Maybank GM Daily - 22 Jun 2015

FX

Global

Greek concerns weighed on stock indices last Fri and headlines out of the troubled nation will continue to drive sentiments this week, especially with an emergency EU Summit summoned.  Peripheral bond yields have started to rise while other measures of market risk – HY bond spreads have also started to widen. EUR has also eased from its highs of 1.14 levels. Elsewhere, AUD ended last week, back to where it started and could remain range-bound against the USD. USD/CAD edged higher towards the last two sessions of last week with the CAD dragged by the slip in oil prices. Still, the pair seems to trade with a downside bias.

      Main event this week is the Euro-Area emergency meeting today, where headlines are expected to continue to drive sentiment. In the backdrop, Washington hosts the 7th US-China Strategic and Economic Dialogue and the sixth consultation on People-to-People Exchange (CPE) on 23-24 Jun. Data-wise in G7, there is little to focus on except for US May durable goods order on Tue. Consensus is looking for -0.5%, following a -0.5% print in previous month.

      For AXJs, key focus on Philippines’ BSP and Taiwan’s CBC monetary policy meetings (Thu). We expect both central banks to keep policy rate on hold at 4% and 1.875%, respectively. Onshore markets in China are closed for Dragon Boat Festival. China’s flash Jun manufacturing PMI (Tue). We expect a marginal uptick, given recent policy easing measures.

Other data that we watch includes flash PMIs out of US, Euro-area, Germany, France and Japan on Tue. Singapore May CPI inflation data is also on tap on Tue. US 1Q GDP (third reading); German IFO and BoJ meeting minutes on Wed. For Fri, US Univ. of Michigan sentiment, German retail sales, Japan CPI inflation and Singapore Industrial Production are on tap.

Currencies

       DXY – Possible Upside Squeeze? The DXY ended Fri with a doji, last seen around the 94-figure. Fed William and Mestor spoke in favour of a lift-off in 2015 and a gradual path of increase. Their words cushion downsides for the greenback. We continue to reiterate our view for a rate hike in Sep as data continues to suggest that growth path remains intact. We also believe that the pace of tightening with a 25bps hike followed by a pause within the quarter to assess the impact is the likely normalization path Fed will take, given that Fed will take into consideration domestic growth and external environment – China rebalancing risk, Greek crisis and USD strength into consideration. The latest FOMC statement remains consistent with our house view. We continue to reiterate that the DXY needs to close above resistance at 97.37 (61.8% fibo of mid Apr peak – mid May trough) for a sustained move higher towards 98.37 (76.4% fib). Failing which, DXY is expected to trade range of 93 – 95.  DXY is showing tentative signs of turning higher; we remain better buyers on dips.  This week brings May existing home sales (today); May durable goods, capital goods order; May new home sales; Flash manufacturing PMI; Apr house price index; Jun Richmond Fed mfg; Fed’s Powell speaks (Tue); 1Q GDP (Wed); jobless claims; May PCE core; Jun Kansas City Fed Mfg Activity; Jun Prelim composite/services PMI (Thu); Jun Univ. of Michigan Sentiment; Fed’s George speaks (Fri).

       EUR/USD – Greece Not Showing Sense of Urgency. EUR made a quick peek above the 1.14-handle before reversing to mid-1.13 on escalating Greek concerns. Last seen around 1.1360, the emergency EU Summit held to discuss the Greek situation is expected to weigh. Meanwhile IMF Lagarde had warned that Greek failure to pay by 30th Jun will constitute to a partial default and there is no grace period beyond that. Near-term downside pressures could for the Euro. Next support targets 1.1220 (61.8% fibo of 1.1467 – 1.0819) before 1.1070 levels (50 DMA and 38.2% fibo). Resistance likely to be capped at 1.1467 (May 2015 high). We caution that a break above those levels could see EUR closer to 1.17/1.18 levels.  Week ahead brings EC, GE, FR Jun services/composite PMI (Tue); 1Q FR GDP; Jun GE IFO (Wed); GE Gfk consumer confidence (Thu); GE May retail sales; EC May money supply (Fri).

