Maybank GM Daily - 2 Nov 2015

FX

Global

      US stocks ended Oct in red, dragged by weak earnings and mixed data. Personal income and spending posting growth of 0.1%m/m each for Sep vs. previous 0.4%. PCE core steadied at 0.1%m/m. Univ. of Mich. Sentiment softened to 90.0 for Oct from 92.1 in Sep while Chicago PMI soared to 56.2. We are still positive on USD outlook, but technicals suggest short-term weakness against some AXJs including CNY, THB. Prefer to use opportunity to buy USD on dips selectively. In particular we favor buying USDKRW on dips. EUR is expected to range-trade. Antipodeans may see further upside.

      Earlier last Fri, BOJ did not add more stimulus and extended the timeline to meet the inflation target from mid-2016 to Mar 2017. Asia strengthened in the absence of dollar strength. The Renminbi stood out, underpinned by rumours of intervention, upcoming SDR and concomitant expectations for yuan supportive policy moves. PBOC announced that the central bank may use Shanghai FTZ to test yuan capital account convertibility. In addition, the central bank also allows foreign central banks to open yuan settlement accounts with domestic banks. Over the weekend, PMI-mfg came in at 49.8, signifying continued contraction in manufacturing. Services measure fell a tad to 53.1. Caixin’s version is due today.

      Week ahead, NFP is key. Consensus expects 180K. Earlier this week, RBA meeting takes focus with risks tilted to a rate cut though we see no hurry. BOE rate decision and inflation report will also be closely watched. Risk is to the downside if outlook is downgraded. Other data we watch include  US Sep construction spending; Oct ISM; Australia Sep building approvals; Indonesia Oct CPI (Mon); US Sep factory orders; Korea Oct CPI; SG Oct PMI (Tue); US Oct ADP; Sep trade data; Fed’s Yellen testimony before House Panel; NZ 3Q labor market report (Wed); EC Sep retail sales; BNM monetary policy meeting (no change to policy stance); PH Oct CPI (Thu); RBA publishes SoMP; BoJ Kuroda speaks; MY Sep trade, Oct FX Reserves; PH Oct FX Reserves (Fri).  ID 3Q GDP to be released sometime between 5-7 Nov.

Currencies

G7 Currencies

      DXY – Buy on Dips. USD slipped amid disappointing data – PCE core, Univ. of Michigan Sentiment, personal income and spending were weaker than expected. DXY was last at 96.80 levels. We cautioned last week that daily stochastics is rapidly entering overbought areas; and is showing early signs of turning lower. That could imply some short term pressure in the interim. Medium term, we remain optimistic on USD outlook. Key resistance remains at 97.42 (61.8% fibo retracement of Mar high – Aug low).  We look for a move higher towards 98.55 levels (76.4% fibo and Aug high) on the break. Remain better buyers of USD on dips. Support at 96.50 levels (50% fibo), 96 levels (100 and 200 DMAs). Week ahead brings Construction spending (Sep); Mfg PMI, ISM (Oct); Fed’s Williams speak (Mon); Factory Orders (Sep); ISM NY (Oct) on Tue. For Wed, ADP (Oct); Trade (Sep); services/composite PMI (Oct); ISM non-mfg (Oct); Fed’s Yellen Testimony before House panel. For Thu, Initial Jobless Claims (31-Oct); Fed’s Fischer, Harker, Dudley, Lagarde, Lockhart speak. For Fri, NFP, unemployment rate, wages (Oct); Fed’s Bullard, Brainard, Williams speak.

