Maybank GM Daily - 7 Sep 2015

FX

Global

      The US NFP surprised to the downside with a 173K print (vs. consensus at 217K). Average weekly wage picked up pace to 0.3%m/m from previous 0.2%. Notwithstanding the drop in jobs added, the wage number ties in well with the recently released Beige Book which reported signs of tightening labour market in several districts. We expect the Fed lift target fund rate to 0.25-0.50% on 18th Sep (2am SGT). Over the weekend, G20 nations agreed that global growth is still below expectations and “pledged decisive actions” to keep economy recovery on track. They also promised to avoid competitive devaluations.

      Week ahead has quite a number of events. We expect RBN to cut OCR by another 25bps to 2.75% amid downside risks to dairy sector, growth and inflation. BOC, BOE, BOK and BNM will meet as well but they are expected to sit on their hands. Onshore markets in China will be open today while US and Canada are away for Labor Day Holiday. There is an air of wariness after disappointing US job data dragged Wall Street. Asian markets will also eye Chinese equities which have erased all gains for the year.  China will also release more data with FX reserves due today. Many expect a significant drop after frequent interventions to prop the yuan up since the yuan regime change. Other releases include trade (Wed); CPI, PPI (Thu) and liquidity numbers (10-15 Sep).

      Other data due include Aug FX reserves for Indonesia (Mon); Euro-area, Japan 2Q GDP (Tue); UK Jul industrial production and trade data (Wed); US jobless claims; Malaysia Jul industrial production; India Aug trade (Thu); US Aug PPI (Fri).

Currencies

      DXY – Near Term Bullish Bias. DXY was mixed amidst mixed bag of payroll data Fri. USD was weak against JPY, but firmed against AUD, NZD and most AXJs. Aug NFP was a shocking +173k vs. (Cons +217k). While this is the lowest level since Mar and way below the average for the year (212k), NFP is usually weak in Aug due to summer holidays as only about 70% participants answered the survey. Like previous August since 2012, NFPs were subsequently revised upwards in the following month. Other labor-related indicators - average earnings was marginally better than expectation at +0.3% m/m (vs. Cons. +0.2%). Unemployment rate was lower at 5.1% (vs. Cons. 5.2%). Revision to Jul NFP surprised to the upside (+245K vs. Jul +215K). Our house view for a 25bps dovish 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. DXY was last at 96.14 levels. Weekly momentum remains bearish bias. DXY needs to clear above 98-levels for further upside to gather momentum. On the daily chart, momentum and stochastics are indicating mild bullish bias. Support remains at 96 (100 DMA), 95.60 (38.2% fibo of Mar high to Aug low), 95.00 (200 DMA). Resistance at 96.50 (50 DMA) before 97.40 (61.8% fibo).  Week ahead brings Aug labor market conditions (Tue); Jul JOLTS job openings (Wed); initial jobless claims (Thu); Aug PPI; Sep Prelim Univ. of Michigan Sentiment (Fri).

      EUR/USD – Caught Between a Dovish ECB and Risk Aversion. EUR was marginally firmer amidst the decline in equities despite ECB QE talk last Thu. While we had mentioned that ECB ready to do more could add to impetus to sell EUR on rallies, but the contradicting part is risk-off sentiment moves support the EUR and this contradict the impetus to sell EUR on rallies. EUR last seen at 1.1170 levels this morning. Daily momentum and stochastics now suggest some downside pressure. Support at 1.1080 (50 DMA), 1.1050 (76.4% fibo of retracement of Aug low to high). Resistance at 1.12 (21 DMA) before 1.1280 (200 DMA).  Week ahead brings GE Jul IP (Mon); EC 2Q GDP; GE, FR Jul trade (Tue); FR Jul IP (Thu); GE Aug CPI; Euro-area Finance Ministers meeting in Luxembourg (Fri). US markets are closed for holidays on Mon.

