Maybank GM Daily - 11 Aug 2015

FX

Global

      Wall Street had a positive finish on Mon, buoyed by mild recovery in oil prices as well as a high profile acquisition of Precision Castparts. DJI, S&P and NASDAQ were up >1% each. Bounce in brent prices favoured the CAD which appreciated 1% against the USD. EUR also gained, underpinned by strong EURCHF bids which touched new recent highs, still hovering thereabouts around 1.084. News of Greece reaching a deal with lenders (as soon as today) also underpinned the currency.

      Early Asian trades see KRW and MYR firmer, the latter strengthened by higher oil prices overnight as sharp slides in the past few sessions start to lure in bargain hunters. USD/MYR is still supported by falling FX reserves though according to the local press, there are no plans to peg the currency back to USD. China released its Jul liquidity numbers with a total of CNY 718.8bn of aggregate financing seen in the month, lower than expected though fresh CNY loans were higher at CNY1.48trn. M2 money supply growth quickened to 13.3%/y form 11.8%. Singapore’s 2Q GDP was revised higher to 1.8%y/y, firmer than the expectations of 1.6%. Singapore also narrowed 2015 growth forecast to 2-2.5%, signifying greater confidence of growth in the second half of the year. USDSGD drifted lower towards the 1.38-figure.

      Hot from the oven, PBOC fixed USDCNY 1136 pips higher at 6.2298, triggering a rally of sorts for the USDCNH and USDCNY. PBOC says it is a one-off adjustment as yuan effective FX rate is stronger than other currencies.

      Data docket is busy this week with India’s trade numbers out anytime starting from today. Activity numbers for Jul for China is due tomorrow.  India’s Jun industrial production and Jul CPI are also due on the same day. Malaysia’ GDP will be watched on Thu along with central bank meetings in Korea and Philippines. Singapore’s retail sales should wrap up Asia’s data release for the week. In the US, retail sales for Jul will be eyed on Thu after the decent jobs numbers (215K addition). That should keep the greenback supported on dips. Fed Dudley speaks tomorrow. Expect monetary policy divergence to drive currency directions.

Currencies

      DXY – Consolidation. DXY ended the overnight session softer on comments from Fed’s Fischer. While he did acknowledge that employment growth was encouraging, he seemed cautious about inflation but added that deflationary pressures were temporary and due to oil price weakness. We continue to reiterate that disappointment in US data/ Fed speak (Dudley to speak on Wed) could pose USD pullback risk. DXY was last at 97.40 levels, off the back of higher USDCNY fix this morning which triggered broad based USD strength. Daily/ 4-hourly momentum continues to indicate some downside pressure in the near term. Next support at 96.30/40 levels (50 and 100 DMAs). Underlying bullish bias remains unchanged. Interim resistance at 98.30 (trend channel resistance) before 98.70 (76.4% fibonacci retracement of Mar high to May low). P. Day ahead brings Wholesale Inventories (Jun); Unit labor costs (2Q).

      EUR/USD – Upside Risk. EUR did trade a low of 1.0859 last Fri before reversing losses to trade above 1.10-handle overnight following broad USD weakness and hopes that Greece could soon secure its 3^rd bailout as soon as tonight. Looking ahead Greece needs to make another ~EUR3.5bn repayment to ECB on 20 Aug.  EUR was last at 1.1025 levels this morning. Expect EUR to trade with mild bias to the upside, next resistance to watch at 1.1080/90 levels (50DMA and 38.2% fibo of Mar low to May high). Intra-day support at 1.0950 (21 DMA). Daily momentum/ stochastics show mild signs of upside risk bias. Day ahead brings EC, GE ZEW Survey data.

      GBP/USD – Consolidation. BoE MPC last Thu was slightly less hawkish than market expected. Vote count for rate hike was 1-8 instead of 2-7. MPC has already come clean to say that no rate hike is likely this year. MPC committee highlighted that GBP strength could see downside risk to inflation in the near term. GBP traded 1-month low of 1.5425 (7 Aug); last sighted around 1.5590 levels this morning. Daily MACD/stochastics are not indicating any clear bias for now. Expect to see GBP consolidate in 1.5470 – 1.5670 range in absence of catalyst. Key focus on employment data and weekly earnings on Wed. Data remaining for the week ahead includes employment change (Wed); house price balance (Thu); Construction output (Fri).

