Maybank GM Daily - 5 Aug 2015

FX

Global

      Modest decline in US equities on disappointing earnings report and slide in Apple shares. USTs fell, with 10Y yields back above 2.22% on Fed voting member Lockhart’s comments.  He said that US data would have to deteriorate significantly to stop him from voting for a rate hike at the Sep meeting. That helped fuelled USD broadly higher overnight. Low-yielding currencies (i.e. EUR, CHF, JPY) were all weaker vs. the greenback.  AUD maintained its swag on RBA change of tone; NZD remained soggy on dairy prices at fresh 13-year low. Commodities – oil, copper enjoyed a breather from recent declines.

      A review of antipodean moves overnight - RBA left policy rate on hold at 2% as expected but the omission of “a further depreciation in AUD is likely and necessary” sent AUD-shorts rushing for the exit. Week remaining brings another tier-1 data - Jul employment (Thu) and Statement of Monetary Policy (Fri). On NZD, Global Dairy Trade prices declined overnight again, for the 10th consecutive auction (by about 9.2%) while 2Q employment rose by less than expected. Series of disappointing data could reignite RBNZ cut speculation again.

      Day ahead some of the data we are watching includes Jul ADP employment, Jul PMI and Jun trade data for US. For the Euro-area, EC, GE, FR Jul composite/service PMI and EC Jun retail sales. For Asia, focus on Malaysia Jun trade data, Indonesia 2Q GDP.  We expect a pick-up in cross-asset volatility given the intensity of data release from today and into the weekend (Chinese trade and inflation data). On FX, despite most USD/AXJs (i.e. USDMYR, USDIDR) already at fresh multi-year highs, we still see further upside especially those with falling FX reserves. And on G7, we continue to see monetary policy divergence plays – USD better bid vs. low-yielding currencies should US data continues to meet expectation.

Currencies

      DXY – Testing 3-Month High. USD continues its march higher towards 98-levels as expectations of imminent Fed hike was further fuelled by comments from Fed’s Lockhart. He said that US data would have to deteriorate significantly to stop him from voting for a rate hike at the Sep meeting.  Day ahead brings Jul ADP employment, Jul PMI and Jun trade data.  We continue to reiterate that US data will increasingly be a key focus as we inch closer towards possible Fed tightening in Sep. DXY was last at 98.02 levels this morning. Daily/ 4-hourly stochastics continue to indicate further upside. Near-term support seen at 97.20 (21 DMA), before 96.20 levels (50 DMA). Next resistance at 98.15 (previous high in Jul) before 98.70 (76.4% fibonacci retracement of Mar high to May low). Better buyers on dips.

      EUR/USD – Downside Bias. EUR remains on a back-foot on disappointing PPI data amid broad USD strength.  EUR was last at 1.0870 levels this morning. Expect EUR to trade 1.0840 (61.8% fibo of Mar low to May high) – 1.0970 (21 DMA) Daily momentum/ stochastics are showing signs of mild bearish bias. We continue to see monetary policy divergence plays as risk of Grexit abates. ECB is still conducting QE amid subdued inflation while the Fed and BoE are possibly moving a gear higher into tightening bias.  We had explained that EUR remains a “funding currency” play. This is supported by a pattern we have been highlighting – risk-on sees EUR lower while risk-off sees EUR higher. The inverse correlation coefficient (between EUR and DAX) remains strong and is likely this relationship continues to persist for as long as ECB is on unconventional monetary easing. Day ahead brings EC, GE, FR Jul composite/service PMI and EC Jun retail sales.

