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Global
The second consecutive of sharp decline in the yuan on Wed weighed on Asian equities at mid-week and even Shanghai Comp took a hit. European bourses were not spared with Euro Stoxx down 3.4%. Wall Street started in the red as well but equities recovered on the back of rising oil prices as well as a shift of focus back on to US data. Retail sales is due today and the headline is expected to be a stronger 0.6%m/m growth for Jul compared to the -0.3.% contraction in Jun. The DXY fell against the majors amid speculation that the recent yuan devaluation could mean a later rate hike, last seen around 96.38. NOK was the top gainer, up +1.5%, followed by CHF and NZD at 1.3% each.
Still, Nikkei opened in mild red, wary of further yuan declines ahead. From the last USDCNY mid-point fixing on Wed at 6.3306 which was 0.1% weaker than its previous close, it is now confirmed that the new fixing methodology is now in place and followed through by PBoC. The central bank holds press conference later at 1015 (SGT), presumably to discuss on the yuan. In a statement released with the fixing on Wed, PBOC assured that there “is no basis for persistent depreciation of RMB”. There were also speculations that intervention was done in the spot market at the close on Wed to ensure a close of 6.3858. Risk sentiments were negative and JPY gained 0.7% against the greenback. On the other end, IDR, MYR and KRW were the worst hit, down -1.4%, 1.3% and -1% respectively. Worth noting is that USDCNH was off its Wed high of 6.5946 and pared its gains to close at 6.4341. This pair is inching higher again to around 6.48 after the USDCNY mid-point was fixed at 6.4010 this morning. We suspect action might get less dramatic in the next few sessions.
Data releases for today includes Malaysia’ GDP on Thu along with central bank meetings in Korea and Philippines. BOK left 7-day repo rates unchanged at 1.50%. BSP is not expected to move. In the US, retail sales for Jul will be eyed after the decent jobs numbers (215K addition). That should keep the greenback supported on dips.
Currencies
DXY – Consolidation. DXY turned softer overnight, as markets reassess the implication of a stronger USD on Fed rate hike decision – if it will be delayed. A stronger USD may hurt US exporters, impact US corporates’ profits, and derail US efforts in achieving its 2% inflation target as it could risk importing deflationary pressures. Fed’s Dudley commented “hopefully in near term” Fed may raise rates. DXY was last at 96.34 levels this morning. On technicals, daily momentum continues to indicate some downside pressure in the near term. Next support at 96.30/40 levels (50 and 100 DMAs). Interim resistance at 98.30 (trend channel resistance) before 98.70 (76.4% fibonacci retracement of Mar high to May low). Week remaining brings Initial jobless claims (8 Aug); Continuing Claims (1 Aug); Retail sales (Jul); Import price (Jul) for Thu; PPI (Jul); IP (Jul); Univ. of Michigan Sentiment (Aug P) for Fri.
EUR/USD – Same Old Story. European equities fell, with DAX down -3.4% overnight. Decline was attributed to the impact of CNY devaluation on demand for European goods in China. We had explained that EUR remains a “funding currency” play. This is supported by a pattern we have been highlighting – risk-on sees EUR lower while risk-off sees EUR higher. EUR traded an overnight high off 1.1214, last sighted at 1.1184 this morning. Technicals continue to suggest EUR is mild bias to the upside, next resistance to watch at 1.1230 (23.6% fibo retracement of Mar low to May high), before 1.1370 (200 DMA). Interim support at 1.1080/90 levels (50 DMA and 38.2% fibo of Mar low to May high), before 1.1040 (100 DMA). Week remaining brings GE, FR CPI (Jul) for Thu; ECB Minutes; EC, GE, FR GDP (2Q); EC CPI (Jul) for Fri.
GBP/USD – Consolidation. GBP was initially soft following slightly softer wage inflation than expected but clawed back losses to above 1.56-handle. While wage inflation may be a touch softer, the wage growth momentum. GBP was last sighted at 1.5620 levels this morning. Daily MACD/stochastics are not indicating any clear bias for now. Expect to see GBP consolidate in 1.5470 – 1.5670 range in absence of fresh catalyst. Disappointment in data points could push GBP lower. Data remaining for the week ahead includes house price balance (Thu); Construction output (Fri).
