Maybank GM Daily - 26 Aug 2015

FX

Global

The big news of the night was PBOC’s easing measures, declared after Asian hours.  The central bank lowered required reserve ratio by 50bps to 17.5%. The benchmark lending rate and deposit rate were cut 25bps to 4.6% and 1.75% respectively. European stocks reversed out Mon losses and ended around 4% higher. That positive finish did little to inspire Wall Street which gave up its opening gains towards the last hour of trading. The DXY rebounded yesterday but was resisted by the 95-figure (at 200-DMA) and was last seen around 93.80. The world of the dollar has recently turned dichotomous. While majors weakened against the greenback, most Asian currencies had a much better session with the MYR as a rare star performer with 1.1% gains against the greenback, followed by TWD and INR.  That said, USDMYR has rebounded this morning to around 4.29.

      Eyes will be on the yuan fixing today after USDCNY was fixed more than 100 pips higher yesterday. Chinese equities will be watched any signs of a relief rally post double cut. Week ahead for Asia, focus on SG Jul IP (Wed); Ph 2Q GDP (Thu); China Jul industrial profits (Fri). Beyond Asian hours, US durable goods order will be eyed today. Consensus expects a mild contraction for the headline in Jul. Early starters Nikkei opened flat.

Monetary policy divergence is still a driver in the FX space given the latest PBOC action. In the short term, this divergence could be dialled back as markets pared Fed lift-off expectations. Market implied probability of a Sep rate hike has now fallen to 28%, from 48% before the minutes release last week. What we can be sure of is volatility in the markets with VIX spiking to around 40, approaching 2011 levels. That could be a sign that the sell-off in equities is not quite done yet.

Currencies

      DXY – Bearish Bias. Dollar index eased into close, tracking US equities which slumped in the final hour of trading despite being in positive territories for most of the overnight session. US data – new home sales and Richmond Fed disappointed while consumer confidence data was better than expected. Worries of China’s growth concerns, Chinese equity fall-out and if Fed will delay rate hike, given recent escalated market volatility and recent dovish FOMC minutes  in Sep continue to weigh on risk sentiment and on the USD. We continue to observe that USD is in 2 different worlds – firm against AXJs and commodity-linked currencies but soft against safe-haven flows.  DXY was last at 93.90 levels. Daily momentum continues to indicate a bearish bias but stochastics at oversold levels (yet to show tentative signs of turning). Resistance still at 94.75 (200 DMA); support still at 93.13 (May low). Key focus tonight on Jul durable goods orders; Fed’s Dudley answers questions (Wed). Week remaining brings 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 – Supported above the 200 DMA. EUR was initially soft during London/NY session; trading as low as 1.1397 tracking the rally in risk assets thanks to China rate cuts (which helped to support sentiment). But losses were partially reversed back above the 1.15-handle as US equities slumped into the NY close overnight. Risk sentiment remains a key driver in EUR.  We had explained that EUR remains a “funding currency” play – risk off sees EUR higher while risk on sees EUR lower. Worries of Fed possibly delaying rate hike (implies slowing monetary policy divergence between US and EU) could help support the EUR further in the short-term. This week sees a handful of ECB speaks; EUR strength may not be what the ECB officials are after. We are cautious of ECB jawboning should there be excessive price action to the upside. EUR was last at 1.1520 levels this morning.  Monthly, weekly, daily momentum indicators are all indicating a bullish bias. Next resistance at 1.1810 levels (38.2% fibo of 2014 high to 2015 low), before 1.2220 (50% fibo and 200MMA). Interim support at 1.1330 (200 DMA). Week ahead brings 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’s initial strength towards 1.5819 high was thwarted after China cut interest rate after Asia market close. GBP then reversed strength to trade below 1.57-handle.  GBP was last at 1.5690. Next ssupport at 1.5630 levels (21 and 50 DMAs). Rresistance at 1.5790 (76.4%  fibo of Jun high to Jul low), before 1.5930 (year high) .  Expect GBP to consolidate, in absence of key data. 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.

