Maybank GM Daily - 3 Sep 2015

FX

Global

      Dollar crept higher overnight, supported by better ADP numbers at 190L (vs. previous at 177k), reports of increasing wage pressures caused by labour market tightening and strong equity performance. Amid the better risk sentiments, EUR and CHF weakened, down -0.8% and -1.1% respectively. Antipodeans benefitted with AUD and NZD clocking respective gains of +0.3% and +0.2%. UST 10yr yields rebounded towards intra-day high of 2.1970% before easing lower into Asia again.

      Asian markets had a rather mixed day though more support was seen for the Shanghai Comp which recorded the smallest loss at close this week. SGS market had a choppy open on Wed with strong offers seen across the curve. With China away for the rest of the week to celebrate Victory Day, expect the positive mood out of Wall Street to lift Asia.

      South Korea released 2Q GDP at 0.3%q/q with the final print unchanged. KRW weakened -0.5% against the USD. Elsewhere, oil price volatility continue to keep USDMYR supported. Australia’s trade balance and retail sales for Jul are due shortly. Expectations are for retail sales growth to slow to 0.4%m/m from previous 0.7%.

      In the absence of other market movers, focus will be on ECB meeting today and there are market talks of more QE given lower commodity prices and slower China affecting inflation.

      Elsewhere, there is more US data due today. Jul trade balance is due tonight (Cons.: $42.20bn) along with services PMI-mfg. The usual initial claims will be watched for further indication of the key NFP number tomorrow.

Currencies

      DXY – 21DMA Cutting 100DMA Soon? DXY firmed, tracking risk sentiment. Overnight data was mixed with factory orders and ADP missing estimates while nonfarm productivity was better than expected. Latest Beige Book noted that US economy continued to expand, labor markets are tightening and several districts reported increasing wage pressures. DXY was last at 96 levels this morning. Daily momentum is lacking a firm conviction for now while daily stochastics suggests mild upside momentum.  Expect consolidation ahead of NFP numbers tomorrow. Consensus sees 217K gain vs. previous print of 215k. Support remains at 95.60 (38.2% fibo of Mar high to Aug low), 95.00 (200 DMA). Resistance at 96.50 (50 DMA). Technically we are cautious of 21DMA possibly cutting the 100 DMA, as that could suggests potential downside pressure. 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 remaining brings initial jobless claims; Jul trade balance; Aug flash PMI; Aug ISM non-manf (Thu); Aug NFP, average hourly earnings, unemployment rate (Fri).

      EUR/USD – ECB Meeting; More QE? EUR was soft overnight amid market talks of potentially more QE ahead of ECB meeting later today. EUR last seen at 1.1210 levels this morning. The 21DMA which have held up well in the past 2 dips in Aug – 18/Aug and 31/Aug continues to serve as interim support. Bullish weekly momentum remains intact but daily and 4-hourly stochastics may suggest some downside pressure intra-day. Interim support at 1.1190 (21 DMA), 1.1110 (100 DMA) before 1.1050 (76.4% fibo of retracement of Aug low to high). Resistance at 1.1280 (200 DMA), before 1.1510 (23.6% fibo). Week remaining brings 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 – Consolidate. GBP traded down to 1.5265 low following softer than expected UK construction PMI (but still remains strong and in expansionary territory) yesterday. Last seen at 1.5310 this morning.  Key support at 1.5260 (50% fibo retracement of Apr low to Jun high) before 1.51 (61.8% fibo). Resistance at 1.5360 (200 DMA). Daily momentum remains bearish bias while stochastics is entering oversold territories (early signs of turning higher from oversold levels could form if price action continues to hold up). Week remaining brings Aug PMI (Thu).

      USD/JPY – Slow Grind Higher. USD/JPY was in consolidative mode yesterday but is climbing higher this morning, tracking gains in the Nikkei. Pair is currently seen around 120.60 with momentum indicators showing no strong bias, while stochastics is bullish bias, suggesting that a slow grind higher ahead. Further upmoves should still meet resistance around 121.40, while any dips should find support around 118.30. Any dips remain an opportunity to buy as our baseline scenario remains for further easing in Oct.

