Maybank GM Daily - 30 Jun 2015

FX

Global

      Risk-off was the theme of the day with US equity indices ending around 2% lower each. Euro Stoxx and DAX clocked one of the most losses overnight, down -4.2% and 3.7% respectively. Focus is still on Greece. For the first time, ECB Coeure actually admitted that a “Grexit” is possible. The bailout package expires 30 Jun (today) and Greece is due to miss its EUR1.6bn payment to IMF.  Greece’s stock exchange was closed along with banks in the country that will remain shut until 6 Jul. EUR was squeezed above the 1.12-figure before settling thereabouts in early Asia.

      DXY was slammed lower, last seen at the 95-figure. The greenback was weighed by the resurgent EUR which coincides with weaker data at home. Pending home sales for May weakened a tad more than expected to 0.9%m/m from the previous 2.7%.  Amid the risk aversion, JPY and SGD were the only gainers, up 1.1% and 0.3% against the USD respectively. The rest of Asia weakened in the absence of risk appetite.  EUR was not the only gainer, CHF was up 0.9%. AUD also managed to eke out a 0.3% gain by the close of Mon.

      South Korea released industrial production for May, down another -1.3% on the month. Thailand will release its May trade numbers later this afternoon, as well as current account data. Asian investors will still eye headlines out of Greece. Meanwhile, there is some optimism in Japan with Nikkei up +0.4% while USD/JPY was still suppressed by soured global sentiments around 122.50. Japan’s Economy Minister Amari said Greece

Currencies

        DXY – Back in the Range. USD reversed its gains despite pending home sales rising to 7-year high as Greek development continues to drive sentiment. DXY was last at 95.10 levels. Next support at 94 levels (trendline support from May to Jun troughs). Next resistance at 96.50 (50% fibo retracement of Apr high to May low), before 97.40. Mild bullish momentum has turned flat while daily stochastics is showing tentative signs of falling from overbought areas. Day ahead expect 94.75 – 96.00 range.  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 will be gradual;  a 25bps hike in Sep followed by a pause within the quarter to assess the impact is the likely normalization path Fed will take, given that we believe 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. Week ahead brings Apr S&P/CS house prices; Jun Chicago Purchasing Manager, consumer confidence; Fed’s Bullard to speak (Tue); MBA mortgage application; Jun ADP; Jun ISM Mfg (Wed); initial jobless claims; Jun NFP, hourly earnings, unemployment rate; Jun ISM NY; May factory orders (Thu). US markets closed for Independence Day holiday on Fri.

§  EUR/USD – Complete Reversal. EUR did a complete reversal overnight, overcoming negative development arising out of Greece. Overnight development includes S&P cutting Greece sovereign rating to “CCC-”, from “CCC”; Greek government confirmed that they will not pay the EUR1.6bn due to the IMF today and Greek PM Tsipras and his government has begun campaigning for a “No” vote for the Greek referendum on credit proposal (to be held on 5 Jul). EUR traded a low of 1.0955 in Asian hours yesterday; and did a complete turnaround, trading as high as 1.1278 before closing the overnight session at 1.1236 (higher than last Fri close). We continue to hold to our view of trading the EUR like a funding currency. Basically DAX and the EUR’s inversed relationship continue to strengthen (YTD correlation coefficient at -0.695 vs. -0.689 on 24 Jun). While it may sound odd but price action – DAX down, EUR up (vice versa applies) suggests so. Reference this observation to the ‘general rule of thumb’ of buying JPY in risk-off environment and selling JPY in risk-on environment. Without doubt, both the EUR and JPY are in the midst of conducting QE (Both JPY and EUR rose among most majors). That said we will continue to watch the 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 also believe it is only a matter of time the ECB provide some support (ELA, OMT, and/or QE) to the Greek financial system and maintain Euro-area market stability. There is a potential of ECB reiterating its mandate to use all policy tools (QE and/or OMT); to do whatever it takes to ensure financial stability in the Euro-area. In the press release on 18th Jun, the Court of Justice of the European Union (ECJ) confirmed that the legality of the OMT programme. The ECJ (which has jurisdiction over the ECB) said that the OMTs “fall within ECB’s mandate of maintaining price stability” and it must be allowed ‘broad discretion’ when it “prepares and implements OMO as it needs to make choices of technical nature…” This underscores that ECB could reach out to use the OMT, if need arises. Expect EUR to continue trade wide ranges, gyration as markets takes into consideration ongoing Greek development vs. EUR as funding currency status as well as possible ECB announcing “to do whatever it takes” measures. We wish to add a note of caution that a risk-off event may not be extremely EUR-negative as unwinding of EUR hedges could lend support and mitigate EUR’s decline to some extent. Week ahead brings FR May PPI; EC, GE Jun unemployment rate; EC Jun CPI estimate (Tue); EC, GE, FR, IT Jun Mfg PMI (Wed); EC May PPI (Thu); EC, GE, FR, IT Jun composite/Services PMI; EC May retail sales (Fri). Greek referendum on 5 Jul and leading up to it – the hard-talk headlines.

