FX
Global
Sentiments soured overnight after the Greek proposals were rejected by
the creditors. The Eurogroup meeting ended with little compromise on
either side and markets will watch the EU Leaders Summit on Thu and Fri. The
DAX ended -0.6% lower for Wed and US equities also closed in the red, little
inspired by the third reading of 1Q GDP at -0.2%q/q which was revised higher
from the previous -0.7% drop.
The majors were a mixed bag against the USD. NZD rose 0.5% as investors
take profit from its recent declines. Its fellow antipodean AUD slipped -0.4%.
EUR was up 0.3% on risk-off, underlining our view that it has new status as a
funding currency. CAD slipped -0.5%, worst performer in line with the slide in
oil prices.
Tonight we have personal income and initial jobless claims out of the
US. The Greek saga will continue to dictate sentiments while currencies are
normally less impacted. In Asia, there was little movement in the FX space with
KRW, IDR and MYR, each -0.3% lower. The data calendar gets a bit busier today
with BSP’s rate decision due today at 1600 (SGT). We expect no change to rate
at 4.0% given the recent Governor’s comments that current robust domestic
demand does not warrant a rate adjustment. CBC also decides on rate and
consensus also expects rate at 1.875%. Before that, Philippines’ trade numbers
are due followed by Vietnam’s trade and GDP prints.
Currencies
DXY – Awaiting Catalyst. USD ended the overnight session marginally softer in
absence of key data. 1Q GDP (third reading) was revised higher to -0.2% saar,
vs -0.7% in the second reading. Focus remains on Greek development. Day ahead
expect range of 95 – 95.50, with mild downside pressure; push below 95-support
could see a move lower towards 94.60. 4-hourly momentum and stochastics are indicating
a bearish bias. Medium term, we continue to reiterate our view for the
first 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. Day ahead brings 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 – Trade it Like a
Funding Currency. EUR rebounded above 1.12-handle despite the Troika
rejecting Greece’s revised proposal. IFO expectations also came in weaker than
expected, but that did not stop the EUR from going higher. As we highlighted
yesterday about the inversed relationship (YTD correlation coefficient at
-0.689) between DAX and EUR, DAX closed lower (-0.62%) overnight while EUR
inched higher. We reiterate that EUR has regained its funding currency
status once again. While it may sound strange but think about the ‘general rule
of thumb’ of selling JPY in risk-on environment and buying JPY in risk-off
environment. The same logic applies to EUR, furthermore both EUR and JPY are in
the midst of conducting QE. We will continue to watch DAX (as a proxy of risk
sentiment) and Greek development (driver of risk sentiment) and trade EUR (as a
second derivative to the proxy). We continue to caution for choppy price
action amid thin liquidity. Next support targets 1.1135 (50 DMA), 1.1060/70 levels (100 DMA and
38.2% fibo of 1.1467 – 1.0819) sees firm support. Resistance at 1.1220 (61.8%
fibo) before strong resistance 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 GE Gfk consumer confidence (Thu); GE May retail sales; EC May
money supply (Fri).
GBP/USD – More
Downside Likely. GBP continues to ease from recent highs;
traded down to low of 1.5667 overnight (very near to our support of 1.5660)
before reversing some of its earlier losses to close around 1.5706 after BoE
Weale (Hawk) said in an interview with FT that employment and wages are growing
more solidly than imagined – a hint/bias that he could be bias for a rate hike
sooner than expected. We continue to cautious for profit-taking given the
recent run-up and for potentially further downside in the near term. Chancellor
Osborne is expected to deliver the 'Stability' Budget statement on 8 Jul to the
UK House of Commons. We reiterate that a Conservative-led government could be
seen pursuing a tighter fiscal policy via spending cuts (in order to return to
budget surplus by 2019) if it is to stick to its election manifesto pledges.
This is the second budget in 1 year – an unusual move of having 2 budgets in 1
year. No details have been shared publicly, only a broad outline – continue
with balanced plan to deal with debts, invest in health service and reform
welfare. There will also be “laser-like focus” on raising productivity and
living standards. Focus will be on how the Conservatives fulfil a pledge to cut
GBP12bn in welfare spending. A tighter fiscal policy may force the BoE to run a
looser monetary policy so as not to derail economic activity/growth. Given
these considerations, GBP could be caught between a rock and a hard place as
medium term drivers support GBP strength but policymakers may pursue a weaker
currency and accommodative monetary policy stance. Next support seen at 1.5640
(38.2% fibo of May trough to Jun peak), before 1.5550 (50% fibo and 21 DMA).
