Maybank GM Daily - 24 Sep 2014

FX

Global

News of a Syrian plane shot down by Israel soured sentiments in early European hours. DXY was dragged at first by the USD/JPY pullback. Equities sank across Europe, as well as those in US. Data-wise, preliminary PMI-mfg out of core EU economies were mixed while that of the US did not meet expectations. The numbers re-ignited some concerns on global recovery and added to the risk-off mood.       The greenback recovered in NY session and the index was back around the 84.70-mark. Fed Bullard said that the pledge to “keep its benchmark interest rate near zero for a considerable time” could be dropped in the next FOMC meeting, when QE is about to end. Still, USTs gained favour amid flights to safety. 10yr yield drifted lower to print 2.5275% this morning.

      More Fed speaks tonight along with the release of new home sales for Aug. Before that, German IFO survey results are due at 1600 (HKT). Thus far this morning, Nikkei has taken the cue from the West with a -0.5% fall at last sight. Kospi is also down -0.3%. It is a data-light day for Asia. Cautious sentiments should keep USD/AXJs buoyant.

G7 Currencies

      DXY – Supported Dips. After a rather choppy session, the DXY index back around the 84.70-mark. Sep preliminary PMI-mfg number came in below expectations with a print of 57.9, steady from Aug. New home sales for Aug is due tonight and there are more Fed speakers lined up. The 40-SMA on the 4-hourly chart is still a support for the index. The moving average last printed 84.45, close to the ichimoku cloud at 84.34. Dips towards the area should remain supported.

      USD/JPY – Rangy. The tentative moves towards 109.00 overnight were stalled on concerns about Syria and a dip in UST 10Y yields. Also, reported comments by PM Abe that the government was watching the impact of the weak yen on the economy has helped to drag the pair lower to hover around 108.61 currently. Onshore markets re-open today after a public holiday yesterday. Dips though could be shallow as expectations of a Fed fund rate hike are likely to keep the pair supported. For now, we reckon range-bound trades within 108.00-109.46 are still likely today.

      AUD/USD – Retracement in Store. AUD/USD remained on the slide and has broken below the 0.8853-support that we were eyeing, last seen at 0.8850. That opens the way towards the next support at 0.8757. 18-SMA is well below 40-SMA and momentum is bearish. That said, the MACD and RSI indicate signs of bullish divergence. A retracement towards the 0.90-figure could be instore.

      EUR/USD – Heavy. Pair retained a heavy tone though domestic data was still unable to inspire new depths. Pair was last seen around 1.2850, with upticks capped by dollar strength. Support is still seen at recent low of 1.2816 and a break here exposes the next at 1.2755. German IFO survey results are due later today but pullbacks are unlikely to be deep unless the numbers imply a sharp deterioration.

      EUR/SGD – Consolidation. The EUR/SGD did not gain much directional bias on Tuesday. The PMI-mfg prints out of the core economies of EU were mixed and shrugged off by the end of the session. Last seen around 1.63-figure, this cross could remain in sideway trades within the wider 1.6210-1.6400 for now. Eye the German IFO survey for cues but any dips are likely to remain shallow unless the survey shows a sharp deterioration.

Regional FX

      The SGD NEER trades 0.22% above the implied mid-point of 1.2711. The top end is estimated at 1.2457 and the floor at 1.2964.

      USD/SGD – Two-Way Trades. After ticking higher overnight, the USD/SGD is on the retreat this morning, hovering around 1.2678 currently. Intraday momentum indicators continue to show little direction clarity, though risks remain on the upside given the 18-DMA lies above the 40-DMA still. With the focus still on the Fed fund rate hike, further upsides cannot be discounted. Look for two-way trades today with resistance likely around 1.2721 and support around 1.2670. Aug CPI outperformed expectations (cons.: 1.1%) with headline inflation rising by just 0.9% y/y vs. Jul’s 1.2%. Core inflation moderated slightly, rising by 2.1% in Aug from 2.2% in Jul.

      AUD/SGD – Wobbling. The AUD/SGD is currently hovering close to our support level at 1.1216 after failing to firmly break below that level overnight. Continuing relative weakness of the AUD vs. SGD should pressure the cross lower with a move towards 1.1094 (27 Jan high) possible should we see a firm break of our 1.1216-support today. Cross should remain capped around 1.1318 today. SGD/MYR – Consolidating. After yesterday’s gap higher, the SGD/MYR is consolidating around the 2.5630-region currently. MYR remains on the downside vis-a-vis the SGD and this should limit downside in the cross today. Support remains around 2.5447 today with resistance seen around 2.5734 (1 Aug high).