      GBP/USD – Brace for Thursday. GBP ended the session slightly softer overnight amid broad USD strength. Still the key focus this week is on on BoE this Thu – as BoE MPC meets, and will publish its Minutes on the same day as well as release its Quarterly Inflation Report (QIR) – all at 7pm SGT, followed by a BoE Carney’s press conference on QIR at 745pm SGT.  We see risks of BoE members Weale and McCafferty (both hawks) to inch towards voting for a rate hike in coming MPC meeting (GBP-supportive) but Governor Carney’s press conference (scheduled 45 mins after the release) could be used to tame excessive GBP strength, as sustaining economic recovery, ensure inflation goes back towards its longer-run target of 2% are top priorities.  GBP was last at 1.5570 levels at time of writing. Near-term, we caution for downside risk on any data disappointment as many positives appear to have been priced in. Key data for the week includes Jul composite/services PMI (Wed); Jun IP (Thu). 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). That said, on medium term bias, 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).

      USD/JPY – Bullish. USD/JPY is back on the climb this morning on the back of the firmer dollar. Pair is currently sighted around 124.43 with both intraday MACD and stochastics now tilted mildly to the upside. The current dips could be temporary and a rebound could be likely ahead. BOJ meets on Fri but no additional easing measures are expected for now, though our base line scenario remains for a BOJ move in Oct 2015.  Main focus lies likely on US NFP on Fri night where further clarity on the Fed rate lift-off could become clearer. Expect topside to remain capped by 124.50 for now, though a firm break could see the pair move higher towards 125.85. We remain better buyers on dips. Further dips today should find support around the 124-figure. 

      AUD/USD – Shorts-Squeeze. AUD rose to an overnight high of 0.7429 off the back of better than expected retail sales, trade data and most importantly the RBA meeting/accompanying statement. While RBA left policy rate on hold at 2% as expected, the omission of “a further depreciation in AUD is likely and necessary” sent AUD-shorts rushing for the exit. Will rally continue? Week remaining brings another tier-1 data - Jul employment (Thu) and Statement of Monetary Policy (Fri). We continue to 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. 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) is now underway. Daily MACD and stochastics are showing rising from oversold levels amid early signs of short-term bullish divergence. Remain better sellers on rallies. 

      USD/CAD – Buy on Dips. USDCAD remained supported off the back of a firmer USD and weaker than expected manufacturing PMI. Oil price rebound overnight did not seem to cushion Candy’s decline. Last sighted around 1.3195 levels. Remain better buyers on dips; next support at 1.3050/60 levels, before 1.2950 (21 DMA). Daily momentum and stochastics remain mild bullish bias..

      NZD/USD – Imminent Break of 0.65-handle? NZD remains soft off the back of another decline in GDT prices, jobs data amid broad USD strength. GDT prices overnight declined again, for the 10th consecutive auction (by about 9.2%) while 2Q employment rose by less than expected. Series of disappointing data could reignite RBNZ cut talks again. Last sighted around 0.6540. 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, has kept the upside this week). Daily stochastics is bearish bias while mild bullish momentum is showing tentative signs of waning. 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 (10th consecutive decline and at fresh 13-year low), benign wage inflation, declining ToT amid weakening demand. We see the risk of another 25bps cut, possibly as soon as the next meeting at 10 Sep (3 more RBNZ meetings till end of 2015 – Sep, Oct, Dec), but acknowledged that RBNZ’s recent statement suggest a slightly less dovish than expected tone.

Asia ex Japan Currencies

      The SGD NEER trades 0.78% below the implied mid-point of 1.3718. We estimate the top end at 1.3442 and the floor at 1.3995.

      USD/SGD – Supported. USD/SGD remains on the uptick this morning underpinned by a firmer dollar tone overnight. Last sighted around 1.3854, momentum indicators are still bullish bias though stochastics remains at overbought levels. This suggests that the further upmoves are likely ahead. With our resistance level at 1.3830 taken out this morning, further upside from hereon should meet resistance around 1.3870. Any dips should find support around 1.3770.

      AUD/SGD – Technical Rebound Underway. AUDSGD pushed to an overnight high of 1.0226 on a combination of AUD strength (due to RBA’s tonal change in statement yesterday) and SGD weakness (due to broad USD strength). Cross was last sighted around 1.0190 levels. We continue to reiterate our earlier caution for technical rebound. Daily momentum/oscillator indicators continue to the near-term technical view. We will re-consider bearish bias on another abrupt move and close above the 50 DMA at 1.0290.

