Maybank GM Daily - 24 Aug 2015

FX

Global

      Equity markets reeled after China’s PMI-mfg (preliminary) came in at 47.1, a 6.5 year low. DJI, S&P and NASDAQ fell >3% by close, following similar magnitude of losses in the European markets. The DXY index extended downside towards the 200-DMA, last seen around 94.80. Risk appetite is still weak with USDSGD firmer around 1.4135, USDJPY dipping below 121.50 at one point before a mild rebound to around 121.75 as we write. UST 10yr yields were last seen around 2.0295%.

      We expect equities to remain under technical pressure, poising for further correction. Death cross was seen in the Dow, HSI and other significant single name equities. Negative risk sentiments are in favour of safe haven flows towards JPY, CHF and EUR. Emerging market currencies are exceptionally vulnerable, especially those that are commodity-linked as well as high beta KRW. MYR stealing the thunder, last seen around 4.24 against the USD. SGDMYR at 3.00 now.

      Week ahead for Asia, focus on SG Jul inflation (Mon); Philippines Jun trade (Tue); SG Jul IP (Wed); Ph 2Q GDP (Thu); China Jul industrial profits (Fri). Beyond the Far East, we have growth numbers from Europe on Tue, from US on Thu and UK on Fri. Fed Lockhart speaks tonight, followed by new home sales for Jul tomorrow. Durable goods order and Fed Dudley’s Q&A will hog the limelight. On Thu, we have Jackson Hole Symposium along with GDP. The event is normally closely watched as it is attended by quite a few central bankers including BoE Carney, Fed’s Fischer. However, Fed Chair Yellen will not attending this time round. Growth numbers will always be scrutinized for any clues on the Fed’s lift-off timing who is still data dependent. Barring any moves from China, the elephant in the room is the US this week. Another theme that we have been highlighting is the monetary policy divergence. If this divergence will continue to grow or slow. In the short term, this divergence could be set back. Market implied probability of a Sep rate hike has now fallen to 34%, from 48% before the minutes release last week. This could see put further pressure on the DXY, next support at 200 DMA.

Currencies

      DXY – Bearish Bias. Dollar index was sharply lower towards its 200DMA (around 94.75 levels). Move lower was due to risk-off sentiment and softer than expected market manufacturing PMI last Fri. Worries if Fed delays rate hike in Sep also contributed to weak USD sentiment. Markets are now only pricing in 34% probability of rate hike in Sep (vs. 36% post-FOMC Minutes release yesterday vs. 48% a day before FOMC minutes release).  That said USD remains better bid against EM but weak against G7 majors. DXY was last at 94.90 levels. Key support still at 94.70 levels (200 DMA) before 94.50 (trend-line support from May-Jun lows). Break below those support on daily close basis could see the pair heading towards 93.13 low (may lows). Daily momentum and stochastics continue to indicate a bearish bias. Week ahead brings Jul CFNAI; Fed’s Lockhart to speak (Mon); Jun house prices; Aug flash PMI, Richmond Fed Mfg index, consumer confidence; Jul new home sales (Tue); Jul durable goods orders; Fed’s Dudley answers questions (Wed); 2Q GDP; Jul pending home sales; Aug Kansas City Fed Mfg (Thu); Jul personal spending, PCE Core; Aug university of Michigan Sentiment (Fri). Jackson Hole Symposium takes place on Thu- Sat. 

      EUR/USD – Drifting Higher. EUR maintained its mojo, trading to a high of 1.1395 this morning off the back of risk aversion and slowing divergence between Fed and ECB. We had explained that EUR remains a “funding currency” play – risk off sees EUR higher while risk on sees EUR lower. The inverse relationship is expected to persist for as long as ECB is on unconventional monetary easing. Worries of Fed possibly delaying rate hike (implies monetary policy divergence between US and EU could take a breather) could help support the EUR further in the short-term. EUR was last at 1.1380 levels at time of writing.  Daily momentum and stochastic indicators are indicating a bullish bias. Next resistance at 1.1460 levels (previous double-top in May-Jun). Interim support at 1.1330 (200 DMA) before 1.1080 levels (21, 50, 100 DMAs). Week ahead brings GE 2Q GDP; ECB’s Constancio speaks (Tue); ECB’s Praet speaks (Wed); ECB’s Coeure speaks; FR Aug Business, manufacturing confidence; Euro-area Jul M3 (Thu); GE Aug CPI; FR Jul PPI (Fri).