USD/JPY – Range-Bound. USD/JPY plunged to close below the 124-figure overnight on the back of dollar weakness but has since rebounded back above the 124-figure at 124.30 as the dollar rebounds. Intraday MACD and slow stochastics continue to show bearish bias, suggesting that further uptick could be capped. Pair is also now trapped within an intraday ichimoku cloud, which suggests that price action ahead could be rangy. Sentiments are likely to remain cautious as markets watch the PBOC’s next moves. Look for range of 123.80-124.50 to hold intraday. We need to see a firm close above 124.50 for bullish extension towards 125.85. Our baseline scenario remains for a BOJ move in Oct 2015. Further slippages could see 123.10 revisited.
AUD/USD – Choppy. AUD managed to a recovery on the back of the dollar slum and extended its upmove this morning to 0.74 after the USDCNY fixing. 0.7440 is eyed as the next barrier. This pair is likely to remain choppy within the wider range of 0.72-0.7470. Momentum indicators are showing less directional bias. We continue to reiterate that the AUD outlook remains challenging on multiple fronts. Weak investments in mining and resource sectors as well as the lack of traction in non-mining business investments are expected to weigh on growth. Falling commodity prices (iron ore, copper) as Chinese demand slows could weigh on Aussie terms of trade. Taken together, there is little to be positive in the AUD especially against an environment of monetary policy divergence (whereby Fed is likely to tighten in coming months while RBA remains on neutral to mild easing bias). Medium-term down-trend remains intact, with next big support around 0.72 levels (trend-line support from the low in 2001 and 2008). Monthly momentum remains bearish bias. We caution that a break below this long-term support could expose AUD to further downside beyond 0.70.
USD/CAD – Bearish Engulfing Candlestick. USDCAD slammed lower, reversing out the gain on Tue and waffled around the 1.30-figure, under pressure from the rise in oil prices. USDCAD ended with a bearish engulfing candlestick on Wed and with daily momentum a tad bearish, we suspect risks have tilted to the downside. Still, we expect choppy action to continue. Next support is seen at 1.2960 (23.6% Fibonacci retracement of the Jun-Jul rally). This week could be a week of correction for the USDCAD and a break of 1.2960 opens the way towards the next at 1.28-figure. Data-wise, we have new housing price index today and manufacturing sales due tomorrow.
NZD/USD – Cautious of Squeeze Higher, Near Term. NZD recovered, from yesterday low of 0.6468 to overnight high of 0.6650 following broad USD weakness. This morning’s PMI release showed that manufacturing growth slowed in Jul, REINZ house price continues to point to another surge in house price in Jul. 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 (10th consecutive decline and at fresh 13-year low), benign wage inflation, declining ToT amid weakening demand. We see the risk of another 25bps cut, possibly as soon as the next meeting on 10 Sep (3 more RBNZ meetings till end of 2015 – Sep, Oct, Dec), but acknowledged that RBNZ’s recent statement suggest a slightly less dovish than expected tone. We do not rule out short term squeeze higher in NZD towards 0.6645 (61.8% fibo of 0.6739 – 0.6491), 0.6680 levels (76.4% fibo of 0.6739 – 0.6491). Remain better seller on rallies. Technical break below 0.65 on daily close basis puts next support at 0.64 in focus.
Asia ex Japan Currencies
The SGD NEER trades 0.7% below the implied mid-point of 1.3823 with the top end estimated at 1.3544 and the floor at 1.4101.
USD/SGD – Range-Bound. USD/SGD climbed higher yesterday to touch a high not seen since Apr 2009 at 1.4165 and has eased back below the 1.40-figure, helped by dollar weakness overnight. Market whispers also suggested that the MAS was in the market to smooth out volatilities. Pair is now inching lower at 1.3986 with intraday MACD showing no strong momentum, and stochastics bearish bias, suggesting range-bound trades are likely ahead. Sentiments remain cautious ahead of the USD/CNY fixing with another dramatic move by the PBOC possibly pushing the pair back towards 1.4170. 1.3872 (50DMA) should be supportive today.
AUD/SGD - Bias Upside. AUDSGD was unable to achieve a close above the 100-DMA (1.0345) and hovered around 1.0300 as we write this morning. Bias is to the upside as indicated by momentum indicators. This cross is still underpinned by the 50-DMA at 1.0215, mainly due to SGD weakness. With RSI showing near overbought conditions, upmove is still a grind. A clearance of the 1.0300-figure is necessary for further upside extension. We continue to reiterate our earlier caution for technical rebound.
SGD/MYR – Supported. SGDMYR continues to push higher to all time high of 2.8640 at time of writing this morning. Daily momentum and oscillator indicators continue to indicate a bullish bias. Interim resistance seen at 2.88. Support at 2.8200 (38.2% fibo retracement of 2.77 – 2.85).