      USD/JPY – Mild Bullish Bias. USD/JPY climbed passed the 125-figure last week but had edged back below that level on Mon on the back of a softer dollar tone. As expected, the BOJ meeting on Fri was a non-event, but the governor did highlight that he would add to current stimulus measures should falling oil prices stem domestic inflationary pressures.  It remains our baseline scenario for a BOJ move in Oct 2015. Pair has closed above the 124.50 levels a couple of times but further upmoves have been less-than-decisive. Pair has since climbed back above the 124.80-levels on the back of a higher USD/CNY fixing this morning. Daily MACD continues to show mild bullish momentum and stochastics is hovering just off overbought levels. This suggests that further upmoves are likely to be gradual. Expect topside to be capped by 125.00 for now, though a daily close above that level could see the pace headed towards 125.85. Further dips today should find support should see support around 122.50 this week. We remain better buyers on dips. This week has BOJ minutes (Wed); and machine orders (Thu).

      AUD/USD – Choppy. AUD was on the upmove, touching a high of 0.7440 this morning before plummeting under the 0.74-figure as currencies react to the record breaking higher USDCNY fixing. Support is seen at 0.7340. Momentum indicators ion the daily chart shows bullish condition and we may see the pair touch 0.7470/0.7490 in the days ahead. Despite the current squeeze which we have been warning about, 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 neutral to mild easing bias). Medium-term down-trend remains intact, with next big support around 0.72 levels (trend-line support from the low in 2001 and 2008). Monthly momentum remains bearish bias. We caution that a break below this long-term support could expose AUD to further downside beyond 0.70. Consumer confidence survey for Aug will be out tomorrow.

      USD/CAD – Pulling Back. USDCAD slipped towards the 1.30-figure overnight, weighed by oil recovery. Daily chart shows momentum turning bearish with a more negative MACD forest.  Next support is seen at 1.2960 (23.6% Fibonacci retracement of the Jun-Jul rally). This week could be a week of correction for the USDCAD and a break of 1.2960 opens the way towards the next at 1.28-figure. Jul housing starts are due tonight (Cons.: 195K). The week remaining also see new housing price index, manufacturing sales due.

      NZD/USD – Sell on Rallies. NZD reversed early gains above 0.66-handle this morning; traded down to intra-day low of 0.6574 on broad USD strength. This came off the back of USDCNY fixing (much higher) which caught the market by surprise. PBoC commented that this is a one-off adjustment. Last sighted around 0.6580 levels. Remain better sellers on rallies towards 0.6630 levels (Past 3days resistance), 0.6680 levels (76.4% fibo of 0.6739 – 0.6491). Daily momentum is mild bullish. We continue to reiterate that a break below 0.65 on daily close puts next support at 0.64 in focus. We remain bearish bias for NZD on a combination of drivers CPI inflation at 15-year lows with risk of staying low for longer on low oil prices and weak dairy prices, prospect of dairy prices staying low for longer (10th consecutive decline and at fresh 13-year low), benign wage inflation, declining ToT amid weakening demand. We see the risk of another 25bps cut, possibly as soon as the next meeting at 10 Sep (3 more RBNZ meetings till end of 2015 – Sep, Oct, Dec), but acknowledged that RBNZ’s recent statement suggest a slightly less dovish than expected tone.

Asia ex Japan Currencies

      The SGD NEER trades 1.14% below the implied mid-point of 1.3777. We estimate the top end at 1.3498 and the floor at 1.4055.

      USD/SGD – Bullish. Onshore markets re-opened after the super long weekend to celebrate Singapore’s Golden Jubilee with the USD/SGD slipping towards the 1.38-handle. Despite the economy printing the slowest growth since 3Q 2012, the 2Q GDP print of 1.8% y/y was better than the 1.7% in the flash estimates. However, pair has now climbed back higher towards the 1.39-handle because of the lower higher USD/CNY fixing. Daily MACD is still bullish momentum with stochastics at overbought levels. Look for topside to be curbed by 1.4000 and dips to find support around 1.3780. Quiet week ahead with just Jun retail sales on tap on Fri. Final 2Q15 GDP came in better-than-expected, rising by 1.8% y/y vs. flash est. of 1.7% and cons. 1.5%. Growth was dragged down by weak manufacturing (-4.9% vs. flash est.: -4.0%), but was lifted by gains in the services sector (+3.4% vs. flash est.: 3.0%). The MAS commented in the press conference following the release of the GDP print that monetary policy remained appropriate and that the lower growth had already been factored in its annual report briefing. The government revised lower its full-year growth forecast to 2-2.5% from 2-4% and NODX to 1-2%. Maybank economic team expects 2015 GDP and NODX growth at 2.5% and 2-3% respectively.