      GBP/USD – Consolidate. GBP was largely stable relative to other G7 majors which saw bigger movements. Week ahead sees little key data except for CBI Aug reported sales (Wed); Aug nationwide house prices (Thu); 2Q GDP (Fri). BoE Carney is due to speak at Jackson Hole Symposium on Sat. Expect GBP to consolidate, with mild bias to the downside. Daily stochastics is showing early signs of falling from overbought areas. Next support at 1.5600-20 levels (21 and 50 DMAs). Interim resistance at 1.5740. 

      USD/JPY – Bearish Bias. As we highlighted last week, the USD/JPY has formed a double-top with the pair falling below the 122-handle. This came off the back of risk-off sentiments (China growth concerns, rising Korean peninsula tensions, etc.) that saw safe-haven plays. Pair is currently hovering around 121.77 with both momentum indicators and oscillators bearish bias. Further dips could see the pair move lower towards 120.75 (200DMA). This week brings Jun leading coincident index (Mon); Jul PPI services (Wed); Jul CPI, jobless rate, retail sales (Fri).

      AUD/USD – Choppy. AUD was sold off after China’s PMI-mfg came in at 47.1, a 6.5 year low so far and was still on the backfoot as we write this morning, last seen around 0.7260. This pair is dragged by AUDJPY which was rumoured to be sold by macro and hedge funds. Sluggish copper drags this currency. Next support for AUDUSD is seen around 0.7216 (year low). Daily MACD forest shows waning bullish momentum. Risk off continue to keep the pair on the backfoot and a clearance of the 0.72-figure exposes the next at 0.7140. 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 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. Data docket has 2Q CAPEX due on Thu. RBA Glenn Stevens’ speech on Wed will also be watched.

      USD/CAD – 11-Year High. USDCAD inched higher this morning, underpinned by the soggy oil prices. This pair was last seen around 1.3220, breaching the year-high of 1.3213. A close above this level could quash the double top set-up that we were looking for. Momentum indicators show mix signals though price action hints of bullish risks. Next barrier is seen around 1.3300 while support is firm at 1.2957.  Direction is still largely dictated by oil prices and dollar cues. The former factor is dominant now. There is no key data release this week.

      NZD/USD – Sell Rallies. Kiwi’s upside squeeze last Fri towards 0.6709 was reversed this morning. Decline this morning, tracked risk-off sentiment and AUD. NZD was last at 0.6615 levels (21 DMA) at time of writing. Daily stochastics is showing tentative signs of falling from overbought areas. Downside break of 0.6470 (previous low in 2015) on daily close basis sees next support at 0.64 level. We continue to favour selling rallies. 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 1.22% below the implied mid-point of 1.3956. We estimate the top end at 1.3673 and the floor at 1.4238.

      USD/SGD – Medium-Term Bullish Bias. USD/SGD is now above the 1.41-handle off the back of global risk aversion triggered by the RMB regime change. Medium-term bullish bias remains intact, but for the week ahead, some pull-back towards 1.3910 levels (21DMA) cannot be ruled out on overbought conditions and waning bullish daily momentum. We favour buying on dips. Interim resistance is 1.4212 (7 Jun 2010 high). Data out this week includes Jul CPI (Mon) and Jul Industrial Production (Wed). Jul CPI due this afternoon is expected to remain in negative territory for the ninth consecutive month with consensus expecting -0.2% y/y.

      AUD/SGD – Contained Within the Cloud. This cross tested the barrier around 1.0383 again before reversing lower to levels around 1.0260. AUD weakness drags this cross and next support is seen around 1.0200 (50-DMA) ahead of the next at 1.0160. This cross remains contained within the daily ichimoku cloud. The broader downtrend channel (since Sep 2014) remains intact. Channel resistance at 1.04 levels which coincides with the upper bound of the daily ichimoku cloud. Daily MACD shows waning bullish momentum.

