FX
Global
Global investors
took the yuan devaluation badly with DJI, S&P and NASDAQ erasing their
gains from Monday. European stocks were also down, despite a third bailout plan
clinched by Greece. There was even news that IMF would participate financially
in the bailout in October if Athens’ debt is made more manageable by then. Focus
was perhaps more on the FX space amid wild speculations that China might have
triggered a currency war. AUD and NZD were the worst hit, down -1.5% and -1.2%
respectively. In Asia, SGD, KRW and TWD depreciated more than 1% each as well.
Commodities were also hit with crude oil, down to USD43/bbl and other base
metals including aluminium, copper and nickel down around 1% by mid-day on Tue.
Negative
sentiments extend into Asia this morning with Nikkei and Kospi down -0.3%. PBOC
fixed USDCNY reference rate at 6.3306, 0.1% weaker than its close yesterday,
spurring new highs in the USD/AXJs. USDCNY touched a high of 6.4286 while
USDCNH was seen at 6.5268 at one point. China is also due to release its Jul
retail sales, industrial production and urban FAI data. Markets do not expect
strong numbers. Elsewhere, onshore markets in Thailand are closed for the
Queen’s birthday. India is due to release its Jun industrial production and Jul
CPI in late Asia. Beyond the Far East, Fed Dudley speaks today but focus at the
moment will be on the yuan. Elsewhere, State Bank of Vietnam widened trading
band to +/-2% from +/-1%.
Data docket for
the rest of the week has Malaysia’ GDP 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.
Currencies
DXY – Consolidation. The
USD was broadly stronger against the AXJs while only marginally stronger
against majors overnight. Move was triggered by China PBoC’s one-off
devaluation via the USDCNY midpoint and midpoint fixing mechanism change.
UST10Y yields fell 8bps to overnight low of 2.14%. Talks of China’s move posing
a risk of delay on US rate hike as Fed takes into consideration US data as well
as international development and the strength of USD into consideration.
And what China did yesterday led to a strengthening of the USD. A strong USD
hurts US exporters and could derail its efforts to achieve the 2% inflation
target. Question remains whether China will do further “one-off” devaluation.
DXY was last at 97.15 levels this morning, softer than overnight high of
97.619, also partly due to EUR strength. We continue to reiterate that
disappointment in US data/ Fed speak (Dudley to speak on Wed) could pose USD
pullback risk. On technicals, 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). Interim resistance at 98.30 (trend channel resistance) before
98.70 (76.4% fibonacci retracement of Mar high to May low). Day ahead brings MBA Mortgage
Applications (7 Aug); JOLTS (Jun); Fed’s Dudley to speak.
EUR/USD – Greece to Vote Again. Headlines of a bailout agreement
between Greece and the Institutions overnight. The deal could formally be
signed off as soon as this Fri and funds will be released before 20th
Aug (deadline for Greece to repay ECB). The next hurdle is for Greek parliament
to vote through the 35 pre-requisite actions which include measures like change
to tax system, bank recap, remove early retirement, etc. Also of mention is IMF
will participate financially in the bailout in October but only if Greece’s
debt has been made more manageable by then. IMF’s timeline and hard stance
appeared to have softened. While EUR
did trade a low of 1.0961 yesterday off the back of China PBoC move yesterday,
losses were reversed. EUR traded an overnight high off 1.1088 before closing at
1.1042. Technicals suggest EUR to trade with mild bias to the upside, next
resistance to watch at 1.1080/90 levels (50 DMA 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 IP (Jun); FR Current Account
(Jun).
GBP/USD – Watch Labour Data. GBP was marginally softer amid broad USD strength
overnight. Last sighted around 1.5585 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
fresh catalyst. Disappointment in employment data and weekly earnings today
could push GBP lower. Data remaining for the week ahead includes employment
change (Wed); house price balance (Thu); Construction output (Fri).