      AUD/SGD – Watch the 50 DMA Support. AUDSGD hovered around 1.0260, stull underpinned by the 50-DMA at 1.0220. Expect this level to remain a support to watch. On the flipside, 1.0300 is the formidable barrier for this cross. With RSI showing near overbought conditions, upmove is a grind. Still, MACD shows strong bullish momentum. A clearance of the 1.0300-figure is necessary for further upside extension. We continue to reiterate our earlier caution for technical rebound.

      SGD/MYR – Supported. SGDMYR continues to march to all time high of 2.8499 levels this morning. Move was due to Ringgit weakness. Last sighted at 2.8330 levels. Daily momentum and oscillator indicators continue to indicate a bullish bias. Interim resistance seen at 2.85. Support at 2.8200 (38.2% fibo retracement of 2.77 – 2.85).

      USD/MYR – Another Leg Up. USDMYR continued to push to all-time highs; intra-day high of 3.9510 levels was printed this morning. This was due to USDCNY fixing (much higher) this morning which caught the market by surprise. PBoC commented that this is a one-off adjustment. 1s NDF traded 3.9925 high. We reiterate that the pair remains bullish bias with the break above the resistance on the ascending triangle formation. Next resistance (spot) at 3.95; support at 3.92 (before the break out).

      1s KRW NDF – 1188 on the Break of 1176. 1s NDF pushed to an intra-day high of 1174 this morning, off the back of USDCNY fixing (much higher) this morning which caught the market by surprise. PBoC commented that this is a one-off adjustment (See USDCNY section below). This triggered broad USD strength. We continue to see further upside off the back of broad USD strength, JPY weakness (JPYKRW maintained at 9.40 levels). Still see further upside in the pair. Near term resistance remains at 1176; break above on daily close basis puts 1188 (Jun 2012 high) in focus. 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.  

      USD/CNH – Yuan ADJUSTS. USD/CNH spiked towards the 6.28-figure this morning after PBOC fixed USDCNY reference rate 1.9% lower. PBOC says it is a one-off adjustment as yuan effective FX rate is stronger than other currencies and with that, USDCNY gapped up to a high of 6.2875 before slipping back to levels around 6.2680 as we write. USDCNH traded in tandem, down to around 6.2670. Expect this pair to remain choppy around 6.2400-6.3000. USD/CNY was fixed 1136 pips higher at 6.2298 (vs. previous 6.1162). CNYMYR was fixed 13 pips higher at 0.6323 (vs. previous 0.6310).

      SGD/CNY – Rally. SGD/CNY rallied to a high of 4.5210 as we write, underpinned by the weaker CNY fixing against the USD. Next barrier is seen around 4.5455 (38.2% Fibonacci retracement of Jun-Aug drop). Daily MACD is at zero and we see more choppy action. Support is seen at  4.49.

        USD/INR – Rangy. USD/INR closed higher at 63.88, supported by the 50-DMA and dialy ichimoku cloud. Pair could continue to remain in rangy action with a break of 63.75 to expose the next support level at 63.60. Both daily MACD and RSI not showing much directional bias. Resistance is seen around 64-figure.  Exports are due today followed by Jun industrial production and Jul CPI tomorrow.

      USD/IDR – Bullish Bias.  The USD/IDR is inching lower this morning, playing catch-up with the rest of its regional peers. Pair is sighted currently at 13544 with daily MACD still bullish momentum and stochastics at overbought levels. Still, we expect this dip to be temporary given external (namely US Fed tightening and China growth concerns) and domestic concerns (persistent current account deficit, anaemic economic growth, stalled reforms) that should keep the pair supported.  Quiet week ahead with 2Q current account due on Fri. Lacking fresh impetus, expect pair to track dollar moves and range within 13400-13650 for the week. The JISDOR was left unchanged on Mon at 13536. 1-month NDF continues its climb higher towards the 13700-levels though daily MACD is showing no strong momentum and stochastics still falling from overbought levels. Last week, foreign funds sold a net USD66.92mn in equities but added a net IDR7.57tn to their outstanding holding of government debt. Foreign reserves remained above the psychological USD100bn levels in Jul, falling by less than USD500mn to USD107.55bn in Jul from Jun’s USD108.03bn, which was less than the USD2.7bn dip in Jun.

      USD/PHP – Bullish. USD/PHP continues to make new highs not seen since Jul 2010, climbing above the 45.800-levels, tracking its regional peers. Pair is currently sighted around 45.850 with daily MACD showing bullish momentum and stochastics still at overbought levels. For now, further upmoves are possible though there is also the potential for a reversal ahead. In the absence of fresh catalyst, pair is likely to tracking the rest of USD/AXJs in the week ahead. Look 45.600-45.940 range to hold this week. 1-month NDF remains above the 36-handle, sighted at 46.040 currently, with daily MACD showing bullish momentum, though stochastics remains at overbought levels. Foreign investor sold a net USD7.03mn in equities last week. Exports fell by 3.3% y/y in Jun, better than the 16% drop expected by market, helped by gains in electronics exports, which rose 9.5% y/y, helping to partially mitigate the dip in agri-exports (-25.9% y/y).

