Maybank GM Daily - 29 Jul 2015

FX

Global

      Equities rebounded (~+1%) overnight on better earnings from UPS, Ford, Merck, while China equities stabilised on Chinese security regulator’s pledge to stabilise the market. The comments also helped commodities - copper, iron ore to enjoy a relief rally.  Commodity-bloc currencies such as AUD, NZD and CAD also benefited. GBP firmed as 2Q GDP met expectation, suggesting that BoE could be inching for a rate hike sooner than later.

      RBNZ Wheeler’s speech this morning saw NZD moving higher. Last seen above 0.67-handle. His speech was largely an reiteration of RBNZ’s accompanying statement last week where it expects further monetary easing and further exchange rate depreciation but market’s focus was on his comments on the risks that lower interest rate could bring to housing demand and house price inflation. This casted doubt if RBNZ remains on an outright easing bias. This is consistent with our interpretation of last week’s RBNZ statement where we said there is some sense of contingent easing bias rather than outright easing bias. And together with stretched Kiwi shorts-positioning, hence our call for a squeeze higher in NZD and

      For the day ahead focus is on FOMC meeting (Thu morning, 2am SGT).  We expect Fed Chair Yellen to reiterate what she said at the semi-annual testimony (on 15-16 Jul) – that a first rate hike is likely to be sometime this year and that the Fed could hold an impromptu press conference if policy was tightened at a meeting where a press conference has not been scheduled. Some of the key indicators we are watching today includes US Jun pending home sales; confidence data out of Germany and France. On FX, risk-supported sentiment could help AXJs, commodity-bloc currencies retrace some of recent losses. Still favour buying USD on dips.

Currencies

      DXY – Focus on FOMC. USD firmed ahead of FOMC meeting tonight (Thu, 2am SGT) while the jump in equities also supported the dollar. 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 96.6 levels this morning. Expect to see DXY to hold steady into FOMC meeting. On daily technicals, next key support at 96.50 (100 DMA), 96.00 (50 DMA). 95.64 (50% fibonacci retracement of May low to Jul high) while resistance 96.80 (21 DMA). Daily stochastics/MACD is mild bearish bias. Remain better buyers on dip. Week ahead brings Jun pending home sales; FOMC (Wed); initial jobless claims (Thu); Jul Chicago Purchasing Manager, university of Michigan Sentiment (Fri).

      EUR/USD – Funding Currency Play. EUR eased as equities rose overnight. We continue to reiterate that EUR remains a funding currency play - the pattern we have been highlighting where risk-on sees EUR lower while risk-off sees EUR higher continues to pan out well. This relationship is expected to persist for as long as ECB is on unconventional monetary easing. EUR was last at 1.1070 levels this morning, with all focus on US FOMC tonight. Expect EUR to hold steady in the range of 1.10 – 1.1130 (Mon high) ahead of FOMC meeting. Daily momentum and stochastics are mild bullish bias. Next resistance at 1.11 (50 DMA) if broken on a daily close basis, may see the pair extend the move higher towards 1.1230. Support remains at 1.10 (21 and 100 DMAs). Week ahead brings GE, 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 rose towards 1.5628 high yesterday as 2Q GDP met expectation, suggesting that BoE could be inching for a rate hike sooner than later. We remain positive and still favor buying GBP on dips amid ongoing economic recovery setting the stage for BoE to hike possibly as soon as 1Q 2016 (our base line view which is earlier than market expectation in 2Q). That said we continue to reiterate that GBP remains vulnerable to the downside, given that many positives have been priced in including some BoE members adopting a slight tinge of hawkish stance at recent speeches while FOMC meeting looms. Last sighted at 1.5610 levels this morning. Support at 1.5550 (50 DMA), 1.55 (trend-line support from Apr – Jul lows) before 1.54 (200 DMA). Resistance at 1.5650 (2-week high). Daily stochastics and MACD are not indicating a clear bias at this point. Week ahead brings Jun consumer credit, mortgage approval (Wed); Jul GfK consumer confidence (Fri).

      USD/JPY – Rangy; Buy on Dips. USD/JPY climbed towards resistance level at 123.80 yesterday but failed break above that level. Pair is holding steady this morning around the 123.50-region, still trapped within an intraday ichimoku cloud. Unless there is a breakout in either direction, range-bound trade within current levels are possible. Intraday momentum indicators are showing no strong bias, while stochastics has risen from oversold levels. Ahead of the FOMC meeting tomorrow, pair should continue to range within 122.80-123.80 today. We remain better buyers on dips as our base line scenario remains for a BOJ move in Oct. Retail sales came in softer at 0.9%, less than market’s 1.1% forecast and below May’s +3.0%, but the impact on the pair was negligible.