      USD/JPY – Two-Way Trades. The USD/JPY climbed back above the 120-handle on the back of China rate cut was brief as China growth concerns resurfaced overnight. Pair is now hovering just slightly above the 119-handle at 119.10 currently with intraday MACD showing no strong momentum, though stochastics is now at overbought levels. Trades are likely to remain choppy as markets digest the events of the past few sessions. Rebounds should meet resistance around 119.88 (38.2% Fibo retracement of the May-Aug downswing); 120.40 (25 Aug high). Dips should still find support around 117.30.

      AUD/USD – Choppy. AUD slid well past the 0.72-figure and was last seen around 0.7130 this morning, awaiting the rest of Asia to open as we write. Momentum is turning bearish now with daily MACD under the zero line. Next support is seen around 0.7030. Increasing concerns over the Chinese economy continue to drag this pair. Expect this pair to remain heavy with sales from offshore funds rumoured. 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. Further downside beyond 0.70 is not ruled out. Data docket has 2Q CAPEX due on Thu. RBA Glenn Steven spoke this morning and he was concerned that potential growth for Australia may be a tad lower than expected. We continue to expect RBA to keep cash target rate at 2.00% but his concerns on growth will weigh on the AUD.

      USD/CAD – 11-Year High. USDCAD extended upside above the 1.33-figure, underpinned by the dollar strength. Next key barrier at 1.3430 is exposed. This pair was last seen around 1.3340. Any retracement could meet support around 1.3213.  Momentum indicators show bullish risks. There is no key data release this week. BOC Deputy Governor Schembri said that recent restrictions on housing market seemed to have contained risks in the financial systems.

      NZD/USD – Sell Rallies. NZD remained slightly soft, below the 0.65-handle. Trade deficit (released this morning) widened on stronger imports.  We continue to 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). Daily momentum and stochastics are indicating early signs of bearish bias; remain better seller on rally.

Asia ex Japan Currencies

      The SGD NEER trades 0.85% below the implied mid-point of 1.3956. The top end is estimated at 1.3674 and the floor at 1.4237.

      USD/SGD – Consolidating Higher. USD/SGD plunged below the 1.40-handle yesterday following the Chinese moves to cut its RRR and interest rates. Since then, pair has rebounded on the back of renewed concerns over Chinese growth prospects, seen currently around 1.40775. Both momentum indicators and oscillators are showing no strong bias in either direction for now, suggesting that some consolidation could be in the making ahead. Look for the pair to hover within 1.3950 (21DMA) - 1.4169 (24 Aug high) intraday. On tap today is industrial production for Jul; market is expecting a further dip of 4.0% y/y from Jun’s -4.4%. Surprises in either direction could see the pair move closer to the either end of our trading range today.

      AUD/SGD – Downside Bias This cross is seen at parity again and we eye strong support around 0.9922. A failure to clear that level could mean a double bottom for this cross. Risks at this moment are still to the downside with daily and intra-day momentum pointing to further downside. 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. Barrier is seen around 1.0150 and any further upticks could meet 50-DMA at 1.0194.

      SGD/MYR – Still in Uncharted Territories. SGDMYR maintained its push higher towards another all-time high of 3.0563 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.

      USD/MYR – Still Bullish Bias. USDMYR continues to run higher; day high so far at 4.2995; last at 4.2750. Move higher continues to track the rise in oil volatility and risk-off sentiment. Its status as a commodity-linked currency also weigh on the Ringgit. On technicals, weekly momentum continues to point to further upside into uncharted territories. That said we continue to reiterate that MYR at these levels is not a reflection of fundamentals and that the weakness is expected to be temporary. Malaysia’s economic fundamentals remain intact. 2015 growth is still expected to come in at 4.9%; current account to GDP remains in surplus.

