Maybank GM Daily - 27 Aug 2015

FX

Global

Overnight, Fed William Dudley commented that an interest rate increase in Sep is “looking increasingly in doubt”. Equity investors might have taken heart as Wall Street continued its yo-yo with another 4% rise overnight. Data was also supportive with a stronger-than-expected US durable goods order at 2.0%y/y. Excluding military component, the print was an even stronger 2.2%y/y. That lifted the greenback above the 95-figure. Among the majors, only the CAD managed to eke out a 0.3% gain against the USD. Asian currencies were a mixed bag yesterday against the USD. KRW and CNH appreciated while MYR traded on the backfoot, along with most other Asian currencies. This morning, better risk sentiments lift the SGD and MYR, up +0.5% and 0.3% respectively.

      Week ahead for Asia, focus on PH 2Q GDP (Thu); China Jul industrial profits (Fri). Beyond Asian hours, US 2Q GDP will be released. It is ECB Coeure’s turn to speak. Executive Board member Praet warned last night that the central bank will increase QE if necessary. That brought the EUR back towards the 200-DMA, last seen around 1.1340. There could be more jawboning from Coeure to temper recent EUR’s strength. Watch Jackson Hole Symposium. Monetary policy divergence is still a driver in the FX space ahead of a possible rate hike from the Fed in Sep. This divergence has been dialled back recently as markets pared Fed lift-off expectations but all bets are not off the table. Market implied probability of a Sep rate hike has now fallen to 24%, from 48% before the minutes release last week. What we can be sure of is volatility in the markets with VIX still around 30. A plausible rate hike is still negative for equities and uncertainty of the event could mean more swings ahead.

Currencies

      DXY – Consolidate. Dollar index firmed following much-better than expected core and headline durable goods orders, which helped risk sentiment. US equities rose near 4%. Overnight comments from Fed’s Dudley capped USD strength.  He said “ the decision to begin normalisation at Sep meeting seems less compelling that it was a few weeks ago”. DXY was last at 95.15; back above the 200 DMA (at 94.80). Daily stochastics is now showing signs of turning higher from oversold levels while bearish momentum appears to be waning. Taken together, this could suggest some mild upside bias. Support at 94.80 (200 DMA), before 93.13 (May low). Resistance at 96 (100 DMA). Sentiment remains fickle; we continue to watch equity markets for cues. Our house view for a 25bps rate hike in Sep remains. There is a high likelihood of a dovish-biased statement and quarterly projection, in attempt to remind markets that monetary conditions remain accommodative and that the pace of tightening will be very, very gradual. And Fed remains data-dependent. While we acknowledged that cross-asset volatility has risen and markets appear to trade as if its another crisis - AFC 1997-98 or GFC 2008, but question is was there any fundamental shift in economic growth? Is an economic recession or depression forthcoming? Or was the heightened volatility due to uncertainty/panicky behaviour ahead of possible central bank move? To be sure, US fundamentals remain intact. True there is no stellar growth but neither is there sign of growth deceleration. Some blamed China for the mess but was a deceleration in Chinese growth something new and alarming? We believed China’s move to adjust Renminbi via the midpoint a fortnight ago was part of a broader stimulus package to alleviate growth concerns and a step closer towards markets reform. In doing these adjustment, the objective of Chinese policymakers is to pursue market-based reforms and sustainable growth. Adjustments and reforms come with economic pains in the short term. And these do not constitute to a crisis. At best these are short term fear or noise, and represent no fundamental shift in economic growth. As such some rationality and market confidence should be restored when US policy makers clarify in greater detail. Jackson Hole symposium (Thu – Sat_ could be the first avenue to do so before Fed meets in Sep. 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 – Consolidate. EUR was softer overnight, inversely tracking risk sentiment and ECB Praet’s comments.  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. ECB’s Praet yesterday said there “should be no doubt ECB will act if needed”; “downside risks to ECB’s inflation goal have risen, as a result of recent development in world economy and commodity markets”. EUR was last at 1.1340 levels this morning.  Bullish momentum and stochastics indicators on the daily chart are showing some early signs of waning. Interim support at 1.1310 (200 DMA), before 1.1130 (21 DMA). Resistance at 1.16 levels before 1.1810 levels (38.2% fibo of 2014 high to 2015 low), before 1.2220 (50% fibo and 200MMA). Week remaining brings ECB’s Coeure speaks; FR Aug Business, manufacturing confidence; Euro-area Jul M3 (Thu); GE Aug CPI; FR Jul PPI (Fri).

