Maybank GM Daily - 3 Nov 2015

FX

Global

      The glass was viewed half full when equities rose on the back of mixed US manufacturing numbers. Oct PMI-mfg came in at 54.1, slightly above the consensus of 54.0. Construction spending rose 0.6%m/m, also beating estimates. ISM manufacturing slipped to 50.1 from 50.2 previously.  WTI oil ended 1% lower on strong Russian production. That left the CAD also on the backfoot, with another drag from poorer RBC Mfg PMI at a record low of 48.

      Yuan clocked its sharpest decline since the 11 Aug devaluation yesterday after Caixin PMI-mfg came in at 48.3 for Oct still in contractionary region, albeit stronger than expected. SDR review is key focus for this month and there were rumours of 4 Nov as the date of the review. As of 30 Oct, IMF clarified to us that the date of the review has not been set, but it will not be 4 Nov.

      Early this morning, South Korea recorded flat CPI for Oct, better than the expected -0.2%m/m. New Zealand’s commodity price accelerated to 6.9%m/m from previous 5.5%. Key event of the day is RBA rate decision around 1130. Market is split on whether the central bank will lower cash target rate and risks have recently tilted towards a cut after 3Q CPI came in under expectations and commercial banks raising mortgage rates amid tighter lending regulations. We do not think RBA will rush into a cut however as we do not think a slower CPI in a disinflationary global environment justify using previous monetary easing tools at this point.

      Later today, Singapore releases PMI-mfg numbers. Beyond Asia, US has Sep factory orders and ISM NY due for Oct. UK releases construction PMI. Onshore markets are closed in Japan for Culture Day holiday today.

Currencies

G7 Currencies

      DXY – Buy on Dips. USD edged higher even as manufacturing data was mixed for Oct. Oct PMI-mfg came in at 54.1, slightly above the consensus of 54.0. Construction spending rose 0.6%m/m, also beating estimates. ISM manufacturing slipped to 50.1 from 50.2 previously.  DXY was last at 96.90 levels. We cautioned 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 Factory Orders (Sep); ISM NY (Oct) today. 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 had an uneventful day yesterday, closing where it opened around 1.1015, still hovering thereabouts as we write in Asia morning. 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 MACD is showing tentative signs of turning higher 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, there 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 ECB Draghi speaks; EC, GE, FR services/composite PMI (Oct) on Wed. 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. The 100-DMA seems to be capping upside for the GBP. The pair tested above the 100-DMA before reversing lower to around 1.5420. 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 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 – Quiet Trades. Onshore markets are closed for Cultural Day and re-opens tomorrow. USD/JPY remained bid overnight, helped by the sell-off in the JPY against the EURO.  Currently seen creeping higher around 120.82, pair has lost most of its Intraday bearish momentum, and stochastics is bullish bias. Daily technical is also showing bullish momentum. This suggests that pressure remains is on the upside ahead, though trades could be quieter today as onshore markets are closed. Immediate resistance at 121-figure (200DMA) ahead of 121.80 (100DMA and 61.8% Fibo retracement). Support is seen at 120.20 (21 and 50 DMAs), 119.66 (38.2% Fibo retracement of 125.28-116.18 downswing). We have Oct monetary base, composite/service PMI, consumer confidence (Wed); BOJ minutes (Thu); BOJ Kuroda speaks; Sep leading and coincident index (Fri) on tap this week.

      AUD/USD – Eyes on RBA. AUDUSD edged higher and was last seen around 0.7160. Despite a fair amount of expectation for RBA to cut rate following weaker than expected 3Q CPI, we think there is no urgency to lower rate at this meeting. Markets seem to pricing the risk of a “no-cut” with analysts almost split on the rate decision, slightly tilted to a “no-cut”. We stick to our view that there is no rush to lower cash target rate. 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 MACD is bearish though losing momentum. 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 RBA meeting today; 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 edged higher overnight though pair has slipped below the 1.31-figure again. There is a lack of momentum at this point and we continue to expect range-trading within 1.3000-1.3300 in the near-term. Interim resistance is marked by the 50-DMA at 1.3160. RBC Canadian Mfg came in 48.0. Labour report for Oct is due on Fri (Cons.: 10K net change in employment).