      AUD/USD – Bullish Divergence. AUDUSD rebounded off lows of 0.6982 before hovering around 0.70-figure. 2Q GDP missed the consensus of 0.4%q/q growth with an actual print of 0.2%. However, markets seemed to have already priced that in as AUD rebounded to trade around 0.7040. Momentum is still bullish though MACD forest still shows bullish divergence. Up to this point, AUD has been hammered by China, by concomitant effects of commodity demands as well as its deterioration in terms of trade. For the medium term, the fall in exports seems 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).Support is seen at 0.6982 and a clearance of that opens the way towards 0.6920.

      USD/CAD – Bearish Divergence. USDCAD remained in two-way trades and was last seen around 1.3270. MACD is now showing much direction and we think the bearish divergence is still intact. A break of the 1.3108 support could expose next support around the 1.3016 (23.6% Fibonacci retracement of the May-Aug rally). Topside is capped by 1.3354.

      NZD/USD – Bearish Bias; Cautious of Short Squeeze. NZD continues to hold ground above the 0.63-handl; last seen at 0.6365 levels. Sustained rebound (2^nd back to back rise after 10 consecutive declines since Mar 2015)  in dairy prices overnight (+10.8%) continues to lend temporary to the Kiwi. We reiterate that it remains too soon to tell if demand is improving and led to direct impact on prices as supply was 50% lower than a year ago. It was reported and we mentioned that supply available on the GDT platform has been reduced by Fonterra.  Daily momentum is bearish bias, but 4-hourly momentum and stochastic are suggesting signs of NZD turning higher, intra-day. We continue to caution for short-squeeze possibly towards 0.64 levels (previous support), before 0.6520 (21 DMA). Still prefer leaning against strength. Released this morning, Aug commodity prices fell 5.2% (vs. prior -11.2%).

Asia ex Japan Currencies

      The SGD NEER trades 1.30% below the implied mid-point of 1.3983 with the top end estimated at 1.3700 and the floor at 1.4266.

      USD/SGD – Upticks. USD/SGD climbed to a new multi-year high of 1.4188 following a sell-off in SGS yesterday before sentiments improved, allowing the pair to settle lower at 1.4156. This morning pair is back on the uptick on the back of a firmer dollar tone, hovering around 1.4168. Momentum indicators are bullish bias, while oscillators are at overbought levels. Further upticks today could see yesterday’s high of 1.4188 re-tested and a firm break of this level could put the 1.42-handle at play. Any dips are likely to find support around 1.4125. In the latest survey of economic forecasters, economists expect the economy to grow at a slower 2.2% in 2015 – down from 2.7% projected a quarter ago – with manufacturing now expected to shrink by 2.7% in 2015 (from +0.5% previously). Similarly, headline and core inflation projections have been revised downwards to -0.2% and 0.5% respectively in 2015 from 0% and 1.0% previously.

      AUD/SGD – Double Bottom? This cross has tested below the year’s low of 0.9922 but rebounded to trade around 0.9986 as we write in early Asia. MACD shows waning bearish momentum. Failure to clear the 0.6600 could mean a double bottom for this cross. A clean break of that support clears the way towards 0.9790. This cross is now inching higher and first barrier is seen around 1.0100 and any further upticks could meet 50-DMA at 1.0160.

      SGD/MYR – Consolidation. SGDMYR inched higher on renewed MYR weakness amid USD strength.  Cross was last at 2.9870 levels. 4-hourly momentum and stochastics are indicating mild bullish bias (near term). Interim resistance at 2.99. Support at 2.95 (38.2% fibo retracement of Aug low to high) continues to hold. If broken on daily basis could see the cross re-visit 2.92 (50% fibo) .

      USD/MYR – Mild Upside Pressure. USDMYR firmed amidst USD strength and weak equity sentiment yesterday. Last seen at 4.2350 levels this morning (vs. 4.2107 close yesterday). 4-hourly stochastics is rising from oversold areas, which could suggest some upside bias intra-day. Next resistance at 4.26 (76.4% fibo retracement of Aug high to Sep low) while support remains at 4.20 (38.2% fibo), 4.1780 (23.6% fibo). 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. Week remaining brings Jul trade; FX reserves (Fri).

