Maybank GM Daily - 1 Sep 2015

FX

Global

      Wall Street ended Aug on a negative note with S&P 500 still under key 2000-level. Global risk appetite was still weak with DAX in red, Shang Comp also -0.8 lower. Overnight data releases did not help with Chicago Purchasing Manager, slightly lower at 54.7 and Dallas Fed Manf. Activity posting a larger-than-expected contraction of -15.8. Dollar weakened against the JPY, CAD, EUR and DKK but strengthened against the NZD, AUD, CHF and GBP.

      Late in Asia yesterday, India’s GDP underwhelmed with a 7.0%y/y growth vs the previous 7.5%. That dragged the INR to close at 66.4825 yesterday. That is a 0.45% depreciation for the rupee. IDR, KRW and TWD also weakened against the greenback with the TWD recording -1.3% depreciation for Mon.

      Focus today will be on China’s PMI-mfg numbers. Consensus expects the NBS number to show a dip back into contraction after 5 months of growth. The flash print for the Markit Caixin version had triggered off a global equity fall out with a shocking print of 47.1 and a figure around this estimate will continue to weigh on sentiments. Eyes will remain on Chinese equities. The PMI-mfg release kick starts the rest of the PMI-mfg releases from around the world. Thailand’s Aug CPI will also be due in the morning. Closer to mid-day, RBA will release rate decision and we expect no change to the 2.00% cash target rate.

      Beyond Asia, Europe releases PPI. The CPI estimate released yesterday at 0.2%m/m was firmer than expectations but failed to inspire much gain for the EUR. US releases its manufacturing data. Any data releases from the Fed will be keenly watched for cues on the Sep FOMC decision on the 17th (wee hours of Asia). Chinese equities will also be watched for any possible impact on the decision though pension funds may be there to support the stock markets on dips. More volatility ahead with ADP and NFP due on Wed and Fri. VIX is now back on the uptick, last seen around 28.

Currencies

      DXY – Mixed. DXY was softer overnight but largely due to a softer USD vs. the EUR (about 58% composition of DXY index). Chicago PMI marginally missed estimates; US equities slipped overnight as rate hike expectation climbed again. Probability of rate hike has now risen to 42% from 38% previous. Tracking mild risk-off sentiment, other typical safe haven currencies (i.e. EUR, JPY) were a touch firmer against USD.  Elsewhere USD firmed against the AUD, NZD.  DXY was last at 95.80 levels this morning. 4-hourly stochastics is falling while momentum is turning mild bearish. Taken together, this could suggest some mild downside pressure intra-day.  Support remains at 95.60 (38.2% fibo of Mar high to Aug low), 94.90 (200 DMA). Resistance at 96.40 (21 DMA). 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. Week ahead brings Aug mfg PMI; Aug ISM mfg (Tue); Aug ADP employment change; Jul Factory orders; Fed’s Beige Book (Wed); initial jobless claims; Jul trade balance; Aug flash PMI; Aug ISM non-manf (Thu); Aug NFP, average hourly earnings, unemployment rate (Fri).

      EUR/USD – Still Tracking Risk Sentiment. EUR marginally firmed, inversely tracking risk sentiment (equities fell). Last seen at 1.1240 levels this morning. Technical signals are mixed - daily momentum is flat to mild bearish bias but weekly momentum remains bullish bias Interim support at 1.1180 (21 DMA) before 1.1050 (76.4% fibo of retracement of Aug low to high). Resistance at 1.1300 (200 DMA), before 1.1510 (23.6% fibo). Week ahead brings Aug Manf PMI from EC, GE, FR, SP (Tue); EC Jul PPI (Wed); ECB meeting; Markit Services/composite PMIs for EC, GE, FR, SP, IT; EC Jul retail sales (Thu); GE Jul factory orders; FR Aug Consumer confidence (Fri).

