Maybank GM Daily - 3 Aug 2015

FX

Global

      US equities ended Fri overnight session slightly weaker as earnings from Exxon and Chevron disappointed. European equities were modestly firmer. US Treasuries rallied across the curve, with 10Y yield at 2.19% this morning. Commodity prices, led by oil and copper were broadly weaker. CRB index is down to fresh 12-year lows. On FX, monetary tightening-bias currencies - USD and GBP continued to firm across most currencies. Commodity-bloc currencies AUD, NZD, CAD are back to lows of the year. AXJs, in particular IDR, TWD, MYR remain weak against the USD overnight. 

      Over the weekend, China Jul NBS manufacturing PMI came in softer than expected (50 vs. Cons. 50.1). The moderation was dragged lower by new orders and production sub-indexes. Non-manufacturing PMI increased slightly from prior print (53.9 vs. 53.8 in Jun), due to improvement in service sector. This morning, Jul Caixin (formerly HSBC) manufacturing PMI came is weaker than expected (47.8 vs. Cons. 48.3). Moderation in PMIs continues to suggest that easing bias remains necessary. This is also consistent with the recent scheduled China Politburo meeting (chaired by President), which puts strong emphasis to maintain employment, supply sufficient liquidity to real economy and prevent financial risks.

      Week ahead the focus is on central bank meetings – RBA and RBI (Tue), BoT (Wed), BoE (Thu). We expect all central banks to hold. There is a slight bias for BoT to cut this week to support growth. There is also a handful of PMI releases out of Europe, US today.  Data heavy day ahead for US- Jul mfg PMI, ISM Mfg, Jun PCE core, Jun Personal spending/Income. On FX, we remain better buyers of USD on dips against AXJs. Mindful of commodity currencies shorts-squeeze; favour fading strength. Any US-data disappointment today could see USD on the dips.

Currencies

      DXY – Buy on Dips. USD initially fell in NY open Fri off the back of weak Jul sentiment and 2Q employment cost data, but reversed most losses on better than expected Chicago PMI and Fed’s Bullard’s comments that he was open for a Sep move. DXY was last at 97.33 levels this morning; daily/ 4-hourly stochastics are indicating some upside. Data heavy day ahead for US- Jul mfg PMI, ISM Mfg, Jun PCE core, Jun Personal spending/Income. Disappointment could see some USD pullback intra-day.  Remain better buyers on dips. Next target on the topside at 98.15 (previous high in Jul); support at 97 (21 DMA) before 96.450 (100 DMA).

      EUR/USD – Consolidation Phase. EUR rose to an intra-day high of 1.1114 (Fri) on better than expected Jul core CPI amid broad USD weakness but reversed fortunes to close 1.0984. EUR was last at 1.0976 levels this morning. Expect EUR to consolidate in the range of 1.0860 – 1.1090 (50 DMA) until it breaks out of this consolidation phase. Daily stochastics is mild bearish bias. Day ahead brings Jul mfg PMI from Euro-area, Spain, France, Italy.

      GBP/USD – Downside Risks. GBP closed firmer above the 1.56-handle overnight. GBPUSD was around 1.5620 levels at time of writing.  Medium term, we remain positive in UK outlook and still favor buying GBP on dips amid ongoing economic recovery setting the stage for BoE to hike possibly as soon as 1Q 2016 (our base line view which is earlier than market expectation in 2Q). But near-term, many positives appear to have been priced in and that exposes GBP to the downside. There needs to be further impetus for follow-through moves higher. Jul PMI on tap later; data disappointment could see some vulnerability on the downside. Key support at 1.5550 (21 and 50 DMAs), if broken can re-visit 1.54 levels (200 DMA). Resistance at 1.5690 (Wed high). Daily stochastics and MACD are not indicating a clear bias at this point. BoE meets Thu.