      GBP/USD – Bearish Bias. GBP weakened for a second consecutive week to 3-month low of 1.5214 (4 Sep) amidst slightly weaker than expected data – manufacturing, services and construction PMI. To be sure, the PMIs were only slightly weaker than expected as they remain in expansionary territories. Focus for the week ahead on BoE meeting. Previous meeting saw MPC members voted 8-1 in favor of keeping policy rate and asset purchase unchanged. BoE MPC statement and press conference were slightly less hawkish than expected. With inflation still soft and at risk of falling further due to oil prices, GBP strength is not desired as excessive GBP strength could see further downside risk to inflation and derail the policymakers’ effort to anchor inflationary expectation. On technicals perspective, there is downside bias. Weekly and daily momentum indicates a bearish bias. Key support at 1.5260 (50% fibo retracement of Apr low to Jun high), if broken on daily close basis could see further downside pressure towards 1.51 (61.8% fibo). Resistance at 1.5350 (200 DMA). Key data for the week ahead includes Jul industrial, manufacturing production, trade (Wed); BoE meeting; house price balance (Thu); Jul Construction output; GfK inflation expectations (Fri).

      USD/JPY – Bearish Bias. USD/JPY remains on the back foot, trading below the 120-handle as the sell-off in the equities market continue on concerns about global growth. Pair is hovering currently below the 119-handle with a double-top resistance having formed at 124-125 levels (double-top from 2007-2015). Weekly, daily momentum is bearish bias. Next support is seen around 118.30 (23.6% Fibo retracement of the Aug high to low). A break below on a daily close basis puts the 116-support in focus. Resistance is seen around 120.80 (200DMA). Week ahead brings Aug official reserves; Jul leading and coincident index (Mon); 2Q GDP; Jul current account (Tue); Aug machine tool orders; Jul machine orders; and Aug consumer confidence (Wed).

      AUD/USD – Bearish. This pair slipped below 0.70-handle after the labour report last Fri; last seen at 0.6920 levels at time of writing. Weekly, daily momentum and stochastics remain bearish bias. Next support at 0.68 before 0.65, but technically speaking, there isn’t any strong support levels before 0.60. Week ahead brings Aug NAB business confidence; RBA Ellis speaks (Tue); Sep Westpac consumer confidence; RBA Lowe speaks (Wed); Aug consumer inflation expectation; employment change (Thu). 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.

      USD/CAD – Bearish Divergence. USDCAD remained in two-way trades and was last seen around 1.3270. The pair had a bullish session last Fri but was unwell to test the 1.33-figure. That marks the first barrier to break ahead of the next at 1.3354 (recent high). Two-way action still dominates. Next barrier is seen around 1.3432. We stick to our view that the bearish divergence can still play out. A break of the 1.3147 support could expose next support around the 1.3016 (23.6% Fibonacci retracement of the May-Aug rally), which coincides with the 50-DMA around 1.2987. Topside is capped by 1.3354. Bank of Canada will meet on Wed but the central bank is widely expected keep target rate at 0.50%. Housing starts and building permits will be released on the same day.

      NZD/USD – Bearish. NZD stayed soft, breaking below 0.63-handle ahead of RBNZ meeting this Thu. We 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 (although recent auction saw the 2nd back to back increase after 10 consecutive declines), benign wage inflation, declining ToT amid weakening demand. We expect RBNZ to cut OCR by 25bps to 2.75% at the next meeting on 10 Sep. Last seen at 0.6280 levels. Weekly, daily momentum remains bearish bias. Next support at 0.60. Week ahead brings 2Q Mfg activity (Tue); RBNZ Meeting; REINZ Aug House Sales (Thu); BusinessNZ Aug Mfg PMI; Food Prices (Fri).

Asia ex Japan Currencies

      The SGD NEER trades 1.37% below the implied mid-point of 1.4042 with the top end is estimated at 1.3757 and the floor at 1.4327.