      GBP/USD – Mild Downside Bias. GBP took a turn and head  lower towards 1.5453 overnight amid broad USD strength.  GBP was last at 1.5480 levels. Next support at 1.5470 levels (100 DMA), before 1.5370 (200 DMA). Resistance at 1.5610 ( 21 and 50 DMAs). Expect GBP to consolidate with mild downside bias. Week remaining brings  Aug nationwide house prices (Thu); 2Q GDP (Fri). BoE Carney is due to speak at Jackson Hole Symposium on Sat.

      USD/JPY – Supported. The USD/JPY rebounded overnight as risk aversion waned, touching a intraday high of 120.37 this morning. Pair though has slipped back below the 120-handle, possibly on comments by BOJ governor Kuroda in New York that there are no plans for now for further easing as the BOJ board continues to believe that the 2% inflation target would be achieved with the current QQE. He however added the caveat that if necessary, the BOJ would “certainly make necessary adjustment of QQE”. Pair is currently seen around 119.86 with both momentum indicators and oscillators showing bullish bias, suggesting that downside could be limited and we could see two way trades ahead. Dips should be limited around 118.30 today. Rebounds could see the pair headed back towards 120.40 (25 Aug high) before the next object at 121.00.

      AUD/USD – Choppy. AUD was last seen around 0.7120 with support seen around 0.7030. Momentum is bearish now with daily MACD under the zero line. Concerns over the Chinese economy and concomitant impacts on key commodity prices such as copper and iron continue to drag this pair. Expect this pair to remain heavy. 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 today with consensus expecting another -2.5% slide for 2Q.

      USD/CAD – Supported. USDCAD slipped overnight and remained just below the 1.33-figure, weighed by the bounce in oil prices. Next key barrier at 1.3430 to cap now.  Trend is still up though intra-day chart shows little momentum. Sluggish oil prices still dictate the direction on the currency along with potential QE from the government. Further retracement could meet support around 1.3213.  There is no key data release this week. PM Harper expressed confidence in the monetary policy of the BOC and refrained from comments on the CAD.

      NZD/USD –  Sell Rallies. NZD remained soft, below the 0.65-handle. Last seen at 0.6450 levels.  Daily momentum and stochastics are indicating mild bearish bias; remain better seller on rally. 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).

Asia ex Japan Currencies

      The SGD NEER trades 0.39% below the implied mid-point of 1.3962. We estimate the top end at 1.3681 and the floor at 1.4242.

      USD/SGD – Consolidating Lower. USD/SGD is on the retreat towards the 1.40-handle this morning after climbing to an overnight high of 1.4083. Currently hovering around 1.4022, risks are to the downside as indicated by intraday MACD, though stochastics is bullish bias. This suggests that further downmoves could be limited. Further downticks today could push the pair deeper into the intraday ichimoku cloud and we could see consolidation then. Look for support around 1.3980 (lower bound of the ichimoku cloud). Any rebound could see the pair re-test the overnight high of 1.4083. Industrial production for Jul fell by 6.1% y/y compared to market’s estimate of 4.0% and Jun’s -4.0%. This was the sixth consecutive decline so far this year. With manufacturing a negative on the economy, our economic team has revised down our 2015 full-year growth forecast to 2.2% from 2.5% previously, still within the government’s forecast of 2.0-2.5%..

