Monday, June 30, 2014

Maybank GM Daily - 30 June 2014

FX

Global

*      The week ahead is likely to be eventful. We have US NFP on Thu (instead of the usual Fri because of Independence Day holiday), which will be keenly watched for clues to whether the gains in 1H have taken hold, and this should set the tone for the dollar in 3Q. A decent read of around 210K (cons) could satisfy the markets that things are looking up for the labor market, supporting the dollar on dips.
*      On the same day, ECB will meet for the first time since it eased in Jun and little is expected at the meeting. EUR/USD has recovered a fair bit from the initial pullback and the central bank is likely to do nothing for a while as it assesses the situation. Jawboning on the EUR however is a possibility and we expect EUR players to tread cautiously ahead of the press conference.
*      Ahead of that, RBA meets on Tue and is also expected to sit on its hands. We expect the statement to retain a balanced view, noting strength in the housing and construction as pointed out by RBA’s Kent recently. AUD is back at the year’s highs, around 0.9420 and more “nonchalance” by the central bank on the AUD could fuel the courage of the bulls.
*      Nearer to home, a string of data will be closely watched and not least of all China’s official (Cons: 51.1) and HSBC PMI-mfg (50.8) for Jun on Tue, along with Indonesia’s trade (Cons.: trade bal.: -$1.96bn) and CPI numbers (Cons.: 7.3%y/y). Trade numbers will take centre stage with talks of a surplus in May boosting the IDR recently. Singapore’s PMI (Cons.: 50.8) due on Wed while Malaysia’s trade are due on Fri, ahead of BNM on 10 Jul. Expectations of rate hike to underpin MYR. Our economic team expects 25-50 bps hike earliest on 10 Jul. Lastly, we have Philippines’ CPI for Jun on Fri (Cons.: 4.6%y/y).

G7 Currencies

*       DXY – Downside Risks. The dollar index remains soft this week after drifting gradually downwards last week. The index was last seen around 80.041 with the daily chart showing downside momentum still according to the MACD but RSI shows only a bit more room for offers. Expect the greenback to remain heavy though downticks should remain supported. The week is shortened by the Independence Day holiday but very crowded in terms of data with Jun NFP the elephant in the room that could set the dollar tone into 3Q. Another number above the 210K would suggest steady growth and could lift dollar higher towards the 80.680 (higher end of the range that it has been trading). A break here could be the story for the following week. Support is seen at 79.920.
*      USD/JPY – Rangy.  USD/JPY slipped towards the lower end of the 101.20-103.00 range, weighed by retreating risk appetite. Pair is hovering around 101.31 currently with MACD tilted south. RSI is fast approaching the oversold conditions and further dips may meet more resistance. Offers towards 101.20 will meet support thereabouts and an unlikely break here exposes the next at 100.77. A barrier is now seen at 102.20. 2Q tankan survey is out on Tue and a good report could trigger more action in the pair.
*      AUD/USD – Sideways. After benefitting lower UST yields in the past week that provided it with a lift, AUD/USD is on the slide to start the week. Pair is last seen around 0.9423 with daily MACD showing bullish momentum dissipating. The lack of directional cues from the RBA on Tue could spur AUD bulls this week. A sustained break of the current 0.9450-resistance level could expose the next hurdle at 0.9543. But a failure to make a sustained move above 0.9450 could mean deeper pullbacks ahead. 
*      EUR/USD – Capped. EUR/USD has recovered quite a bit from the start of the month as investors bet the ECB, which meets on Thu, would pause after the rash of policy measures put out in June. The recovery in the EUR may not be favoured by the central bank however and could lead to harsher jawboning from President Draghi during his press conference after the meet. In the lead up to Thu, expect prices to remain within range of 1.3590-1.3670. Bulls are likely to remain cautious.