      AUD/USD – Technical Rebound. AUD enjoyed a relief rally, following commodity and equity rebound overnight. Day ahead could see mild follow-through, daily stochastics and MACD are exhibiting tentative signs of mild upside bias. We continue to reiterate that the AUD outlook remains challenging on multiple fronts. Weak investments in mining and resource sectors as well as the lack of traction in non-mining business investments are expected to weigh on growth. Falling commodity prices (iron ore, copper) as Chinese demand slows could weigh on Aussie terms of trade. Taken together, there is little to be positive in the AUD especially against an environment of monetary policy divergence (whereby Fed is likely to tighten in coming months while RBA remains on an easing bias with slight risk to a cut).  We continue to see further downside on AUD and AUDNZD cross. AUD weekly momentum remains bearish. Break below 0.73-handle puts next support at 0.7150 in focus. Meantime we look for rallies towards 0.7360 (low before the break-down); 0.7455 (21 DMA) to fade into. US FOMC tomorrow morning a key focus. Week ahead brings 2Q import, export prices; Jun housing approval; RBA Stevens speaks (Thu); Jun private sector credit (Fri).

      USD/CAD – Buy on Dips. USDCAD eased from 2009 highs of above 1.30-handle as oil and other commodity price gains took hold. Last sighted at 1.2930 levels this morning. Daily momentum/ 4-hourly momentum/stochastics are indicating a mild bearish bias. Next support at 1.2850/70 (21 DMA, 23.6% fibo retracement of Jun low to Jul high). Resistance remains at 1.31 (Fri high). Week ahead brings May GDP (Fri).

      NZD/USD – Shorts-Squeeze Continues. NZD remains on a “squeezing spree” as we cautioned. Further move was due to RBNZ Wheelers speech this morning. While the speech was an reiteration of recent RBNZ accompanying statement – where it expects further monetary easing to maintain NZ’s economic growth, further exchange rate depreciation is necessary, exchange rate remains above the level consistent with current economic conditions, etc., markets chose to focus on his comments on the risks that lower interest rate could bring to housing demand and house price inflation. This casted doubt if RBNZ remains on an outright easing bias. This is consistent with our interpretation of last week’s RBNZ statement where we said there is some sense of contingent easing bias rather than outright easing bias. And together with stretched Kiwi shorts-positioning, hence our call for a squeeze higher in NZD and possibly a lower AUDNZD (on Kiwi strength). We did caution for a technical rebound towards 0.6670 (23.6% fibo of Jun peak to Jul low), which did materialise overnight. This suggests the short term down-trend could be temporarily over, technically.  Next level on the upside sees 0.6780 (38.2% fibo), before 0.6860/70 levels (50 DMA). That said we continue to reiterate 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 favor a sell only on rallies towards levels above-mentioned. Continue to favor tactical short AUDNZD trade – our first objective of 1.09 was met this morning (low was 1.0899) but needs a daily close below for further downside towards 1.0760 level to materialise. Last sighted at 1.0940.

Asia ex Japan Currencies

      The SGD NEER trades 0.02% below the implied mid-point of 1.3628. We estimate the top end at 1.3355 and the floor at 1.3900.

      USD/SGD – Range; Still A Buy On Dips. USD/SGD appears to be in consolidation after dipping towards 1.3635-levels, weighed by the sell-off in the JPY and MYR vs. the SGD, though this could be mitigated in part by the climb in the EUR/SGD and AUD/SGD. Pair is now trapped within an intraday ichimuko cloud, suggesting range-bound trades are likely ahead. Momentum indicators are bearish bias, while oscillators are at oversold levels. Ahead of FOMC meeting tomorrow morning, we expect the pair to remain in consolidative mode within 1.3600-1.3670 for now. We remain better buyers on dip.

      AUD/SGD – Brief Respite. AUDSGD enjoyed a brief rebound back towards parity levels, following AUD rebound. On the day ahead further rebound towards 1.0080 cannot be ruled out. Favor selling rallies; continue to see further downside towards 0.9870. We will re-consider bearish bias on another abrupt move and close above the 50 DMA at 1.0290.

      SGD/MYR – Upside Squeeze. SGDMYR was last sighted around 2.7970 levels (slightly above the 21 DMA) this morning on SGD strength while Ringgit weakness on a combination of external and domestic concerns continues to persist. Bearish momentum appears to be waning and stochastics has already turned higher from oversold levels. We do not rule out potential upside squeeze towards 2.80, 2.81 levels.