      GBP/USD – Breather. GBP finished off the week around its recent highs and steadied around 1.5870 against the USD this morning, still reeling from the strong retail sales and wage data. While we remain bullish in the medium term, we cautious possible profit taking on recent gains. Next support seen at 1.5660 (76.4% fibo of May peak to Jun trough). We remain better buyers on dips, targeting next objective at 1.5970. Week ahead brings May BBA loans for house purchase (Wed); CBI Jun reported sales (Thu).

      USD/JPY – Near Term Downside Pressure. USDJPY dipped to a low of 122.48 (18 Jun) amid USD weakness but has since retraced slightly to 122.72 at last sight. Pair may continue to face near term downside pressure; daily momentum remains bearish bias in the near term. We continue to watch for a daily close below support at 122.54 (76.4% Fibonacci retracement of 121.52-125.86 upswing) could see the pair re-visit next support at 121.50-121.85 levels (previous resistance before the break-out that happened in May 2015). Our long-standing view remains for BoJ to ease in Oct 2015, and we remain better buyers on dips. Week ahead brings flash PMI manufacturing (Tue); BOJ meeting minutes (Wed); and May CPI and May jobless rates (Fri.

      AUD/USD – Caught in a Range. AUD gapped lower this morning before inching higher again to levels around 0.7760. Daily/weekly momentum is mild bullish but stochastics appear to suggest a lack of follow-through. Pair could trade recent range in absence of strong catalysts. Any upside surprise to China’s HSBC flash PMI-mfg for Jun could bring the pair to the upper bound of the recent range but it would take a huge upside surprise for its lead to be meaningful. Little other key data in the week ahead. 1Q house price index (Tue).  We reiterate that beyond the near-term, a clearance of the 0.78-figure could be a double confirmation of the double bottom pattern formed in the past two weeks and the pair could be poised to make a move up towards 0.7880 (50% fibo of May high to Jun low).

      USD/CAD – Bearish Bias. USDCAD bounced from its mid-week lows and hovered around 1.2270, still suspended in the daily ichimoku cloud as we write in early Asia.  Despite the current uptick, momentum is still bearish with next support seen at the 1.21-figure. A break out of the 1.2100-1.2380 range is needed for stronger directional bias beyond the near-term. Risks are still to the downside now. There is no key data due this week.

      NZD/USD – Bears Take Over. NZD remains the big underperformer on much weaker than expected 1Q GDP and GDT auction prices. Last printed just below the 0.69-figure, RSI prints 22, near oversold levels. That may merely slow its southbound move. Momentum indicators still signal bearish bias and next support is seen nearby at 0.6869, the bottom of the monthly ichimoku cloud. NZ Finance Minister English commented (19 Jun) that the NZD’s long run average vs USD is low 60s; NZD may fall further; some think RBNZ has plenty of room to cut rates.  Momentum and stochastics continue to indicate a mild bearish bias. We continue to reiterate our view for further downside pressure on the NZD on a combination of drivers including further expectation of RBNZ cutting rates again in Jul on weak dairy prices, falling PPI amid weakening demand. We expect at least another 25bps cut and the next cut could come as soon as the next meeting in Jul. Still favor to add to shorts on rally towards 0.6980 for a move towards 0.65 objective. Week ahead brings May credit card spending (Mon); May trade data (Fri).

Asia ex Japan Currencies

      The SGD NEER trades 0.55% above the implied mid-point of 1.3431. We estimate the top at 1.3164 and the floor at 1.3697.

      USD/SGD – Capped. USDSGD slipped towards 1.3286 (18 Jun) amid dollar weakness post-FOMC. Pair though has regained most of its post-FOMC losses, closing above 1.3337 (23.6% Fibo retracement of Mar-Apr downswing). Daily momentum is mildly bearish bias, while stochastsics is at oversold levels. low of 1.3286 before rebounding to hover around 1.3334 at last sight. Further upside though appears capped by the ichimoku cloud hovering above price action and we need to see a clear break of 1.3400-1.3410 (50DMA) for further up-moves towards 1.3530-50 levels (100DMA and 50% Fibo). Support at 1.3270-80 (200DMA) is expected to hold firm. Bias to buy on dips still.