      USD/JPY – Range-Bound. The USD/JPY tested our weekly resistance at 124.50 briefly last week before heading back below the 124-handle Pair is back above the 124-handle to start the week, likely on the back of a sell-off in the JPY against the EUR, GBP and AUD. Lacking fresh impetus for most of the week, market is likely to remain cautious ahead of the US NFP print on Fri. While BOJ meets on Fri, it is likely a non-event given BOJ Governor Kuroda’s recent reiteration that there was no immediate need for additional monetary easing though the central bank stood ready to adjust policy if the need arises. Both momentum indicators and oscillators are showing no strong bias in either direction, suggesting that range-trading ahead is likely. Range of 123.15-125.00 is expected. Our long standing view remains for a BOJ move in Oct 2015; remain better buyers on dips. Week ahead is relatively quiet except for Jul cash earning (Tue); and BOJ Policy Meeting Statement/Kuroda press conference (Fri)

      AUD/USD – Lean against Strength. AUD continues to trade near 6-year lows below 0.73-handle. Looking on the 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. But near-term, a technical bounce towards 0.7380 (21 DMA), 0.7470 (23.6% fibonacci retracement of May high to Jul low), 0.7550 (50 DMA) cannot be ruled out. Daily MACD and stochastics are showing tentative signs of rising from oversold levels amid early signs of short-term bullish divergence. Remain better sellers on rallies.  RBA meets tomorrow.

      USD/CAD – Buy on Dips. USDCAD continues to push higher, off the back of weak GDP, USD strength and oil price weakness. Last sighted around 1.3118. Remain better buyers on dips; next support at 1.3050/60 levels, before 1.2910 (21 DMA). 4-hourly momentum/stochastics are mild bullish bias. No data for release today.

      NZD/USD – Sell on Rallies. NZD remains on a back-foot amid broad USD strength last Fri. We continue to reiterate our bearish bias for NZD on a combination of drivers including widest trade deficit in 6 years, dairy prices at 12 years low and likely to remain low for longer, weak wage inflation, CPI inflation, etc., but favor a sell only on rallies. Break below 0.65 on daily close puts next support at 0.64 in focus. Remain better sellers on rallies towards 0.6620/40 levels (21 DMA). GDT auction in focus tomorrow.

Asia ex Japan Currencies

      The SGD NEER trades 0.40% below the implied mid-point of 1.3670 with the top end estimated at 1.3395 and the floor at 1.3944.

      USD/SGD – Rangy. USD/SGD pushed to a four-month high of 1.3776 (31 Jul) following the sustained break above the long term resistance of 1.3560 (on daily close basis). Intraday MACD forest is showing waning bullish momentum, while stochastics is showing no strong bias. Look for range trading ahead. Data-wise, it is a quiet week and markets are likely to watch this Fri’s US NFP print for further directional clarity. Further uptick is likely to meet resistance around 1.3776 ahead of the next at the 1.38-figure. Any dip is an opportunity to accumulate dips towards 1.3660 (23.6% Fibo retracement of Jun-July upswing), 1.3620 (21DMA). Data out this week includes Jul PMI (Mon); and Jul foreign reserves (Thu).

      AUD/SGD – Technical Rebound Underway. AUDSGD continues to hold ground above parity on a combination of SGD weakness and sticky AUD ahead of RBA meeting Tue; last sighted around 1.0036 levels. We continue to reiterate that a further rebound towards 1.0060 (21 DMA), 1.01 (38.2% fibonacci retracement of Jul high to low) cannot be ruled out. Daily momentum/oscillator indicators continue to point to a technical rebound. Favor selling rallies; continue to see further downside towards 0.9870. We will re-consider bearish bias on another abrupt move and close above the 50 DMA at 1.0290.

      SGD/MYR – Mild Bearish Momentum. SGDMYR was last at 2.7845 levels this morning. The cross remains biased to the downside; daily stochastics is showing tentative signs of falling. Key support at 2.7770 (23.6% fibo of 2015 low to high; 50 DMA). If broken on a daily close basis, could open room for further downside – 2.7480 (38.2% fibo level). 

      USD/MYR – Upside Risk. USDMYR continues to hover near multi-year highs; last sighted at of 3.8230 levels at time of writing. Pair remains bullish bias with ascending triangle formation in the making - key resistance (interim double-top) at 3.8250/300 levels and upward sloping support at 3.8050 (21 DMA which has yet to see the pair close below since mid-May).  A break above interim-double top resistance (on daily/weekly close basis) could see another leg higher towards 3.88/89 levels. Failure to break above the double-top suggests a possible test lower on the 21 DMA. If broken on daily basis could unwind some long bets and re-visit 3.76 levels (50 DMA).