      GBP/USD – Bearish Bias. GBP was weaker overnight, despite UK markets shut for bank holiday. Key support at 1.5370 (200 DMA). A break on daily close basis could put 1.5260 (50% fibo retracement of Apr low to Jun high) and 1.51 (61.8% fibo) in focus. GBP was last seen at 1.5370 levels this morning. Could see a push lower to those levels above-mentioned. Daily momentum and stochastics are indicating a bearish bias. Week ahead brings Aug PMI mfg (Tue); Aug construction PMI (Wed); Aug PMI (Thu).

      USD/JPY – Range-Bound. USD/JPY is waffling around the 121-region this morning even as the pair edges lower on the back of broad dollar weakness. Pair appears to be in range-bound trade with intraday MACD showing no strong momentum in either direction, though stochastics is bearish bias. Further dips should find support nearby around 120.40 (upper bound of the intraday ichimoku cloud forming below price action) before 118.30, while rebounds should meet resistance around 122.15.  Dips remain an opportunity to buy as our baseline scenario remains for further easing in Oct.

      AUD/USD – Bullish Divergence. AUD remained on the downtick overnight, last seen around 0.7100 against the USD. This pair is likely dragged by its fellow antipodean which depreciated more than 1% against the USD ahead of the Fonterra auction tonight. We do not rule out month-end adjustments that also dragged on the AUD. Daily MACD forest continues to be mildly bearish for this pair. Support is now seen around 0.7050. A break there opens the way towards 0.68. At this point, AUD has been hammered by China, by concomitant effects of commodity demands as well as its deterioration in terms of trade. The fall in exports seem to have slowed and approaching a bottom and we think that AUD might also be reaching a bottom as well. However, this bottom will be an extended one as the lift-off is not seen yet. It could take some time for cheap AUD to lift exports of tradeable goods and tourism, as well as retail sales before investors and corporates can be convinced to increase business spending. We expect downsides to remain supported in the medium term. First barrier for retracement is seen around 0.7211 ahead of the next at 0.7313 (Fib. Retracement of the May-Aug sell off). RBA decides on cash target rate today and we do not expect any change to the 2.00% as further rate cuts bring diminishing marginal returns to the real economy and increasing marginal risks.

      USD/CAD – Bearish Divergence. USDCAD slipped towards support at 1.3108 and MACD has turned bearish. A break of the 1.3108 support could expose next support around the 1.3016 (23.6% Fibonacci retracement of the May-Aug rally). Bearish divergence is playing out for this pair but eyes will be on growth data today. Canada has Jun growth numbers due tonight as well as PMI-mfg. Expectations are for a improvement to 0.2%m/m from previous contraction of -0.2%.

      NZD/USD – Sell on Rallies. NZD fell to fresh 6-year low of 0.6321 overnight. Key focus on GDT auction price tomorrow. The last auction saw the first rebound after 10 straight declines since Mar 2015. With supply available on the GDT platform being reduced by Fonterra, dairy prices may see a sustained bounce, which could in turn lend some support to the NZD. Daily momentum and stochastics are bearish bias. NZD was last at 0.6352. We cautioned for short-squeeze should GDT prices sustain another rebound; still prefer leaning against strength towards 0.6550; 0.6680. Week ahead brings Aug ANZ commodity price (Wed). Released this morning, 2Q ToT data surprised to the upside – export prices post first gain in 5 qtrs.

Asia ex Japan Currencies

      The SGD NEER trades 1.12% below the implied mid-point of 1.3936. We estimate the top end at 1.3654 and the floor at 1.4218.

      USD/SGD – Bearish Bias. USD/SGD is inching lower this morning underpinned by dollar weakness overnight. Pair is hovering around 1.4113 currently with intraday MACD forest showing weaning bullish momentum and stochastics tentative signs of falling from overbought levels. This suggests that there could be further downside risks for the pair ahead with further dips likely to be supported around 1.0463 (50 DMA). We continue to favour accumulating on dips. Rebounds today should be capped around 1.4169 (24 Aug high). Today is nomination day and all seats in parliament are likely to be contested for the first time in nearly 50 years. Polls will take place for 11 Sep.

      AUD/SGD – Double Bottom? This cross is holding well around 1.0030 this morning after China’s PMI-mfg slipped into contractionary range with a print of 49.7. 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. First barrier is seen around 1.0100 and any further upticks could meet 50-DMA at 1.0160.