USD/JPY – Bullish Bias. USD/JPY is back above the 125-figure again following
the sharp move lower by the RMB. Pair climbed to a 2-month high of 125.16 but
further upmoves have been capped by the sell-off in the EUR and CHF against the
JPY. Currently sighted around 125.07, pair is showing increasing bullish
momentum as indicated by intraday MACD with stochastics fast approach
overbought levels. With our resistance level at 125.00 taken out, expect
further upmoves towards 125.85. Further dips today should find support
around 124.50 (50DMA). We continue to hold our baseline scenario for a BOJ move
in Oct 2015; remain better buyers on dips. BOJ minutes for 14-15 Jul meeting
produced little new insights with many board members still seeing inflation
trend continuing to improve and the ultra-loose easing policy having its
intended effects.
AUD/USD – Choppy. AUD sank
below the 0.73-figure this morning after the weaker CNY fixing today, settling
around the 0.7260 as we write. This pair is likely to remain choppy within the
wider range of 0.72-0.74 with risks of breaking below this range in the rest of
the week. Momentum indicators are turning bearish again. 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 came in at 7.8% higher at 99.5. Wage price
index picked up pace to 0.6%q/q from previous 0.5%.
USD/CAD – Rangy.
USDCAD rebounded from the 1.30-figure overnight after the oil prices slipped.
Last seen around 1.3090, this pair seems to be settling within the 1.30-1.32
range. Daily chart shows bearish momentum 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 came in at 193K, narrowly missing consensus at 195K. The week
remaining also see new housing price index, manufacturing sales due.
NZD/USD – Bearish Bias. NZD turned lower this morning following another +1000
pips USDCNY fix. NZD traded down to 0.6468 low, last sighted around 0.6490
levels. Looking ahead, USDCNY fixings is expected to garner some attention,
given that antipodeans currencies appear most hit amongst G7s on USDCNY fix for
past 2 days. On NZ macro, 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. Remain better
sellers on rallies towards 0.6630 levels (Past 3days resistance), 0.6680 levels
(76.4% fibo of 0.6739 – 0.6491). Mild bullish momentum appears to show signs of
waning. We continue to reiterate that a break below 0.65 on daily close basis
puts next support at 0.64 in focus.
Asia ex Japan Currencies
The SGD NEER trades 1.54% below the implied mid-point of 1.3884. The top
end is estimated at 1.3602 and the floor at 1.4167.
USD/SGD – Bullish. USD/SGD continues to hover above the 1.40-figure as linger concerns
about China’s growth and PBOC’s next move weighs after jumping over two-big
figures yesterday. Pair is currently sighted around 1.4013 with both momentum
indicators and oscillators indicating bullish bias. This suggests potential for
another leg up intraday. In the absence of fresh domestic catalyst,
expectations of further PBOC moves are likely to dominate. Look for topside to
be curbed by 1.4170 (19 Feb 2010 high). Any dips should find support nearby
around 1.4000.
AUD/SGD – Watch the 50 DMA Support. AUDSGD reached a high of 1.0339, within striking
distance of the 100-DMA at 1.0348 before reversing sharply around 1.0260. This
cross is still underpinned by the 50-DMA at 1.0215. Expect this level to remain
a support to watch. With RSI showing near overbought conditions, up-move 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 printed an all-time high of 2.8528 this
morning. Last sighted at 2.8300 levels as Ringgit weakness was balanced by SGD
weakness. 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 4.0060 was printed this morning. This was due to another USDCNY fixing
(much higher by more than 1000 pips) this morning. 1s NDF traded 4.0923 high.
1m NDF points widened to 850pips! We reiterate that the pair remains bullish
bias. Weekly momentum and stochastics remain bullish bias. MYR spot last
sighted at 3.9950.
1s KRW NDF – 1200? 1s KRW get another push higher following another
>1000pips higher in USDCNY fix this morning. 1s NDF pushed to an intra-day
high of 1194 this morning. We continue to see further upside off the back of
broad USD strength, JPY and CNY weakness. Still see further upside in the pair.
Near term resistance remains at 1188 (Jun 2012 high);
break above on daily close basis puts 1200 in focus 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 – Reference
Rate Fixed 0.1% weaker than close at 6.3306. USD/CNH touched a high of
6.5628 after the fixing before stabilizing around 6.5100 as we write.