      SGD/MYR – Upside Risk. SGDMYR continues to hover around the 2.80-handle on Ringgit weakness. Daily momentum and oscillator indicators are now signalling a mild bullish bias. Risk of further move towards 2.8280 (previous high) cannot be ruled out. Meantime near term support around 2.7840 (50 DMA)  

      USD/MYR – Another Leg Up. USDMYR continued to push to all-time highs; intra-day high of 3.8820 levels was printed this morning. The move was driven by broad USD strength, concerns over falling FX reserves and domestic concerns. Rebound in oil prices overnight did not seem to counter the MYR decline. 1s NDF traded 3.9038 high (1month forward pips continues to widen to +250pips).  We have previously cautioned that the 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 – this is now materialising.

      1s KRW NDF – 1188 on the Break of 1176. Dip to 1161 low was reversed off the back of broad USD strength, JPY weakness (JPYKRW maintained at 9.44 levels). Pair was last sighted at 1174.5 levels. Still see further upside in the pair. Near term resistance remains at 1176; break above on daily close basis puts 1188 (Jun 2012 high) in focus. 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 – Upticks. USD/CNH firmed this morning at around 6.2215 on news that the CNY bid for inclusion into the IMF SDR basket has been delayed. An IMF staff report suggested that the RMB was not ready to be included in the SDR basket with “significant work” needed on any CNY inclusion. However, there remains hope for the CNY inclusion as the IMF staff report recommended that changes to the SDR basket be postponed by nine months. Pair has lost most of its bearish momentum with stochastics now indicating bullish bias, suggesting support for the pair ahead. With sentiments now flipped to an upside bias, watch for further upmoves that is likely capped around 6.2240. Any dip is likely to find support around 6.2135. Any rebound is likely to meet resistance around 6.2240. 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. USD/CNY was fixed 9 pips higher at 6.1186 (vs. previous 6.1177). CNYMYR was fixed 4 pips higher at 0.6222 (vs. previous 0.6218).

      SGD/CNY – Bearish. SGD/CNY continues to trade below the 4.5000-levels, dragged lower by the continued weakness in the SGD. Further SGD weakness amid a stable CNY is likely to see further downside pressure on the cross ahead. Intraday MACD continues to show bearish momentum, though stochastics remains at oversold levels. Further dips should find support around 4.4900 before the next at 4.5700 (18 Mar low), while any rebound is likely to be capped around 4.5135.

        USD/INR – Bearish Bias. USD/INR slipped below the 64-handle following the RBI decision to hold rates steady yesterday. Moreover, RBI governor Rajan’s recommendation that the government allow more foreign investment in debt securities (currently overseas holdings of sovereign debt is capped at USD30bn), though he cautioned the need to ensure that the market is not disrupted by such a move. Pair could continue to trade lower this morning on positive sentiments. Both intraday MACD and stochastics are showing bearish bias, suggesting that further downmoves could be possible. Further dips should find support around 63.4770, while any rebound could meet resistance around 64.2100.

      USD/IDR – Capped.  After closing below the 13500-handle yesterday, the USD/IDR back on the uptick above the 13500-handle this morning, tracking the USD/AXJs broad moves higher. As we had expected, the downmoves proved to be temporary given that upside pressure due to external (namely US Fed tightening and China growth concerns) and domestic concerns (persistent current account deficit, anaemic economic growth, stalled reforms). Pair is showing no strong directional cues with stochastics indicating bearish bias, suggesting the further upside could be capped. Look for intraday range of 13400-13550 to hold. The JISDOR continued to be set at record highs with the JISDOR fixed at 13495 yesterday from Mon’s 13492. 1-month NDF stayed above the 13600-handle after attempts to break below that level failed with intraday MACD and stochastics are both showing mild bullish bias. Investor sentiments soured yesterday with foreign funds selling a net USD39.46mn in equities. Similarly, they had removed a net IDR0.53tn from their outstanding holding of government debt on 3 Aug (latest data available).

