Maybank GM Daily - 6 Nov 2014

FX

Global

      The Republicans won majority of the seats in the House of Representatives and investors welcomed the results. ADP beat expectations with an addition of 230K employment in Oct, an improvement from the previous 225K which was also revised higher. The DJI and S&P 500 powered to record highs with a gain of 0.6% each for the session. US treasuries sold off overnight with the benchmark 10-year yield rising above the 2.36% before easing towards 2.34% this morning.

      This morning, AUD sold off in late Asian trades yesterday and broke the key 0.8660-support. The pair remained heavy around the 0.86-figure despite the slightly better than expected labour report. Full time employment gained 33.4K and participation rate also edged higher to 64.5%. Unemployment rate steadied around 6.2% as expected,

      BNM decides on overnight policy rate later today and we expect no action from the central bank, similar to BOT yesterday. Thereafter, ECB and BOE will decide on policy interest rate. Most of the Asian currencies have weakened against the dollar this morning except for CNH and MYR. The KRW underperformed with a 0.5% depreciation against the greenback amid increasing speculations of another rate cut. Expect bets on the rest of the currencies to remain cautious ahead of central bank decisions as well as the US NFP release tomorrow.

G7 Currencies

       DXY – Elevated. The DXY bounced on the stronger ADP report as private employers added 230K of employment in Oct. That alludes to a pretty decent number for NFP this Fri. Stronger data lifted the index to  new multi-year high of 87.61. We see the way clear for the greenback to head towards the next barrier around 88-figure ahead of the next at 88.71 (2010 high). Still, ECB and BOE’s rate decision will be highlight of the session.

      USD/JPY – Waffling. After hitting a high of 114.84 not seen since 2007 underpinned by dollar strength and an uptick in UST 10Y yields, the USD/JPY is taking a breather by waffling this morning. Pair is currently inching lower at 114.62 with the intraday momentum indicators showing mild bearish momentum though the pair remains overstretched. Dips should be an opportunity to buy as we expect the pair to test the 115-figure happen soon, especially after BOJ governor’s comments that there was no limit to the measures the central bank could use to achieve its 2% inflation target. The 115-figure is the psychological barrier to cross and a breach would expose the next leg up to 115.93 (1 Nov 2007 high). Support is seen around 113.64.

      AUD/USD – Bearish breakout. AUD/USD remained on the slide despite a rather positive labour report for Oct. A net 24.1K people were employed compared to a month earlier after taking into consideration 9.4K fewer part-time employment.  There was a total of 33.4K of full time employment added in the month, leaving unemployment rate steady around 6.2%. Still, the pair slipped under the 0.86-figure. The pair is now on its way towards the 0.85-figure. Bounces to meet support around 0.8750.

      EUR/USD – Bearish Risks. The EUR/USD waffled around recent lows, last printed 1.2480. Support at 1.2453 is at risk and could open the way towards the next support at 1.2256. ECB decides on policy rate tonight and a failure to signal anything concrete in the near-term could unwind bearish bets. That said, there is another even risk tomorrow – the NFP release and an upside surprise may shift the control back to the bears.

      EUR/SGD – Tight Swivels. The EUR/SGD hovered around 1.6170 this morning hardly changed for the past two sessions. Still, we do not forsake our call for a double bottom target of 1.6727 unless our stop-loss at 1.6008-support is hit. Plenty of opportunities for ECB to jawbone the EUR lower tonight. There are higher expectations of a “full blown QE” now that BOJ eased further. Any disappointment on that front or even less than concrete promises in the near-term could see a rebound. The recent dollar rise seems to have affected the SGD more than the EUR and we continue to expect a rebound to playout. Next event risk after ECB would perhaps be the US NFP release tomorrow. Intra-day support is seen at 1.6120 while barrier is seen at 1.6252 ahead of the next at 1.6366.

Regional FX

       The SGD NEER trades at 0.25% below the implied mid-point of 1.2917. The top end is estimated at 1.2658 and the floor at 1.3176.