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       GBP/USD – Consolidation. GBP reversed some of earlier losses (Asia hours yesterday), traded as high as 1.5789 tracking EUR gains before ending the overnight session at 1.5738. Day ahead GBP could consolidate 1.5660 – 1.5800 range; momentum is lacking a conviction while daily stochastics is indicating a bearish bias. We continue to be cautious for potential 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. Week ahead brings Jun GfK Consumer confidence; 1Q F GDP; 1Q current account (Tue); Jun Mfg PMI (Wed); Jun Construction PMI; Jun Nationwide house prices (Thu); Jun services/composite PMI (Fri).

       USD/JPY – Bearish. USDJPY bounced back from the monthly lows of 122.11 to above the 122.50-levels but potential downward pressure remains in the near term on global risk aversion as markets focus remains Greece. There could be some support though should data this week prints to the downside. Intraday MACD and stochastics are bearish bias, suggesting further upside moves could be capped. Look for resistance today at 123.20 (61.8% Fibonacci retracement of 121.52-125.86 upswing). The pair failed to closed below support at 122.54 (76.4% Fibo retracement) to signal further downmoves, and we continue to watch for a daily close below that support level 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).

       AUD/USD – Pressing Lower. AUD bounced to a high of 0.7712 on Mon and hovered around 0.7670 this morning. 0.7683 (76.4% Fibonacci Retracement of the Apr-May rally) is still resisting bids. Failure to close above this level could mean the range-trading is shifting lower.  Daily momentum tools are not showing much bias at this point. Next support is seen around 0.7570 ahead of the next at 0.7533. RBA Stevens speaks later today and the rest of week brings May building approvals; Jun commodity index (Wed); May Trade data (Thu); May retail sales (Fri).

      USD/CAD – Breaking Out Higher. USDCAD rallied yesterday and extended its climb to levels around 1.2420. Pair is underpinned by risk off sentiments which favours the greenback and weighs on the oil prices.  Pairing has taken out the barrier at 100-DMA and this level at 1.2389 has become a support level. Daily momentum indicators tilt to the upside and bullish target is seen at 1.25-figure is back in view, ahead of the next at 1.2560. Growth numbers for Apr are due today. RBA Canadian Manufacturing PMI is due on Thu.

       NZD/USD – Consolidate with Upside Bias Near Term. NZD attempted a squeeze higher towards 0.6880 levels before turning lower. Last sighted at 0.6815 levels (near the session lows) on lowest Business Confidence dat in 4 years. Daily/4-hourly momentum is flat; lacking a firm conviction. Day ahead NZD is likely to consolidate 0.6790 – 0.6880 levels. Focus tonight on GDT auction. Remain caution of upside squeeze. 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. Strategically, we look to lean against strength for an eventual move towards 0.65 objective. We will reconsider bearish bias only if upside squeeze breaches above 0.7230 (50% Fibonacci retracement). Week ahead brings May building permits (Tue); Jun QV House prices, commodity prices (Thu).

Asia ex Japan Currencies

      The SGD NEER trades 0.04% above the implied mid-point of 1.3507 with the top end estimated at 1.3238 and the floor at 1.3777.

       USD/SGD – Capped. USDSGD slipped to an overnight low of 1.3452 but has since given up some of its losses to bounce higher to 1.3472 at last sight. Risk aversion on the back of the Greek referendum should is likely to keep the pressure on the upside ahead. Both intraday MACD and stochastics are bearish bias, suggesting that upmoves could be capped. Resistance is seen around 1.3480 and a daily close above that level could see a rally back towards the 1.3530-50 levels (100DMA and 50% Fibo). 1.3450 remains supportive intraday.