      NZD/USD – Upside Risk Intra-day.  NZD continues to be well-supported by a soft USD and resurging AUD. As we had cautioned yesterday, there could be some upside risks in the near term (rally since Sep to Oct, following the big decline from May to Sep) suggests an ABC correction, though we remain overall bearish bias in the pair. 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). On tap today is Oct house prices and commodity prices, while for the rest of the week we have 3Q employment change, wages (Wed); Government’s 3-month financial statement (Fri).

Asia ex Japan Currencies

      The SGD NEER trades 0.49% below the implied mid-point of 1.3904. We estimate the top end at 1.3625 and the floor at 1.4184.

      USD/SGD – Bearish Bias. USD/SGD slipped below the 1.40-handle toward 1.3972, underpinned by the softer dollar tone. Intraday momentum is bearish bias as is stochastics. Further downside pressure is likely to see support around 1.3930 (100DMA and upper bound of the intraday ichimoku cloud forming below price action). Any rebound should meet resistance around 1.0415 (21DMA) ahead of 1.4080. Tonight sees Oct PMI and then Oct Nikkei PMI on Wed.

      AUD/SGD – Downside Bias. AUDSGD waffled around 1.0010. Momentum indicators on the daily chart little bias. Support is seen at 0.9890. Price action shows strong barrier around the 1.0020/40 region. We think range-plays could have shifted lower to 0.9900-1.0040.

      SGD/MYR – Still Awaiting Fresh Cues. SGD/MYR continues to be well supported above its 50DMA with the cross last seen at 3.0640-levels. Momentum and stochastics indicators are still flat. Immediate resistance at 3.0810 (76.4% fibo of Sep high to Oct low). Next support at 3.0408 levels (50DMA). Expect range as we await further cues.

      USD/MYR – Range-Bound With Bearish Tilt. USD/MYR continues to stay supported and was last seen around the 4.2870-levels. Intraday momentum is flat, though stochastics is mildly bearish bias. Nearby support is seen around 4.2730 (21DMA) before 4.2353 (50DMA). Resistance at 4.3280 (61.8% fibo retracement of Sep high to Oct low), before 4.3860 levels (76.4% 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 softened this morning to below the 1140-levels at 1136. Intraday momentum and stochastics are both showing bearish bias. Remain better buyers on dips. Support at 1130 should hold intraday. Resistance at 1141 (21 DMA), before 1152 (38.2% fibo retracement of Sep high to Oct low). Today has Oct CPI inflation and Oct FX reserves on Wed.

      USD/CNH – Lack of Momentum Now. USD/CNH rose overnight, tracking the USDCNY and last seen around 6.3470. 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 100 pips ahead of the onshore market open. USD/CNY was fixed 156 pips higher at 6.3310 (vs. previous 6.3154). CNY/MYR was fixed 30 pips lower at 0.6730 (vs. previous 0.6760). Caixin PMI-mfg came in at 48.3, above the consensus of 47.6 and an improvement from previous 47.2. Official PMI came in at 49.8, steady from the previous month, underscoring the contracting manufacturing sector. Eyes are still on the SDR review this month by the IMF.

      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 – Range-Bound. USD/IDR is edging lower this morning towards the 13600-levels, playing catch-up with its regional peers. Seen around 13604 currently, intraday momentum indicators are still bullish bias, though stochastics is showing tentative signs of turning lower. With fresh catalyist still lacking and US NFP ahead this Fri, pair is likely to remain range-bound ahead. Support is seen around 13450 before 13380 (200DMA). Immediate resistance is around 13700 ahead of the next at 13820 (50DMA). 1-month NDF edged lower to around the 13730-levels this morning, though still within its current trading range of 13360-14100, with both intraday MACD and stochastics both showing bearish bias. The JISDOR was fixed higher at 13682 yesterday from Fri’s 13639. Risk sentiments remained sour with foreign funds selling a net USD20.24mn of equities yesterday. Meanwhile, they added a net IDR1.08tn to their outstanding holding of government debt on 30 Oct (latest data available). Remaining week has 3Q15 GDP, which is slated to be released between 5-7 Nov. Headline inflation continued on its moderating trend, rising by a slower 6.25% y/y in Oct compared to 6.83% in Sep, helped by lower food prices, housing and utility costs and transport costs. Core inflation also moderated by 5.02% y/y in Oct vs. Sep’s 5.07%.