Upside likely to be capped at 1.5750/80 levels. Week remaining brings CBI Jun
reported sales (Thu).
USD/JPY – Consolidation. USDJPY is edging higher towards the 124-handle this
morning but remains in consolidative mode within 123.50-124.15, though a
attempt towards 124.40 was short-lived. Kuroda’s comments on 10 Jun that
stemmed JPY weakness continues to weigh on the pair. Intraday MACD forest
is showing waning bullish momentum, and stochastics is falling from overbought
levels, suggesting that further upmoves could be capped. Further dips today
should be limited to around 123.50. Look for further consolidative moves within
123.50-124.15 intraday; we remain better buyers of the dollar on dips.
AUD/USD – Caught in a Range. AUD reached for the
0.7774-mark before slipping towards the 0.77-figure overnight. Pair is on the
recovery this morning with daily momentum not showing much bias. We
see two-way action within 0.7650-0.7800. Little other key data in the week
ahead. 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 – Bullish Tilt. USDCAD broke out of the daily cloud and hovered around
the 100-DMA, last printed at 1.2387. This pairing is supported by the overnight
slide in oil prices after the weekly US industry report showed elevated
domestic output. Bias is to the upside and next bullish target is seen at May
highs of 1.2563.
NZD/USD – Sticking With
Our Call for Upside Squeeze. NZD pushed as high as 0.6908 overnight, before closing around 0.6890
levels. We continue to hold to our call for potential upside squeeze, possibly
towards 0.7030 (23.6% Fibonacci retracement of 0.7744 – 0.6815) in absence of
fresh catalyst. Daily momentum and stochastics are exhibiting tentative signs
of bullish bias. Economic data of interest for the rest of the week – May trade
data due on Fri. Medium term we continue to reiterate our bearish bias 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
still expect at least another 25bps cut and the next cut could come as soon as
the next meeting in Jul. We look to lean against strength for a move towards
0.65 objective. We will reconsider bearish bias only if upside squeeze breaches
above 0.7230 (50% Fibonacci retracement).
Asia ex Japan Currencies
The SGD NEER trades 0.40% above the implied mid-point
of 1.3496 with the top end estimated at 1.3228 and the floor at 1.3764.
USD/SGD – Slow Grind Higher. USDSGD continues on its climb higher on the back of a firmer dollar tone
overnight. The grind higher though could be more gradual from here with
intraday MACD still showing bullish momentum but stochastics showing tentative
signs of falling from overbought levels. Pair remains poised for further
up-moves towards 1.3530-50 levels (100DMA and 50% Fibo) as we had noted
previously. Support today is seen around the 1.34-handle, while further upticks
are likely to be capped by 1.3480 in the near term. Bias to buy on dips still.
AUD/SGD – Awaiting A Breakout. AUD/SGD is still awaiting a breakout of the 1.0300-1.0500 range, last
seen around 1.0360. 50-DMA at 1.0466 also caps bids. 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. Cross continues to trade near all-time
highs of 2.80 amid Ringgit weakness; last at 2.8030. While we continue to
reiterate that SGDMYR could face further upside pressure possibly beyond 2.80
towards 2.82 levels, we caution for potential technical correction given
that daily stochastics is now in overbought areas and daily momentum appears to
be waning. A technical pullback could see the cross ease towards 2.7350 levels
(38.2% Fibonacci retracement of 2015 trough to peak).
USD/MYR – Still Watching
Fitch. USDMYR gapped higher towards 3.7660 (vs.
3.7513 close overnight) in the open. Apr leading index fell by -0.6% m/m,
from +1.3% in Mar. This suggests that 2Q GDP growth could potentially slow. Day
ahead pair could push higher towards 3.78 levels amid domestic concerns -
heightened risk of rating downgrade following contingent liability exposure.
Other factors weighing on the Ringgit include its vulnerability to external
development, as measured by import cover ratio and reserves-to-external debt
ratio. Both are lowest for the region. Support remains at 3.7350. For the
remaining of the month we continue to keep an eye on Fitch review of the
country’s sovereign rating; likely to be due sometime between now and end-Jun.