      1s KRW NDF –Upside Pressure. 1s KRW climbed; last seen at 1188 levels this morning. 2Q GDP (released this morning) was in line with estimates while FX reserves saw a decline. Daily stochastics is showing tentative signs of turning while bearish momentum is showing tentative signs of waning. Interim support at 1182 (21 DMA); resistance at 1190 (50% fibo retracement of Aug high to low) before 1195 (61.8% fibo). 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 – Sideway Trades. Onshore markets are closed for the rest of the week for Victory Day. USD/CNH rebounded away from the 6.4030-support and was last seen around 6.4480. Momentum is still bearish but we think 6.4030 could be a tough nut to crack. Sideway trades seen within 6.4030-6.4740 with downside bias. Prospects of further yuan depreciation dim after Premier Li assured that there is no basis for further yuan depreciation. PBOC also imposed a 20% reserve requirement for FX forward trading sales and extended this to options yesterday. Reserves are to be denominated in USD and no interest is paid.  On 2 Sep, USD/CNY was fixed -133 pips lower at 6.3619 (vs. previous 6.3752). CNYMYR was fixed 1pips higher at 0.6514 (vs. previous 0.6513). 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 widened gap to offshore prices to 900pips. The latest clamp on FX forward sales of yuan is likely to discourage speculative sales of yuan forwards on yuan depreciation expectations. We still expect depreciation pressure on the yuan to sustain this gap given the downside pressure on the economy. Expect the pair to see further upside pressure in the medium term. 

      SGD/CNY – Bearish. SGD/CNY remained on the decline, last seen around 4.4860, guided by the declining daily ichimoku cloud. The 50-DMA at 4.5481 is a formidable resistance level. This cross is now approaching support at 4.4670. Intra-day and daily MACD show bearish trades with the forest under zero.

      USD/INR – Waning Bullish Bias. USDINR ended Wed a tad lower and closed at 66.1937. Daily indicators suggest bearish momentum and we eye support around 65.2400. There could be some risks towards 65.9444 for spot prices and a break there opens the way towards 65.24. That said, expect action to be two-way as INR is also not spared from global mood swings. Foreigners sold USD102.7mn on Tue while foreign bond holdings rose by USD41.0mn on the same day. In addition, rate cut speculations and risk aversion has been supporting spot and NDF prices. Intra-day trade could see spot prices in a tug of war within range of 65.90-67.00. Yesterday, Finance Ministry Chief Economic Adviser Arvind Subramanian said that India’s GDP data signal prices have decelerated while pace of growth is below what economy needs. That could continue to play up rate cut expectations and support USDINR.

      USD/IDR – Upticks.  USD/IDR is on the uptick this morning on the back of dollar resurgence. Pair is hovering around 14150-region currently with momentum indicators still showing no strong bias, and stochastics climbing out of oversold levels, suggesting the risks are tilted slightly to the upside. Markets are watching the stimulus package and regulatory changes expected next week that could lift the economy this year and beyond. Until then, the sluggish economy amid global uncertainty regarding growth should continue to be supportive of the pair. Upmoves today are likely to meet resistance around 14200 still while support remains around 13930. 1-month NDF climbed higher towards 14350-region this morning with intraday MACD showing bullish momentum, though stochastics remains at overbought levels. The JISDOR was fixed higher again at 14127 yesterday from Tue’s 14027. Foreign funds sold a net USD39.22mn of equities yesterday, but had added a 1 Sep Aug (latest data available). President Jokowi received a boost yesterday when the National Mandate Party (PAN) with 48 seats in the House of Representatives switch sides and joined ruling coalition. This switch now moves the Awesome Coalition within striking distance of a majority in the House, which would allow the President to proceed more aggressively with his reform programs. The President’s coalition now controls 46% of the total seats in the House.