       AUD/SGD – Awaiting A Breakout. AUD/SGD had another choppy session with SGD strength negating the gains in the AUD. This cross was last seen around 1.0330, on the downtick ahead of RBA Glenn Stevens’ speech in London. This cross needs at least a daily close below the 1.0300-support to confirm a bearish breakout.  Daily momentum is turning bearish though weekly chart hints of bullish divergence. Directional bias is thus unclear at this point. Watch risk sentiments as well as markets’ reaction to RBA Glenn Stevens’ jawboning in his speech tomorrow. 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 hover above 2.80-handle. While the cross could face further upside pressure, possibly towards 2.80-2.82 levels , we caution that momentum and stochastics are showing tentative signs of mild bearish bias. Failure to push above 2.80 – 2.82 levels, could see the pair ease. Next support at 2.7750 (21 DMA); before 2.76 levels (23.6% fibo retracement of 2015 trough to peak).

       USD/MYR – D-Day as Fitch Rating Concludes. USDMYR eased from recent highs; traded slightly lower towards 3.7670 after it opened; last sighted at 3.7760. Daily momentum is lacking firm conviction. Fitch review concludes today; expect announcement to be released sometime soon. Expect upside pressure to gradually ease should rating review stays status quo – no rating downgrade; maintains negative watch on outlook. Meantime pair could still stay supported on 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.

       USD/KRW – Wild Ride; Possible Downside. USDKRW traded as high as 1127.55 yesterday before closing at 1125. This morning the pair gapped lower in the open at 1120.40 tracking broad USD weakness.  Day ahead could see the pair trade range between 1113 and 1123 with mild bias to the downside. Daily/ 4-hourly momentum is turning mild beairsh bias.  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. Week ahead brings May Industrial Production (Tue); Jun CPI, trade, PMI (Wed); May current account (Thu).

       USD/CNH – Back in Range. USD/CNH touched a high of 6.2168 before reversing lower to levels around 6.2080 this morning. China’s rate cut hardly had any impact on this pair so far and the yuan seems to be shielded from the soured risk sentiments elsewhere in the world. Pair is still within the 6.2000-6.2240 range and market players anticipate a lower USD/CNY fixing after the overnight dollar slump. USDCNH support is still seen at 6.2005 (200DMA). Risks are tilting to the upside as daily ichimoku cloud thins out ahead. 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. On 29 Jun, USD/CNY was fixed 31 pips higher at 6.1168 (vs. previous 6.1137). CNYMYR was fixed 40 pips higher at 0.6085 (vs. 0.6045).  At home, Ministry of Finance has allowed its basic endowment pension fund to invest in stock markets. The proportion of investment in stocks, funds and stock-related pension products will be capped at 30% of pension funds’ net value. In other news, a report by China Securities Journal highlighted that an improving economy and continued loose liquidity will procide support for China’s stock market.

         USD/INR – Sideways. USD/INR closed on Fri at 63.8525, hardly changed in the session. Pair is likely to open lower after the dollar slide overnight. The 50-DMA is still a support level.  We do not expect dramatic action as the 1-month NDF is steady around the 64-figure this morning. This week could be another one that has little directional bias with range trading seen within 63.30-64.00. In news, surplus rainfall narrowed from 28% to 19% as of 28 Jun. Downpour was 39% below 50-year average on Sun. Should there be a convergence towards the 88% Monsoon forecast by IMD, an anticipation of drought conditions may drive up inflationary expectations.

       USD/IDR – Range-Bound.  USD/IDR is edging slightly lower this morning to around 13337 after spiking towards 13400-levels yesterday. Both intraday MACD and stochastics are bearish bias. Uupside pressure on the pair is likely to remain until there is clarity over Greece. Moreover, domestic concerns (lacklustre growth and persistent current account deficit) as well as month-end dollar demand should also add to the upside pressure ahead. Look for the pair to hover between 13250 and 13400 intraday. The Greek tragedy continues to keep the 1-month NDF elevated above the 13400-levels with intraday MACD still showing bullish momentum, though stochastics is mild bearish bias. The JISDOR was fixed higher at 13356 on Mon from Fri’s 13338. Foreign funds sold a net USD29.56mn in equities yesterday but continue to add a net IDR0.52tn to their outstanding holding of government debt on 26 Jun (latest data available).