Regional FX

*      The SGD NEER trades 0.49% above the implied mid-point of 1.2554. We estimate the top end at 1.2304 and the floor at 1.2804.
*      USD/SGD – Flat. USD/SGD steadied within the narrow 1.2472-1.2512 range, headed nowhere indeed. Currently, the pair is edging lower around 1.2491 to start the week. A week has passed and the momentum indicator is not giving anything away now. Markets are likely to remain cautious ahead of NFP, while PMI on Wed is likely to have a minimal impact on the pair. A thick ichimoku cloud continues to cap upticks and we see strong barrier at 1.2541. Offers to meet support at 1.2472.
*      AUD/SGD – Supported on Dips.  AUD/SGD breached our 1.1781-resistance level on Fri, buoyed by AUD strength and a relatively static SGD. The cross continues to have little momentum at this point and further bids could probably lift the prices towards the 1.1814 at most. For the past few months, RBA has been allowing the AUD to gain strength, though the central bank sounded more dovish than expected, triggering some AUD sales. Expect dips to remain supported in the week ahead. Support remains at 1.1680. SGD/MYR – Consolidation. The cross was unable to make much progress above the 2.58-figure last week and is currently on the slide to around 2.5688, capped by the 50-DMA as well. Daily chart continues to show little momentum and the cross is likely to just remain within the broader 2.5564-2.5800 range for now.
*      USD/MYR – Heavy. USD/MYR is drifting lower to around 3.2085 to start the week and price action suggests that bears are the dominant players now. MACD is also losing bullish momentum and may test support at 3.2042 next. BNM meets on 10 Jul and the next data of note is the trade numbers on Fri. Expect intra-week trades to remain within 3.2040-3.2360 in the absence of stronger cues though expectations of a rate hike are likely to weigh.
*      USD/CNY was fixed weaker at 6.1528 (-0.0015), vs. previous 6.1543 (+2.0% upper band limit: 6.2784; -2.0% lower band limit: 6.0322). CNY/MYR was fixed at 0.5191 (-0.0004). USD/CNY – Downside Risks. USD/CNY broke below the 6.2230-support level on Fri and remains on the slide to start the week. Pair is currently sighted around 6.2137 with daily MACD forest still tilted to the downside. Expect trades to remain tilted to the downside with 6.2020 supportive this week. 6.2400 continues to guard topside.
*      1-Year CNY NDFs –Rangy. NDF dipped on Fri and ended the week at 6.2326. This morning, the NDF is waffling around the 6.23-figure, edging closer to the lower end of the recent 6.2307-6.2434 trading range. With the fixing set lower today, some downward pressure is likely. We expect the NDF to remain within 6.2307-6.2434 this week, though a break of 6.2307-support could expose the next at 6.2255.
*      USD/CNH – Edging Lower. USD/CNH remains on the downward drift this morning in line with the lower USD/CNY mid-point fixing. Pair was last sighted around 6.2124. CNH trades at a premium to CNY, signalling likely downside pressure for the pair. With the 6.2193-mark broken on Fri, support is now seen at 6.2094. A sustained break here would expose the next at 6.2045.
*      USD/IDR – Rangy. USD/IDR is edging slightly higher after Fri’s retreat back below the 12000-level. Pair is currently hovering back below the 12000-level at 11976 with daily MACD showing dissipating bullish momentum. Still, pair is likely to remain elevated ahead of the 9 Jul presidential elections and pressured higher by the twin deficits and month-end dollar demand as well. Also not helping was continued foreign selling of equities (net USD51.1mn sold last week) that kept the pair pressured higher. Still, with momentum lacking, we expect the pair to hover range-bound between 11750/12100 this week. 1-month NDF continues on its retreat that began on Fri, sliding to 12007 at last sight with the daily MACD indicating waning bullish momentum ahead. The JISDOR ended the week at 12103, a level not seen since 13 Feb this year.
*      USD/PHP – Lacking Directional Impetus. USD/PHP remains on the retreat, hovering around 43.695. Daily MACD is showing little momentum in either direction, suggesting rangy trades are likely ahead. We look for the pair to trade range-bound this week within 43.528/44.150. The 1-month NDF is on the downtick again, sliding to 43.640 at last sight with daily MACD forest hovering at the zero line.
*      USD/THB – Rangy. USD/THB is back within the ichimoku clouds, hovering close to the upper range of the cloud at 32.453 currently. Daily MACD forest is hugging close to the zero line, suggesting little directional cues ahead. Still, pair could be supported by renewed foreign interest in Thai assets, which saw a net THB109.98mn in equities and THB2.92bn in bonds purchased last week. Price action this week should see to see the pair remain trade within the familiar range of 32.370/32.550.