      USD/PHP – Downside Bias.  USD/PHP slipped lower towards the 46.790-levels, tracking the USD/AXJs broadly lower. Intraday MACD forest is showing waning bullish momentum, while stochastics is turning lower from overbought levels. Thus, further dips cannot be discounted intraday. Look for support around 46.650 (21DMA) before the next at 46.425 (50DMA). Rebounds should see 47.000 cap any upside. 1-month NDF is on the slide back to the 46.870-levels with intraday MACD showing bearish momentum, and stochastics flat. Risk appetite improved yesterday with foreign funds buying a net USD1.38mn in equities. Week ahead has just Oct CPI (Thu) and Sep Trade; end-Oct FX reserves (Fri).

      USD/THB – Downside Tilt.  USD/THB is edging lower below 35.600-levels, dragged down by a soft dollar. Pair though continues to trade well-within a wide 35.350-35.750 range. Intraday momentum indicators are showing mild bearish bias with next support at 35.485 (100DMA).  Any rebound should meet resistance around 35.655 ahead of 35.742 (29 Oct high). Sentiments for Thai assets remained weak with foreign funds selling a net THB0.29bn and THB1.41bn in equities and government debt, continuing to put downside pressure on the THB yesterday. Remaining week ahead has BoT policy meeting (Wed) and 30 Oct foreign reserves (Fri). In the news, Fitch affirmed Thailand’s BBB+ rating (stable outlook) yesterday on the back of its healthy public finances. Fitch expects the economy to expand by 2.7% and 3.4% in 2015 and 2016 respectively. Headline inflation fell by 0.77% y/y in Oct (Sep: -1.07%), less than the -0.94% market was expecting, underpinned by lower oil price again. Core inflation rose marginally higher by 0.95% y/y vs. expectations of 0.94% but was slightly more moderate than Sep’s 0.96%.

Rates

Malaysia

      Local government bond market had a slow start to the week, with MGS and GII trading sideways amid wide bid/offer spreads. All eyes on MPC language on 5 Nov and the US NFP release at the end of the week.

      In quiet trading, local IRS remained on better receiving interest, with the curve ending 1-4bps lower. We expect market to stay quiet ahead of the MPC this Thursday.

      PDS space still lackluster with interest mostly on the selling side. Thin volume transacted with most players sidelined. Danainfra opened book for 7y, 10y, 15y, and 20y notes targeting MYR300-500m per tranche. Final pricing for the GG papers came in 38-44bps above MGS levels, within our expected range. The book was well received with major interest skewed towards the 20y.

Singapore

      SGS market started quiet with yields trading sideways, but bears later gained traction on high swap spread levels and a selloff triggered by the selling in UST. SGS prices fell with yields ending 2-8bps higher, led by the long end. SGD IRS fared better, only shifting up by 3-4bps.

      Asian credit space tone was slightly muted. CDS mainly 1-2bps wider, and the same goes for Asian IGs. INDON sovereigns mainly unchanged to 0.25pt lower. For new issuances, Export-Import Bank of Korea (Aa3) is issuing 5.5y and 10y bonds guiding at CT5+95-100bps and CT10+110-115bps respectively with interest skewed to the 10y. On rating changes, Beijing Capital Land’s rating was upgraded by Fitch from BB to BB+, reflecting its stronger linkage with its parent, Beijing Capital Group.

Indonesia

      Indonesia’s government bonds market was relative stagnant yesterday. It was a quiet Monday morning ahead of NFP on Friday. Local CPI data came out on the day where MoM posted at -0.08% (vs -0.02% survey), YoY at 6.25% (vs 6.38% survey) and core inflation at 5.02% (vs 5.05% survey), but not much reaction seen on the IDR bonds secondary market. Only a couple of trades were seen after the data came out (10 yrs got lifted at 8.80% while 5 month’s FR30 got given at 7.79%) but since overall market felt very weary, prices stays unchanged around the level until the end of the day. Overall the day, yields on IDR bonds were mixed, higher by 2-3bps on up to 5 yrs tenors, lower by 6-8bps on the bellies, and higher by 5-6bps on beyond 10yrs tenors. Meanwhile, from the corporate bond side, Total volume of corporate bond for today trading reached IDR454billion or significantly higher than prior day which only had IDR220 billion in total. Bank BTPN money market tenor and series who mature in 2018 contributes highest trading volume at IDR107billion and IDR 100billion in total.