      USD/SGD – Leg Higher Towards 1.45? The USD/SGD’s drift higher continues unabated, hitting a fresh 5-year high of 1.4242 at the point of writing. Pair appears to be making a short term ascending triangle formation, with resistance at the 1.4170-80 levels and ascending troughs. A break above could see the pair go higher towards 1.45-levels. Meantime, support is 1.4050 (21DMA) before 1.3950 (trend-line support from Jun to Jul lows).  Underlying momentum remains bullish bias. We continue to favour buying on dips. We will re-consider bullish bias on any abrupt move lower and close below 1.38.

      AUD/SGD – Eye Break of 0.9925. This cross tried lower this morning before reversing higher to around 0.9860. MACD shows bearish momentum. Next support is seen at 0.9790 ahead of the 0.96-figure. First barrier is seen around 1.0017 and any further upticks could meet 1.0100 which marks the bottom of the daily ichimoku cloud.

      SGD/MYR – Upside Pressure. SGDMYR remained above 3-handle amidst MYR weakness.  Cross was last at 3.0070 levels. 4-hourly momentum and stochastics are indicating mild bullish bias (near term). Interim resistance at 3.05 (previous high). 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 – Renewed Upside Pressure. USDMYR rose to another all-time high of 4.31 this morning (vs. Fri close of 4.26) amidst USD strength (against AXJs) and oil price weakness. External reserves came in better than expected as it stabilized at end-Aug 2015 after falling sharply in the preceding two months. This was despite weak MYR and indications of continued net portfolio investment outflows from foreign selloffs in the equity and bond markets. On exports, Malaysia posted its first back-to-back YoY export growth this year which saw the benefit of weaker MYR on manufacturing-based exports as commodity-based exports remained weak. Rebound in imports reflects weak MYR. Our economists expect trade outlook to be influenced mainly by commodity prices and China. Pair was last seen at 4.3010 levels. 4-hourly stochastics and momentum suggest some upside bias. Next resistance at 4.3370 (123.6% fibo projection of Aug high to Sep low), before 4.36 (138.2% fibo). Support remains at 4.26 (76.4% fibo), 4.22 (50% 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.

      1s KRW NDF –Upside Pressure. 1s  KRW firmed amidst broad USD strength against most AXJs. Daily momentum and stochastics are showing tentative signs of bullish bias. Next resistance at 1210, before 1220 (123.6% fibo projection of Aug high to Sep low). Support at 1185 (21 DMA). BoK meets Fri. We expect BoK to keep policy rate on hold at 1.5% amid tentative signs of pick up in domestic consumption and implementation of supplementary budget. 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 open today after an extended weekend. USD/CNH hovered around 6.4540. 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. USD/CNY was fixed 35 pips pips lower at 6.3584 (vs. previous 6.3619). CNYMYR was fixed 156pips higher at 0.6671 (vs. previous 0.6514). 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. Over the weekend in a statement, PBOC Governor Zhou Xiaochuan said that economic fundamentals are substantially unchanged. He also said that the bubble in the stock markets had burst. Finance Minister Lou said he is not too concerned short-term fluctuations in Chinese economy.

      SGD/CNY – Eye 4.4560. SGD/CNY is now near year low of 4.4630. 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. Next support at 4.4284. 

      USD/IDR – Bullish Bias.  USD/IDR continues to drift to fresh highs not seen since the Asian financial crisis at 14248 this morning. Concerns about global growth, imminent US Fed fund rate hike as well as domestic growth concerns continue to support the pair higher. Risks remain on the upside given MACD is bullish momentum though stochastics is overbought levels. Barrier is seen around 14250 ahead of the next at 14350. Support is seen around 13950 (21DMA). 1-month NDF is on the slide this morning to 14436 after climbing above the 14500-handle on Fri with MACD forest showing no strong momentum, and stochastics just a tad off overbought levels. The JISDOR was fixed at a new record of 14178 on Fri. Sentiments remained weak with foreign funds selling a net USD58.58mn of equities last week and added a net IDR1.9tn to their outstanding holding of government debt on 31 Aug-3 Sep (latest available data).