Expect upside pressure to ease gradually should rating review stays status quo.
USD/KRW – Range. USDKRW was last sighted at 1110 (vs. yest close of
1108.5). Jun consumer confidence came in weaker than previous (99 vs. 105 in
May). Day ahead could see the pair trade range between 1107 – 1115 with
bias to the upside. Daily momentum and stochastics are indicating a mild
bullish bias. 21 DMA at 1111 remains key; a daily close below could see the
pair fall back into 1100 – 1110 range. Over medium term, we continue to
reiterate our bearish view for KRW - on concerns over MERS weigh on
growth/domestic consumption/ tourism/ foreign investment against a backdrop of
subdued inflation, weak activity data, soft exports, weak JPY undercut Korea’s
export competitiveness, and rising household debt (165% of annual household
disposable income). USD strength on Fed rate lift-off in Sep (house view) could
further provide support for the pair.
USD/CNH – In Range. USD/CNH
drifted lower to levels around 6.2060 with offshore yuan commanding a 10 pips
premium to CNY. USDCNH support is still seen at 6.1990 (200DMA). Bids are now
resisted by the thick daily ichimoku cloud. Prices are likely to remain sticky
around 50-DMA at 6.2050. 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 24 Jun, USD/CNY was fixed 23 pips higher at
6.1142 (vs. previous 6.1119). CNYMYR was fixed 18 pips higher at 0.6023 (vs.
0.6006). China’s State Council has abolished the loan to deposit ratio of
75%, a positive step in its financial reform endeavours as well as a mean to
increase credit growth.
USD/INR – Downside Risks. USD/INR
still supported by the bullish cloud but prices moved lower after its opening
price to close at 63.5975. The 50-DMA is still underpinning price action. Daily
momentum indicators show bearish conditions still though prices might need to
get past the 63.52-figure for further downside extension. The 1-month NDF
steadied around 63.90, still in the cloud and capped by the 50-DMA. It could be
only a matter of time before spot prices head further south and we eye the
break of 63.60 for a reassertion by the bears in spot prices. In news, RBI
Governor Rajan aims to bring inflation down to 4% whilst creating faster growth
from building institutions. He warned of impacts from Greece but maintains
confidence that India would be able to withstand the volatility.
USD/IDR – Capped.
USD/IDR is edging higher this morning towards 13280, playing catch-up with its
regional peers. Both intraday MACD and slow stochastic remains bearish bias
that could possibly cap upside ahead. Still downside pressure on the pair
remains as domestic concerns (lacklustre growth and persistent current account
deficit) weigh. Look for support still at 13250 before the next at 13200 and
topside to be capped by 13350. 1-month NDF is trading rangy after climbing from
its recent low of 13306 (23 Jun) but upmoves are possible given that both
intraday MACD and stochastics are bullish bias. The JISDOR was fixed lower at
13280 yesterday from Tue’s 13316. Foreign interest in Indonesian assets
remained mixed with investors selling a net USD6.18mn in equities but added a
net IDR2.65tn to their outstanding holding of government debt on 23 Jun (latest
data available).
USD/PHP – Grinding Higher. USD/PHP is wobbling this morning, sighted around 45.125. Risk aversion
over Greece concern could weigh on the pair today, lifting the pair towards the
45.200-levels. But the grind higher could be gradual given that intraday MACD
is still showing no strong momentum though stochastics is indicating mild bullish
bias. BSP meeting on Thu remains in focus and we expect the central bank to
keep the policy rate steady at 4.0% as domestic growth momentum remains on
track and inflation manageable. Unless BSP surprises, we do not expect a
significant impact on the pair ahead. Look for 44.880-45.270 range to hold. We
remain buyers of the pair on dips. 1-month NDF appears to be in consolidative
mode after the recent uptick, hovering around 45.150 at last sight, with both
intraday MACD showing no strong momentum and stochastics bearish bias. Foreign
selling of equities continued yesterday but slowed to just a net USD0.8mn.