      USD/MYR – Capped. The post HSBC flash PMI-mfg pullback was short lived as USD/MYR bulls begin to try the 3.25-figure again this morning. Strength of the dollar underpins. Next barrier is seen at 3.2717 though that is unlikely to be tested. Momentum indicators show fatigue in the bulls at this point and possible a bearish divergence. We see risk of a pullback towards first support at 3.2240. Next support near the ichimoku cloud on the 4-hourly chart at around 3.2030 should remain intact.1-month NDF was last seen around 3.2570, still underpinned by 18-SMA around 3.2513. 

      USD/CNY was fixed at 6.1462 (-0.0008), vs. previous 6.1470 (+2.0% upper band limit: 6.2716; -2.0% lower band limit: 6.0257). CNY/MYR was fixed at 0.5288 (-0.0003). USD/CNY – Range-trades Shifts Lower. Pair gapped down this morning, in catch up action with the rest of the USD/yuans and was last seen around 6.1350. Pair is thus flirting with the 6.1348-support and a break here exposes the next at 6.1292. While momentum has turned a tad bearish, 18-SMA and the 40-SMA are at the brink of positive crossover. Expect 6.1292-support ot remain intact while 6.1441 caps topsides. Local press reported that China will set quotas for local governments and power companies for renewable energy development (BBG).

      1-Year CNY NDFs – Neutral. The NDF slipped through the intra-day ichimoku cloud and was seen below 6.23-figure this morning. The pair could be dragged by upside surprise in the HSBC flash PMI-mfg. PBOC continues to fix the USD/CNY mid-point bias to the downside despite dollar strength. Bias is to the downside at this point and a decisive move below the 6.2298-support opens the way towards the next at the 6.22-figure. USD/CNH – Downside Pressure. USD/CNH also tracked the NDF lower and was last seen around 6.1390. Next support is seen at 6.1310 (10-Sep low). Bearish momentum is keeping the prices pressured to the downside although RSI flags near oversold conditions. CNH now trades at a narrower discount after a strong catch-up session on Tue.

      USD/IDR – Bullish Risks. The USD/IDR covers to hover just below the key psychological 12000-level this morning, sighted around 11981. Pair remains pressured upward on the back of domestic concerns, particular fuel price subsidy issue and the twin deficits. Intraday MACD continues to point to bearish momentum currently though. Risk appetite soured yesterday with foreign funds selling a net USD49.89mn in equities, supporting the pair higher. With risks still to the upside, look for our 12000-resistance level to be tested in the near term with the next hurdle seen around 12100. Support remains around 11900 today. The 1-month NDF remained sticky above the key 12000-psychological level, hovering just above that level at 12056 currently with intraday MACD continues to show bearish momentum. An intraday ichimoku cloud is forming ahead that could determine price action. The JISDOR was fixed higher at 11987 on Tue, up from 11972 on Mon.

      USD/PHP – Rangy. USD/PHP continues to trade around the middle of its current 44.125-44.700 range. Pair is on the uptick this morning and was spotted around 44.555. Expectations of Fed fund rate hike and risk aversion are likely to keep the pair elevated, but the lack of directional clarity currently should keep the pair still trading rangy within 44.125-44.700 today. The 1-month NDF is on the retreat this morning after edging higher overnight. 1-month is currently hovering around 44.590, with intraday MACD showing mild bearish momentum.

      USD/THB – Range-Bound. USD/THB is back on the slide this morning after rebounding above the 32.250 levels overnight. Dips though are likely to be modest on global risk aversion and expectations of a firmer dollar. Pair is currently sighted around 32.231 with intraday momentum indicators still providing little directional clues. Moreover, pair is now within an intraday ichimoku that could limit price action ahead with trades likely to remain rangy. Look for moves within 32.185-32.290 today. Foreign appetite for Thai assets was mixed with a net THB0.60bn in equities bought yesterday but a net THB0.84b in debt was sold, limiting the pair’s downsides yesterday.

