Maybank GM Daily - 20 Aug 2015

FX

Global

      Minutes of the Jul FOMC Minutes was perceived to be “more bearish” than expected given it is the last meeting before the September meet. Markets were particularly focused on how “most judged that the conditions for policy firming had not yet been achieved, but they noted that conditions were approaching that point”. The conditions that were of concern include “lack of convincing signs of accelerating wages which might signal that the natural rate of unemployment could currently be lower than previously thought” and “inflation outlook that might not soon meet one of the conditions established by the Committee for initiating a firming of policy”. On top of that, “several participants noted that a material slowdown in Chinese economic activity could pose risks to the US economic outlook”. Dollar fell back towards the 50-DMA and 100-DMA, last seen around 96.30.

       Elsewhere, oil prices were dragged by the rise in US crude stockpiles. WTI crude fell towards the USD40/bbl while brent crude is now around USD47/bbl. CAD weakened 0.5%, the only G7 major to trade on the backfoot against the USD. CHF was up 1.2% while EUR also appreciated 0.9%.

      Within the Far East, eyes are still on the Chinese equity markets although Shanghai Comp recovered 1.2% yesterday after tanking 6.2% on Tue. Risk sentiments are still cautious with early starters Nikkei taking the cue from NY indices, down -0.4%. The data docket is light in the region. Fed Kocherlakota speaks at a Bank of Korea event as we write, saying that more government debt issuance would aid financial stability. Fed Williams will speak later in Indonesia. Beyond Asia, there is weekly claims from the US, Philly Fed for Aug and existing home sales. USDAXJs are likely to take a breather today after the overnight dollar slump. We still prefer to buy USDAXJs on dips.

Currencies

      DXY – Soft. USD fell on FOMC minutes and weaker than expected CPI data overnight. Jul FOMC minutes was perceived to be more dovish than expected. There was no clear conviction that a rate hike in Sep was imminent. Most members judged that the conditions for policy firming had not yet been achieved but noted that conditions were “approaching”. FOMC members also raised concerns of a material slowdown in China’s economy, downside risks to inflation from possible dollar appreciation and declines in commodity prices. Jul CPI data released overnight further dampened sentiment of rate hike in Sep. Markets are now only pricing in 36% probability of rate hike in Sep (vs. 48% previously).  DXY was last at 96.35 levels this morning (vs. overnight high of 97 levels). Does looks like another move lower towards 95.90 (38.2% fibo of Mar high to May low) could materialise. Daily momentum and stochastics are indicating a mild bearish bias. Beyond that support puts 95-levels in focus. Interim resistance seen at 97 levels (21 DMA). Week remaining sees 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 – Upside Risk. EUR reversed initial losses to close firmer above 1.11-handle on USD softness following dovish FOMC minutes and softer than expected US CPI inflation. Expectation of US possibly delaying rate hike suggest that monetary policy divergence between US and EU could take a breather. Low-yielding currencies (EUR, CHF, JPY) were broadly firmer against the USD overnight.  EUR was last at 1.1140 levels, higher than overnight close. On Greek’s 3^rd bailout package, German parliament has voted in approval.  Day ahead, 4-hourly momentum and stochastics are indicating a mild bullish bias. Next resistance at 1.1230 (23.6% fibo of Mar low to May high) before 1.1340 (200 DMA). Support at 1.1050 levels. Week remaining brings GE GfK Consumer Confidence (Sep); EC Consumer Confidence (Aug A) on Fri.

      GBP/USD – Upside Bias. GBP rose amid broad USD weakness overnight. Last seen around 1.5690 levels. Daily momentum and stochastics indicators are showing tentative signs of mild bullish bias. That puts 1.5790 levels in focus (76.4% fibo of Jun high to Jul low) before 1.59 levels.  Day ahead brings Retail Sales Ex Auto Fuel (Jul). brings no data.

      USD/JPY – Capped. USD/JPY slipped below the 124-handle to a recent low of 123.69 on speculation that a Sep Fed lift-off is off the table. Markets gave short-rift to the weak data out yesterday that showed industrial activity coming in below market expectations (0.3% m/m vs. 0.4%) and machine tool orders moderating 1.7% y/y in Jul compared to Jun’s 6.6% as the focus shifted to the Fed. Pair is now rebounding, inching closer back to the 124-handle at 123.86 on possible profit-taking. With the Fed still in focus, look for upside to be curbed by 124.15, while further dips limited by 123.50.

      AUD/USD – Choppy. Dollar slump overnight lifted the pair 30 pips higher and was last seen around 0.7360. The daily MACD continues to show some deceleration in the bullish momentum but the clearance of the 0.7328-support is still required for further downside towards 0.7216. Directional bias is unclear at this point but choppy action is certain. Next support is seen around 0.7325 ahead of the next at 0.7260 while topsides are capped at 0.7440. We 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.

      USD/CAD – Supported on Dips by Sluggish oil. USDCAD bounced to a high of 1.3178 before easing back towards the 1.3110, still underpinned by sluggish oil. Daily momentum is mildly bearish and we see a move towards the next support at 1.2968. Direction is still largely dictated by oil prices and dollar cues. Key data release for the week includes Jun retail sales (Cons.: 0.2%m/m) and Jul CPI (0.1%m/m) due on Fri.