      SGD/MYR – Bullish Momentum Still Intact. SGDMYR maintained its push higher towards another all-time high of 3.0015 levels this morning. Move higher was due to persistent weakness in Ringgit. Bullish momentum appears intact on the daily chart. Further upside into uncharted territories look set to continue. Next resistance at 3.00-psychological level.

      USD/MYR – Still Bullish Bias. USDMYR continues to run higher; day high so far at 4.2455. Oil price decline, rise in oil volatility and risk-off sentiment contributed to this up-move. Falling FX reserves does not help with sentiment either. On technicals, weekly momentum continues to point to further upside into uncharted territories.

      1s KRW NDF – Upside Risk Escalating. 1s KRW continued to push higher; intra-day high of 1200 printed. Escalating tension between North and South Korea, risk-off sentiment on risk assets look set to keep the pair supported. KTOP30 is down 0.86 % at time of writing. 1s KRW was last at 1198 levels. Upside risk remains. Day ahead sees 1190 – 1210 range; we do not rule out any attempts from authorities to smooth FX volatility and support the KRW. 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 steadied around 6.4540 this morning. Speculations of RRR cut did not materialize over the weekend and we expect the pair to remain steady above the support around 6.4040. USD/CNY was fixed 2 pips lower at 6.3862 (vs. previous 6.3864). CNYMYR was fixed 110 higher at 0.6580 (vs. previous 0.6470).  On the longer term, 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, a researcher at Chinese Academy of Social Science was cited saying that pension fund investment in China’s stock market could lower volatility in the stock indices. Another editorial on Economic Information Daily urged China to prevent a rapid rise in home prices in 1^st-tier cities.

      SGD/CNY – Bearish. SGD/CNY slipped towards 4.5200, weighed by the CNY strength. Barrier is still seen around 4.5698 (50-DMA). Support is seen around 4.5155(23.6% Fibonacci retracement of the Aug rally). Intra-day and daily MACD show waning upside pressure and risks are towards the downside. Next support is seen around 4.4671 (year low).

      USD/INR – Rate Aversion Spurs Rally. USD/INR hit a high of 65.9125, before closing around 65.833. Risks are still to the upside with barrier at 66.3270 watched closely. 1-month NDF is still supported this morning, last seen around 66.73. Rate cut speculations and risk aversion continue to support spot and NDF prices. MACD Forest also shows renewed bullish vigour. Indian equities were not spared from the global equity rout last week. Foreigners sold USD146.9mn worth of equities last Thu. The bond market gained favour in times of risk aversion with an increase of USD18.3mn foreign holdings seen on the same day. Over the weekend, Finance Minister Arun Jaitley told the local press that India could achieve 8% economic growth if there are no adverse global trends. In addition, the government may begin agricultural insurance and health plans for senior citizens. Agriculture may also have significant enhancement (BBG).

      USD/IDR – Bullish.  USD/IDR is again testing the 14000-handle as global risk-off continues to weigh on the IDR. Daily MACD continues to show bullish momentum, while stochastics is at overbought levels, suggesting the potential for a pull-back ahead. In the medium-term, pair remains pressured on the upside on the back of sluggish economic fundamentals (persistent current account deficit, stalled reforms etc.) amid concerns about US and Chinese growth concerns. Finance Minister Brodjonegoro commented that he expected the economy to grow by 5-5.2% in 2015 and inflation below 4.5%.  He also highlighted that the IDR’s movement has been driver by yuan moves, strong dollar and a ‘currency war’ and not in accordance with fundamentals. Watch for BI moves to smooth volatility. Further upside could see resistance around 14250 (10 Aug 1998 high), while any pull-back should find support around13880. Another new high was set when the JISDOR was fixed at 13895 on Fri from the previous high of 13838 on Thu. Continued deterioration in risk appetite saw foreign funds selling a net USD309.4mn in equities yesterday, and removed a net IDR2.69tn from their outstanding holding of government debt on 17-19 Aug (latest data available)..

