Maybank GM Daily - 17 Aug 2015

FX

Global

Just when some calm was restored to the Asian forex market, MYR came under sudden intense downside pressure early Fri, touching a high of 4.15 against the USD before closing lower around 4.08. This pair is still elevated this morning, last seen around 4.1020. Liquidity was thin, exacerbating the volatility in the pair. Beyond the Far East, the dollar is above the 50 and 100-DMA around 96.65, underpinned by domestic data releases. PPI final demand eased less than expected to 0.2%m/m for Jul. Industrial production exceeded expectations with a 0.6%m/m rise. Oil prices fell 1% this morning amid increasing supply from the US. Japan 2Q GDP fell -0.4%q/q from previous 1.1%.

      Investors will watch the Minutes of the FOMC meeting in Jul, out on Wed night. Apart from US data, markets will continue to assess impact of the recent CNY weakness on US Fed liftoff. Empire manufacturing due today is also another key data to watch for USD plays along with Fed Williams and Ked Kocherlokota who will speak in Asia on Thu. Data docket is pretty light in the region with Thailand’s GDP on Mon (Cons.: 2.8%y/y), Malaysia’s CPI and foreign reserve worth watching on Wed and Fri respectively. We expect Bank Indonesia to refrain from cutting the policy reference rate (7.50%) tomorrow until inflation eases. On the side, Singapore’s Jul NODX fell -0.8%y/y. Philippines’ overseas remittances data (Cons.: 5.4%y/y) is due later. China property data is due on Tue along with Indonesia’s trade numbers. Onshore markets in Indonesia are closed today for Independence Day. Those in Philippines are away on Fri.

This week key focus for G7 on Japan’s 2Q GDP and US Empire Manufacturing (Aug) today; RBA Aug. Meeting Minutes, UK CPI, PPI Output (Jul) and US Factory Orders (Jun) on Tue;  CPI (Jul) on Wed, Fed Releases Minutes from July 28-29 FOMC Meeting on the same day; Thu has UK retail sales, US Existing Home Sales (Jul) and Markit US Manufacturing PMI (Aug P), GE GfK Consumer Confidence (Sep); EC Consumer Confidence (Aug A) are due on Fri.

Currencies

      DXY – Buy on DIps. DXY held ground, helped by better than expected IP and PPI data overnight. We continue to reiterate the risk of stronger USD on Fed rate hike decision – if it will be delayed. A stronger USD may hurt US exporters, impact US corporates’ profits, and derail US efforts in achieving its 2% inflation target as it could risk importing deflationary pressures. On technicals, daily momentum continues to indicate some downside pressure in the near term. Next support at 96.30/40 levels (50 and 100 DMAs), before 95.90 (38.2% fibo of Mar high to May low). Interim resistance at 98.30 (trend channel resistance) before 98.70 (76.4% fibonacci retracement). Week ahead sees Empire Manufacturing (Aug); NAHB Housing Market Index (Aug); Net Long-term TIC Flows (Jun) on Mon; Factory Orders (Jun); ISM NY (Jul) on Tue; CPI (Jul); Fed Releases Minutes from July 28-29 FOMC Meeting on Wed; Fed's Kocherlakota Speaks at Bank of Korea Event; Fed's John Williams Speaks in Indonesia at Conference; Initial Jobless Claims (Aug-15); Continuing Claims (Aug-08); Philadelphia Fed Business Outlook (Aug); Existing Home Sales (Jul); Leading Index (Jul) on Thu; Markit US PMI –mfg (Aug P).

      EUR/USD – Sell Rallies. EUR turned softer below the 1.11-handle this morning as risk sentiment improved following 3^rd bailout to Greece has been approved by Greek parliament and Euro-area Finance ministers. Move higher rejected the 1.1230 (23.6% fibo retracement of Mar low to May high); key support at 1.1080/90 levels, if broken on a daily close basis could see the pair ease further towards 1.1040 (100 DMA). We continue to reiterate that the 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. Week ahead brings Trade Balance SA (Jun); EC Trade Balance NSA (Jun) on Mon; ECB Current Account SA (Jun) on Wed and GE GfK Consumer Confidence (Sep); EC Consumer Confidence (Aug A) on Fri.