      USD/PHP – Bullish Bias. USD/PHP is back on the climb higher above 45.700 after sliding below the 45.600-handle yesterday, lifted by the firmer dollar. Pair is currently sighted around 45.723 with intraday MACD still showing bullish momentum, though stochastic is falling from overbought levels. Look for topside to be capped around 45.850, while dips should find support around 45.600. 1-month NDF continues to push higher, though it remains below the recent high of 45.792 with intraday MACD still showing bullish momentum and stochastics falling from overbought levels. Foreign investor sold a net USD12.02mn in equities yesterday as sentiments turned sour from Fri. Headline inflation rose by 0.8% y/y in Jul in line with expectations and a slowdown from Jun’s 1.2% on the back of lower food and non-alcoholic beverage prices. Core inflation rose 1.9% y/y, a slight moderation from Jun’s 2.0%.

      USD/THB – Slow Grind Higher.  The USD/THB continues in consolidation mode despite attempts to break higher yesterday with the pair back above the 35.100-levels at around 35.133. Intraday MACD is mild bearish momentum though stochastics is tentatively bullish momentum, suggesting that further upside could be capped. Sluggish domestic macroeconomic fundamentals and the government’s weak THB policy amid Fed tightening and China grow concerns should continue to keep the pair supported. BOT monetary policy meeting later this afternoon should be a non-event with the BoT expected to stand pat tomorrow, keeping its policy rate unchanged at 1.50%, given the steep depreciation of the THB so far. Should the BoT surprise with a cut, a move back towards the 35.500-levels is a possibility. Otherwise, look for the pair to remain supported around 34.9000 with an opportunity to accumulate should the pair dip below that level. Topside should be curbed by 35.280 (31 Jul high). Sentiments remained sour yesterday with foreign funds selling a net THB1.06bn and THB3.84bn in equities and government debt yesterday.

Rates

Malaysia

      Government bond market was overall quiet. MGS yields ended mixed with small buying seen on the 7y and 10y benchmarks from foreigners. However, price upticks were quickly met by local sellers looking to reduce risk. MGS 11/19s saw a single large batch of selling again as MYR250m exchanged hands at 2bps higher than previous close.

      IRS down 1-3bps with the 5y being dealt at 4.025% and 4.01%. Players think they have pushed the curve too high and should receive some here. We suggest receiving the belly rates (4-7y) for carry and roll down. 3M KLIBOR remained at 3.69%.

      PDS market saw a slight pickup in bidding activity but bid-offer spreads remain wide. Buying was mostly at the short end and belly of the curve with AA names being the top picks, especially those in the defensive utilities sector. Better buying seen for YTL Power, Sarawak Energy and Malakoff papers in the past two days. Trades in the high grade space were crosses.

Singapore

      SGS traded firm, pretty much in line with the SGD IRS, to close 2-5bps lower in yields. We suggest to stay light on positions ahead of the NFP on Friday. The 10y bond swap spread unchanged at -13.5bps.

      Another day of sellers in the Asian credit space. Liquidity is still thin, and most players are not willing to trade in a heavy data week. Shanghai Electric Power priced USD500m of 5y bonds at T5+220bps which traded up, last seen at 215/213 level. INDONs and PHILIPs traded mostly unchanged to 0.25-0.50pts higher on the back of UST movement. Afternoon we saw some flows looking for Chinese IGs in the 3-5y bucket. Most Chinese names traded wider in spreads as more players go away on summer holidays. AMC and O&G names grinded 3-5bps wider. GLPSP’s 2025 paper traded down to +182 after Moody’s revised its outlook to negative.

Indonesia

      IDR Government bond was relative stable amid the bond auction. The bond was traded on the limited range given the 10Y govt bonds were around 8.52-8.55 level. In other hand, total incoming bid in the auction was Rp28.062 trillion while the total bid awarded was Rp15 trillion. The new series of new benchmark 15Y came with relatively good demand by 8.90% of yield. The heavy bid came from the FR0053 (6 year) by Rp16.46 trillion.