      USD/PHP – Capped.  USD/PHP gapped higher at the opening to 46.923 (fresh 5-year high) from Fri’s close of 46.760 on concerns about global growth and possible imminent US Fed fund rate hike next week. Pair has lost most of its bullish bias and is now showing bearishness while stochastics is tentatively falling from overbought levels. This suggests that further upside could be capped ahead. Look for 47-figure to cap upside, though a clean break could see the pair headed towards 47.130. Dips should find support around 46.740 (21DMA). 1-month NDF remains above the 47-figure this morning at 47.070 with intraday MACD showing bearish momentum and stochastics still falling from overbought levels. Foreign funds continued to sell equities with a net USD47.60mn sold last week as risk appetite continues to wane.

      USD/THB – Bullish Tilt.  USD/THB continues to test the psychological 36-figure n Fri on concerns about global growth and possibility of US Fed hike in Sep. Pair is currently just a tad off the 36-figure at 35.985 currently with daily MACD forest showing no strong momentum though stochastics is at overbought levels, suggesting that the grind higher could be gradual. Aside from sluggish economic growth and weak THB policy, domestic political concerns have heightened given the rejection of the draft constitution by the military-backed National Reform Council, thereby extending the government of PM Prayuth indefinitely until a new constitution is drafted. This should be supportive of the pair ahead in the medium-term. In the near term, is inching higher this morning, trading at the upper half of its current trading range of 35.655-36.000 at 35.839 currently. A daily close above the 36-figure could see the pair head towards 36.500. In the interim, resistance should be around 36.200. Any dips should continue to find support around 35.655. Risk aversion last week saw foreign funds selling a net THB2.65bn and THB15.18bn in equities and government debt, supporting the pair. Quiet week ahead with 4 Sep foreign reserves on tap.

Rates

Malaysia

      In the local government bond market, there was mixed buying on 7y and 10y MGS benchmarks as yields ended lower by 4-6bps. Foreign reserves rose marginally in the last 2 weeks of Aug 2015 to USD94.7b from USD94.5b. Players look to the US NFP and also the next auction for more direction.

      The IRS market ended a tad higher, moving along with the weaker MYR. Some trades reported on the 5y point. 3M KLIBOR stayed at 3.73%.

      Quiet day in the local PDS market as players waited Malaysia’s foreign reserves and US NFP data. Bids tightened for high grades, especially 5-10y GG and AAA names. Dana 25s traded at 4.63% (MTM level) compared to bids of 4.75% in the previous day. Danga 20s was also traded but at 4.34%, about 1bp wider. In the AA space, mostly short dated papers were traded, with SEB, SDBB and YTL power trading 1-3bps wider.

Singapore

      SGS market was slightly less messy ahead of the US NFP, and the general sentiment was to reduce position. SGS closed 2-5bps lower in yields across the board, with bond swap spreads remaining wide. The 10y benchmark SGS ended at 2.77% with swap spread at -24bps. Funding rates were slightly lower as well.

      Asian credit space was quiet ahead of the US NFP release last Friday, while China was still on holiday. Asian CDS opened mostly 2-3bps tighter. Overall, the sentiment in emerging markets is still weak and better selling still seen in Chinese names. Two way flows were seen on Indian names, and small buying continued on Korean financials. MALAYS were mostly on the selling side, trading unchanged to slightly wider due to the thin liquidity.

Indonesia

      Momentum before Aug-15’s US non-farm payrolls announcement and USDIDR’s strengthening gave pressures to IDR Government bond market on the last Friday. Some foreign and offshore counterparty were on the sell side.  Yield 10Y benchmark up by 9 bps to 8.97% and 20Y up by 6 bps to reach 9.16%. 

      Trading activity of corporate bond for the last Friday was lower with total volume only reach Rp498 billion, compared to prior day at Rp944 billion. Bank Bukopin bond which mature in 2019 traded with highest total volume, followed by Bank BTN bond. Same with yesterday, the banking sector bonds dominated the trading for that day.