      AUD/SGD – Awaiting A Breakout? AUD/SGD is back within the 1.0300-1.0500 range, recovering from a lower opening level this morning. A dearth of fresh catalyst on the data front could mean more range-trading within the 1.0300-1.0520 band. A break of this range is needed for better directional clue. This cross is capped by the ichimoku cloud. On the other hand, a clearance of support at 1.03-figure opens the way towards Mar low of 1.0243.

      SGD/MYR – Waning Bullish Momentum. Last week, we cautioned that the SGD/MYR could face further upside pressures, possibly towards 2.80-2.82 levels, should the cross continue to make higher lows and same level highs (mini ascending triangle). Such pattern are typically found in an uptrend and perceived as a continuation pattern. The cross traded to a high of 2.8042 this morning, though it has since retraced slightly to below the 2.80-levels. Still, upside risks remain though daily MACD forest is showing waning bullish momentum and stochastic still at overbought levels.  Expect 2.78-2.82 range for the week ahead.

      USD/MYR – Near-Term Bearishness. USDMYR has eased marginally after trading one-way higher. Domestic concerns could keep the pair supported though with a potential risk of an overshoot towards 3,80 into Sep 2015. Still, daily MACD is showing tentative bearish momentum and stochastics is still falling from overbought levels, suggesting possible downside moves in the near term. A move towards 3.65 in the near term cannot be ruled out amid dollar weakness. The 50% Fibonacci retracement of the recent run-up puts USD/MYR at about 3.65 (also the 50 and 100 DMAs). We see some support at this level. Any rebound this week should meet resistance at 3.77.

      USD/CNH – In Range. USD/CNH was last seen around 6.2060 and its gap with USDCNY is still maintained at around 40pips. Onshore markets in China are closed today for Dragon Boat Festival. USDCNH support is still seen at 6.1990 (200DMA). An ichimoku cloud is forming above price action that could cap upside, which suggest rangy trades ahead. We continue to hold the view that the central bank wants to ensure a steady yuan. Pair is still within the broader consolidative 6.19-6.21 range. On 19 Jun, USD/CNY was fixed 22 pips lower at 6.1104 (vs. previous 6.1126). The strategic and economic dialogue in Washington starts tomorrow but HSBC flash PMI-mfg for Jun will also take some focus. Consensus expects a mild improvement in the data to 49.5 from May’s 49.2.

        USD/INR – Slide. USD/INR slipped towards the daily ichimoku cloud and found support at its upper bound of the bullish cloud at 63.50 which coincides with the 50-DMA. Daily momentum indicators show bearish conditions now with bullish bias on the weekly tools fading. A break of the support at 63.50 exposes support at the 63-figure. Finance Minister Jaitley voiced his optimism of a more efficient economy after the recent rate cuts. He also noted signs of recovery in the manufacturing sector. The 1-month NDF inched higher from a lower opening this morning, last seen around 63.80. Bias is still to the downside and we see its opening as a bearish lead for spot prices later. Eye the break of 63.50.

      USD/IDR – Consolidation.  USD/IDR appears to be in consolidative mode after bouncing to a multi-year high of 13400 last week. Dollar softness and domestic concerns should keep the pair trading in range ahead. Moreover, BI governor said last Fri that 2Q GDP was likely to come in below 5% as seasonal (Ramadan) demand remained lacklustre because of limited budget disbursement and depressed corporate performance, which should weigh on the IDR. Daily MACD is showing no strong momentum while stochastics bearish bias. In the absence of fresh catalyst, look for the pair to consolidate within 13250-13400 in the week ahead. 1-month NDF was little changed this morning from its Fri’s close at 13392 with both momentum and stochastics bearish bias. The JISDOR ended the week fixed lower at 13324 on Fri from Thu’s13341. Last week saw foreign funds buy a net USD43.40mn in equities and added a net IDR0.79tn to their outstanding holding of government debt on 15-18 Jun (latest data available).