      1s KRW NDF – Buy on Dips. China’s move to cut rates after Asia close overnight supported risk sentiment and saw the pair trade lower towards 1180 levels. But price action soon reversed into NY close tracking the turn in risk sentiment (which saw US equities reversing gains to close more than 1% down). 1s  KRW was last at 1192 levels, still tracking risk sentiment.  Upside risk remains as equity market sentiment remains jittery. Day ahead sees 1188 – 1200 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 slipped towards the 6.49-figure this morning, hardly rattled by the interest rate and RRR cut. Pair was was on the upmove yesterday and took a peek above the 6.50-figure before easing below the figure. Support is seen around 6.4740. USD/CNY was fixed 56 pips higher at 6.4043 (vs. previous 6.3987). CNYMYR was fixed 21 lower at 0.6600 (vs. previous 0.6621). PBOC lowered required reserve ratio by 50bps, the third time this year to 17.5%. The benchmark lending rate and deposit rate were cut 25bps to 4.6% and 1.75% respectively. This comes exactly two weeks after the central bank changed its fixing regime that resulted in an almost 2% devaluation in the yuan. The shift in the regime spurred expectations of yuan depreciation. Capital outflows has increased, prompting more liquidity injections via open market operations and MLF and the latest move has always been a matter of when not if.  On the longer term, 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 its gap to the USDCNH from 900+pips to 800+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 said the interest rate and RRR cut do not mean a change in China’s prudent monetary policy. It is meant to support appropriate money and credit growth.

      SGD/CNY – Capped By the Cloud. SGD/CNY was bid to a high of 4.5988 before easing back under the 50-DMA around 4.5620. Expect more choppy trades within the range 4.5210-4.6000. Intra-day and daily MACD still show renewed upside pressure. Immediate support is seen around 4.5367(50hma).

      USD/INR – Shallow dips. USD/INR retraced from initial high of 66.765 to close lower at 66.0963. Momentum indicators continue to point to upside risks although price action seems to suggest some sign of reversal. 1-month NDF also ended lower and was last seen around 66.85. MACD forest shows waning bullish momentum. In so far, rate cut speculations and risk aversion has been supporting spot and NDF prices. Indian equities were sold by foreigners with sale of USD773.2mn equities seen on Mon. Foreigners also reduced their bond holdings by USD4.7mn on the same day. Expect some Asian jitters to continue to support the USDINR on dips. Support is seen around 65.66. Topside seems capped for now at around 67-figure.

      USD/IDR – Bullish Bias.  USD/IDR climbed to an intraday high of 14110 this morning to a level not since Aug 1998 as it plays catch up with its regional peers and on renewed China growth concerns.  Pair has come off slightly to hover around 14100 with intraday MACD still showing bullish momentum, though stochastics remains at overbought levels. Upside pressured remains on the back of sluggish economic fundamentals (persistent current account deficit, stalled reforms etc.) amid concerns about Chinese growth concerns. Given the current environment, the BI has revised its growth target to 4.7-5.1% and 5.3-5.7% in 2015 and 2016 respectively. The sell-off in global equities engulfed Indonesian equities as well with foreign funds selling a net USD49.47mn yesterday; and they added a net IDR3.80tn to their outstanding holding of government debt on 21 Aug (latest data available). A further sell-off in Indonesian assets could keep the pair supported above the 14000-handle. With pressure still to the upside, look for the pair to retest its recent high of 14110 but with further upside capped at 14150 for now. Any dips should find support around 14000. 1-month NDF is climbing higher at 14350 this morning with both intraday MACD and stochastics showing little bias in either direction. The JISDOR was set for the first time above the 14000-figure when it was fixed at 14067 yesterday – a new record high fixing.

      USD/PHP – Two-Way Moves.  USD/PHP is back on the climb this morning as it play catch-up with its regional peers amid renewed concerns that the Chinese easing moves were insufficient. Pair is currently seen around 46.685 with intraday MACD showing no strong momentum, and stochastics still falling from overbought levels, suggesting upside moves could be capped. Price action today should remain capped around 46.900 with 46.500 supportive. 1-month NDF is inching closer to the 47-figure, currently hovering around 46.88, with intraday MACD showing bearish momentum. Global risk aversion again led foreign investors to sell a net USD58.85mn in equities yesterday and continued selling today be supportive of the pair. In the news, BSP governor reiterated that the PHP will remain market-determined and any intervention by the central bank is to smooth out volatility.