      NZD/USD – Consolidation. NZD closed above 0.66-handle for a second consecutive session overnight. The slightly less-bearish mood was due to relief rebound in GDT auction prices.  NZD was at 0.6601. Daily momentum and stochastics are indicating a mild bullish bias. Next resistance at 0.6620 (61.8% fibo of Jul high to Aug low), before 0.6655 (61.8% fibo) and 0.67 (50 DMA). Bias remains to lean against strength. 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 (first rebound after 10 consecutive declines; now at 2009-lows levels), 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 0.70% below the implied mid-point of 1.3901 with the top end estimated at 1.3621 and the floor at 1.4181.

      USD/SGD – Bearish Bias; Buy On Dips. USD/SGD slipped below the 1.40-handle to 1.3960 on speculation that Fed’s Sep lift-off would be delayed. Pair has since rebounded towards the 1.4000-region this morning, though pair is off yesterday’s close of 1.4032 at 1.3998.  Pressure could remain on the downside today given that intraday MACD is showing bearish momentum, though stochastics is indicating no strong bias in either direction. A thin intraday ichimoku cloud is forming below price action and could limit further downside ahead. Look for support around 1.3960 (lower bound of the cloud and yesterday’s low). A clean break of that level could expose the next support at 1.3910. Rebounds remains capped by 1.4080 for now. We remain better buyers on dips.

      AUD/SGD – Caught In the Cloud. This cross swivelled around the 1.0300 for much of yesterday and was still around that level as we write in Asia morning. This cross is now in a tug of war between AUD and SGD strength. The broad downtrend channel (since Sep 2014) remains intact. Channel resistance at 1.04 levels which coincides with the upper bound of the daily ichimoku cloud. This cross could remain suspended in the thick of the clouds now. Interim support is seen around 1.0259 (38.2% Fibonacci retracement of the May-Jul sell off). Next support is seen around 50-DMA at 1.0210, still within the cloud.

      SGD/MYR – Early Signs of Easing? SGDMYR eased away from all-time high towards 2.9070 levels this morning, off the back of mild recovery in Ringgit. While bullish momentum appears intact (albeit early signs of waning bullish momentum) on the daily chart, stochastic is indicating signs of overbought conditions. Next support at 2.8950 levels (23.6% fibo of Jul low to Aug high), before 2.8720 levels (38.2% fibo).

      USD/MYR – Overbought Conditions. USDMYR was “largely stable” around 4.10 levels this morning. USD weakness was offset by oil price weakness.  On technicals, momentum remains bullish bias, but stochastic is indicating overbought conditions. Next resistance at 4.15 levels; support at 4.05 (23.6% fibonacci retracement of Aug low to high). We maintain our stance that Malaysia will neither impose any peg on the Ringgit nor will it impose capital controls as the country’s fundamentals remains strong and is not facing any balance of payment crisis.  Focus this week on FX reserves release this Fri. Jul CPI (released yesterday) surged to its highest level this year (+3.3% y/y). The higher inflation was attributed to elevated food prices, upward adjustments in domestic fuel prices, rise in cigarette & alcoholic drinks prices, and GST follow through impact. 

      1s KRW NDF – Range-Bound. 1s KRW remained well within the uptrend channel (since mid-Jun); last sighted around 1186 levels. Day ahead sees 1178 – 1190 range. Medium term, 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 reversed out its gains yesterday and was last seen around 6.4490 as we write. Further retracement should find support around 6.4030 (base of the intra-day ichimoku cloud) still. USD/CNY was fixed 48 pips lower at 6.3915 (vs. previous 6.3963). CNYMYR was fixed 39 higher at 0.6402 (vs. previous 0.6362).  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. Onshore spot prices have narrowed is now around 500+pips. Expect depreciation pressure on the yuan to sustain this gap. Expect the pair to see further upside pressure in the medium term.  In news, the Executive Board of the IMF approved the extension of the current SDR valuation basket by nine months from 31 Dec 2015 to 30 Sep 2016. Review is still expected to be completed by end 2015 with any decisions affecting the current SDR basket to become effective starting Oct 2016. This implies that the inclusion of yuan can only be as soon as Oct next year. The IMF staff had recommended the extension to minimize disruption should yuan be added to the basket.

      SGD/CNY – Upside Risks. SGD/CNY extended upmove this morning, last seen at 4.5691, underpinned by SGD strength. This cross is now resisted by 4.5698 (50-DMA), ahead of the next at 4.5951 (100-DMA). Support is seen around 4.5455 (38.2% Fib. Retracement of the Jun-Jul selloff). Intra-day and daily MACD show increasing upside pressure. RSI at 66.87, also indicating some room for upside.