      EUR/USD – Upside Risk Intra-day; Sell into Strength. EUR was a touch firmer amid USD weakness. Euro-area core CPI edged higher. We continue to reiterate growing monetary policy divergence theme between Fed and ECB especially last week whereby FOMC statement was interpreted as hawkish hold while ECB remains on outright easing bias, reinforcing the “sell EUR on rally” trade. 2Y German-US yield spread has also widened to all time high of -104bps {US 2Y yield at 72bps while German 2Y yield at about -32bps (this is near all-time low)}. That said we cautioned against chasing shorts. But EUR’s downside pressure may be limited by EUR’s inverse correlation with risk asset (YTD correlation coefficient between EUR and German DAX recently strengthened to -0.61 out of maximum possible of -1.0). This implies that a turn in risk sentiment may see provide interim support. Technical-wise, daily stochastic is showing tentative signs of turning higher from oversold levels and this could suggest some upside risks in the near term. We remain better sellers on rallies towards resistance at 1.1090 (50% fibo retracement of Mar – Aug) - 1.1110 (200 DMA). On the downside, therer needs to be a clean break below 1.0980 (trend line support from Mar and Apr lows), 1.0940 (61.8%) levels for further downside towards 1.0830-40 levels (Jul-Aug 2015 support), 1.0760 (76.4% fibo) to come into play. Week ahead brings EC, GE, FR PMI (Oct); ECB Lautenschlaeger speaks on Mon. For Wed, ECB Draghi speaks; EC, GE, FR services/composite PMI (Oct). For Thu, GE Factory orders (Sep); EC retail sales (Sep); ECB Draghi speaks; EC, GE, FR Retail PMI (Oct). For Fri, GE IP (Sep).

      GBP/USD – Watch 100 DMA. GBP inched higher into Fri close amid USD weakness. Focus for the week on Blockbuster Thursday (5 Nov) which will see the release of Quarterly Inflation Report which is expected to address some of the concerns BoE deferred at its last MPC meeting in Oct. Risk is to the downside and could weigh on GBP strength. That said, we remain optimistic of GBP outlook and believe markets could be under-pricing the prospects of BoE rate rise (Consensus looks for BoE to hike in 2017; we expect 1H 2016). Remain better buys of GBP on dips. GBP was last at 1.5440 levels. Daily momentum and stochastics suggest some signs of upside bias. Resistance at 1.55 levels (100 DMA). If broken on daily close basis, could expose further upside towards 1.5650 (previous high in Sep). Support at 1.5340 – 1.5350 levels (38.2% fibo and 21, 50, 200 DMAs), before 1.5260 (61.8% fibo retracement of Oct low to high), Week ahead brings Oct PMI Mfg (Mon); Oct construction PMI (Tue); Oct services/ composite PMI (Wed); BoE blockbuster meeting – decision, Quarterly inflation report and press conference (Thu); Sep Industrial, manufacturing production, trade data (Fri).

      USD/JPY – Downside Pressure; Buy On Dips. USD/JPY was well-bid into BOJ meeting (30 Oct) on hopes of more QQE which did not materialize. BOJ Governor Kuroda remained confident that the 2% inflation target would be achieved on the back of wage increases and a global oil price rebound, though the deadline was pushed back to 2H FY2016 instead of 1H FY2016. The BOJ in its semi-annual economic outlook also expects the economy to recover moderately with growth likely to exceed potential in FY15 and FY16. 3Q15 due on 15 Nov and the two remaining scheduled BOJ meetings for 18-19 Nov and 17-18 Dec will be watched as a result. The window to ease has yet to be closed. Daily technicals suggest some downside pressure in the short-term, with support at 120.20 (21 and 50 DMAs), 119.66 (38.2% Fibo retracement of 125.28-116.18 downswing). But underlying momentum appears to indicate a bullish bias. We favour buying on dips towards 118.30. Resistance remains at 121.80 (100DMA and 61.8% Fibo retracement). Week ahead brings Oct PMI Mfg (Mon); Oct monetary base, composite/service PMI, consumer confidence (Wed); BOJ minutes (Thu); BOJ Kuroda speaks; Sep leading and coincident index (Fri).

      AUD/USD – Eyes on RBA. AUDUSD swung within 0.71-0.7150 in NY session last Fri, last seen around 0.7135. There is rising expectation for RBA to cut rate following weaker than expected 3Q CPI (announced on 28 Oct). RBA meets tomorrow. We think there is no urgency to lower rate at this meeting with consumer and business confidence still intact for now. Prevailing interest rates have been supportive of consumption and borrowing. More importantly, we do not think the central bank should squander precious monetary easing tools. Daily momentum is bearish bias but stochastics are showing signs of turning higher from oversold levels. Interim support is seen at 0.7060. Thereafter, support at 0.70-levels (rising trend-line support from Sep lows) should hold. Weekly chart shows signs of bullish divergence. Immediate resistance is seen at 0.72 (23.6% fibo retracement of 2015 high to low), 0.73 (100 DMA) before 0.7390 (38.2% fibo). Week ahead brings Sep building approvals; Oct commodity Index today; RBA meeting (Tue); Sep retail sales, trade Wed); RBA Governor Stevens, Lowe speak; RBA releases Statement of Monetary Policy; RBA Edey speaks; Oct FX Reserves (Fri).

