Maybank GM Daily - 27 Jul 2015

FX

Global

      Some Equities continue to decline into the week’s close, weighed by disappointing earnings, amid weaker Chinese and European flash PMIs. Commodity prices also declined – base, precious metals and oil prices were all lower, putting the pressure on commodity-bloc currencies like AUD and CAD. Both hit fresh 6-year lows against the USD. USD/CNH was lifted towards 6.2290 last Fri on media interpretation of China RMB band-widening following a State Council opinion piece. It is not entirely clear if the State Council refers to widening the trading band or expect to more 2-way fluctuation between the range.

      For the week ahead key focus on US Jun durable goods order (Mon); FOMC meeting (Thu, 2am SGT), China Jun official PMI (Sat). While risk of grexit is abating, we continue to monitor implementation risk associated with Greece’s 3rd bailout. With broad commodity prices (base metals, precious metals, energy) on a decline, Fed preparing for a lift-off, and China possibly allowing further 2-way fluctuation in RMB exchange rate, we continue to favor buying USD/AXJs on dips In particular, we see further upside risk to USD vs. KRW, CNH, THB, PHP. On G7, we continue to favor USD and GBP on dips against the EUR and JPY on monetary policy divergence play.

       Other key data we are watching for the week includes US Jun durable goods orders (Cons. +3%); GE Jul IFO (Cons. 107.5); China Jun industrial profits (+0.6% y/y prior) on Mon. For Tue, US Jul Richmond Fed manufacturing index (Con. 6); US Jul prelim services PMI (Cons. 55); UK 2Q GDP (Cons. +0.7% y/y). For Wed, US Jun pending home sales (Cons. +1.1% m/m). For Thu, US 2Q GDP (Cons. +2.5% q/q); initial jobless claims; GE Jul CPI (Cons. +0.2% m/m). For Fri, US Jul Chicago PMI (Cons. 50.5), Jul Univ. of Michigan Sentiment (Cons. 94); Australia Jul building approvals (Cons. -1%); Korea Jun IP(-1.3% prior); RBA Stevens speaks. Thailand is closed for holidays on Thu.

Currencies

       DXY – Near-Term Downside Pressure. USD failed to make much headway into Fri close as Jun new home sales disappointed. Focus for the week on FOMC (Thu, 2am SGT). We continue to maintain our long-held view for the first rate hike (25bps) in Sep as data continues to suggest that growth path remains intact. It remains our base-line scenario for the pace of tightening to be gradual, given that Fed will take into consideration domestic growth and external environment – China rebalancing risk, Greek development and USD strength. DXY was last at 97.30 levels this morning; 4-hourly stochastics is showing signs of turning lower from oversold levels while momentum was flat. On daily technicals, next key support at 96.80 (21 DMA), 96.55 (100 DMA) while resistance remains at 97.60. Daily stochastics/MACD is showing tentative signs of mild bearish bias. Remain better buyers on dip. Week ahead brings Jun durable, capital goods order; Jul Dallas Fed Manf (Mon); May S&P/CS house price index; Jul Richmond Fed, consumer confidence; Jul composite/services prelim PMI (Tue); Jun pending home sales; FOMC (Wed); initial jobless claims (Thu); Jul Chicago Purchasing Manager, university of Michigan Sentiment (Fri).

       EUR/USD – Tentative Signs of Turning Higher. EUR closed largely unchanged Fri. With Grexit risks abating, focus is back on monetary policy divergence plays. ECB is still conducting QE amid subdued inflation and EUR remains a “funding currency” play. This is supported by a pattern we have been highlighting – risk-on sees EUR lower while risk-off sees EUR higher. The inverse correlation coefficient (between EUR and DAX) remains strong at -0.70, and is likely this relationship continues to persist for as long as ECB is on unconventional monetary easing. Daily momentum and stochastics are showing early signs of turning mild bullish bias. Next at 1.0965 (50% fibonacci retracement of Mar low to Apr high) before 1.0850 (trend-line support from the lows in Mar and Apr). Resistance at 1.10 (100 DMA), 1.1080 (38.2% fibo). Week ahead brings GE Jul IFO; Jun EC M3 (Mon); FE, FR confidence (Wed); GE Jul unemployment, CPI; EC Jul confidence (Thu); EC Jul CPI estimate; EC Jun unemployment rate; FR Jun consumer spending (Fri).