      USD/PHP – Bullish. Onshore markets re-opened after closing for Ninoy Aquino Day holiday on Fri with the USD/PHP ticking higher towards the 47-figure on the back of deteriorating global risk appetite. Pair is currently seen around 46.790 with momentum indicators showing bullish bias and oscillators still at overbought levels. With pressure still on the upside, look for resistance around 47.080 (26 May 2010 high) and support around 46.440 (ichimoku conversion line). 1-month NDF broke above the 47-figure this morning with intraday MACD still showing bullish momentum, while stochastics remains at overbought levels. Continuing risk aversion saw foreign investors sell a net USD26.16mn in equities yesterday. The week ahead has Jun trade (Tue) and 2Q15 GDP (Thu).

      USD/THB – Bullish.  USD/THB continues its climb higher as the lingering impact of the bomb blast amid a sluggish economy, together with global risk-off, weighs on the THB. This was reflected in the sell-off in equities last week where foreign funds sold a net THB17.22bn, though they did continue to purchase a net THB0.29bn of government debt. Pair continues to make new multi-year highs, hitting 35.770 on Fri (21 Aug). Pair was last seen around 35.736 with daily MACD showing no strong momentum while stochastics is at overbought levels, suggesting that the potential for a pull-back ahead. For now, pressure remains on the upside and a test of the 36-figure could be possible this week. Any pull-back though could be shallow with 35.265 (21DMA) providing support. The week ahead brings Jul customs trade (Tue); and Jul Mfg production index, 21 Aug foreign reserves (Fri).

Rates

Malaysia

      Local government bonds remained under selling pressure, with the yield curve ending 3-9bps higher at the belly. Yield for 7y MGS 9/22 rose the most by 9bps as players continued to reduce risk ahead of foreign reserves data, which came in at USD94.5b, down by USD2.2b in the first 2 weeks of August.

      IRS market opened on panic paying as MGS got sold off and USDMYR surpassed the previous high of 4.15. Soon after, some receivers appeared when 5y IRS was at 4.17%. The 5y traded at 4.17-4.18% then 4.15-4.16%, 1y at 3.88% and 2y at 3.93% then 3.95%. We reiterate to receive IRS, preferring the 1y for a play on no interest rate hike and the 4y for carry and rolldown. 3M KLIBOR unchanged at 3.69%.

      PDS market saw trading pick up substantially, with mixed buying across the curve. Danga 16 was the most active, widening 9bps in early trading and closing 14bps wider with MYR335m done. 7-9y AAA names were sought after, but all were done at MTM levels. Short dated AA names were also highly sought after for yield play, while YTL papers at the belly traded in range. At the long end, Plus 31s were dealt at 5.01%. Nothing was dealt in the GG space.

Singapore

      SGS closed little changed. Yields mostly unchanged to lower by 1bp, except for the 2y SGS which rose 2bps likely due to higher short end funding. The 10y SGS closed at 2.58%.

      In the Asian credit space, liquidity remains thin and the selloff continued on INDONs and MALAYs, but there were some bottom fishers on INDON 25 and 45 before market closed. Bids were close to none and very defensive. Chinese HY property names traded about 1pt wider. Asian CDS market was gappy. MALAY 5y CDS gapped 10bps to 192/195 level and INDON 5y CDS went to a high of 248 before settling around 235/245.

Indonesia

      Indonesia bond market continued its decline on the note of aggressive selling by investors. However, Bank Indonesia and MoF was seen on the other end supporting the LCY bond market. While Bank Indonesia was seen conducting reserve auction, MoF did buybacks worth of Rp500 bn. This action had somehow avoided LCY bond market to slump even deeper. 5-yr, 15-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 8.537%, 8.839%, 9.123% and 9.166% while 2y yield shifts up to 7.926%. Trading volume at secondary market was seen heavy at government segments amounting Rp17,672 bn with FR0068 as the most tradable bond. FR0053 total trading volume amounting Rp3,651 bn with 93x transaction frequency and closed at 92.995 yielding 9.166%.

      Corporate bond trading traded heavy amounting Rp1,181 bn. BEXI01BCN3 (Shelf registration I Indonesia Eximbank Phase III Year 2013; B serial bond; Rating: idAAA) was the top actively traded corporate bond with total trading volume amounted Rp320 bn yielding 7.936%.