      AUD/SGD – Relief? This cross waffled around parity for much of yesterday and was last seen at 0.9997. A failure to clear the 0.9922-support could mean a double bottom for this cross. Risks at this moment are still to the downside with daily momentum pointing south. We caution that intra-day chart shows waning bearish momentum after a pretty directionless day yesterday. Barrier is seen around 1.0150 and any further upticks could meet 50-DMA at 1.0194.

      SGD/MYR – Upside risks remain. SGDMYR eased slightly from all-time highs of 3.0563 levels (printed on Bloomberg yesterday). Cross was last at 3.0180 levels this morning tracking mild Ringgit strength. Daily momentum remains intact but stochastics is showing very tentative signs of turning from overbought levels. Remains too soon to call a top yet. Will continue to watch price action.

      USD/MYR – Consolidate. USDMYR eased from all-time high of 4.2995.  Last seen at 4.2310 levels this morning, tracking risk sentiment. 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. On technicals, weekly momentum continues to point to further upside into uncharted territories but daily and weekly stochastics are somewhat suggesting early signs of fatigue. We continue to watch price action to see if an interim top has been formed.

      1s KRW NDF – Buy on Dips. 1s  KRW was last at 1187 levels (vs. overnight high of 1197). Move lower was due to slightly improved risk sentiment.  We caution that upside risk remains as equity market sentiment remains fickle. Day ahead sees 1180 – 1195 range; daily stochastics is showing tentative sign of falling from overbought areas. 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/CNH – Dips Will Be Shallow. USD/CNH edged lower this morning, last seen around 6.4890. Prospects of further yuan depreciation dim after Premier Li assured that there is no basis for further yuan depreciation. Support is seen around 6.4740. USD/CNY was fixed 42 pips higher at 6.4085 (vs. previous 6. 4043). CNYMYR was fixed -67 lower at 0.6533 (vs. previous 0.6600). PBOC conducted a 6-day short-term liquidity operation yesterday, injecting a total of CNY140bn of liquidity. This morning, the central bank injected another CNY150bn yuan with 7-day reverse repo. We expect some calm to return to the equity markets amid assurance from the authorities of liquidity in the markets. Shanghai Comp closed 1.3% lower despite the double cut.  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 maintained gap to onshore prices at 800+pips. Expect depreciation pressure on the yuan to sustain this gap. Expect the pair to see further upside pressure in the medium term. 

      SGD/CNY – Capped By the Cloud. SGD/CNY was bid to a high of 4.5858 before easing back to levels around 4.5680. This cross is now above 50-DMA. Expect more choppy trades within the range 4.5210-4.6000. Intra-day and daily MACD show renewed upside pressure. Immediate support is seen around 4.5367(50hma).

      USD/INR – Shallow dips. USD/INR opened a tad higher before easing to close at 66.1438. Price action seems to suggest some sign of reversal and MACD forest indicate waning bullish conditions. 1-month NDF is on the uptick around 66.55, underpinned by the conversion line around 66.52. 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 USD298.7mn equities seen on Tue while foreign bond holdings rose USD52.8mn on the same day. Expect calm in the Asian markets to nudge the pair towards the 65.70-support. Topside seems capped for now at around 67-figure. At home, PM Modi urged completion of key infrastructure projects. Elsewhere, in an interview with BBC, RBI Rajan warned about fragilities that have built up though global economy is not on the verge of financial crisis.

      USD/IDR – Limited Downside.  USD/IDR is on the slide towards the 14000-handle this morning after rallying to a high of 14195 yesterday, playing catch up to its regional peers. Still further downmoves appear limited for now given that risks remain to the upside as indicated by intraday MACD. Moreover, upside pressured remains on the back of sluggish economic fundamentals (persistent current account deficit, stalled reforms etc.) amid concerns about Chinese growth concerns. With dollar now on a firmer footing, further downside should remain limited with 14040 (ichimoku conversion line) providing support. Any rebound should be capped at 14200. 1-month NDF is easing off this morning but remains above the 14000-figure at 14260 with both intraday MACD and stochastics showing bearish bias. The JISDOR fixed at a record high of 14102 yesterday from Tue’s 14067. The sell-off in Indonesian assets continued with foreign funds selling a net USD37.48 of equities yesterday; and they removed a net IDR2.42tn from their outstanding holding of government debt on 24 Aug (latest data available).