       GBP/USD – Consolidation. GBP reversed last week’s early gains into close. Last sighted at 1.5520 this morning. Many positives have been priced in including some BoE members adopting a slight tinge of hawkish stance at recent speeches.  We are positive over the medium term but see downside risk in the short term. GBP remains vulnerable to data disappointment and this week brings 2Q GDP on Tue. Next support at 1.55 (trend-line support from Apr – Jul lows) before 1.54 (200 DMA). Resistance at 1.5650 (week’s high). Daily stochastics is showing signs of falling from overbought areas; suggesting possible downside pressure in the near term. We remain better buyers on dips. Week ahead brings 2Q GDP (Tue); Jun consumer credit, mortgage approval (Wed); Jul GfK consumer confidence (Fri).

       USD/JPY – Buy on Dips. USD/JPY slipped below the 124-handle at the end of last week but continues to hold steady within the 123.60-124.50 range for now. Softer dollar for now could weigh on the pair. We need to see a daily close above 124.50 levels (76.4% retracement of 125.86-120.41 downswing) for further upside towards 126. Daily momentum is still mildly bullish though stochastics is showing tentative signs of turning lower from overbought levels, suggesting waning bullish momentum ahead. We remain better buyers on dips towards 123.20 (21 DMA), 122.80 as our base case remains further BOJ easing in Oct. Week ahead brings Jun retail sales (Wed); Jun IP (Thu); Jun jobless rate, CPI (Fri).

       AUD/USD – Further Downside. AUD continued to decline to fresh 6-year low of 0.7261 (24 Jul) triggered by worse than expected China flash PMI and weakness in copper prices amid broad USD strength. AUD outlook remains challenging. Aussie terms of trade could be weighed further due to weak bulks prices/iron ore/ copper due to slowing Chinese demand. At home, weak investments in mining and resource sectors could further weigh on the economy. With these negativity in the background RBA could even cut at the next meeting, and this is expected to weigh on AUD and AUDNZD cross. AUD weekly momentum remains bearish. Break below 0.73-handle puts next support at 0.7150 in focus. Last sighted at 0.7270 levels this morning; remain better sellers on rallies.  Resistances are seen at 0.7360 (low before the break-down); 0.7455 (21 DMA).. Week ahead brings 2Q import, export prices; Jun housing approval; RBA Stevens speaks (Thu); Jun private sector credit (Fri).

       USD/CAD – Buy Dips. USDCAD continue to trade higher, towards its 2009 highs as oil prices slumped. Bullish bias remains intact but some short-term downside pressure could take hold. Daily momentum/ 4-hourly momentum/stochastics are showing tentative signs of mild bearish bias. Next support at 1.2950 (up-trend channel support); before 1.2870 (23.6% fibo retracement of Jun low to Jul high). Resistance remains at 1.31 (Fri high). Week ahead brings Jun IP (Tue); May GDP (Fri).

       NZD/USD – Potential Shorts-Squeeze. NZD remains on a back-foot following RBNZ rate cut last week. While the statement still suggests RBNZ remains on an easing bias, the words “at this point” suggests some sense of “contingent easing bias” as compared to the previous statement where it was more of an “outright easing bias”. We continue to maintain our bearish bias for NZD on a combination of drivers including widest trade deficit in 6 years, dairy prices at 12 years low and likely to remain low for longer, weak wage inflation, CPI inflation, etc., but caution for potential technical rebound, possibly towards 0.6680 (21 DMA). Remain better sellers on rallies or favor tactical short AUDNZD trade (watch 50 dMA at 1.1040, if broken on daily basis could re-visit 1.09 levels).

Asia ex Japan Currencies

       The SGD NEER trades 0.43% below the implied mid-point of 1.3662. The top end is estimated at 1.3388 and the floor at 1.3937.

       USD/SGD – Still a Buy on Dips. USD/SGD pushed towards our first objective at 1.3755 briefly before has since eased off to hover around 1.3730-region. Upside bias remains intact, as reflected in daily momentum still bullish though stochastics remains at overbought levels. A re-test of 1.3755 is possible this week and a push above that figure could see bullish extension towards the previous 2015 high of 1.3941. Still, after the push higher over the past two weeks, there could possibly be dips intraday week. Downside could test 1.3640 (61.8% Fibo retracement of 1.3941-1.3151 downswing). We remain better buyers on dip. Focus this week is on US FOMC on Thus as data-wise it is a quiet week domestically with just 2Q unemployment rate due on Thu.

       AUD/SGD – Sell on Break. AUD/SGD dipped below parity to 0.9990 this morning but still off the low of 0.9963 seen on 6 Jul. Downside bias remains intact with the cross having lost most of its mild bullish bias. Watch support at 0.9963 where a decisive close below should confirm further downside for a leg lower towards 0.9780 levels. Failing which, an interim base could form a short term support at 0.9960/70 levels (double bottom).