      SGD/MYR – Tide Turned. SGDMYR continues to ease amid relative stability in MYR while SGD weakness resumed.  Cross was last at 2.96 levels this morning. Daily momentum and stochastics continue to indicate a bearish bias. Next support at 2.95 (38.2% fibo retracement of Aug low to high), before 2.92 (50% fibo) .

      USD/MYR – Signs of Bearish Bias. Local markets re-opened from national day holiday. USDMYR was last seen at 4.1700 levels this morning (vs. 4.1960 close last Fri). Move lower came off the back of firmer oil prices. We continue to reiterate that MYR at current 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, daily and weekly stochastics are suggesting signs of turning from overbought areas. Momentum on the daily chart is turning mild bearish. Next support at 4.11 (38.2% fibo retracement of Jul low to Aug high). Week ahead brings Aug PMI (Tue); Jul trade; FX reserves (Fri).

      1s KRW NDF – Buy on Dips. 1s  KRW continues to inch lower; last seen at 1179.50 this morning.  Daily momentum remains bearish but could show tentative signs of waning.   Weekly, daily stochastics are showing early signs of bearish bias. Momentum also appeared to have shown signs of fatigue. Pullback could re-visit 1177 levels (61.8% fibo retracement of Aug low to high), 1169 (76.4% fibo). Underlying bullish bias remains intact. Favor buying on bigger dips. Interim resistance at 1208.  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). Week ahead brings Aug FX reserves; 2Q final GDP (Thu). Data released earlier this morning – Aug inflation met expectations but exports slumped by most since 2009. Exports have also decline for 8^th month (-14.7% y/y)

      USD/CNH – Downside Pressure. USD/CNH hovered around 6.4470 this morning, awaiting the daily fixing. Prospects of further yuan depreciation dim after Premier Li assured that there is no basis for further yuan depreciation. Support is seen around 6.4353 ahead of 6.4031. USD/CNY was fixed -141 pips lower at 6.3752 (vs. previous 6.3893). CNYMYR was fixed 241pips lower at 0.6513 (vs. previous 0.6271). Equity markets may be supported on dips by presence of pension funds and supportive liquidity injections. 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 600pips. Expect depreciation pressure on the yuan to sustain this gap. Expect the pair to see further upside pressure in the medium term. Official PMI-mfg for Aug met expectations at 47.1. Eyes are on the Caixin version next. In news, China Development Bank has agreed to give a loan to a light rail company in Kazakhstan (China Daily). This seems to be supportive of its One Belt, One Road Plan that China has to support integration of the region.

      SGD/CNY – Capped By the Cloud. SGD/CNY was last seen around 4.5240, underpinned by support around 4.5155. This cross is still capped by the cloud with bids now resisted by the 50-DMA at 4.5540. Expect more choppy trades within the range 4.5210-4.6000. Intra-day and daily MACD show waning bullish trades with the forest near zero. A break of the lower bound exposes support around 4.5155 and the next support is seen at recent low at 4.4671.

      USD/INR – 2Q Growth Disappointed. Apr-Jun GDP expanded 7.0%y/y. decelerating from the previous quarter of 7.5%. The print missed estimate at 7.4%. Rate cut expectations soared, lifting 1-M NDF to levels around 66.83 as we write. Prior to the GDP print, USD/INR closed a tad higher at 66.4825. The recent growth number suggests that the pair may continue to remain supported amid rate cut expectations. In so far, rate cut speculations and risk aversion has been supporting spot and NDF prices. USD8.9mn equities were bought by foreigners on Fri while foreign bond holdings fell by USD4.2mn on the same day. Expect spot prices to remain in a tug of war within range of 65.90-67.00. PMI-mfg is due today. Overnight, RBI Rajan said high retail inflation is a hurdle to rate cut and institutional changes are necessary to lower long run inflation. Recent rate cuts have been done because of low commodity prices.

