Maybank GM Daily - 10 Nov 2014

FX

Global

       US NFP came in below expectations at 214K, sending the DXY to levels around 87.50. Next on the radar is China’s inflation numbers and consensus expect the CPI to steady at 1.6%y/y in Oct. Low price pressures and subdued domestic demand continue to raise calls for greater stimulus from the government to meet the 7.5% growth target this year, apart from liquidity injection via the medium-term lending facility in the past two months. China has more data coming up as liquidity data is due anytime within the week. Credit growth is expected to maintain a modest pace while FAI, retail sales and industrial production are due for release on Thu.

       Expect Asian investors to watch the first batch of Chinese data for 4Q like a hawk for any “hints” of stronger stimulus from PBOC. A currency that is vulnerable is AUD which broke below strong support at 0.8660 along with the fall in gold prices and dollar strength. Domestically, this week has NAB business surveys and consumer confidence data at mid-week. The RBA had projected a decline in the terms of trade for Australia in its Statement on Monetary Policy but downsides in the AUD could be tempered by Japan’s GPIF reallocation of assets. In the near-term however, the AUD seems vulnerable to more downsides towards the 0.85-figure.

       Nearer to home, Malaysia releases its 3Q GDP (Cons.: 5.6%y/y) and current account (Cons.: MYR 9.1bn) on Fri after industrial production (Cons.: 5.5%y/y) is out on Tue. Softer numbers could weigh on the MYR which has weakened 1.7% against the USD along with the slippery oil prices. Outlook for oil prices remain soft and should keep the USD/MYR elevated. Singapore’s retail sales (Cons.:4.1%y/y) should be released on Fri but is unlikely the SGD mover. Elsewhere, Bank Indonesia decides on policy reference rate on Thu. Our Indo economist does not expect the central bank to change rates at this point. Nonetheless, dollar strength will still underpin USD/IDR along with most USD/AXJs. Any retracement is likely to be tentative.

G7 Currencies

       DXY – Shallow Dips. A below expectations NFP sent the DXY index below the 88-figure. Support is now seen around 86.96. The bearish session on Fri has pared the bullish momentum in the dollar. 18-DMA is above 40-DMA and we expect dips to be shallow. Topsides guarded by recent high of 88.19 while offers should meet support first at 86.96. Watch for Fed speakers this week as well as retail sales on Fri.

       USD/JPY – Still Buoyant. After pushing past the 115-figure last week, the USD/JPY is on the retreat after the dollar slid after US NFP disappointed and yields dipped. But this retracement should not come as a surprise given the swift upmoves, and could provide any opportunity to buy. Pair is currently sighted around 114.30 with daily MACD still showing bullish momentum even as the pair exited overbought territory. Slippage this week could see support nearby at 114.06 before the next at 113.64. The 115-figure remains the psychological barrier to cross again ahead of the next at 115.52 and then at 115.93 (1 Nov 2007 high).

       AUD/USD – Rangy. AUD broke below the 0.8660-figure and rebounded to this level this morning, underpinned by the waffling dollar. RBA still regards the AUD as high based on historical records and the fact that terms of trade should remain on the decline also weigh on the currency. Risks are to the downside at this point, as indicated by the momentum indicator and the bearish price actions. 18-DMA remains below the 40-DMA, another bearish signal for this pair. Gold prices softened from morning high and soggy prices could add to the bearish outlook for this pair. Pair may remain heavy within 0.8500-0.8750 for this week.  Data scheduled for release includes NAB business surveys on Tue and consumer confidence on Wed. Assistant Governor Kent will speak on Thu.

       EUR/USD – Heavy. Dovish ECB pushed the EUR/USD under the 1.24-figure and pair has rebounded to mid-1.2450 by this morning. EUR shorts were annoyed by the miss in NFP on Fri and this pair may continue its sideway gyrations within 1.2350-1.2566. A break of the support at 1.2350 could keep the pair on the course towards the next support at 1.2256. Core economies release CPI and GDP numbers on Fri and are the key releases to watch out of the euroarea.

       EUR/SGD – Rangy for Now. The EURSGD shorts were again thwarted by the miss in NFP last Fri and prices ticked higher to levels around 1.6060 this morning. That keeps our bullish call intact and we hold our call for now. This week, the cross might remain in range with heavy bearish cloud capping upticks with barrier seen first at 1.6180, marked by the lower bound of the cloud as well as the 40-DMA and 18-DMA. A cross above this level would serve as a stronger bullish signal for our call. On the other hand, break of the 1.60-figure opens the way towards 1.5836.

Regional FX

       The SGD NEER trades at 0.09% above the implied mid-point of 1.2903. We estimate the top end at 1.2645 and the floor at 1.3160.