      USD/INR – Upticks. USD/INR opened higher yesterday at 65.3887 before easing back to close at 65.2740. 1-month NDF pulled back towards 65.55 overnight before inching back higher. Spot prices are likely to open lower to take into account the dollar downmove. MACD still shows bullish bias in this pair and we expect dips will be supported. A break of the 65-figure exposes the next at 64.5623 (conversion line of the ichimoku cloud). Barrier remains around 65.56. In news, RBI may ease restrictions on foreign commercial borrowings. The Finance Ministry stated that full details are still in the works.

      USD/IDR – Consolidating Lower.  USD/IDR is on the downtick this morning, playing catch-up with the rest of its regional peers. Pair is currently hovering around 13829 but continues to hover well-within its current trading range of 13750-13920. Sluggish domestic economic fundamentals (persistent current account deficit, underperforming economy, stalled economy etc.) amid growth concerns in the US and China should keep the pair supported. Dollar softness following the release of the Jul FOMC meeting minutes yesterday should weigh on the pair today. We could see the pair continue to ease slightly but still bounded by 13750-13920 intraday. 1-month NDF continues to hover around the 14000-figure with both momentum indicators and oscillators indicating downside risks ahead. JISDOR was fixed lower at 13824 yesterday from Tue’s record high fixing of 13831. Yesterday, foreign funds sold a net USD31.70mn in equities as global risks sentiment remained weak, while they removed a net IDR0.95tn from their holding of government debt.

      USD/PHP – Bearish Tilt. USD/PHP slipped lower to 46.264 as it plays catch-up with its regional peers. Pair has lost most of its bullish momentum, while stochastics is bearish bias, suggesting that the risks could be tilted to the downside ahead. Pair is likely to take its cue from the dollar today and further downside could find support around 46-figure today. Any rebound should meet resistance around 46.500. 1-month NDF inched lower this morning to around 46.390 with both intraday MACD and stochastics still bearish bias. Global risk aversion saw foreign investors sell a net USD16.23mn in equities yesterday.

      USD/THB – Downside Bias.  USD/THB remained stuck above the 35.500-handle despite the softer dollar tone overnight as the lingering impact of the bomb attack in Bangkok continues to weigh on the THB. Concerns that the bomb blast could add downside pressure to the already sluggish economy is keeping the pair supported. Still, upside pressure could ease slightly today given the increased speculation that the Fed Sep lift-off could be delayed. Intraday MACD and stochastics are indicating as much with both currently showing mild bearish bias. Look for support around 35.430 before the next at 35.350 (50DMA). Rebounds today should be capped around 35.665 (19 Aug high). While equities remained under pressure with foreign funds selling a net THB4.55bn, government debt continued to find favour among foreign investors with a net THB5.53bn purchased yesterday. In the news yesterday, PM Prayuth confirmed that Somkid Jatusripitak will be the new Deputy PM in charge of economic affairs, replacing current Deputy PM Pridiyathorn Devakula, even though there has been no official announcement of the cabinet changes yet.

Rates

Malaysia

      SGS market ended mixed with keen buying interest on short end bonds and selling interest on long end ones due to the lower short end SGD Forwards and USDSGD. The 10y SGS closed at 2.61% with the swap spread at -15bps mid. If FOMC minutes reflect a neutral stance, there should be little market reaction.

       Another quiet day in the Asian credit space. Chinese HY property names traded 0.25-0.50pt lower and NOBLSP fell about 3pts but retraced 1.5pts back up near market close. For sovereigns, INDON 25s and 45s continued to see some selloff. SMC Global Power is issuing USD PERP NC5.5 with guidance at 6.75% and managed to gather decent interest in a quiet market. Aspial opened books for another SGD issuance with guidance of 5.25% for 5y bonds. Most players are currently sidelined with thin liquidity in the market. Malaysia July CPI came in at +3.3%.

Singapore

      SGS prices continued to be pressured by higher SGD funding. Selling was seen across the curve which also led to higher SGD IRS rates. The rise at the long end was exacerbated by the upcoming supply of a 15y SGS auction to be announced this Thursday. Yields closed higher by 2-4bps with a slight steepening bias.

      Asian credit space was quiet, with credit spreads mostly unchanged to 2-3bps wider. Liquidity trade has shifted from credit papers to CDS dealing which is now more active. In CDS, MALAYS traded wider by 7bps on the back of weak MYR, while PETMK 25s were given at +159. There was also duration shortening on SUMIBK, KDB, KUNLEG and HRAM.

Indonesia

      Indonesia bond market moved mixed during the day. There were minimum sentiments aside from Vietnam devalued their currency. LCY bond market strengthened during the opening hence failed to maintain it during the closing. 5-yr, 15-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 8.259%, 8.540%, 8.934% and 9.032% while 2y yield shifts up to 7.875%. Trading volume at secondary market was seen heavy at government segments amounting Rp15,690 bn with FR0071 as the most tradable bond. FR0071 total trading volume amounting Rp2,976 bn with 53x transaction frequency and closed at 100.500 yielding 8.934%.

       Corporate bond trading traded thin amounting Rp478 bn. TRAC03D (Agung Podomoro I Year 2011; B serial bond; Rating: idA+) was the top actively traded corporate bond with total trading volume amounted Rp60 bn.