USD/MYR – Easing. USDMYR fell below 4.00-handle following the USDCNY fix this morning, which sent calming sentiment amid broad USD weakness and oil price rebound. USDMYR spot was last sighted at 3.9890 levels. Bullish momentum appears to show tentative signs of easing. Next support at 3.9830 (23.6% fibo of Jul low to Aug high), before 3.95 (38.2% fibo). Daily stochastics is showing sign of turning lower from overbought territories.
1s KRW NDF – Softer. 1s KRW turned lower, last sighted at 1176 levels (vs. overnight session high of 1196.85. The move lower came off the back of broad USD softness and relative calm after USDCNY fix. BoK also kept policy rate on hold at 1.5% as expected (this morning BoK MPC meeting). We continue to see further upside off the back of broad USD strength, JPY and CNY weakness. Still see further upside in the pair. Near term resistance remains at 1188 (Jun 2012 high); break above on daily close basis puts 1200 in focus in focus. 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 strength on Fed rate lift-off in Sep (house view) could further provide further support for the pair.
USD/CNH – Less Dramatic Fluctuations? USD/CNH was touched a high of 6.5946 before paring its gains to close at 6.4341. This morning, USD/CNY was fixed 704 pips higher at 6.4010 (vs. previous 6.3306). CNYMYR was fixed 34 pips lower at 0.6255 (vs. previous 0.6221). Pair is on the upmove again, last seen around 6.49 and we suspect action might get less dramatic in the next few sessions. This would largely depend on the PBOC press conference. Still, 6.60-figure is a psychological barrier in the neat-term reach. Gap between CNH and CNY has narrowed to 920 pips as write from over a 1000 pips seen yesterday. Expect the pair to see further upside pressure in the next few sessions but gap ups might be less dramatic in the next few days. Markets will eye the press conference held by PBOC on the yuan later at 1015 (SGT).
SGD/CNY – Rally.SGD/CNY is now on the upmove, last seen around 4.5800 this morning with upside still meeting resistance around 4.5940 as we write, underpinned by the weaker CNY fixing against the USD and stronger SGD. Key barrier is seen around 4.5943 (61.8% Fibonacci retracement of Jun-Aug drop). Daily MACD is positive and we expect more choppy action with risks to the upside. Support is seen at 4.5400.
USD/INR – Retracement. USD/INR gaped up and closed around 64.80, just off its highs, led higher by the rest of USD/AXJs. Support is now seen at 64.2650 ahead of the next at the conversion line of the ichimoku cloud around the 64-figure ahead of the next at 63.76, market by the 50-DMA and the daily ichimoku cloud. Some retracement could be seen, cued by the 1M NDF at 65.15, off its earlier highs. Pair could remain in choppy action within a wider range of 63.76-65.00 with bias likely to the upside given the weaker CNY fixing again today. Jun industrial production came in at 3.8%y/y, quickening from previous 2.5%. Jul CPI eased to 3.78%y/y from previous 5.40%.
USD/IDR – Bullish Tilt. The USD/IDR briefly hit a high of 13917 not seen since Aug 1998 during the Asian financial crisis before easing to close at 13800 yesterday as concerns about CNY moves continue to dominate. Putting downside pressure as well was the sell-off in the equities markets by foreign investors, who sold a net USD55.73mn in equities yesterday. Note that foreign funds added a net IDR0.56tn to their outstanding holding of government debt on Tue (latest data available). Pair continues to hover around the 13800-levels, tracking its regional peers, with intraday MACD still showing bullish momentum though stochastics is tentatively falling from overbought levels. Aside from concerns about China’s growth and PBOC future moves, concerns about US Fed tightening and domestic concerns (persistent current account deficit, anaemic economic growth, stalled reforms) should pressure the pair higher. The 14000-figure continues to be eyed today, while any retracement should find support around 13650. The JISDOR was fixed at a new record high of 13758 yesterday compared to Tue’s 13541. 1-month NDF crossed the 14000-mark yesterday to 14160 – a high not seen since the Asian financial crisis - but has eased off slightly to 14050 currently with intraday MACD forest showing waning bullish momentum and stochastics tentatively falling from overbought levels. President Jokowi shook up his cabinet yesterday, appointing former BI governor Darmin as the new Coordinating Economic Minister but retaining Bambang Brodjonegoro as Finance Minister. Other economic ministry changes included the appointment of former Coordinating Economic Minister as Head of the national planning agency and Thomas Lembong as Trade Minister. While not much of a wow factor, it puts the economy in steady-technocrat-hands, providing fresh impetus to the President’s infrastructure building plans.