       USD/SGD – Consolidation. The USD/SGD uptick was stopped in its track on Fri after the dollar retreated and short-term rates stalled. Still, upside momentum remains strong with the psychological barrier at 1.30-figure still in play. Pair is currently sighted higher around 1.2894 after last Fri’s downswing and consolidative trades between 1.2780-1.2977 are likely this week as a result. A breach of this upper bound would then expose the psychological barrier at the 1.30-figure.

       AUD/SGD – Whippy After slipping close to the lower bound of the 1.1026-1.1317 range that has held for Oct, the AUD/SGD is rebounding underpinned by AUD strength. Cross is inching closer to the middle of the range, last sighted around 1.1154 and has lost most of its bullish momentum. We look for the pair to continue to gyrate within the confines of 1.1026-1.1317 this week. The bearish ichimoku cloud above price action suggests that bids will continue to meet strong resistance. SGD/MYR – Tilting Higher.  The SGD/MYR is inching lower this morning around 2.5832, underpinned by SGD weakness. Dips this week are likely to see support around 2.5715. Still risks are tilted to the upside given the bullish momentum on the MACD. Moreover oil prices are likely to remain sluggish, weighing on the MYR. Next bullish target is seen around 2.5940 still.

       USD/MYR – Buoyant. USD/MYR pulled back this morning to levels around 3.33-figure, weighed by the dollar retreat on Fri. The fall in the UST yields on Fri might constitute some support for the MYR this week.  Any further upticks in the USD/MYR to meet barrier at 3.3742 and more aggressive offers to meet support around 3.3085. Sep exports quickened to 2.0%y/y from the previous 1.7%. Imports decelerated to 1.1%y/y from previous 7.6%, leaving a wider-than-expected trade surplus of MYR 9.33bn.  This week, we have Sep industrial production tomorrow and 3Q GDP and current account numbers on Fri. The latter should be the source of volatility in the USD/MYR next Mon.

       USD/CNY was fixed at 6.1377 (-0.0225), vs. previous 6.1602 (+2.0% upper band limit: 6.2630; -2.0% lower band limit: 6.0174). CNY/MYR was fixed at 0.5427 (-0.0027). USD/CNY – Heavy. PBOC raised the USD/CNY fixing the most since Jun 2010 but USD/CNY was surprisingly calm, last seen around 6.1150, still within the tight band of 6.1083-6.1264 this morning, not gaining much directional bias on either side. Expect sideway trades to continue within the range. Beyond the near-term, downtrend is still intact. At home, Shanghai-Hong Kong Stock Connect program will start on 17 Nov. Inflation numbers were out with CPI smack in line with consensus at 1.6%y/y, steady from Sep. PPI fell more than expected by -2.2%y/y from previous -1.8%.

       1-Year CNY NDFs – Upside Risks. The NDF slipped on the dollar retreat seen on Fri and hovered around 6.2620 as we write.Suport is still seen around 6.2470, the top of the daily ichimoku cloud while topsides are guarded by late Sep high of 6.2475. Momentum remains bullish on the daily chart and dips may be shallow. USD/CNH – Rangy. USD/CNH slipped to trade around 6.1270 this morning, still well within the 6.1130-6.1320 range. Shanghai-Hong Kong stock connect will start on 17 Nov. This news was announced this morning but failed to generate substantial gains for the CNH. Much of it had already been priced in over the last few months. Look for this pair to extend its directionless trades within the 6.1130-6.1320. CNH trades at a discount to CNY.

       USD/IDR – Sideways. The USD/IDR continues to trade well-within its current trading range of 11950-12280, sighted around 12137 currently. Pair is likely to remain in range-bound trade this week, ahead of the BI policy meeting (house view is steady reference rate at 7.50%) and as the market awaits the announcement on fuel price adjustment. Foreign funds were bullish yesterday, buying a net USD28.83mn in equities, and at the same time, adding IDR1.507tn to their outstanding holding of debt from Mon-Wed. Risks sentiments were mixed last week with foreign funds selling a net USD14.80mn in equities, but adding a net IDR1.51tn in debt to their outstanding holdings between Mon-Wed last week. Any improvement in risk sentiments should improve portfolio inflows and support the IDR this week. The 1-month NDF is edging lower this morning around 12200 with momentum now tilted higher. The JISDOR was lower at 12149 to end the week (from 12179 from Thu) but was still up from a week ago.

