD showing bearish momentum. Trades are likely to be quiet today as onshore markets are closed for a public holiday and re-opens tomorrow. Look for the pair to remain in its current trading range of 108.00-109.46 today.       AUD/USD – Tentative Bids. The pair touched a low of 0.8853 overnight before edging towards the 0.89-figure, on the back of better-than-expected HSBC PMI-mfg print out of China for Sep. Resistance is seen at 0.8950 ahead of the 0.90-figure. That said, bias is still to the downside with latest bids seen tentative. Support is seen at 0.8847. The fall in commodity prices continue to drag on the AUD which has become one of the underperformers of the G10 in the past week. Next support is seen at 0.8757.       EUR/USD – Heavy. EUR retained its heavy tone into Asia as market players take in the latest comments from ECB Draghi. His eagerness to have active control over the bank’s balance sheet to cushion downside risks on the economy suggest that more stimulus could be up his sleeves. In addition, there could be more measures to spur credit activities. While the risks are definitely to the downside as EUR last print 1.2851, close to its recent lows of 1.2816. Next support is seen around 1.2755. Preliminary PMI-mfg numbers will be watched closely today along with France’s final GDP.

      EUR/SGD – Bearish Risks. The EUR/SGD bounced to a high of 1.6321 before reversing back towards the 1.63-figure this morning. Risks are to the downside,  in line with the EUR/USD although downsides in this cross is more cushioned given the weaker SGD. Expect technical support around 1.6213 to remain intact for intra-day trades. Upticks to meet barrier at the 1.64-figure.

Regional FX

      The SGD NEER trades 0.23% above the implied mid-point of 1.2716. We estimate the top end at 1.2463 and the floor at 1.2970.

      USD/SGD – Rangy. USD/SGD closed above the 1.27-figure overnight for the first time since Mar at 1.2701. Since then, the pair has come off to hover around 1.2692 on the back of a softer dollar tone. Given expectations of dollar strength, dips are likely to be shallow and sideway trades are likely today. Look for offers to be met by support at 1.2670 today, while the barrier to cross today remains at 1.2721. We have Aug CPI due today and market is expecting prices to remain steady at 1.1% y/y (Jul: 1.2%). Unless there are major surprises, we do not expect this data to have a major impact on the pair today.

      AUD/SGD – Downside Bias. The AUD/SGD broke below our major support at 1.1275 yesterday, dragged by the relative weakness in the AUD. Cross is still on the retreat this morning, currently sighted around 1.1259, this time on the back of the relative strength of the SGD. With risks still to the downside, new support is now around 1.1216.  Bids are likely to be capped around 1.1318 today. SGD/MYR – Bullish Risks. The SGD/MYR gapped higher to 2.5618 at the opening and remains on the uptick currently, sighted around 2.5641. Continue strength in the SGD should keep the cross supported today with the cross likely to hover rangy around that level today. With a couple of our barriers taken out, new resistance is seen around 2.5730. 2.5447 should be supportive today.

      USD/MYR – Capped. USD/MYR gapped up this morning and hovered just a touch above the 3.25-figure, buoyed by dollar strength. With the 3.2492-resistance broken, pair may try towards the next resistance at 3.2717. Spot was sold with some foreign buying interest noted by our onshore trades on Mon. Expect the pair to remain underpinned by the dominant dollar. 1-month NDF was on the upmove for much of overnight trades, steadying around 3.2590 this morning. Momentum is still bullish and the 40-SMA (on the 4-hrly chart) could continue to guide the pair higher.

      USD/CNY was fixed at 6.1470 (-0.0015), vs. previous 6.1485 (+2.0% upper band limit: 6.2724; -2.0% lower band limit: 6.0265). CNY/MYR was fixed at 0.5258 (-0.0011). USD/CNY – In Range. Pair hovered around 6.1420 this morning, still the 6.1348-6.1530 range and there is little directional cues. Bullish momentum waned this morning, as flagged by the MACD forest on the 4-hourly chart despite the rise from open. The slightly lower fixing was ignored. Expect gyrations to remain thereabouts for much of this week. The HSBC flash PMI-mfg for Sep surprised to the upside with a print of 50.5, above the consensus of 50.0. In news, IMF Deputy Managing Director Zhu Min said that China should accept GDP growth of about 7-7.5% and reduce its dependence on real estate (BBG).

      1-Year CNY NDFs – Neutral. The NDF kept close to the 6.24-figure for much of Mon trades, underpinned by the daily ichimoku cloud at 6.2363. There is a lack of momentum at this point on the intra-day chart and recent price moves suggest two-way interests. Expect intra-day trades to be confined within 6.2360-6.2485. USD/CNH – Choppy. USD/CNH rebounded from early Mon lows towards the ichimoku cloud on the intra-day chart. This pair has since reversed from its highs to trade around 6.1490, still on the slide. Expects dips below the support at 6.1404 to remain supported. Next major support is seen at Sep low of 6.1310 while topsides could be guarded by 6.1552.

      USD/IDR – Upside Bias. The USD/IDR remains within striking distance of the 12000-level this morning, hovering around 11990 at last sight. Unlike its regional peers benefiting from a softer dollar tone, domestic concerns, particular fuel price subsidy issue and the twin deficits, are keeping the pair supported. This is even as intraday MACD is indicating bearish momentum currently. Moreover, foreign funds have been supportive of the IDR, buying a net USD2.22mn in equities yesterday on the back of improving risk appetite. Given upside risk bias, we reckon bids are likely to meet resistance around 12000 today, while 11900 should remain supportive. The 1-month NDF remained hovering above the the key 12000-psychological level, sighted around 12075 with the intraday MACD showing little momentum in either direction currently. The JISDOR was fixed lower at 11972 on Mon from 11985 on Fri.