      GBP/USD – Consolidation. GBP continued to consolidate in 1.5597 – 1.5667 range in absence of fresh catalyst. We continue to watch 1.5690 resistance, if broken could trigger further upside towards 1.59 levels. Meantime support seen at 1.5580 (21 DMA). GBP was last sighted at 1.5650 levels this morning. Daily MACD/stochastics are showing early signs of mild bullish bias. Week ahead brings Rightmove House Prices (Aug) on Mon; CPI (Jul); CPI Core (Jul); Retail Price Index (Jul); PPI Output (Jul) on Tue; Retail Sales Ex Auto Fuel (Jul) on Thu.

      USD/JPY – Slow Grind Higher. USD/JPY pull-backed below 124-figure last week as the lingering concerns about the yuan move weighed reignited safe-have plays. Pair has since rebounded back towards the 124.50-levels, helped by weak 2Q15 GDP, which fell by 1.6% annualized, though this was still better than market expectation of -1.8%. Growth was dragged lower by weak private consumption and exports. Support is seen around 123.58 (50DMA) and the clearance of that level exposes the next support at 123/50 (50% Fibo retracement of the Jun-Jul downswing) before the 122-figure (100DMA). Further rebound should meet resistance around the 125-figure. Our baseline scenario remains for a BOJ move in Oct 2015. Week ahead brings Jul trade; Jun All Industry Activity Index; Jun Leading Index; Jun Coincident Index; Jul Machine Tool Orders (Wed).

      AUD/USD – Choppy. AUD slipped from its open this morning, last seen around 0.7370, currently supported by 0.7365. This pair is likely to remain choppy within the wider range of 0.72-0.7470 with some bias to the upside. Momentum indicators show slight bullish bias.  That said, we stick to our view 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.

      USD/CAD – Choppy. USDCAD is on the rise, last seen around 1.3110 as oil prices clock another 1% decline this morning. Pair has rebounded from support around 1.2960 (23.6% Fibonacci retracement of the Jun-Jul rally) to current levels. Interim support is seen around 1.30-figure. Recent high at 1.3210 is now the barrier for this pair this week. We see choppy action within the 1.2960-1.3210 this week. The week ahead has fewer data releases. We have Jun retail sales (Cons.: 0.2%m/m) and Jul CPI (0.1%m/m) due on Fri.

      NZD/USD –Bearish. NZD continues to trade with a bearish bias. Last sighted at 0.6540 levels, next support at 0.6490, before 0.64-handle. Momentum is showing early signs of bearish bias. Resistance at 0.6580 (21 DMA). We reiterate our 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 on 10 Sep (3 more RBNZ meetings till end of 2015 – Sep, Oct, Dec).

Asia ex Japan Currencies

      The SGD NEER trades 1.31% below the implied mid-point of 1.3907. The top end is estimated at 1.3625 and the floor at 1.4188.

      USD/SGD – Bullish Bias. USD/SGD rallied to a high of 1.4165 because of the yuan devaluation before easing back towards the 1.40-figure. Pair though is climbing back above the 1.41-handle, boosted by the weak NODX print (Jul: -0.8% y/y) as well as the continued sell-off in the USD/MYR. Further upside seems likely as indicated by bullish momentum indicators and a move back towards 1.4165 remains a possibility. Any pull-back could find support around 1.3926 (23.6% Fibo retracement of the Apr-Aug upswing). NODX came in within expectations at -0.8% y/y on the back of poor non-electronic shipment (-2.1% y/y) (on weak petrochemical exports (-5.4% y/y)) that offset the 2.3% gains in electronics shipment.

      AUD/SGD – Bullish Momentum, Watch 1.0370. This cross has rebounded from parity in the past two weeks and tests the barrier at 1.0368 as we write. This cross is capped by the daily ichimoku cloud. This barrier seems to a pretty formidable one though momentum is still bullish. A failure to close above this level might see prices settling within the thick of the cloud within 1.0140-1.0380. A break to the upside exposes the next barrier at 1.0567 (200-DMA).

      SGD/MYR – Supported. SGDMYR continues to push higher to all time high of 2.9218 at time of writing this morning. This came off the back of USD strength and oil price weakness. Daily momentum continues to indicate a bullish bias. Interim resistance seen at 2.95.