Rates

Malaysia

*      In the local government bond market, the 20-yearr GII 8/33 auction went well as the auction reported a bid/cover of 3.277 times, with successful yield came in at a high of 4.689% and a low of 4.653%. Average was reported at 4.675%. Afternoon session saw foreign name flow into the 7 and 10-yearr benchmark while buying interest was also seen on the 30-year MGS 9/43. By day end the curve was lower by 1-2bps from previous day. With only two auctions scheduled for the next month players would turn to the coming MPC this 10th July for more leads.
*      Rates ended lower today heeding lower UST yields. Improved bond sentiments in the afternoon session also convinced market to push rates lower. 10-year was dealt at a low of 4.32%. 3M KLIBLOR was flat at 3.54%.
*      The MYR credit space has been quiet. We see that most of the trades done were just asset reallocation deals from end clients due to month end/half-year end effect. Coming to the end of the day, we saw late rally on the govvies 10-year bucket. Demand on the government-guaranteed papers around 10 years and above bucket should remain healthy near term.


Singapore

*      SGS rallied on the back of higher UST as equities sagged across the globe.  SGS were bought across the maturity spectrum but the belly and short end eventually outperformed. Whilst the shorter-dated papers saw persistent buying interests, the longer end was capped by intermittent selling by profit takers. The SGS yield curve steepened again.  Short squeezed issues like the Sep 16, Apr 17 and the 5-year benchmark continued to climb, pushing their swap spreads to wider levels.  In contrast the swap spreads at the long end narrowed a tad.  At the close, the benchmark yield curve fell 1-4bps.  The IRS curve closed lower by 1-4bps after bouncing slightly from intraday lows.
*      In the credit market, Ambank Berhad issued USD 400m at CT5 + 150bps. The paper traded tighter to a low of +131/+128 range and rebounded to close level at +138/+136. There was a little bit of selloff on the USD Investment Grade space. The fact that it is summer time, and the rates are low still, we see some flows chasing the spread. Hence there has been some rally for the past couple of weeks. Today we saw some profit taking, but could present opportunities to pick up some inventories.


Indonesia

*      Our economist also sees a rise of monthly CPI in June by 0.43% m-o-m from 0.16% m-o-m in May 2014. This is caused by the seasonal factor of the fasting month of Ramadan. As in previous years, ahead of Ramadan, almost all foodstuffs began to occur up prices. Inflationary pressures also occur due to the weakening rupiah this month which increased the price of imported goods (imported inflation). On a yearly basis, June CPI would decrease to 6.69% y-o-y from 7.32% y-o-y in May. This is caused by the impact of the fuel price hike last year coming to an end this month.
*      Indonesia bond market booked a net loss last week. On the final day of last week, bond market continue moving lower following 3 consecutive day fall in bond prices. Rupiah however managed to close back to below Rp12,000 per USD closing it at Rp11,995 per USD at the last trading day of last week. Bond market would be positively impacted should the published May trade balance turn back to surplus. Economist consensus yet predicts May trade balance would come in as deficit of US$0.40 bn. Yield curve bear steepening with 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 7.853% (+3.6bps), 8.291% (+2.7bps), 8.727% (+4.6bps) and 8.951% (+7.4bps) while 2-yr yield shifts up to 7.454% (+7.9bps). Trading volume increased amounting Rp8,143bn on Friday. FR0070 (10-yr benchmark series) and FR0071 (10-yr benchmark series) was the most tradable bond during the day. FR0070 total trading volume amounting Rp2,095bn with 69x transaction frequency and closed at 100.532 yielding 8.291% while FR0071 total trading volume amounted Rp1,611bn with 29x transaction frequency and closed at 102.217 yielding 8.951%.
*      On the corporate bond segment, trading volume remains thin amounting Rp504bn yesterday (vs. average per day trading volume of Rp750bn). TUFI01ACN2 (Shelf registration I Mandiri Tunas Finance phase II Year 2014; A serial bond; Rating: idAA) was the top actively traded corporate bond with total trading volume amounting Rp225bn and was last traded at 100.1 yielding 10.656%.

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