      1s KRW NDF – Buy on Dips. The pair turned south towards 1164 at time of writing, after rejecting its interim double-top at 1176. Day ahead expect range of 1158 – 1170; still favour buying but on deeper dips. Mild bullish momentum is showing early signs of waning. Still see the pair supported on dips as we head into possible Fed tightening in coming months. 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 – Lacking Impetus. USD/CNH has been on the slow grind higher on market talks of band widening following the State Council opinion piece on 24 Jul. Daily MACD and stochastics are showing no strong bias ahead, suggesting that range-bound trading is likely ahead. Still, pair is likely to remain on the slow higher with near term support 6.2100 (50DMA). Any rebound this week is likely to be capped by 6.2305.  The CNH continues to trade at a discount to CNY. We continue to hold the view that the central bank wants to ensure a steady yuan. Over the weekend, PMI data released for Jul showed the index at 50, just a tad off market’s expectation of 50.1 and Jun’s 50.2. This morning, Jul Caixin (formerly HSBC) manufacturing PMI came is weaker than expected (47.8 vs. Cons. 48.3). Week ahead has Jul trade (Wed); and Jul CPI and PPI (Sun). USD/CNY was fixed 3 pips lower at 6.1169 (vs. previous 6.1172). CNYMYR was fixed 2 pips higher at 0.6156 (vs. previous 0.6155).

      SGD/CNY – Range-Bound. SGD/CNY tested our support level at 4.5135 last week but failed to firmly break below that level. Cross is sighted around 4.5240 on the back of the current weakness of the SGD. Cross has lost most of its bearish bias and is now showing little momentum in either direction, while stochastic is showing no strong bias. This suggests that the cross is likely to trade range-bound ahead. Dips should be limited by 4.5000, while any rebound should be capped around 4.5570.

        USD/INR – Mild Bullish Bias. USD/INR climbed back above the 64-handle last week but did not hit the intra-week high of 64.2075 (27 Jul) again, lifted by the firmer dollar. Pair could remain on the uptick given that daily MACD is showing bullish momentum and stochastics fast approaching overbought levels, but the conviction remains weak. We expect the RBI meeting on Tue to be a non-event with the RBI expected to keep rates steady. Any downside surprises on this front could see the pair bounce higher ahead. For now, we expect 64.3000 to curb further topside moves while dips should find support around 63.7500 (50DMA). Week ahead has RBI monetary policy meeting (Tue); and Jul PMI (Wed).

      USD/IDR – Near Term Relief Possible.  The USD/IDR climbed towards 13550 (31 Jul) to a not seen since the Asian Financial Crisis on the back of broad dollar strength. Pair is seeing some relief this morning but this slide is likely to be temporary as we expect further upmoves ahead given external (namely US Fed tightening and China growth concerns) and domestic concerns (persistent current account deficit, anaemic economic growth, stalled reforms). Daily MACD remains bullish momentum and stochastics is still showing tentative signs of falling from overbought levels, suggesting some pull-back could be in the cards near term. Range of 13400-13550 should hold for the week. The JISDOR was fixed again at another historic higher on Fri at 13481. 1-month NDF continues its climb higher above the 13600-handle though is retreating slightly this morning. The 1-month is sighted around 13603 with daily MACD showing bullish momentum though RSI is tentatively falling from overbought levels. Deteriorating risk appetite last week led foreign funds to sell a net USD8.31mn in equities, and at the same time, remove a net IDR5.39tn from their outstanding holding of government debt on 27-30 Jul (latest data available). Data-heavy week with Jul CPI (Mon); 2Q15 GDP (Wed) and Jul foreign reserves (Fri) on tap.