6.60-figure is within reach at this rate. While the reference rate is fixed
another 1.8% lower than the previous one, the new regime forces the market to
look at the closing price of the previous session instead of the previous
fixing and it is 0.1% weaker than the close. USDCNY gapped up and was last seen
around 6.4240. Gap between CNH and CNY widened to 1007 pips as write. Expect
the pair to see further upside pressure in the next few sessions but gap ups
might be less dramatic in the next few days Still, 6.50 seems to be within
reach for the USDCNY. USD/CNY was fixed 1008 pips higher at 6.3306 (vs.
previous 6.2298). CNYMYR was fixed 102 pips lower at 0.6221 (vs. previous
0.6323). PBOC says there is no economic basis for yuan’s constant
devaluation.
SGD/CNY – Rally.
SGD/CNY rallied to a high of 4.5454 this morning with upside still meeting
resistance around 4.5455 as we write, underpinned by the weaker CNY fixing
against the USD. Key barrier is seen around 4.5455 (38.2% Fibonacci retracement
of Jun-Aug drop) ahead of the next at 4.5697. Daily MACD has turned positive
and we expect more choppy action with risks to the upside. Support is seen at
4.155.
USD/INR – Bias Upside. USD/INR closed higher at 64.2050, led higher by the
rest of USD/AXJs. Support is seen at the conversion line of the ichimoku cloud
around the 64-figure ahead of the next at 63.76, market by the 50-DMA and the
daily ichimoku cloud. Pair could remain in choppy action within a wider range
of 63.76-64.50 with bias likely to the upside given the weaker CNY fixing again
today. Jun industrial production and Jul CPI are due today.
USD/IDR – Gapping Higher. The USD/IDR gapped higher at the opening to 13745 from
yesterday’s close of 13607, tracking its regional peers higher. It did not help
that the USD/CNY was fixed lower by 0.1% from its close yesterday. Intraday
MACD is still showing bullish momentum though stochastics remains at overbought
levels. Aside from concerns about China’s growth and PBOC next moves, concerns
about US Fed tightening and domestic concerns (persistent current account
deficit, anaemic economic growth, stalled reforms) should pressure the pair
higher, we look for new hurdle at 13800 with an eye towards the 14000-figure.
Any retracement should find support around 13650. The JISDOR was set at a new
record high of 13541 yesterday from Mon’s 13536. 1-month NDF climbed to a high
of 13876 but has eased slightly to 13825 currently with intraday MACD showing
bullish momentum and stochastics at overbought levels. Yesterday, foreign funds
sold a net USD43.28mn in equities and removed a net IDR1.27tn from their
outstanding holding of government debt on Mon (latest data available).
USD/PHP – Bullish. USD/PHP gapped higher at the opening this morning to 46.200 from
yesterday’s close of 45.967, tracking its regional peers higher as concerns
over China continues to weigh. Pair is currently sighted around 46.183 with
intraday MACD showing bullish momentum and stochastics still at overbought
levels. In the absence of fresh domestic catalyst, pair is likely to tracking
the rest of USD/AXJs ahead. Look topside to be capped by 46.340 (26 Jul 2010
high). Any dips should find support around 45.940. 1-month NDF remains above
the 46-handle, sighted at 46.460 currently, with daily MACD showing bullish
momentum, though stochastics remains at overbought levels. Deteriorating risk
appetite saw foreign investors sell a net USD28.48mn in equities yesterday.
USD/THB – Bullish. USD/THB hit a new multi-year high of 35.489 overnight but which
was not sustained, closing lower at 35.348, taking out our resistance level at
35.280 along the way. Pair is back on the rebound towards the 35.400-levels
this morning on uncertainty over the PBOC’s next move. Intraday MACD and
stochastics are both bullish bias, suggesting further upmoves are possible
ahead. Concerns about China growth, together with sluggish domestic
macroeconomic fundamentals and the government’s weak THB policy amid Fed
tightening, should keep the pair supported. Resistance is around 35.500 today
ahead of 35.750, while 35.140 (50DMA) should be supportive. Foreign fund sold a
net THB1.21bn and TH0.12bn in equities and government debt yesterday amid
global risk aversion.