       SGD/MYR – Sell Rallies. SGDMYR consolidated 2.7740 – 2.7890 range for the week after 2 weeks of decline; last sighted at 2.7787 this morning. While bearish momentum remains intact, we do not rule out potential upside squeeze towards 2.7950 (21 DMA). Daily stochastics is indicating early signs of rising from oversold areas. That said we favor fading strength for an eventual move towards 2.7680 levels (50 DMA), before 2.7580 (50% fibonacci retracement of May low to Jul peak).

       USD/MYR – Fade Rallies. USDMYR traded higher this morning towards 3.8185 high, before easing towards 3.8120 at time of writing. The move higher came off the back of USD strength and the fall in Brent prices. We continue to reiterate our technical view that the 21 DMA continues to keep the pair supported. Next technical support at 3.7940 levels. Daily momentum continues to show tentative signs of bearish bias. A decisive close below 21 DMA could see the pair ease further towards 3.7580 levels (23.6% fibo retracement of Apr low to Jul high). Meantime resistance remains at 3.8250.

       1s KRW NDF – Buy on Dips. The pair continues to push higher towards 1172 off the back of broad USD/AXJ higher amid imminent Fed tightening in coming months, falling commodity prices and concerns about Korea’s growth outlook. Still favor buying on dips as bullish trend channel remains intact and momentum supports further upside. We continue to see further upside, towards 1178. We continue to reiterate our bearish view for KRW - on concerns over growth/domestic consumption/ tourism/ foreign investment against a backdrop of subdued inflation, weak activity data, soft exports, weak JPY undercut Korea’s export competitiveness, and rising household debt (165% of annual household disposable income). USD strength on Fed rate lift-off in Sep (house view) could further provide further support for the pair. 

       USD/CNH – Back to Range Trades. USD/CNH spiked towards 6.2290-levels on Fri following the release of a government opinion report suggested the possibility of a band widening. Since then, pair has retreated and is sighted around 6.2217. CNH continues to trade at a discount to CNY. Pair looks likely to settle back within the 6.2000-6.2240 range for now and we still need to see a break-out of these ranges for better directional cues. We continue to hold the view that the central bank wants to ensure a steady yuan. Key support for USDCNH is still seen at 6.2054 (200DMA). USD/CNY was fixed 4 pips higher at 6.1176 (vs. previous 6.1172). CNYMYR was fixed 4 pips higher at 0.6144 (vs. prev. 0.6141). We have Jun industrial production due today and Jul PMI on Fri.

       SGD/CNY – Wobbly. SGD/CNY is wobbling to start the week, sighted around 4.5280. Rebounds should meet resistance around 4.5645. Dips should find support around 4.5134 (24 Jul low). The daily MACD remains bearish bias, while stochastics remains at oversold levels.

         USD/INR – Buy on Dips. USDINR gapped higher in the open (last Fri) and closed higher above the 64-handle, tracking the rest of USD/AXJs broadly higher. Momentum and oscillator indicators are indicating a bullish bias; expect 63.70 (50 DMA) to serve as good support. Favor buying dips for move towards 64.50 (rising wedge resistance).

        USD/IDR – Grinding Higher.  The USD/IDR continues its climb higher towards the 13500-handle as external (US Fed tightening) and domestic concerns (persistent current account deficit, anaemic economic growth, stalled reforms) remain. Moreover, month-end dollar demand should also be supportive of the pair. Momentum indicators is showing tentative signs of bullish bias with stochastics fasts approaching overbought levels, suggesting further upside ahead. A test of the 13500-handle this week cannot be ruled out. Any dips are likely to see support around 13300. Another historic high was set on Fri when the JISDOR was fixed at 13448 from 13394 on Thu. 1-month NDF is on the retreat after climbing above the 13600-levels last week. 1-month is currently sighted around 13575 with daily MACD still showing bullish momentum though stochastics remains at overbought levels.  Foreign funds sold a net USD12.33mn in equities last week and remove a net IDR0.04tn from their outstanding holding of government debt on 21-22 Jul (latest data available). In the news, news report suggested that BI is expecting current account deficit to taper below 2.3% of GDP in 2Q.

       USD/PHP – Bullish. USD/PHP took out key resistance at 45.500 last week and could be primed for further upmoves ahead. Market whispers last week were that official agents were in the market to smooth out volatilities in the FX markets. Daily momentum indicators are pointing to further upside bias while stochastics is fast approaching overbought levels. Further upticks could face resistance around 45.590 (24 Aug 2010 high) ahead of the next at 45.700. Any retreat could see support around 45.200 this week. 1-month NDF is trading higher above 45.60-levels this morning with both daily momentum indicators and oscillators still bullish bias. Risk-off sentiments led foreign funds to sell a net USD39.58mn of equities last week.