      USD/CAD – Settling into Range? USDCAD pulled back last Fri and was last seen around 1.3080, capped by the ichimoku cloud. Pair is guided by the softer USD. Aug growth decelerated to 0.1%m/m from previous 0.3%. Year-on-year, growth expanded 0.9%. We see two-way trades ahead within wider range of 1.2990-1.3300. Daily MACD shows some deceleration in bullish momentum. RBC Canadian Mfg is due today. Labour report for Oct is due on Fri (Cons.: 10K net change in employment).

      NZD/USD – Upside Risk Intra-day.  NZD remains well-supported, helped by a soft USD and resurging AUD. We remain overall bearish bias in the pair but cautioned for some upside risk in the short term as technical setup (rally since Sep to Oct, following the big decline from May to Sep) suggests an ABC correction. Should 0.6620 (28 Oct lows) holds, the pair could make a push higher (as part of the C-wave). First resistance to watch at 0.6810 (76.4% fibo of 0.6866 – 0.6623). If cleared successfully, could expose the pair towards 0.69 levels (Sep high) before 0.70 (150% fibo projection). Break below 0.6620 cancels out wave-C and put next focus on 0.65 (50 DMA). Week ahead brings Oct house prices, commodity prices (Tue); 3Q employment change, wages (Wed); Government’s 3-month financial statement (Fri).

Asia ex Japan Currencies

      The SGD NEER trades 0.56% below the implied mid-point of 1.3911. The top end is estimated at 1.3632 and the floor at 1.4191.

      USD/SGD – Fade Rallies. USD/SGD inched higher above the 1.40-handle into the close of the week Weekly momentum has turned bearish bias. Upside towards 1.4080 (50DMA, 23.6% Fibo retracement of the May to Oct upswing) could be capped. Tactical bias to fade rallies with tight stop placed above 1.4120, looking for a move lower towards 1.3880 (100DMA) before 1.3760 levels (50% Fibo retracement). Quiet data week ahead with just Oct PMI (Tue) and Oct Nikkei PMI (Wed).

      AUD/SGD – Downside Bias. AUDSGD waffled around 0.9990. Momentum indicators on the daily chart show downside bias with support seen at 0.9890. Price action shows strong barrier around the 1.0020/40 region. Range-plays could have shifted lower to 0.9900-1.0040.

      SGD/MYR – Awaiting for Fresh Cues. SGD/MYR continues to be well supported above its 50DMA. Cross was last seen at 3.0700 levels. Momentum and stochastics indicators remain flat. Immediate resistance at 3.0810 (76.4% fibo of Sep high to Oct low). Next support at 3.0350 levels (21, 50 DMAs). Expect range as we await further cues.

      USD/MYR – Range-Bound. USD/MYR continues to stay supported. Last seen around 4.2930 levels. Daily momentum is indicating tentative signs of mild bullish bias. Resistance at 4.3280 (61.8% fibo retracement of Sep high to Oct low), before 4.3860 levels (76.4% fibo). Support at 4.2730 (50 DMA), before 4.23 levels (38.2% fibo). Week ahead brings BNM meeting on Thu and Sep trade data; FX reserves data on Fri. We expect Bank Negara Malaysia (BNM) to keep the policy rate unchanged at 3.25%. In fact we do not expect BNM to move in the next 4-5 quarters despite the US policy rate cycle as it needs to maintain accommodative interest rate policy to support domestic demand. The official growth forecast of 4-5% next year means growth is still sustained so there is no need to cut policy rates. There is more upside risk for inflation next year rather than downside and provides further support for a no move, especially in a near zero real interest rate. BNM is likely to focus on market liquidity which is in line with moves to encourage "onshoring" of local corps currency earnings and deposits.