      USD/MYR – Upside Risk. USDMYR continues to hover near multi-year highs; last sighted at of 3.8120 levels at time of writing. The move higher came off the back of USD strength and combination of external and domestic concerns. We continue to reiterate our technical view that the 21 DMA continues to keep the pair supported. Next technical support at 3.7940 levels. We note that bearish momentum appears to be gradually waning on the daily chart while stochastics is suggesting further upside. That could put resistance 3.8250 vulnerable.

      1s KRW NDF – Buy on Dips. The pair eased towards 1158 levels this morning following risk-supported sentiment (equities were broadly higher). Still see the pair supported on as we head into possible Fed tightening in coming months. 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, 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.  Day ahead could see some near-term downside pressure; range of 1150 – 1160 expected; favour buying on dips

      USD/CNH – Bearish Bias. After climbing to a recent high of 6.2293 (27 Jul), the USD/CNH has been on the slide and is now hovering around the 6.2145-6.2210 range. The CNH continues to trade at a discount to CNY, though the premium has narrowed. Both momentum indicators and oscillators remain bearish bias, suggesting further downside ahead. Look for 6.2140-6.2240 range to hold intraday. We continue to hold the view that the central bank wants to ensure a steady yuan. USD/CNY was fixed 4 pips lower at 6.1150 (vs. previous 6.1154). CNYMYR was fixed 1 pip higher at 0.6146 (vs. prev. 0.6147).

      SGD/CNY – Range. SGD/CNY is holding steady around the 4.5545-region this morning. Cross is now currently trapped within an intraday ichimoku cloud. As we noted yesterday, this should possible suggest range-bound trades ahead. However, some upside moves within the cloud is still possible given that intraday MACD is showing bullish momentum. Look for range-bound trades within a tighter 4.5460-4.5600 range to hold intraday.

      USD/INR – Buy on Dips. USDINR slipped below the 64-handle yesterday to close at 63.9150, and could continue to trade lower in line with the rest of USD/AXJs today. Still, further upmoves could be capped given that pair has lost most of its bullish momentum and stochastics is tentatively falling from overbought levels. Any dips remain an opportunity to buy for move towards 64.50 (rising wedge resistance).

      USD/IDR – Consolidating Lower.  The USD/IDR saw some relief today after climbing higher over the past few sessions with market whispers suggesting that BI was in the market to smooth volatility. The pair gapped lower to 13439 at the opening from yesterday’s close of 13465, tracking its regional peers lower. Pair is currently sighted around 13445 with MACD forest showing waning bullish momentum though stochastics remained at overbought levels. Still, pressure remains on the upside given external (namely US Fed tightening and China growth concerns) and domestic concerns (persistent current account deficit, anaemic economic growth, stalled reforms). Moreover, month-end dollar demand should also be supportive of the pair. Further directional clues are likely to come from the FOMC meeting tomorrow, and until then, look for the pair to consolidate  around 13400-13500 intraday. The A new high was set yesterday when the JISDOR was fixed at 13460 vs. Mon’s 13453. 1-month NDF appears to be in consolidating lower this morning, sighted around 13550, with both intraday MACD and stochastics bearish bias. Risk aversion led foreign funds to sell a net USD39.12mn in equities yesterday and remove a net IDR1.61tn from their outstanding holding of government debt on 27 Jul (latest data available).

      USD/PHP – Downticks. USD/PHP continues on its retreat below the 45.50-levels this morning, tracking the rest of the USD/AXJs broadly lower. Pair is currently sighted around 45.444 with momentum indicators showing waning bullish bias and oscillators at overbought levels. This suggested the potential for further downside for now. Further dips should see support nearby around 45.410 before the next at 45.330. 45.600 (24 Aug 2010 high) should continue to cap upside today. Remain buyers on dips. 1-month NDF has now retreated back towards the 45.50-levels this morning with intraday MACD showing bearish momentum indicators and stochastics at oversold levels. Foreign funds continued their sell-off of equities with a net USD28.09mn sold yesterday.

      USD/THB – Consolidating Lower.  USD/THB continues to consolidate around the 34.830-region after hitting 35.033 (24 Jul), a high not seen since Jul 2009. Both intraday MACD and stochastics remain bearish bias, suggesting downside pressure could continue ahead. Domestic growth concerns and the government’s weak THB policy amid Fed tightening and China grow concerns should continue to support the pair. We continue to expect the pair to remain in consolidative mode within 34.765-35.000 ahead of the FOMC meeting and the public holiday on Thu. Investor sentiments remained sour with foreign funds selling a net THB1.82bn and THB0.73bn in equities government debt. Against market expectations for a 5.0% contraction, manufacturing production index fell by 8.0% y/y in Jun, worse than the -7.6% recorded in May, due to a decline in electronics output, namely hard-disk drives, televisions and other electronics. In the news, the Finance Ministry cuts its 2015 GDP growth estimate for the third time this year to 3.0% from 3.7%. The main drag on growth remains exports, which is now expected to drop by 4.0% vs. a 0.2% expansion predicted in Apr. Still, the Finance Ministry remains upbeat that a recovery could be expected in 2H15 with growth possibly rising by 3% y/y, a similar pace as in 1H.