      USD/THB – Edging Higher.  USD/THB saw volatile swings this morning with the pair now headed higher towards 35.700-handle. Renewed growth concerns over China and the lingering impact of the bomb blasts amid sluggish economic growth is again supportive of the pair. Pair is currently hovering around 35.688 with both intraday MACD and stochastics showing tentative signs of bullish bias. Further upmoves should remain capped by the 36-figure, while any dips should see support around 35.050. Global risk aversion again weighed on Thai assets with foreign funds selling a net THB3.31bn and THB5.32bn in equities and government debt yesterday, and further selling could put upside pressure on the pair. In the news, BoT governor said yesterday that the central bank has tools to handle baht volatility, even as the floating exchange rate regime, high foreign reserves and low foreign debt cushions. He also did not expect the recent Thai stoch rout to have an immediate impact on the real economy though investor confidence has been hurt.

Rates

Malaysia

      MGS saw better buying interest with the 7y benchmark MGS 9/22 ending 6bps lower from yesterday. Issue size on the reopening of MGS 9/25 came in within expectation at MYR3b. WI saw strong bid around the 4.40% range as players see the end of selling for this series. The additional view that most of the current outstanding for the MGS 9/25 sitting in end-investor accounts strengthens the conviction that this auction will invite very keen interest.

      In the IRS market, 5y traded at 4.22%. Things calmed down a little with higher MGS prices and lower USDMYR. IRS were quoted and traded lower. Basis kept quoting wider but no trades were reported. 3M KLIBOR was unchanged at 3.70%.

      The PDS market was quiet but we saw a return in trading for GGs. 9y Dana 4/24s traded away at MTM level of 4.53% with decent volume. Prasa 20s traded at 4.22%. Some keen interest was noted for longer-dated AA names and short-dated high grade papers. The papers exchanged hands at MTM levels. With the new MGS WI seeing strong bids today and the tightening of the 7y benchmark, we may see the return of risk appetite and better PDS levels.

Singapore

      SGS market saw yields rising 1-3bps tracking the higher UST curve which shifted up after global risk-off sentiment tapers off with global equity indices recovering losses. 3M SIBOR stood steady at 1.000%.

      The Asian credit market took a breather with Asian CDSs traded tighter mostly. Malay and Thai 5y traded 12bps tighter. With Hang Seng and S&P rebounded, demands are back on the IG names like AMC and tech names. HY names like Cogard traded better with buyers seen bottom fishing the paper. Indon and Philips traded about 0.25-0.50pts higher. Overall market is still skewed to the selling side. One thing to note though, the panic selling has reduced significantly compared to the past few days. Funding in the CNH space improved with rumours of HKMA said to have injected CNH liquidity. This should provide some relief to the CNH bondholders.

Indonesia

      After a significant drop of LCY bond prices during the first day of the week, prices seem to be rather stable and closed higher on yesterday trading. The reason for this was a relatively decent demand during the sukuk auction as well as at the secondary market which were dominated by local investors. 5-yr, 15-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 8.604%, 8.860%, 9.171% and 9.281% while 2y yield shifts up to 8.133%. Trading volume at secondary market was seen moderate at government segments amounting Rp12,504 bn with FR0070 as the most tradable bond. FR0070 total trading volume amounting Rp2,422 bn with 74x transaction frequency and closed at 97.125 yielding 8.860%.

      Indonesian government conducted their sukuk auctions yesterday and received incoming bids of Rp6.31 tn bids versus its target issuance of Rp2.50 tn or oversubscribed by 2.5x. However, DMO only awarded Rp2.50 tn bids for its 5mo, 8mo, 2.5y and 5y bonds. Incoming bids were mostly clustered on the front end tenors. 5mo SPN-S was sold at a weighted average yield (WAY) of 6.74902%, 8mo PBS008 at 7.34647%, 2.5y PBS009 at 8.23120% while 5y PBS006 was sold at 8.76352%. No bids were rejected during the auction. Bid-to-cover ratio during the auction came in at 1.19X – 3.80X. Till the date of this report, Indonesian government has raised approx. Rp51.02 tn worth of debt through bond auction which represents 81.0% of the 3Q 15 target of Rp63.00 tn.

      Corporate bond trading traded heavy amounting Rp1,739 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 Rp430 bn yielding 8.729%.