      USD/SGD – Upticks. The dollar uptick overnight is sweeping the USD/SGD along with it with the pair sighted around 1.2949 currently. More upside is likely after a good ADP print increased the likelihood of a similar outcome for US NFP. With the pair now hovering around our 1.2950-resistance level, look for new hurdle around 1.2977 (yesterday’s high). A breach of this level would expose the psychological barrier at the 1.30-figure. Support is seen around 1.2884 today.

      AUD/SGD – Consolidating With Downside Bias. The AUD/SGD plunged the 1.12-figure overnight on the back of AUD weakness. Cross is currently sighted around 1.1103 with risks bias to the downside as indicated by our four-hourly chart with RSI showing oversold conditions. Cross appears to be in consolidation after the massive downswing. With several of our support levels taken out, new support is now at 1.1020. New barrier is seen around 1.1178. SGD/MYR – Gapped Lower.  The SGD/MYR gapped lower at the opening to 2.5803 after the MYR jumped higher this morning. Cross is currently seen around 2.5802 with intraday MACD still showing bullish momentum. Ahead of the BNM policy meeting this evening, we continue to expect the pair to gyrate within the 2.5750- 2.5912 trading band today.

      USD/MYR – Buoyant. USD/MYR came within striking distance of the 3.3511-barrier before closing a tad lower. This morning, the pair was surprisingly steady around 3.3420, notwithstanding the uptick in the 1-month NDF at around 3.3530 this morning. Spot had retained a bid tone throughout Wed despite whispers of good agents’ offers. USD/MYR bulls now take a breather after oil prices rebounded overnight, triggering some profit-taking in the spot prices. 3.35-figure is still a formidable barrier to watch. The central bank is widely expected to retain status quo tonight (including our economic team) and any surprise hike could trigger a pullback towards the 3.30-figure. Interim support seen at 3.3085. 

      USD/CNY was fixed at 6.1565 (+0.0062), vs. previous 6.1503 (+2.0% upper band limit: 6.2821; -2.0% lower band limit: 6.0358). CNY/MYR was fixed at 0.5455 (+0.0012). USD/CNY – Heavy. USD/CNY hovered around the 6.1160-level this morning, caught in two-way trades. This pair seemed to have settled into tight swivels within the 6.1083-6.1210 range. Risks are tilted to the upside, according to intra-day momentum tools but recent price action also indicate strong interest to sell on upticks. Expect rangy trades to continue. China’s Vice Finance Minister Zhu Guangyao said that BRICS countries face economic growth challenges and he urged a focus on growth (BBG).

      1-Year CNY NDFs – Consolidative. The NDF bounced overnight and extended its climb towards the higher end of the 6.2260-6.2555 range. A break here exposes the next barrier at 6.2636 but RSI flags near overbought conditions. MACD does not show enough bullish momentum for a break here as well. Hence, expect upticks to remain capped. Support is seen around 6.2444. USD/CNH – Rangy. USD/CNH hovered around the 6.12-figure this morning, softening from overnight high of 6.1234. At this point, there is little direction cue and we continue to expect sideway trades within 6.1130-6.1280. CNH trades at a narrower discount to CNY.

      USD/IDR – Upside Bias. The USD/IDR is edging higher, hovering around 12185 at last sight, lifted by a firmer dollar tone and domestic growth concerns. Higher oil prices also did not help. Intraday MACD is now showing bullish momentum picking up though the pair looks overstretched currently. Ahead of the fuel price hike announcement (expected anytime) and US NFP tomorrow, we expect the pair to trade range-bound within 11950-12200 today with an upside bias. A breach of the upper bound of the trading range would expose the next barrier at 12280. Foreign funds continued to sell-off equities with a net USD31.17mn sold yesterday, but positive sentiments today could see an inflow and provide support for the IDR. The 1-month NDF is on the uptick, hovering around close to the 12300-level at 12260 this morning with intraday MACD still showing bullish momentum though RSI is indicating overbought conditions. The JISDOR was fixed lower at 12092 yesterday from 12130 on Tue, the spot’s uptick this morning could result in a higher fixing tomorrow. The economy grew by just 5.01% y/y in 3Q14 (vs. 2Q: 5.12%), coming in lower than market’s 5.10%, dragged lower by weak exports.