Rates

Malaysia

      Local government bond market saw mixed trading with better sellers throughout the day. In the morning, we saw buying interest from 3y MGS to 10y MGS, and foreign names buying as IRS levels fell. Players will look at the next auction which is a 5y GII419s retap. We expect BNM to announce the issue size this Thursday for auction on next Monday.

      The IRS market continued to bleed, falling by 1-2bps from the 1y point. 3y IRS traded at 3.79%. Nevertheless, we think it is worthy to initiate paid positions now. There was positive carry on first fixing of 1y and 2y IRS as they were below KLIBOR. 3M KLIBOR remained steady at 3.73%.

      Investors in the PDS market are seeking for higher yields, akin to the Asian credit market. Buying remained focus on mid-to-low AA papers at the belly of the curve and at the longer end of the curve. There is still interest for Plus 25 which was last traded at 4.56%, about 2bps lower than the previous trade a few days ago. Few GGs were traded today, the most notable being BPMB’s long dated 25y papers which was last traded at 4.82%, 3bps lower than its MTM level.

Singapore

      SGS yields generally traded 1-3bps lower tracking the strength in UST which moved down slightly in yield during Asian trading hours. Market has in general stabilised after the recent yield correction. This week we will see several Fed governors speak on monetary policy and this might set the market tone for the week.

      In the Asian credit market, we saw Chinese property names trade wider, despite better than expected HSBC China Manufacturing PMI, as most of their financial performance are not very positive. Overall trading in the market was rather quiet as UST market closed for the Japan holiday. In Korea, Nonghyup Bank traded 2-5bps better from its reoffer. We also saw treasuries rally in the afternoon and better buyers on the Korean names. Market rumored that SinoSteel Corp may default on its bank loans, but the news is not confirmed and we have yet to see panic selling on it.

Indonesia

      Indonesia bond market moved mixed as there were minimum sentiments during the day. Sukuk auction result was not that fancy as well despite was in line with our expectation. Jokowi seems to have strong determination for increasing subsidize fuel price after he enter the presidential office. Various strategies are now being discussed by his transition team should the price hike plans comes to action. Jokowi’s cabinet needs to run with a relative tight budget in 2015 as Indonesia government along with parliament house decides to revise their 2015 budget deficit assumption to 2.21% of GDP from previously 2.32% of GDP. As a result, government bond issuance in 2015 would decline by Rp27.9 tn. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 8.051% (+0.2bps), 8.213% (+0.6bps), 8.540% (+1.0bps) and 8.740% (+1.0bps) while 2-yr yield shifts up to 7.562% (+4.8bps). Government bond traded heavy at secondary market amounting Rp9,587 bn from Rp5,070 tn with FR0068 (20-yr benchmark series) and FR0069 (5-yr benchmark series) was the most tradable bond. FR0068 total trading volume amounted Rp1,789 bn with 42x transaction frequency and closed at 96.607 yielding 8.740% while FR0069 total trading volume amounted Rp1,328 bn with 26x closed at 99.332 yielding 8.051%.

      Indonesian government held a series of auctions yesterday and received a total of Rp3.66 tn bids versus its target issuance of Rp1.50 tn or oversubscribed by 2.4x. However, only Rp1.50 tn bids were accepted for its 5-mo SPN-S which was sold at a weighted average yield of 6.74160% while 30-yr PBS005 was sold at 9.20271%. Incoming bid during the auction were mostly clustered at the 5-mo benchmark series. Despite lower, incoming bid during the auction was actually higher compared to average YTD incoming bid of Rp3.57 tn. Bid-to-cover ratio during the auction came in at 1.23X – 2.76X. PBS006 (6-yr) bids was rejected during the sukuk auction. The awarded yield and incoming bids during the auction were in line with our expectation. Overall, we consider the auction as quite average. On total, Indonesian government has raised approx. Rp376.1 tn worth of debt through domestic and global issuance which represent 87.43% of this year target of Rp430.2 tn. Indonesia government needs to issue Rp8.09 tn at upcoming final conventional auction to meet their 3Q 14 target of Rp96 tn.

      Corporate bond traded heavy amounting Rp780 bn (vs average per day (Jan – Aug) trading volume of Rp657 bn). SSIA01B (Surya Semesta Internusa I Year 2012; B serial bond; Rating: idA) was the top actively traded corporate bond with total trading volume amounted Rp134 bn yielding 9.309%.