      USD/PHP – Mild Bearish Bias.  USD/PHP is edging lower this morning to around 46.660, playing catch-up with its regional peers and ahead of 2Q15 GDP release later this morning. Intraday MACD is now showing mild bearish momentum, and stochastics continues to fall from overbought levels, suggesting a slow grind lower is likely. Intraday range of 46.340-46.900 should hold. 1-month NDF continues to inch lower at 46.770 with intraday MACD still showing bearish momentum. Global risk aversion yesterday led foreign investors to sell a net USD76.57mn in equities with continued selling today supportive of the pair. On tap later this morning Market is expecting 2Q15 GDP to rise by 5.7% y/y vs.1Q’s downwardly revised 5.0%. Disappointment on this front could see the pair remain elevated ahead.

      USD/THB – Limited Downside.  USD/THB is back on the slide this morning after touching an overnight high of 35.706, weighed by dollar weakness. Last seen around 35.609, pair has lost most of its bearish momentum and stochastics is still bullish bias, suggesting that the move lower could be temporary. Continued concerns about domestic growth, amid China growth concerns and the lingering impact of the bomb blasts amid should remain supportive of the pair. Support is seen around 35.510 (upper bound of the intraday ichimoku cloud that is forming below price action), while barrier is around 35.785. Foreign funds continued to sell-off Thai assets on risk aversion, selling a net THB4.44bn and THB2.90bn in equities and government debt.

Rates

Malaysia

      Government bonds saw selling pressure at the belly in the morning as China’s rate cut led to weaker MYR against USD. The 10y MGS 9/25 rose 6bps, with keen buyers seen at 4.45%. All eyes are on today’s reopening auction for the 10y benchmark.

      IRS quoted and traded higher steadily until things calmed down towards the end of the day and more keen IRS receivers appeared. The 1y was dealt at 4.02-4.05%, 3y at 4.15%, 4y at 4.18%, and 5y at 4.30% then lower at 4.28%. Basis continued to be quoted wider but no trades were done. 3M KLIBOR remained at 3.70%.

      PDS market was pretty much muted. Short dated high quality papers were picked up; Danga 16s widened 3bps with MYR45m traded. At the belly, MACB 22s traded 1bp tighter at 4.58%. Long dated AA names were also sought after. TBEI 15-17y papers generally traded in range, while SEB 29s traded 3bps tighter due to strong bids. The GG and AAA spaces have seen a lack of activity due to narrowing credit spreads but given the lack of supply year-to-date, we may see a return in buying interest if benchmark yields see a correction.

Singapore

      SGS got sold off massively towards the end of day and yields ended 5-6bps higher from the 5y SGS onwards. SGD IRS curve also moved higher, up by 3-7bps.

      China’s rate cuts failed to revive the weak Asian credit space. Liquidity remained thin as China equity market’s performance continue to sideline most investors. Sovereigns mostly unchanged to 0.50pts lower, with small volumes. The IG space widened 5-10bps with bids remaining defensive. Some bottom fishing seen on property names Vanke, Cogard, and Evergrande. Indian names remained firm, trading flat to higher.

Indonesia

      Indonesia bond market closed with a slight loss. Bond market across the Asia region was seen booking losses as well. Pressure to the LCY bond market occurs mainly from concern of China economy growth while domestic currency depreciation was seen just slightly adding the pressure. Price volatility was relatively tight and was seen moving sideways during the day. 5-yr, 15-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 8.628%, 8.9300%, 9.176% and 9.278% while 2y yield shifts down to 8.097%. Trading volume at secondary market was seen moderate at government segments amounting Rp13,470 bn with FR0070 as the most tradable bond. FR0070 total trading volume amounting Rp2,469 bn with 75x transaction frequency and closed at 96.720 yielding 8.930%.

      Corporate bond trading traded heavy amounting Rp1,908 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 Rp870 bn yielding 8.237%.