      1s KRW NDF – Buy on Dips. 1s KRW was a touch softer this morning around 1142 levels. S. Korea released Oct trade data yesterday; trade balance fell due to persistent decline in exports. Daily momentum continues to indicate a mild bullish bias but daily stochastics shows tentative signs of turning lower. Resistance at 1143 (21 DMA), before 1152 (38.2% fibo retracement of Sep high to Oct low). Remain better buyers on dips. Support at 1129 (200 DMA) is expected to hold. Week ahead brings Oct CPI inflation (Tue); Oct FX reserves (Wed).

      USD/CNH – Lack of Momentum Now. USD/CNH was sold below the 6.35-figure and touched a low of 6.3152 before closing a tad under the 100-DMA. Pair was last seen around 6.3250. We think this pair is still pivoting around the 100-DMA at 6.3275. There is not much downside momentum at this point. CNH is trading at a discount to CNY against the USD, last seen around 110 pips ahead of the onshore market open. As of 30 Oct, USD/CNY was fixed 101 pips lower at 6.3495 (vs. previous 6.3596). CNY/MYR was fixed 41 pips higher at 0.6732 (vs. previous 0.6691). Eyes are on PMI-mfg numbers later, markit version. Official PMI came in at 49.8, steady from the previous month, underscoring the contracting manufacturing sector. Eyes are on the SDR review this month by the IMF and last week saw PBOC announcing more plans of capital account liberalization measures and allowance for foreign central banks to open a settlement account with domestic banks. Financial intermediation has been a key support for GDP in the first three months and likely to be a major growth driver going forward.

      SGD/CNY – Bearish Risks. This cross slipped below the daily ichimoku cloud and was last seen around 4.5150. Momentum is still bearish with risks to the downside. Next support is seen around 4.4900 and then at 4.4560. Rebounds could meet resistance around 4.5430 (100-DMA).

      1s INR NDF – Steady. 1s USDINR remained on the upside bias, last seen around 65.70.  Resistance remains at 66.08, marked by the 50-DMA. MACD on the daily chart shows increasing upside momentum that could keep the pair to the upper bound of the 64.80-66.10 range. A more unlikely bearish breakout exposes 200-DMA at 64-figure. Last Thu saw foreigners bought USD82.2mn of equities and sold USD114.4mn of bonds. Nikkei PMI-mfg for Oct is due today but the rest of the week is rather data empty.

      USD/IDR – Two-Way Trades. USD/IDR is edging lower this morning to 13665 at the point of writing, playing catch-up with its regional peers. Pair however remains in consolidative mode within 13200-13780 since its slid lower towards 13280-levels. Daily MACD and stochastics are both showing no strong bias in either direction. In the absence of fresh catalyist and ahead of US NFP this Fri, pair is likely to remain in two-way trades ahead. Immediate resistance is around 13775 (100DMA, 76.4% Fibo retracement of the Aug-Sep upswing) ahead of the next at 13840. Support is seen around 13450 before 13380 (200DMA). 1-month NDF continues to hover range-bound, hovering within a wide range of 13360-14100, with both daily MACD and stochastics still both showing no strong bias. The JISDOR was fixed higher on Fri at 13639 to end the week from Thu’s 13562. Appetite for Indonesian assets was mixed last week with foreign funds selling a net USD575.61mn of equities. Meanwhile, they added a net IDR3.57tn to their outstanding holding of government debt on 26-29 Oct (latest data available). Data-quiet week ahead with Oct CPI (Mon) and 3Q15 GDP to be released between 5-7 Nov.

      USD/PHP – Rangy.  USD/PHP gapped lower at the opening this morning to 46.785, tracking the USD/AXJs broadly lower. Pair is still edging lower at 46.775 currently with daily momentum indicators still bullish bias, though stochastics remains in overbought territory. This suggests that further dips could be limited and next support is seen around 46.675 (ichimoku conversion line) before 46.500. 47.000 should cap any upside. After climbing to a monthly high of 47.240 (29 Oct), 1-month NDF is on the slide back below the 47-figure at 46.840 at the point of writing. Daily MACD is showing bullish momentum, and stochastics is still at overbought levels. The sell-off in equities moderated last week with foreign funds selling a net USD67.22mn in equities vs. USD1.26bn the week before. Week ahead has just Oct CPI (Thu) and Sep Trade; end-Oct FX reserves (Fri).