      USD/MYR – No Let Up. USDMYR remains bullish bias, closing at 4.0805. Last sighted at 4.1158 levels, off the back of oil price weakness and USD strength. Upside bias remains intact. Focus this week on FX reserves release this Fri. Momentum indicators flag strong bullish momentum in this pairing and next barrier is seen around 4.15.  Support at 4.05 levels.

      1s KRW NDF – Softer. 1s KRW remained well supported, last sighted around 1184 levels 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. Interim support at 1176. 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 – Dips Will Be Shallow. USD/CNH steadied around 6.4490 this morning, awaiting the USDCNY fixing for some direction.  Daily momentum indicators show bullish conditions and any retracement could be shallow with support around 6.4030. On 14 Aug, USD/CNY was fixed 6 pips lower at 6.3969 (vs. previous 6.3975). CNYMYR was fixed 54 pips lower at 0.6301 (vs. previous 0.6248).  Some sense of calm has been restored to the market after PBOC clarified that yuan adjustment has been completed and even suggested the yuan could move to an appreciation path given its fundamentals. We still think that a more market driven yuan could mean further weakness in the currency and risks in the medium term is to the upside. Hearteningly, the onshore spot prices have narrowed its gap to the fixing. Gap between CNH and CNY widened again to 600+pips. Expect depreciation pressure on the yuan to sustain this gap. Expect the pair to see further upside pressure in the medium term. At home, PBOC Chief Economist Ma Jun warned of two-way movements in the yuan. In other news, China Securities Journal cited a director at CFFEX, saying that China should start trial of yuan foreign exchange rate futures domestically.

      SGD/CNY – Two-way Risks. SGD/CNY extended its slide this morning, last seen around 4.5315. With that, this cross is below the 50-DMA at 4.5720. Next support is seen around 4.5155 (23.6% fib retracement of the Jun-Aug pullback). Key barrier is seen around 4.5943 (61.8% Fibonacci retracement of Jun-Aug drop). Daily MACD is still positive though the MACD forest shows decelerating bullish monmentum. We expect more choppy action this week. Key support for this cross is seen at 4.5400.

      USD/INR – Retracement. USD/INR saw a gap up on Fri but the pair closed lower (relative to its open and previous day close) at the 65-figure.  Still, the recent yuan devaluation and slower inflation have raise bets of rate cut. Daily momentum indicators are still bullish and we expect any retracement to be shallow. 1-month NDF steadied around 65.50 this morning, not gaining much upside momentum. RSI flags overbought conditions. Support is now seen at 64.8900 for the NDFs. For spot, 64.2650 should support dips ahead of the next at the conversion line of the ichimoku cloud around the 64-figure. In news, India Banking Secretary Hasmukh Adhia said the country may consider anti-dumping, safeguard duties if proposed by the industry. There are no data release this week.

      USD/IDR – Bullish.  Onshore markets are closed today for Independence Day celebrations and re-opens tomorrow. With onshore markets closed, markets will take its cue from the 1-month NDF, which is currently  back above the 14000-mark, hovering around 14040 at last sight, with daily MACD still showing bullish momentum. Aside from lingering concerns of the impact of the yuan moves, pair remains pressured to the upside on concerns about US Fed tightening and China growth as well as domestic concerns (persistent current account deficit, anaemic economic growth, stalled reforms). Look for topside to be curbed by 13917 ahead of the 14000-figure this week. Any pull-back should see support around 13680. The JISDOR was fixed at a new record high of 13763 on Fri from 13747 on Thu. Foreign investors sold a net USD220.89mn in equities last week, and removed a net IDR1.72tn from their outstanding holding of government debt on 10-13 Aug (latest data available). Week ahead has Jul trade and BI policy meeting on Tue. We expect BI to stand pat on interest rates given the recent weakness in the IDR

      USD/PHP – Slow Grind Higher. USD/PHP is bouncing higher towards the 46.300-levels but still off from its multi-year high of 46.397 (12 Aug). Daily momentum indicators remain bullish bias, though oscillators are showing signs of falling from overbought levels, suggesting that the grind higher could be gradual. Further upmoves this week should meet resistance around 46.340 (26 Jul 2010 high), while support is around 45.940. 1-month NDF is climbing higher at 46.500 after coming from its recent high of 46.820 (12 Aug) with daily MACD still indicating bullish bias. Risk aversion led foreign investors to sell a net USD80.27mn in equities last week. Week ahead has Jul overseas remittances (Mon); and BOP overall (Wed). Onshore markets are closed on Fri for Ninoy Aquino Day.