Rates
Malaysia
Local government bonds saw a selloff, with foreigners selling
off-the-runs as selling pressure mounted on the benchmarks as well. The curve
rose 2-11bps, with most trades done at the belly. The 5y benchmark MGS 10/20
auction drew poor demand as bid/cover was low at 1.742x, with little foreign
participation, and auction results tailed, with a high of 3.918% above WI
levels. This is despite a huge MYR10b maturity of MGS 8/15s on Wednesday,
indicating that roll-overs are minute. The selling could continue as foreigners
may still have some bonds on hold given the rush to pay swaps higher this past
week.
IRS market saw good trading volume amid the depreciating MYR and weak
govvy auction. 1y and 2y IRS traded at 3.80%, 3y at 3.90-3.92% and 5y at
4.05-4.08%. 3M KLIBOR remained at 3.69%.
Muted PDS market as investors remain sidelined given the bearish
sentiment in capital markets. Trades focused on short dated papers, with Caga
18s and Putra 16s tightening 2bps and 4bps respectively. For long dated papers,
Prasa 30s tightened 1bp and Danga 30 had some bidding interest at 4.75%,
possibly due to yield play. In the AA curve, KEVSB 16s tightened 2bps while
other trades were crosses.
Singapore
The surprise after the long holiday was the devaluation of CNY which
pushed USDSGD higher. SGS yield curve flattened, in line with the SGD IRS
curve. The front end up to 5y yield was unchanged to 4bps higher and lower by
2-3bps beyond that. The 10y SGS closed at 2.58% with bond swap spread tighter
at -11.5bps.
Asian credit space opened slightly firmer, with buying interest on some
IGs in the morning. However, the market was later shocked by the sudden
devaluation of CNY by PBOC. USD/Asians moved higher while UST yields moved
lower as investors flocked for safe asset. Sellers were seen across IGs and HYs
as players tried to reduce risk in a thin market. MALAYS and PETMKs traded
wider, while INDONs and PHILIPs were lower by 0.25-0.50pts to unchanged. KEXIM
is selling a 5.5y fixed and/or floating AUD issuance with guidance at 3.85% and
3M BBSW+120bps respectively. Tencent and BABA will release earnings today, and
this will certainly weigh on the performance of Tech names.
Indonesia
Indonesia bond market closed lower on the note of Yuan depreciation by
PBOC. Post the announcement, IDR currency depreciated and closed above Rp13,600
per USD while bond investors were seen on the selling side. On the contrary,
Incoming bids during the sukuk auction came in quite decent and were the
highest since Feb 20th. 5-yr, 15-yr, 10-yr, 15-yr and 20-yr benchmark series yield
stood at 8.163%, 8.534%, 8.825% and 9.012% while 2y yield shifts down to
7.743%. Trading volume at secondary market was seen moderate at government
segments amounting Rp10,622 bn with FR0068 as the most tradable bond. FR0068
total trading volume amounting Rp1.69 tn with 119x transaction frequency and
closed at 94.294 yielding 9.012%.
Indonesian government conducted their sukuk auctions yesterday and
received incoming bids of Rp11.83 tn bids versus its target issuance of Rp2.50
tn or oversubscribed by 4.7x. However, DMO only awarded Rp3.59 tn bids for its
5mo SPN-S which was sold at a weighted average yield (WAY) of 6.62500%, 9mo
PBS008 at 7.37500%, 2.5y PBS009 at 8.12938% while 5y PBS006 was sold at
8.52446%. 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 1.09X – 7.83X. Till the date of this report, Indonesian government
has raised approx. Rp36.52 tn worth of debt through bond auction which represents
58.0% of the 3Q 15 target of Rp63.00 tn.
Corporate bond trading traded thin amounting Rp334 bn. TAFS03B (Toyota
Astra Financial Services III Year 2013; B serial bond; Rating: AAA(idn)) was
the top actively traded corporate bond with total trading volume amounted Rp90
bn yielding 8.598%.
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