       USD/PHP – Consolidation With Downside Bias. The USD/PHP gapped lower at the opening to 44.945 underpinned by the dollar retreat. Pair is currently showing little momentum in either direction. We look for the pair hover sideways within 44.700-45.050 this week in the absence of fresh impetus. Foreign funds sold a net USD17.9mn in equities last week, but improved sentiments could see renewed buying, providing support for the PHP this week. The 1-month NDF is inching lower this morning, hovering around 44.930 at last sight with daily momentum indicator now flipped and pointing lower.

       USD/THB – Upside Bias. After hitting a high not seen since Jan of 32.930 on Fri, the USD/THB is on the slide, hovering around 32.750 on the back of a softer dollar tone. This pair still has bullish momentum, though it has exited overstretched conditions. We look for consolidative moves this week after the recent sharp uptick with a move back towards the 33-figure cannot be ruled out. Upticks are likely to meet resistance at 32.966 ahead of the 33-figure, while retracements could meet support around 32.585 this week. Risk appetite improved last week with foreign funds buying a net THB4.26bn and THB2.08bn in equities and debt last week, and further improvement this week could see greater portfolio inflows that could provide support for the THB.

Rates

Malaysia

§  Prices of local government bonds opened firm post-MPC and price advances were met with profit takers. Long end bonds remain supported with the 10y benchmark closing 3bps lower on back flow covering. Given the upcoming 10y MGS supply, we think it is expensive here and suggest buying the 15y benchmark MGS 4/30. 20y GII benchmark closed 4bps lower with a total of MYR100m traded. We estimate the issue size for the MGS 7/24 retap to be MYR3.5b.

§  As expected, IRS saw good receiving interest amid the dovish MPC statement. There were trades on 5y IRS and the curve ended about 1-2bps lower. 3M KLIBOR stayed at 3.77%.

§  Local PDS market saw activity pickup again after BNM's decision to maintain the OPR at 3.25%, with slightly over MYR600m trades done. Longer dated Kesturi papers saw huge volumes traded, amounting to MYR100m. Kesturi 29, 30 and 31 all traded 1bp lower than their MTM levels, indicating strong buying interest for the higher yielding papers. For AAA papers, we saw some possible profit taking for Aman 19 which traded higher by 2-3bps from Thursday's levels of 4.10%. In the GG space, keen buying interest was seen for Dana 21, Dana 22 and BPMB 21 which traded 2bps lower from their MTM levels. Overall, the market started last week relatively quiet, but ended on a more positive note.

Singapore

§  SGS market had a relatively quiet day last Friday with interest mainly in buying SGS 4/18. Market opened about 2bps weaker than previous close, but slowly recovered to Thursday’s levels towards the end of Friday ahead of the NFP. The NFP may end up being uneventful should it print slightly better than the +235k consensus. An interesting thing to note is that SGD funding eased off the highs of 0.60% to close around 0.15%-0.20% for overnight funding. This triggered some buying interest in the shorter end bonds up to the 10y benchmark.

§  In the Asian credit market, players were mostly on the sidelines ahead of the NFP. The focus last Friday was on Government of Vietnam’s bond which was issued at 4.80% (from IPG of 5.125%). The paper traded up to almost 102.00 before profit takers came in and pushed the level back down to around 101.50. We believe the paper performed so well due to the small issue size of less than USD300m (out of USD1b total issuance) being allocated to new investors, while the rest were switched out to existing bondholders. BCHINA T2 traded wider at a spread of around +260. Korean and Chinese investment grades were mainly unchanged.

Indonesia

§  Indonesia’s government bonds seemed somewhat nervous before an announcement of the US’ non-farm payroll and unemployment rate. Most of the government bonds’ yields rose in last Friday. The bond players still waited the labour market condition in the US although they received positive domestic news in the form of higher foreign reserves from US$111.20bn in Sep-14 to US$111.97bn in Oct-14. Higher record of foreign reserves can be a harbinger for Indonesia’s better fundamental situation under the new President Joko Widodo. Foreign investors believed the new President can make a structural change that can bring Indonesia to be better country.

§  Meanwhile, the corporate bond’s trading activity retreated by declining total volume from Rp677 billion to Rp443 billion. Bank Panin’s 10.5% of coupon rate due 2017 booked the highest volume by Rp50 billion.

§  Corporate bond update: PT Bumi Resources Tbk missed the interest payment on its US$700 million of 10.75% senior secured notes due 2017, at the end of its grace period on 6 November 2014, which constitutes an event of default under its bond indenture. The company plans to make the payment of interest by 28 November 2014. However, Bumi's failure to make the interest payment on its 2017 notes is yet another event of default which highlights Bumi's financial stress and the complexity of its ongoing balance sheet restructuring, Moody's Vice President and Senior Analyst, Brian Grieser, said.