USD/THB – Two-Way Trades. USD/THB trades in a tight range within 33.735-33.820 after
climbing from a recent low of 33.570 (18 Jun). Upward momentum appears to have
waned for now with intraday MACD forest on the wane and stochastics showing
tentative signs of falling from overbought levels. For now, look for the pair
to remain in consolidative mode within 33.700-33.920. Customs trade data is on
tap at noon and market is expecting exports and imports to fall by 9.05% and
2.5% respectively in May. Surprises in either direction could see the pair
trade closer to the boundaries of today’s trading range. Foreign interest in
Thai assets was again mixed yesterday with foreign funds now buying a net
THB1.03bn in equities and selling a net THB1.09bn in government debt.
Rates
Malaysia
§ Government bonds trading centered on the short end of
the curve with heavy volume seen on the 2017 and 2018 maturities. The 17s traded
at 3.09-3.19% and the 18s at 3.35-3.38%. The 7y benchmark MGS also saw heavy
trading, ending 1bp higher as many were looking to reduce positions. Players
are likely to remain cautious amid continued volatility in global bond markets
until clear signs emerge. We expect the 5y GII 8/20 reopening auction to be
announced today with a size of MYR3.0b.
§ IRS market had a bit of excitement led by foreign
receiving interest. But the momentum died down later. The 5y IRS traded at
3.93% and 3.92%. 3M KLIBOR remained at 3.69%.
§ Local PDS market was quiet as ever, with few deals
done. We saw some rare names such as Borcos, Bright Focus and GRSB being dealt.
A good amount transacted again on Prasarana 20 at 3.965%, a tad higher than its
previous MTM. We think there will likely be more asset reallocation activities
come closer to month end.
Singapore
§ SGS saw another day of selling which seems to be the
unwinding of bond swap spread positions in the market. The SGS curve steepened
quite a fair bit as yields closed about 3-4bps higher from the belly onwards
while front end yields were down 4-5bps.
§ The Asian credit space had a merry day. A lineup of
new issuances overshadowed Baidu’s new issuance the previous day. Its new 5y
and 10y were issued at T+135bps and T+175bps respectively and traded 1-2bps
tighter. EIBKOR 26 retap traded around reoffer with secondary market generally
quiet. Chinese HYs saw more action with the property space trading firm, led by
PWRLNG and FTHDGR. Some new issuances to note: 1) Korea Resources retap on 2019
issuance for USD120m at T+92.5bps; 2) Mongolia government (B+) issuing 3y CNH
at guidance of mid 7%; 3) Bank of China issuing multi-tranche and
multi-currency bonds with guidance for 3y, 5y and 10y USD at T+140bps, T+150bps
and T+180bps respectively, 2y CNH at 3.75% and 4y SGD at 3.00%; and 4) China
SCE Property Holdings (B) issuing 5NC3 USD at guidance of 10.25-10.375%.
Indonesia
§ Indonesia bond market moved sideways during the day
and continues closing higher. The race for collecting FR0053, FR0056 and other
benchmark remains during the day which may have pushed price higher yesterday.
However, we remain see the potential for slump in bond prices on the note of
higher June inflationary pressure. 1Q 15 U.S GDP contracted by 0.2% which is in
line with economist consensus and better compared to 4Q 14 contraction of 0.7%.
We believe bond market today would be moving sideways today. 5-yr, 15-yr,
10-yr, 15-yr and 20-yr benchmark series yield stood at 7.943%, 8.152%, 8.246% and 8.294% while 2y yield shifts down to 7.695%. Trading volume
at secondary market was seen heavy at government segments amounting Rp39,369 bn with FR0056 (11y) as the most tradable bond.
FR0056 total trading volume amounting Rp9,948 tn with 158x transaction frequency and closed at 101.083 yielding 8.223%.
§ DMO plans to conduct USDFR0001 auction on upcoming
Monday with an indicative auction value of USD500 mn. During the first
issuance, USDFR0001 received Rp559.4 mn or oversubscribed by 2.4x. Current
USDFR0001 yield is running at 1.423% which is lower compared to RI0017 yield of
1.560%. We believe investors would demand WAY above 1.560% during the auction.
USDFR0001 is a 1.9y bond and paying coupon of 3.500%.
§ Corporate bond trading traded heavy amounting Rp618
bn. APLN01CN3 (Shelf registration I Agung Podomoro Land Phase III
Year 2014; Rating: idA) was the top actively traded corporate bond
with total trading volume amounted Rp70 bn yielding 12.961%
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