      USD/PHP – Capped.  USD/PHP is inching higher this morning, supported by the firmer dollar. Pair is currently hovering around 46.777 with both intraday MACD and stochastics bearish bias. This suggests that upticks could be capped ahead. Look for 46.500-46.900 range to hold intraday. 1-month NDF is within striking distance of the 47-figure, currently seen around 46.950 this morning, with both intraday MACD and stochastics showing bullish bias. The buying in equities was short-lived with foreign funds selling a net USD41.69mn yesterday.

      USD/THB – Consolidating Higher.  USD/THB was in consolidative mode yesterday, hovering around the 35.700-35.820 range. Pair continues to trade in those ranges, currently at 35.762, even as it inches higher on the back of a resurgent dollar. Both intraday MACD and stochastics are showing tentative signs of bullish bias, suggesting potential for further upside ahead. The stimulus measures could give a lift to the sluggish economy but the impact is likely to be felt only in the latter part of the year, which suggests that economy could continue to plod along until then, which should continue to weigh on the THB. Moreover, the government’s weak THB policy should continue to support the pair ahead. Continue to expect the pair to trade rangy within 35.655-36.000 range intraday. After buying equities for two straight days, foreign funds sold off a net TH1.00bn yesterday, and at the same time sold-off of a net THB6.72bn in government debt.

Rates

Malaysia

      Local government bonds saw profit taking, with yields 4bps higher at the belly of the curve, as USDMYR gapped higher on the back of lower crude oil prices. While the previous day relief rally was welcomed by the market, players remain skeptical and prefer to take a defensive approach.

      IRS rates were quoted higher by 1-5bps across the board, led by foreign interest. But nothing was dealt in the market. 3M KLIBOR still unchanged at 3.73%.

      Local PDS market saw better buying on selected AAA names. Plus 27s and Aman 25s tightened 7bps and 5bps respectively. In the GG space, Prasa and Dana papers were better bid, with Dana 24s trading 3bps tighter. For AAs, Imtiaz 19s traded 9bps tighter while longer dated papers generally traded wider. Papers with less than 1y maturity continued to be sought after for carry.

Singapore

      SGS market was very volatile. Players rushed to sell once market opened, pushing yields up as high as 8-9bps. Market sentiment took an abrupt turn later in the day as buying interests emerged, driving yields down very quickly and yields ended lower by 1-5bps. For SGD IRS, paying interest was more pronounced at the front end as the curve bear flattened, with the front end up 2-4bps while the back end was down 1-10bps. Short dated forwards continued to see firm paying interest.

      Asian credit space saw better buying ahead of the HK/China holiday. With the Chinese equity market stabilizing a little, bottom fishers gained confidence in the credit market. Chinese financials and Korean names were 2-3bps tighter in spreads. INDON sovereigns mostly traded unchanged, while Chinese property names mostly saw selling, trading 0.25-0.50pt down. On rating changes, 1) Glorious Property rating was cut by S&P from CCC- to CC/negative, and 2) Shanshui’s rating was downgraded by Fitch from B+ to B-/negative. Shanghai Pudong Development Bank will have a roadshow starting 4 Sep for a USD issuance targeted next week. We expect market to be muted for the next few days given the HK/China holiday and NFP release on Friday.

Indonesia

      Indonesia bond market closed slightly lower compared to previous day close as there were minimum market sentiment during the day. Market player continue to wait for upcoming labour data from U.S. market which will be published post market closed this Friday and will be responded only Monday. Aside from that, market player are also waiting for the planned publication of big stimulus packages by the government. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 8.450%, 8.778%, 9.039% and 9.060% while 2y yield shifts up to 8.047%. Trading volume at secondary market was seen moderate at government segments amounting Rp12,667 bn with FR0053 as the most tradable bond. FR0053 total trading volume amounting Rp2,124 bn with 41x transaction frequency and closed at 98.625 yielding 8.549%.

      Corporate bond trading traded heavy amounting Rp1,186 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 Rp153 bn yielding 8.789%.

      Corporate bond trading traded heavy amounting Rp1,330 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 Rp200 bn yielding 9.169%.