      USD/THB – Consolidation.  The USD/THB is on the slide this morning in line with a softer dollar tone. Pair is back below the 35.100-levels at 35.077, but continues to trade well-within its current trading range of 34.870-35.280. Pair has lost most of its bullish momentum and stochastics is falling from overbought levels, suggesting that consolidation could be likely ahead. Nevertheless, sluggish domestic macroeconomic fundamentals and the government’s weak THB policy amid Fed tightening and China grow concerns should continue to keep the pair supported. Look for topside to remained capped by 35.280 (312 Jul high) and dips to be supported by 34.870. Last week, foreign fund sold a net THB6.04bn and THB1.36bn in equities and government debt. Look for further downside to be limited around the 35-figure today; with dips an opportunity to accumulate. Quiet week ahead with just foreign reserves due on Fri. Onshore markets are closed on 12 Aug (Thu) for the Queen’s Birthday.

Rates

Malaysia

      Lackluster start to the local government bond market as liquidity went from bad to worse. Small buying was seen on the WI for 5y MGS 10/20 in the morning, but the bond was offered back even higher at 3.825% in the afternoon as USDMYR continued its upward trend. No trades were done at that level as last done was 3.82%. The auction on the 5y benchmark MGS takes place today.

      In the IRS market, the 5y rate traded sharply lower possibly due to profit taking. It was dealt at 4.05%. Receiving in current conditions would be a bold move. 3M KLIBOR unchanged at 3.69%.

      Local PDS market continued to be affected by weak sentiment. Trades were heavily focused on the front end of the curve, with GG and AAA names being the top picks. Short dated GGs widened 1-2bps while short dated AAAs saw better demand, trading +3bps to -2bps. 8-9y Telekom papers also widened by 2bps. In the AA space, YTL Power tightened 2bps while other trades were crosses due to portfolio reallocation.

Singapore

      SGS market was closed. Yields as at 6 Aug 2015.

      Asian credit market was quiet with Singapore still out for holidays. China IGs mostly 1-2bps wider or unchanged. The HY property space saw better buying interest with Fantasia 20s moving up by 1pt. Meanwhile, Malaysian names widened 3-5bps, especially at the long end as local issues continue to weigh on sentiment. PETMK 45 gapped 5bps wider, but the shorter dated PETMK 20 was unchanged in spread (T+115) as there were better buyers for it. Indian names were a tad quiet.

Indonesia

      Indonesia bond market moved mixed during the day as there were minimum market sentiments. Lower July U.S. NFP number was not able to support LCY bond prices hike. Tight price volatility along with thin trading volume was recorded during the day. We suspect this occur as Singapore market was closed yesterday. 5-yr, 15-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 8.093%, 8.436%, 8.744% and 8.820% while 2y yield shifts down to 7.744%. Trading volume at secondary market was seen thin at government segments amounting Rp4,788 bn with FR0070 as the most tradable bond. FR0070 total trading volume amounting Rp690 tn with 11x transaction frequency and closed at 99.616 yielding 8.436%.

      DMO will conduct their sukuk auction today with five series to be auctioned which are SPN-S05022016 (Coupon: discounted; Maturity: 5 Feb 2016), PBS006 (Coupon: 8.250%; Maturity: 15 Sep 2020), PBS007 (Coupon: 9.000%; Maturity: 15 Sep 2040), PBS008 (Coupon: 7.000%; Maturity: 15 Jun 2016) and PBS009 (Coupon: 7.750%; Maturity: 25 Jan 2018). We believe that the auction will be oversubscribe by 2.5x – 3.5x from its indicative target issuance while our view on the indicative yield are as follows SPN-S05022016 (range: 6.730% – 6.830%), PBS006 (range: 8.450% – 8.550%), PBS007 (range: 8.700% – 8.800%), PBS008 (range: 7.700% – 7.800%) and PBS009 (range: 8.130% – 8.230%).

      Corporate bond trading traded thin amounting Rp504 bn. MFIN02ACN1 (Shelf registration II Mandala Multifinance Phase I Year 2015; A serial bond; Rating: idA) was the top actively traded corporate bond with total trading volume amounted Rp110 bn yielding 9.492%.