Rates

Malaysia

      Local government bonds experienced selling in the morning session as the curve shifted 4-6bps higher but saw buying interest in the afternoon session. The volatility was caused by the Cabinet reshuffle with the DPM being replaced together with other changes in ministerial positions. Issue size on the 10y reopening GII 10/25 was announced at an expected MYR3.5b. WI was seen quoted at 4.10/05 range with nothing traded by day end. Tightest quote was 4.09/08.

      IRS market was pretty dry with no trades reported and the curve barely moved. 3M KLIBOR remain unchanged at 3.69%.

      PDS market was quiet as investors stayed on the sidelines on the backdrop of the cabinet reshuffle and vigilant on China risk amid volatile stock market. AAA names were given 1-2bps wider at the longer end of the curve. AA names were traded mostly at the belly of the curve with most names widening by 1bp. GG names held firm as we saw bids coming tighter by around 1-3bps today for the 9y BPMB and Prasa papers.

Singapore

      SGS market was quiet as dealers stay on the sidelines ahead of the FOMC meeting. Despite UST declining intraday, SGS was relatively well supported as the lower USDSGD brought some respite to the market.  Short end underperformed the longer end with yields of the latter down 1-2bps in thin trading.

      Asian credit market was livelier after Chinese Shares rebounded. Newly printed Shinhan Bank 3y Dim Sum bond did well with last price seen at 100.25/100.35. Most Chinese names were trading wider again though, only to rebound slightly after the Chinese equity rebounded. The new China Merchant Holdings came off 2-3bps from reoffer initially only to close at 3-5bps tighter from their reoffers. Sovereigns recovered slightly with Indons being taken. The new Indon EUR 2025 was last taken at 97.375. We expect market to remain soft ahead of the FOMC meeting.

Indonesia

      Indonesia bond prices slump significantly amid minimum market sentiments and a successful bond auction. We see that this might have occurred due to an aggressive sell off either by domestic or foreign investors (data will be published within this week) rather than responding to any recent event. Another thesis which may be legit is the decline in LCY bond price yesterday may have occurred ahead of the FOMC meeting where investor might be cautious of any hawkish or even a FFR hike decision. If such thesis is true, then another slump in LCY bond prices may occur during the day. Thus we see that 10yield may reach 8.750% level. A break of this level would send this series yield to 8.830% or even with a worst scenario of above 9.000% level. 5-yr, 15-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 8.045%, 8.572%, 8.577% and 8.668% while 2y yield shifts up to 7.673%. Trading volume at secondary market was seen heavy at government segments amounting Rp13,643 bn with FR0070 (10y benchmark series) as the most tradable bond. FR0070 total trading volume amounting Rp3,200 tn with 119x transaction frequency and closed at 98.800 yielding 8.572%.

      Indonesian government conducted their sukuk auctions yesterday and received incoming bids of Rp6.73 tn bids versus its target issuance of Rp2.50 tn or oversubscribed by 2.6x. However, DMO only awarded Rp2.93 tn bids for its 5mo SPN-S which was sold at a weighted average yield (WAY) of 6.79794%, 1y PBS008 at 7.75000%, 2.5y PBS009 at 8.17987% while 5y PBS006 was sold at 8.50000%. Incoming bids were mostly clustered on the front end tenors. PBS007 bids were rejected during the auction. Bid-to-cover ratio during the auction came in at 1.91X – 2.68X. Till the date of this report, Indonesian government has raised approx. Rp17.93 tn worth of debt through bond auction which represents 28.5% of the 3Q 15 target of Rp63.00 tn. On total, Indonesian government has raised approx. Rp310.4 tn worth of debt through domestic and global issuance which represent 73.4% of this year target of Rp451.8 tn. Assuming that if Indonesia government issues Rp2.00 tn during every sukuk auction in 3Q 15 then the Government needs to issue Rp7.40 tn during every conventional auction (5 upcoming conventional auction in 3Q 15) to meet their target of Rp63.00 tn.

      Corporate bond trading traded heavy amounting Rp847 bn. DART01CN1 (Shelf registration I Duta Anggada Realty Phase I Year 2013; Rating: idA-) was the top actively traded corporate bond with total trading volume amounted Rp200 bn yielding 11.651%.