      USD/THB – Capped.  USD/THB is on the slow crawl higher, but still below the high of 35.561 touched on 11 Aug as a result of the yuan moves. Pair is currently sighted around 35.292 with daily MACD showing tentative signs of bearish momentum, while stochastics is bearish bias. This suggests that there is potential for a pull-back ahead. Still, pair should remain supported above the 35-levels given sluggish domestic macroeconomic fundamentals and the government’s weak THB policy amid Fed tightening and concerns about China growth could keep the pair supported. 2Q15 GDP is out later this morning and an underperformance (cons.: 2.8% y/y) could lift the pair higher. Further upside is likely to be capped around 35.560. Any retracement this week should find support around 34.870. Last week, foreign funds sold a net THB5.92bn of equities, but bought a net THB0.95bn of government debt. Aside from GDP today, it is a quiet week ahead with just foreign reserves (14 Aug) on tap on Fri.

Rates

Malaysia

      Local government bonds saw a further sell off as USDMYR fix rose to a high of 4.1505 in the morning. The market remained weak despite support seen from bids in the afternoon when the MYR retraced slightly. MGS curve bear flattened by 2-17bps as the front end took the brunt of the beating.

      IRS levels jumped 2-7bps, with the 5y being dealt at 4.13% and 4.14%. Market panicked in the morning with rates being taken up when MYR dropped by as much as 2.6%. But players turned better receivers in the afternoon after MYR somewhat retreated and it seemed that receiving interest outweighed paying, likely due to bond hedging. 3M KLIBOR stayed at 3.69%.

      Local PDS market ended last week on an extremely quiet note amid the volatility in MYR. Market appeared to prefer buying 1-2y papers as BPMB 16s (AAA) tightened 3bps with MYR40m done. Normally, BPMB’s AAA papers are not as liquid as its GG ones. Other trades were crosses from portfolio reallocation, mostly in odd amounts.

Singapore

      SGS finished little change from the previous day, with yields up 1-2bps. This is likely due to the higher SGD funding. The 10y SGS closed at 2.59%.

      Liquidity has been thin in the Asian credit space after a week of volatility. Tencent 2Q15 revenue posted a 19% YoY growth, mostly from online advertising. Yanlord Land Group also reported strong earnings growth for 1H15. There was continued buying interest on tech names, with two way dealing on Tencnt, Bidu and Baba. PETMK traded 3-5bps wider on the back of MYR depreciation. Chinese HY property names seem to be holding quite well, closing unchanged to 0.25pt higher.

Indonesia

      Indonesia bond market moved mixed during the day ahead of long holiday as Indonesia would celebrate their independence day today. During the day Indonesia President Jokowi also gave a speech on preliminary speech on 2016 budget. LCY bond market remains quite and there were barely any positive sentiment to support bond prices to move upwards. 5-yr, 15-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 8.303%, 8.624%, 8.958% and 9.015% while 2y yield shifts down to 7.871%. Trading volume at secondary market was seen thin at government segments amounting Rp6,274 bn with FR0070 as the most tradable bond. FR0070 total trading volume amounting Rp933 bn with 34x transaction frequency and closed at 98.295 yielding 8.658%.

      DMO will conduct their conventional auction this week with four series to be auctioned which are SPN12160512 (Coupon: discounted; Maturity: 12 May 2016), FR0053 (Coupon: 8.250%; Maturity: 15 Jul 2021), FR0056 (Coupon: 8.375%; Maturity: 15 Sep 2026) and FR0073 (Coupon: 8.750%; Maturity: 15 May 2031). We believe that the auction will be oversubscribe by 2.0x – 3.0x from its indicative target issuance while our view on the indicative yield are as follows SPN12160512 (range: 7.050% – 7.200%), FR0053 (range: 8.480% – 8.600%), FR0056 (range: 8.650% – 8.750%) and FR0073 (range: 8.950% – 9.100%).

      Corporate bond trading traded thin amounting Rp403 bn. JMPD12Q (Jasa Marga XII Seri Q Year 2006; Rating: idAA) was the top actively traded corporate bond with total trading volume amounted Rp50 bn yielding 8.339%.