      USD/PHP – Range-Bound. USD/PHP is trading range-bound currently within 44.125-44.700 with the pair currently sighted around 44.551. Intraday momentum indicators are showing the pair losing its bullish momentum. With risks tilted to the upside, price action this week is likely to hover within 44.125-44.820. A widening current account surplus of USD3.1bn in 2Q should also weigh on the pair today. Despite the downward moves today, we reckon that the pair should remain in range-bound trades within 44.125-44.700 ahead given the stronger dollar expectations. The 1-month NDF continues to slide, sighted around 44.620, with our four-hourly chart showing flattish momentum currently.

      USD/THB – Sideways. USD/THB is on the retreat this morning on the back of a softer dollar tone. Pair is currently sighted around 32.250 with intraday momentum indicators showing little direction clues. An intraday ichimoku cloud has formed below price action and could provide support for the pair ahead. Moreover, risks are now tilted to the downside given the negative cross-over of the 18-DMA and 40-DMA yesterday. Lacking any firm drivers today, look for side-way trades today with support nearby seen around 32.185 today, while upsides are likely to be capped by 32.290 ahead of 32.355. Improving risk appetite yesterday saw foreign funds purchased a net THB0.68bn and THB0.67bn in equities and debt, helping to cap upside.

Rates

Malaysia

      Local government bond market opened on Monday on a quiet note with bid/ask wide after an active session last Friday. Interest however was seen on the recently reopened 30y MGS 9/43 which closed 2bps lower, while the 10y MGS 7/24 traded unchanged. Other MGS benchmarks were not traded on the day. This week we will see the last auction for the third quarter, i.e. the retap of 5y GII 4/19. Announcement is expected on Wednesday with estimated issue size of MYR3.5b.

      The IRS market experienced another round of smashing and looks like it still has legs. Most people were paid in the short end and belly rates, which mean that the receiving interest from unwinding of positions could persist for a while. 5y IRS traded at 3.97% and 3.96%, 3y IRS traded at 3.82% and 3.80%. There were also trades at the 2y point. 3M KLIBOR declined by 1bp to 3.73%.

      In the PDS market, high-yielding papers rated below AAA saw more trading activity. AA- rated Kesturi papers were actively traded at the longer end of the curve while at the belly we saw buying interest on UEM Sunrise. Buying interest still focused on the utilities and property construction sectors e.g. PASB, Aman, IJM, Manjung, UEMS and SEB. This could be optimism that an upward correction in the property sector is expected while rumours of a tariff hike in water and electricity rates in Malaysia may have generated buying interest in the utilities sector.

Singapore

      SGS took a beating today dropping almost 6-7bps from the 10y point. There was little interest ahead of the 5y SGS auction this week, but with the SGS 10/14 issue having a pretty big maturity, we should see the new 5y bond being bidded to rollover the maturity. SGS may have a chance to outperform this week.

      In the Asian credit market, the new China Coal Solution was sought after by private banking clients but met with more profit taking at 100.50. Overall with FOMC out of the way, the market is back more active with new issuance. Nonghyup Bank, one of the largest bank in Korea, is issuing a 5y USD issuance with guidance of T5+115. Given its slightly weaker fundamentals as compared to other Korean policy bank, we are looking at the fair level of around T5+100/105bps. Alongside with Nonghyup Bank, Korea Hydro and Hana Bank are said to be in the pipeline as well.

Indonesia

      Indonesia bond market recorded gains still backed by last week subsidize fuel price hike discussion. There were not much market sentiment yesterday which could drive the market yet foreign investors were seen being on the sell side post lunch. This week, would move sideways with a positive tendency yet would be constraint by an expectation of a higher September inflation due to LPG price hike and August trade balance. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 8.049% (-0.4bps), 8.208% (-0.7bps), 8.531% (+0.8bps) and 8.730% (-3.6bps) while 2-yr yield shifts down to 7.513% (-2.7bps). Government bond traded thin at secondary market amounting Rp5,070 bn from Rp8,140 tn with FR0068 (20-yr benchmark series) and SR006 (2.5-yr) was the most tradable bond. FR0068 total trading volume amounted Rp930 bn with 64x transaction frequency and closed at 96.702 yielding 8.730% while SR006 total trading volume amounted Rp774 bn with 72x closed at 101.814 yielding 7.932%.

      DMO will conduct another weekly auction today with three series to be auctioned this week are SPN-S10032015 (Coupon: discounted; Maturity: 10 Mar 2015), PBS005 (Coupon: 6.750%; Maturity: 15 Apr 2043) and PBS003 (Coupon: 8.250%; Maturity: 15 Sep 2020). We do believe that the auction will be oversubscribe by 1.7x – 2.7x from its indicative target issuance while our view on the indicative yield are as follows SPN-S10032015 (range: 6.750% – 6.900%), PBS005 (range: 9.200% – 9.300%) and PBS006 (range: 8.250% – 8.350%).

      Corporate bond traded thin amounting Rp413 bn (vs average per day (Jan – Aug) trading volume of Rp657 bn). AIRJ01C (TPJ I Year 2008; C serial bond; Rating: A(idn)) was the top actively traded corporate bond with total trading volume amounted Rp80 bn yielding 8.398%.