Halister News

(Bloomberg) -- NZD is strong and a little overbought in short-term but is not particularly overvalued in a longer term context, Jason K Wong, currency strategist at BNZ Wellington writes in note today.

• Economic fundamentals remain supportive for NZD and there is a lot to like about the currency, says Wong
• To meet NZD/USD year-end target at 0.7000, it will need more intent from Fed on rate hikes and further falls in risk appetite
• Disagrees with RBNZ’s constant refrain that the NZD is high, a significant headwind for the economy and needs to depreciate
  • BNZ’s valuation metrics show New Zealand’s better than average external accounts and robust levels of business confidence would suggest otherwise
• RBNZ language on the TWI has been moderating over recent quarters and is less aggressive
• NZD TWI is only modestly overvalued by around 6-7%; with NZD/AUD at ’only’ 7% above PPP, which equates to 1.2 standard deviations
• RBNZ’s currency projections of a weaker TWI are not internally consistent with the central bank’s own economic projections
• Risk to view would be a dovish Fed next week with a lowering of longer term interest rate projections leading to an immediate halt in declining risk appetite, thus NZD supportive
• NZD/USD up 0.1% to 0.7261

(Bloomberg) -- Expectations are mounting that new RBI Governor Patel will lower rates at his first meeting on Oct. 4, bolstered by data showing drop in CPI inflation, economists say. Any easing, though, would likely be limited as central bank keeps its 4% medium-term inflation target in mind.

• Data Monday showed Aug. CPI +5.05% vs +5.20% est., +6.07% in July
• July factory output -2.4% y/y vs +1.4% est., +2.0% prior

• RBS (Vaninder Singh)
  • RBI Oct. rate call on knife-edge
  • Still expect another 50 bps of cuts over next two quarters
  • Difficult to pin down timing of first without more clarity on composition of monetary policy committee
  • If in place by next meeting, will probably have 50-50 hawk-dove split
  • Unanimous decision likely as MPC won’t want to show discord at first meeting

• DBS (Radhika Rao)
  • CPI likely to slip below 5% Sept.-Dec and then inch up in Jan.-March quarter
  • Softening trend leaves door open for rate cut in 4Q
  • Odds are rising for move in Oct.
  • Benign inflation path and probably dovish policy committee should allow further easing, though could be offset by firmer demand dynamics and risks of U.S. rate normalization as Sept. FOMC approaches

• Nomura (Sonal Varma & Neha Saraf)
  • Moderation in food prices coupled with favorable base effect should keep headline CPI below 5% until yr-end
  • Likely to revert to underlying 5-5.5% trend by March
  • 25-bp repo rate cut likely in 4Q, probably Dec.; then extended pause in 2017

• Kotak Mahindra (economists including Madhavi Arora)
  • Still see 25-bp cut in Dec. with inflation likely to moderate further
  • RBI will want to be optimistic about 5% CPI goal, tide over FX volatility risks during FCNR redemption, and weigh various global risks before delivering another rate cut

(Bloomberg) -- Here’s a roundup of Indian co. debt-rating changes.

• To get this story sent to your inbox real-time, run NI INRATINGS , click on Display & Edit, then Set Alert Delivery

DOWNGRADES

• Gomathi Spinning
  • Long-term loan facilities cut to BBB- from BBB+ at Crisil
  • Cites moderate scale of operation

• Gujarat Foils
  • LT bank facilities cut to D from BBB at Care
  • Cites ongoing delays/defaults in debt servicing

• Jindal Saw
  • LT bank facilities cut to A+ from AA- at Care; NCDs also cut to A+ from AA-
  • Cites lower-than-envisaged total income, profitability

UPGRADES

• Connectwell Industries
  • LT loan facilities raised to BBB+ from BBB at Crisil
  • Expects company’s business risk profile to improve following its increased manufacturing capacity, geographic expansion

• Cosmo Ferrites
  • LT loan facilities raised to BB- from B+ at Crisil
  • Cites higher-than-expected growth in revenue

• Dalmia Cement (Bharat)
  • Term loans raised to AA from AA- at ICRA; NCDs also revised to AA from AA-
  • Cites cash accretive, operationally efficient cement operations

• Precision Plastic
  • Term loan raised to BBB+ from BBB at Care
  • Cites steady improvement in operational performance

(Bloomberg) -- CNH rates are higher than Shibor and onshore interest-rate swaps because of increasing speculation that China may be more tolerant of RMB weakness after its inclusion into SDR basket, according to DBS Bank.

• Authorities may also be keeping offshore liquidity tight and keeping interest rates high to deter speculators, the analysts including Eugene Leow and Nathan Chow write in note today
  • CNH interest rates likely to stay elevated relative to CNY yields in coming few mos.
  • After hovering below the 6M Shibor (2.88%) in the four months ending August, the 6M CNH implied rate has now touched 3.85%
  • Similarly, spread widening has been taking place between the 5Y CNH CCS rate and the 5Y onshore swap rate over the past two weeks
• Market also underestimating Fed hike risks; stronger USD interest rates and currency would place more upward pressure on CNH and CNY interest rates
• NOTE: One-week CNH Hibor fell 139 bps to 4.92633% yesterday; still 322 bps higher so far this month
  • One-week Shibor little changed today at 2.3920%; up 2 bps this months

(Bloomberg) -- Japan’s sovereign yield curve steepens in wake of reports from Nikkei and other media on possible BOJ action, says Katsutoshi Inadome, senior fixed income strategist at Mitsubishi UFJ Morgan Stanley Securities.

• NOTE: BOJ to explore delving deeper into negative rates, Nikkei reports; BOJ is said to mull change or abandonment of JGB maturity range
• “Super-long bonds are being sold amid these speculation that’s starting to look more of a reality,” Inadome says by phone
• Short- to medium-term JGB notes are being bought to price in potential deepening in negative rates or shortening of average duration: Inadome; says overall, BOJ could become more flexible on its buying program as well as deepen negative rates
• 2-year yield down 2.5 bps at -0.280%, lowest since July 29, and 5-year yield down 2.5 bps at -0.200%, lowest since Aug. 2
• 10-year yield up 1 bp at -0.015%; 20-year yield hits 0.495%, highest since March 14; 30-year touches 0.605%, highest since March 17

(Bloomberg) -- Yields on Chinese central and local government bonds have downside potential even as PBOC keeps prudent monetary policy, CICC wrote in a note yday.

• Banks will replace wealth-management houses as key driver of the debt market
  • Banks have cost advantage as deposit costs are well below 2%; risk weight is zero for central and local government bonds
  • Most government bonds offer investment returns above 3% on tax-adjusted basis
• PBOC has extended maturities of OMO injection tools meant to stabilize leverage ratios instead of deleveraging
  • With liquidity-injection volume stable, balance of unexpired repos could grow at a slower pace
• Chinese economy to face large downside pressure in 2017; PBOC still needs to loosen monetary policy appropriately when the time is ripe
  • China CPI to rebound in 4Q y/y and to decline significantly in 1H 2017
• Yield on 10-yr Chinese govt bond rises 3 bps to 2.790% today

(Bloomberg) -- USD/KRW 1-month NDF rose to 1,129.25 overnight as U.S. market selloff resumed, oil slid and Nikkei reported that BOJ will focus its policy on negative rates now that QE purchases are reaching a limit.

• The NDF’s level compares with onshore close for USD/KRW at 1,119.18