      USD/PHP – Bearish Bias. USD/PHP is on the slide towards the 45-handle after retracing from last Fri’s low of 44.885 amid dollar weakness. Currently sighted around 45.065, daily MACD is showing tentative signs of bearish momentum and stochastics still falling from overbought levels. Nevertheless, we expect global sentiments over Greece to keep pair in check ahead. Look for 44.880-45.270 range to hold this week. Aside from Apr imports and trade balance, we have BSP meeting on Thu and we expect the central bank to keep the policy rate steady at 4.0%. The BSP governor had come out earlier to say that conditions in the Philippines did not warrant a rate adjustment (where domestic demand remained robust, liquidity ample and public spending is expected to sustain growth momentum) unlike its regional peers. Unless BSP surprises, we do not expect a significant impact on the pair ahead. We remain buyers of the pair on dips. After hitting a recent high of 45.68 (15 Jun), the 1-month NDF has retraced and appears now in consolidation around the 45-handle with both momentum and stochastics showing bearish bias. The sell-off in the stock market continues unabated with foreign funds selling a net USD628.53mn in equities last week.

      USD/THB – Range-Bound.  USD/THB hit a weekly high of 33.805 (17 Jun) but has since settled back into familiar ranges. Pair is currently wobbling around the 33.600-levels with both daily MACD and stochastics still bearish bias. Pair appears unaffected by the BoT’s recent downgrades of 2015 GDP, export growth and inflation to 3% from 3.8%, -1.5% from 0.8% and -0.5% from -0.2% as these were already anticipated by the market. Week ahead is data-light with only May customs trade in sight on Thu, though another disappointing print could weigh on the THB. For now, pair should continue to track global events and dollar moves ahead with the pair likely to stay range-bound within 33.525-33.890 ahead. Foreign funds sold a net THB2.05bn but sold a net THB2.96bn in equities and government debt last week.

Rates

Malaysia

      Government bonds rallied with trades concentrated on the belly of the curve. 7y MGS 9/22 was actively bought, rallying 4bps lower before settling at -2bps. Despite the rally, players appear to remain cautious as volatility in USDMYR persist.

      IRS slightly lower before finding some good support. 3y IRS traded at 3.72% and 5y at 3.92% and 3.93%. Receiving interest was mainly led by foreign players as they were buying MGS as well. We think paying the 3y here could be decent as cost is minimal. 3M KLIBOR stayed at 3.69%.

      Local PDS market was more biddish with buying interest focused on the AAA and GG spaces. AAA names across the curve tightened 2-7bps. Aman papers at the belly saw about MYR55m traded volume with Aman 18s tightening 7bps. GGs saw more interest in longer dated papers with Dana 45s tightening 3bps with MYR50m done. AA names mostly traded within 1bp from MTM. Some investors were seemingly shortening duration as AA papers with <1y maturity saw good demand.

Singapore

      SGS outperformed again on lower funding rate with yields down by 1-4bps. Bond swap spread for the 10y benchmark is back to -23bps. MAS announced the new 5y benchmark issue size at a slightly smaller than expected SGD2.8b, of which MYR200m will be taken back by MAS.

      The Asian credit market appeared slightly more optimistic in adding risk in view of EU’s continuing effort seen on the Greece crisis. Most were on the bid side for MALAYs and Korean names, and better buying was also seen for O&G names. INDONs and PHILLIPs traded mostly unchanged to slightly higher. With all the rally in the past 2 days, INDON sovereign seem well supported with quasis continuing to trade actively. Chinese HYs, especially property names, were still well bidded. West China Cement rallied about 1.5pts higher on news that it is selling a 17% stake to Anhui Conch Cement. Shanshui Cement also saw good two way interest after a court appeal dismissal.

Indonesia

      Indonesia bond market closed slightly higher during the final day of last week amid minimum market sentiments, 2Q limited growth, higher inflationary pressure and FFR hike expectation. Onshore investors were seen on the buying side during Friday trading. This week we see bond market would move sideways with U.S. 1Q GDP growth announcement to play main role in further movement of LCY bond prices. 5-yr, 15-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 8.243%, 8.445%, 8.607% and 8.655% while 2y yield shifts up to 7.875%. Trading volume at secondary market was seen heavy at government segments amounting Rp12,244 bn with FR0030 (1y) as the most tradable bond. FR0030 total trading volume amounting Rp1,400 tn with 12x transaction frequency and closed at 102.989 yielding 7.260%.

      Corporate bond trading traded heavy amounting Rp767 bn. AMRT01ACN2 (Shelf registration I Sumber Alfaria Trijaya Phase II Year 2015; A serial bond; Rating: AA-(idn)) was the top actively traded corporate bond with total trading volume amounted Rp100 bn yielding 9.697%