      USD/THB – Two-Way Moves.  USD/THB has been hovering range-bound for past two weeks or so, trapped within a daily ichimoku cloud. This suggests taht two-way moves are likely in the week ahead. Pair is currently edging lower below the 35.600-levels, helped by a softer dollar tone. Daily momentum indicators are showing no strong bias with next support at 35.266 (lower bound of the cloud) before 35.010 (38.2% Fibo retracement of the 32.320-36.670 upswing).  Resistance is around 35.878 (upper bound of the cloud). Risk appetite for Thai assets waned last week with foreign funds selling a net THB6.75bn and THB6.60bn in equities and government debt, putting downside pressure on the THB. The week ahead has Oct CPI (Mon); BoT policy meeting (Wed); 30 Oct foreign reserves (Fri). Monthly BoT data released last Fri showed an economy that is gradually on the rebound. Private consumption and private investment rose by 0.4% and 1.1%y/y in Sep respectively vs. Aug’s -1.4% and +2.1%. Manufacturing production fell by -3.6% y/y but this was a moderation from -8.3% in Aug. More importantly, tourist arrivals rose by 8.7% y/y in Sep, which suggested that tourism had not been that badly affected by the Bangkok bomb blast. The data suggested then that 3Q15 GDP growth (16 Nov) could expand by around 3.0%.

Rates

Malaysia

      In the local government bond market, trades centered on the 3y benchmark MGS 3/19, followed by the 7y MGS 9/22. The yields ended unchanged and so did the rest of the curve which saw hardly any trades.

      IRS was very quiet, with the curve ending almost unchanged. There were no trades reported for the day. 3M KLIBOR stayed the same at 3.74%.

      PDS market traded mixed. Better buying seen on AAA and GG names at the belly with the space tightening 1-2bps. The AA curve was instead muted. Temasek Ekslusif 20s traded 4bps wider, while YTL Power 24s traded 4bps tighter from last done. Some buying also seen on papers maturing <6m. Investors seem to have become more cautious post FOMC.

Singapore

      SGS got sold off, triggered by the drop in USTs overnight. Short-dated bonds were pressured again by higher SGD funding, and long-dated ones were heavily sold as well. SGS yield curve bear steepened by 5-9bps with the long end underperforming. SGD IRS curve got bid up, also bear steepening by 4-9bps in thin trading.

      Asian credit market closed the month on an upbeat tone. Spreads mostly tightened as CDS protection sellers took advantage of Thursday’s elevated levels. CDS for INDON and MALAY outperformed cash bonds. Market was mainly preoccupied with the new China Nuclear 25. IG papers still in demand, whereas sovereigns seemed to have halted its march. INDON 45 was particularly hard hit, losing almost 2pts. Market rumors about a possible INDON issuance in November. On rating changes, Longfor Properties’ rating was revised to BB+/positive from BB+/stable by S&P.

Indonesia

      The week closed with Indonesia bond market booking losses. Post market close, Indonesia legislative passes the 2016 budget. Indonesia government need to seek for approx Rp429 tn in 2016 to finance budget deficit and maturing government bond. Aside from that, Indonesia government believes that 2016 growth would be around 5.3%, inflation would reach 4.7% while average Rupiah would be at Rp13,900 per USD. Indonesia statistic will be issuing October inflation data today where economist believes that inflation may fall to 6.3% YoY from 6.83% YoY.  5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 8.641%, 8.783%, 9.072% and 9.128% while 2y yield shifts up to 8.336%. Trading volume at secondary market was seen heavy at government segments amounting Rp13,524 bn with FR0061 as the most tradable bond. FR0061 total trading volume amounting Rp2,461 bn with 19x transaction frequency and closed at 91.498 yielding 8.732%.

      Corporate bond trading traded thin amounting Rp329 bn. ASDF02BCN3 (Shelf registration II Astra Sedaya Finance Phase III Year 2014; B Serial; Rating: AAA(idn)) was the top actively traded corporate bond with total trading volume amounted Rp76 bn yielding 10.113%.