USD/PHP – Waning Bullish Bias. USD/PHP climbed to 46.397 yesterday – a high last seen on Jul 2010 - following the CNY moves yesterday. Pair has since tapered off to hover around 46.080 at last sight, playing catch-up with its regional peers. Intraday MACD forest is showing waning bullish momentum and stochastics is tentatively falling from overbought levels. This suggests pressure could be on the downside today with further dips finding support around 45.940. Resistance remains at 46.340 (26 Jul 2010 high). 1-month NDF climbed to a high of 46.820 yesterday before easing to around 46.390 currently with intraday MACD forest showing waning bullish momentum and stochastics continuing to fall from overbought levels. Continuing risk aversion led foreign investors to sell a net USD53.48mn in equities yesterday. BSP meets later this afternoon to decide on monetary policy, and expectations are for the central bank to stand pat on its policy rates to save its ammunitions for when totally necessary, given that the economic fundamentals remain strong and relatively benign inflation.
USD/THB – Bearish Tilt. Onshore markets re-opened this morning after closing for a public holiday yesterday with the USD/THB inching lower to 35.220-levels after climbing to a multi-year high of 35.561 (not seen since Apr 2009) overnight. Both intraday MACD and stochastics remain bearish bias, suggesting pressure on the pair could remain on the downside. Still, downside moves could be limited as sluggish domestic macroeconomic fundamentals and the government’s weak THB policy amid Fed tightening and concerns about China growth could keep the pair supported. Resistance remains around 35.561 (yesterday’s high) today, while 35.000 should be supportive.
Rates
Malaysia
Government bonds opened 2-3bps higher on the back of MYR weakness. The selling continued, pushing the MGS curve up by 1-8bps. Trades were sizeable and mainly focused on the 5y MGS 10/20. There were dip buyers in the late afternoon and we may see increasing buy on dip interest if yields go up much further from here.
IRS market panicked as USDMYR broke the 4.0 level. Foreigners paid the IRS as usual. The 4y was dealt at 4.01-4.02%, 5y at 4.10-4.13% and 10y at 4.53%. 3M KLIBOR stayed at 3.69%. For contrarians, it may be time to consider having some receiving positions.
In the local PDS market, bids receded and offers were few to come by with most at unchanged levels. Market was better buyer of 3-5y GGs, with PASB 18s tightening 1bp. Plus 21s also traded tighter by 5bps at 4.16%. There were also bids for 7y GG papers but nothing was dealt. Other trades were crosses from portfolio rebalancing. KLK issued MYR1.1b of 10y IMTNs at 4.58%, the tighter end of initial price guidance. With liquidity dried up, market needs a fresh catalyst to pick up again.
Singapore
SGS prices rose, tracking the rise in UST as investors flocked to it after China’s yuan devaluation. Yields mostly 3-5bps lower, except for around the 2y SGS which rose 2bps likely due to higher funding.
Asian credit space suffered another day of losses due to the continued devaluation of the Chinese yuan. Credit spreads mostly wider with little or no bid, made worse with the weakness in other Asian currencies. IG and O&G names widened 5-7bps. HYs were about 0.50-0.75pts lower, except for Shanshui which jumped almost 5pts up on news of its buyout plan. INDON sovereigns traded lower amid news of a cabinet reshuffling and weaker IDR. Tencent 2Q net income came in higher than expected at RMB7.31b. The volatile UST market is still causing most players to stay sidelined for now.
Indonesia
Indonesia bond market closed significantly lower mainly due to CNY second devaluation this week. The devaluation of CNY has also pressured the IDR currency thus bringing the LCY bond prices more lower yesterday. On the other hand, Indonesia reshuffle its cabinet member by replacing six ministries with new five member to the cabinet while shifting current Coordinating Minister of Economic Affairs to be Minister of National Development Planning. This event was not able to gave a positive support to the sharp fall of LCY bond price yesterday. 5-yr, 15-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 8.344%, 8.775%, 9.141% and 9.177% while 2y yield shifts up to 7.891%. Trading volume at secondary market was seen heavy at government segments amounting Rp13,846 bn with FR0071 as the most tradable bond. FR0071 total trading volume amounting Rp2.40 tn with 83x transaction frequency and closed at 98.897 yielding 9.141%.
Corporate bond trading traded thin amounting Rp418 bn. BBTN01CN1 (Shelf registration I Bank BTN Phase I Year 2012; Rating: idAA) was the top actively traded corporate bond with total trading volume amounted Rp105 bn yielding 9.722%.
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