      USD/PHP – Bullish Bias. USD/PHP remains on the climb higher towards 45.700 though it is seeing some relief this morning on the back of dollar weakness. This retreat could be temporary given that momentum indicators are still bullish bias. Further dips are an opportunity to accumulate towards 45.500 and rebounds are likely to meet resistance around 45.850 this week. 1-month NDF continues its climb higher towards the 45.80-handle with MACD and stochastics still bullish bias. Foreign investor sold a net USD69.12mn in  equities last week, larger than the USD39.58mn sold the week before. Quiet week ahead with Jul CPI (Wed) and Jul foreign reserves (Fri) eyed.

      USD/THB – Bullish.  USD/THB rallied higher on the break of the 34.00-resistance level. Pair made a multi-year high of 35.280 on 31 Jul (not seen since 6 May 2009) amid broad dollar strength. Underlying bullish momentum remains intact as indicated by daily MACD. The pair should remain above the 35-figure given sluggish domestic macroeconomic fundamentals and the government’s weak THB policy amid Fed tightening and China grow concerns. Last week, foreign funds sold a net THB1.78bn and THB3.20bn in equities and government debt. We have revised our USD/THB (see our FX Monthly Issue VII) on the back of this weak THB policy and now expect the pair to end-3Q15 at 35.50 (instead of 34.50) before easing to end 2015 at 35.00 (34.00 previously). Resistance is now seen around 35.280 but a firm break of this level should expose the next at 35.405. Any dips should find support around 34.750. We remain better buyers on dips. On tap this week is Jul CPI (Mon); BoT benchmark interest rate (Wed); and 31 Jul foreign reserves (Fri).

Rates

Malaysia

      Local government bonds sold off on higher USDMYR which drove foreigners to sell across the board, with the front end of the curve seeing better sellers. There are concerns that the upward shift of front end yields would spread to the long end. Market remains very volatile with yields gapping either way.

      1y IRS traded at 3.74%, 2y at 3.795% and 5y at 4.00-4.03%. The IRS curve was pushed higher again because MYR weakened, MGS got sold off and offshore players still believe in a rate hike. The short end seems most attractive to receive as the 1-3y have the most carry/roll down. 3M KLIBOR stayed at 3.69%.

      Local PDS market saw better selling on the back of the MGS selloff. Bids widened 2-4bps for longer dated papers across the credit curve, but offers stayed firm and pretty much unchanged from previous day. For actual trades, GG names in the 9-15y bucket widened 1-3bps, while prices in the AAA space remain firm. The newly printed 9y Putrajaya saw some profit taking, trading to a low of 4.44%. Telekom 10/2024s tightened by only 0.5bp to close at 4.415%. Plus 21s were quoted 2bps tighter at 4.13% but no trades were done. Surprisingly in this market, power bonds saw good buying interest with longer dated TBEI tightening 1-3bps and YTL Power 18s tightening 2bps. Market is still volatile and we prefer higher quality and more liquid names at this point in time.

Singapore

      The SGS curve flattened with short end yields up 4bps while yields from the 5y onwards were down 1-2bps. There appeared to be slightly more demand in the longer end as USDSGD rallied. SGD forwards continued to be bidded up.

      In Asian credit market, INDON sovereigns opened firm but there was no follow through. INDON and PHILIP closed mostly unchanged. Malaysian names saw some selloff on the back of negative political news again with MALAYs and PETMKs trading 2-3bps wider. On the Chinese front, Greenland was put on negative outlook by Moody’s which pushed the yield on its paper wider by ~20bps. In contrast, Shimao Property’s rating was raised from BB to BB+ by S&P and this fueled further buying interest on other property names such as Cogard and Lngfor. As it was month end, players were skewed to the selling side to reduce risk and shorten duration. We expect liquidity to grow thinner in the coming month and suggest to stay light for the time being. 

Indonesia

      Positive local government bond moving sideways ignored the weakening Rupiah on the FX side. Some selling activities took places for a while, brought both yield rates on 10 years and 20 years to be higher by around 5 bps. On the other side, the upside movement was capped by some bargain hunter that dominated by some onshore foreign and local banks. Furthermore, Ministry of Finance (MoF) will do an auction on 4 Aug-15, with total indicative target Rp 10 trillion for SPN 3mo, SPN 1y, FR53 (5Y) and FR73 (new series 15Y).