      USD/PHP – Upticks. Pair has now broken above the psychological 45-figure on the back of the resurgent dollar and is seen around 45.042 with intraday chart indicating bullish momentum. With the pair just a tad off our barrier at 45.050, a breach would expose the next hurdle at 45.115. Support is seen around 44.820. Foreign funds bought a net USD1.0mn in equities yesterday, and positive sentiments today suggest further buying is likely and this could provide some support to the PHP today. The 1-month NDF is wobbling this morning around 45.090 with most of its bearish momentum dissipated and is a tad off overbought condition.

      USD/THB – Bullish. The USD/THB continues to bounce higher this morning underpinned by a resurgent dollar, hovering around 32.813 at last sight. Intraday chart is showing risks tilted to the upside. With several of our resistance levels taken out yesterday, new barrier to cross today is 32.899 (2 Jun high) ahead of 32.966. Major resistance then after is the 33-figure. Look for support around 32.630 still. Foreign funds continued on their buying spree yesterday with a net THB2.46bn and THB0.35bn in equities and debt bought, but further buying today could cap the pair’s upside. As expected, the BoT left its policy rate unchanged at 2.0% with the bank likely keeping watch on the impact of the government’s short-term stimulus program before deciding on its next course of action.

Rates

Malaysia

      Local government bonds saw buying interest remain intact despite continued MYR weakness. Buying was seen on the belly to the back end of the curve. Front end MGS remained within similar levels with yields for bills inching up higher again. Players will look to today’s MPC, but we don’t expect any surprises.

      In a choppy IRS trading session, we saw good receiving interest across the curve after a dovish BoT statement. There were trades on 1y, 2y, 3y and 5y IRS with the curve ending circa 1-3bps lower. 3M KLIBOR stayed at 3.77%.

      Local PDS remained well offered in the market, likely due to profit taking with some pickups on the high grades, such as Plus, BPMB and Danainfra. There was also some buying interest for Aquasar papers, at both the short end and belly of the curve, indicating some yield pickup. This was also seen in the pickup for longer dated Kesturi papers. Some investors were probably on the sidelines due to the MPC.

Singapore

      SGS saw fairly good selling interest across the curve yesterday. With risk-on sentiments in the market, SGS looked weaker and bond swap spreads widened back 1bp at the close. SGD funding for this period is rather tight and may be one of the factors contributing to the weak SGS prices. Longer end bond prices were relatively stable, despite the selling from the 5y point up to the 10y benchmark.

      Asian credit market generally opened softer on a slightly firmer tone. Spreads were broadly unchanged or tightened a couple bps with a few investment grade names being lifted in the morning. Names that have been rallying the past few days, such as CHITRA, took a breather with some profit taking and spreads ended 2-3bps wider. Meanwhile, Chinese high yields were relatively unchanged. There were a few new issues, notably Bank of China’s B3 T2 10y bullet issue, which we heard will likely be about USD3b with a few strategic anchor orders already in place. IPG was T10+300bps which seems slightly cheap, but will likely tighten at final pricing. We feel that PB will support more AT1 issues rather than T2 due to the yields, and furthermore, there is a likelihood that ICBC will announce their AT1 soon.

Indonesia

      Most Indonesia government bonds closed by stronger prices yesterday. The investor still believed to Indonesian bond although the economic growth in the country evolved to the slowest pace in the last four years. As shown by above table, the prices of the government bonds for 3Yr, 10Yr, 15Yr, 20Yr, and 30Yr rose although the Indonesian economy slowed from 5.12% YoY in 2Q14 to 5.01% YoY in 3Q14.

      The market players still rely on Indonesian economy as the government has given a certainty to hike the fuel prices this month. If the fuel prices hike this month, it will give positive impact for further Indonesia’s economic structure. Therefore, the economic growth will be stronger from 5.00% in 2014 to 5.62% in 2015. Moreover, recent global price is on down trend mode to below US$80/barrel. Hence, if the government still affirms to hike the fuel prices by Rp3,000/litter, it will give more benefit to further Indonesia’s fiscal position to further boost the economic growth.