      USD/IDR – Limited Downside Risks.  USD/IDR is on the slide this morning, hovering around 14062, tracking its regional peers lower. Both intraday MACD and stochastics are showing bearish bias, suggesting risks are to the downside ahead. Still, we continue to expect further upside to the pair in the medium term given concerns about sluggish domestic growth amid global uncertainty, which should limit downside moves. Resistance is seen around 14150 today while support is likely around 13930. 1-month NDF is on the slide this morning though it remains above the 14000-figure at around 14259 with daily MACD and stochastics showing bullish momentum. The JISDOR was fixed lower on Fri at 14011, down from the historic high of 14128 fixed on Thu. There was some relief for the stock market yesterday with foreign funds buying a net USD22.3mn in equities. However, foreign funds continued to remove a net IDR0.03tn from their outstanding holdings of government debt on 28 Aug (latest data available). We have Aug CPI on tap later today and consensus is expecting headline inflation to come in at 7.42% y/y compared to Jul’s 7.26%. Our economic team though is looking at an even steeper rise of 7.52%.

      USD/PHP – Bearish Tilt.  Onshore markets re-open this morning after closing for a holiday yesterday with USD/PHP inching lower to 46.725 this morning, playing catch up with its regional peers. Intraday momentum indicators and oscillators are both bearish bias, suggesting further moves lower are possible ahead. In the absence of fresh catalyst, watch for pair to track dollar moves ahead. 46.500 should be supportive today while 46.900 should curb upside. 1-month NDF is on slide this morning to around the 46.800-levels with both intraday MACD and stochastics bearish bias.

      USD/THB – Consolidation.  USD/THB appears to be in consolidative mode, hovering around the 35.830-region. Pair is taking a breather on the back of dollar weakness overnight. Pair has lost most of its bullish momentum, suggesting range-bound trades ahead. Still, in the medium-term, risks are to the upside given the sluggish economy amid China growth concerns and government weak THB policy. In the interim, 35.655-36.000 range should hold intraday. For the first time in 10 days, foreign funds bought a net TH0.39bn in equities yesterday, but continued their sell-off of a net THB0.88bn in government debt. On tap today is Aug CPI and market is expecting headline inflation to come in at 1.01% y/y vs. -1.05% in Jul. Our economic team is less bearish, expecting headline inflation to fall by just 0.8%.

Rates

Indonesia

      Indonesia bond market closed relative similar to Friday closing. There were minimum sentiments during the day as market players are waiting for government stimulus publication as well as Aug inflation data. We expect bond market to move sideways this week with negative sentiments coming from higher inflationary expectation and economy uncertainty both globally and domestically while positive sentiment would come from government stimulus publication and better demand during the auction. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 8.456%, 8.732%, 9.045% and 9.041% while 2y yield shifts down to 8.085%. Trading volume at secondary market was seen thin at government segments amounting Rp6,857 bn with FR0061 as the most tradable bond. FR0061 total trading volume amounting Rp1,387 bn with 8x transaction frequency and closed at 91.164 yielding 8.767%.

      DMO will conduct their conventional auction today with five series to be auctioned which are SPN03151202 (Coupon: discounted; Maturity: 2 Dec 2015), SPN12160902 (Coupon: discounted; Maturity: 2 Sep 2016), FR0053 (Coupon: 8.250%; Maturity: 15 Jul 2021), FR0056 (Coupon: 8.375%; Maturity: 15 Sep 2026) and FR0072 (Coupon: 8.250%; Maturity: 15 May 2036). We believe that the auction will be oversubscribe by 1.5x – 2.5x from its indicative target issuance while our view on the indicative yield are as follows SPN03151202 (range: 5.850% – 5.950%), SPN12160902 (range: 6.900% – 7.000%), FR0053 (range: 8.4300% – 8.5300%), FR0056 (range: 8.680% – 8.780%) and FR0072 (range: 9.000% – 9.100%).

      Corporate bond trading traded thin amounting Rp373 bn. BBRI01BCN1 (Shelf registration I Bank BRI Phase I Year 2015; B serial bond; Rating: idAAA) was the top actively traded corporate bond with total trading volume amounted Rp100 bn yielding 9.1774%.