       USD/THB – Bullish.  USD/THB upswing continues unabated with the pair testing the 35-figure briefly. Pair has eased to hover around the 34.900-region. As we had noted earlier, domestic growth concerns and government weak THB policy amid Fed tightening and China grow concerns should continue to support the pair. These concerns continue to be reflected in the sell-off in Thai assets last week where foreign funds sold a net THB7.17bn and THB0.99bn of equities and government debt. Daily momentum is still bullish bias, while stochastics remains in overbought levels, suggesting further upside ahead. We expect the 35-handle to be re-tested and hover around that region with topside capped around 35.230 (7 May 2009 Dips if any should find support around 34.530 this week. Week ahead brings Jun customs trade (Mon); Jun Mfg production index (Tue); Jun trade; Jun current account balance; Jun business sentiments; and 24 Jul foreign reserves (Fri). Onshore markets are closed on Thu for a public holiday.

Rates

Malaysia

       In the local government bond market, trades done mostly on the front end with continued buying on the 3y benchmark and off-the-runs. Large amounts were dealt. There was slight selling pressure on the belly to the long end due to Malaysia’s lower international reserves but dip buyers stepped in later.

       IRS market saw a flurry of trades with the 1y and 2y being dealt at 3.70% and 5y at 3.965%. This was on the back of wider onshore/offshore spread which offered some value trades and encouraged squaring of paid positions as IRS was better bid with consistent receiver across the curve. We believe some banks may have taken profit on govvies and had to receive IRS to unwind bond swap spreads which have widened. 3M KLIBOR unchanged at 3.69%.

       In the PDS market, GGs continued to bull flatten with BPMB, Dana and JKSB tightening 1-2bps. Other GG names may see some tightening next week following the rally in Dana papers. The AAA curve also saw some tightening with Plus 24s being taken 2bps tighter at 4.39% and Telekom 24s closed 3-5bps tighter. Market was better buyers in the high grade space given the lack of supply. The AA curve mainly saw buying at the short end and the belly with most trades done within -1 to +1bp.

Singapore

       Short term SGS continued to underperform due to the high SGD funding. The SGS yield curve flattened slightly as 2y to 5y yields were up by 1-2bps, while the 10y was down 1bp and the long end remain unchanged. The 10y benchmark SGS ended at 2.66%.

       In the Asian credit space, a selloff was seen on INDON and MALAY names against a backdrop of lower oil prices. INDON’s new 10y EUR bond was priced at MS+250bps which is much cheaper than existing INDON 2025. The new INDON EUR traded around reoffer, and we believe the paper offers 20-30bps upside compared to its USD counterpart. Bank AT1s are still in demand. We also saw some selling in Chinese SOE IG names. Shanshui traded lower after HK court rejected a proposal by receivers of a shareholder to vote for a change in the board of directors at Shanshui Cement. New Minmet and COSL traded wider by 5-7bps, while Softbank traded better with good two way flows.

Indonesia

       Indonesia bond market moved mixed on the final day of last week. Again, there were just minimum market sentiments. We see that this week, price volatility and trading volume would be better as most of the market players have entered their office. 5-yr, 15-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 7.829%, 8.242%, 8.383% and 8.454% while 2y yield shifts down to 7.628%. Trading volume at secondary market was seen thin at government segments amounting Rp7,170bn with FR0070 (10y benchmark series) as the most tradable bond. FR0070 total trading volume amounting Rp1,324tn with 61x transaction frequency and closed at 100.792 yielding 8.242%.

       In line with DJPPR media statement several weeks ago, DJPPR finally issued the planned Euro denominated bond last week under the name of RIEUR0725. This issuance occurred post stability in Eurozone specifically after the ease of Grexit tension. RIEUR0725 received incoming bids worth of €2.40bn or oversubscribed by 1.9x of its target. RIEUR0725 pays a coupon of 3.375% for the next 10 year as it would mature on July 30th, 2015. DJPPR sold RIEUR0725 at a discount rate of 98.507 making this asset YTM at 3.555%. This asset is rated BBB- with stable outlook from Fitch, BB+ with positive outlook from S&P and Baa3 with stable outlook from Moody’s. Aside then DJPPR Euro denominated bond issuance, Bank Indonesia sold 6mo and 9mo bills. 6mo bills were issued worth of Rp5.77tn at yield of 6.47883% while 9mo bills was issued worth of Rp265bn at yield of 6.68538%.

       Corporate bond trading traded thin amounting Rp418 bn. FIFA02BCN1 (Shelf registration II FIFA Phase I Year 2015; B serial bond; Rating: idAAA) was the top actively traded corporate bond with total trading volume amounted Rp111bn yielding 8.400%.