       USD/PHP – Two-Way Trades. USD/PHP is edging higher this morning, playing catch-up with its regional peers. Upward pressure should remain in the near term on deteriorating global risk appetite. Pair has lost most of its bearish momentum, though stochastics is showing tentative signs of bearish bias, suggesting potential two-way trades in the near term. Look for 45.000-45.270 range to hold intraday. 1-month NDF is inching higher towards 45.20 this morning, though the pair is currently trapped in an intraday ichimoku cloud, suggesting range-trading in the near term. Global risk aversion saw foreign funds sell a net USD2.91bn in equities yesterday.

      USD/THB – Bearish Bias.  USD/THB is on the slide back below the 33.800-levels, possibly a temporary relief after yesterday’s climb towards 33.900. Upward pressure is likely to remain in the near term on global risk aversion. Both intraday MACD and stochastics are bearish bias, suggesting potential for further downticks in the near term. But dips could be limited as we have a slew of month-end data releases today including mfg production index, trade and current account. Downside surprises from the data could see a rebound in the pair. Onshore markets are closed tomorrow for a public holiday (though government offices remain open) and we could see some cautious trades. Look for topside to be curbed by 33.850 and downticks limited by 33.700 today. Support this week is seen around 33.450 (50DMA). Foreign funds bought just a net THB8.17mn of equities but sold a net THB3.27bn of government debt yesterday.

Rates

Malaysia

       Government bond market was affected by MYR weakness despite the UST rally over the weekend. Players still prefer to fade any potential rally but yields at the belly of the curve ended higher. The 5-7y MGS benchmarks rose by 4-7bps. Auction of the 5y reopening GII 8/20 drew a strong bid/cover of 2.207x with an average yield bid of 3.743%. Post auction the bond closed slightly higher at 3.75%.

       In the IRS market, the 5y was dealt at 3.945-3.96%. Paying took place due to the weaker MYR sentiment. Market may see some players afraid to take on positions. 3M KLIBOR stayed at 3.69%.

       PDS market was quiet with trades mostly done in the GG space. Longer dated GGs tightened 1bp while those at the belly traded within previous levels to 3bps wider. Telekom 3/24s widened 1.5bps, closing at 4.425%. Other trades were crosses due to month end portfolio rebalancing. Market sentiment is tepid given the weakness in govvies on Greece news and pending outcome of Fitch’s rating review on Malaysia.

Singapore

       A volatile day in the SGS market with rates ending lower for SGS and SGD IRS. The SGS curve flattened slightly as the 7y and below fell 2-3bps supported by last minute demands, while the long end closed 1-2bps lower. 10y SGS unchanged at 2.72%. Players may be more defensive this week given unresolved Greece issue and NFP this Thursday.

       Asian credits opened mostly wider in spreads due to the Greek news over the weekend. Many were on the selling end and liquidity was thin. Chinese IGs opened around 10bps wider but stabilized in the afternoon. Some buying was seen in MALAYs and the newly issued GLPSPs. Sovereigns were muted, with surprise support on long PHILLIPs. Players will likely be cautious and stay away for the time being given the Greece crisis, NFP data on Thursday and holidays for 2 major markets (HK on Wednesday and US on Friday).

Indonesia

      Indonesia bond market closed lower ahead of several economy data publication this week both from domestically and globally. The decline of bond prices occurred amid a successful Indonesia domestic USD denominated auction yesterday. The fear of default by Greece remains as the focus which may drive bond prices lower. 5-yr, 15-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 8.170%, 8.404%, 8.439% and 8.496% while 2y yield shifts up to 7.777%. Trading volume at secondary market was seen heavy at government segments amounting Rp17,227 bn with FR0070 (10y benchmark series) as the most tradable bond. FR0070 total trading volume amounting Rp3,277 tn with 106x transaction frequency and closed at 99.800 yielding 8.404%.

       DMO conducted USDFR0001 auction yesterday and received incoming bids worth of USD871.7 mn or oversubscribed by 1.7x of its target issuance. However, DMO only awarded Rp500 mn bids. The awarded WAY for this series was at 1.90138% which is far above the Friday closing yield.

       DMO will conduct their sukuk auction today with four series to be auctioned which are SPN-S15012016 (Coupon: discounted; Maturity: 15 Jan 2016), PBS006 (Coupon: 8.250%; Maturity: 15 Sep 2020), PBS007 (Coupon: 9.000%; Maturity: 15 Sep 2040) and PBS008 (Coupon: 7.000%; Maturity: 15 Jun 2016). We believe that the auction will be oversubscribe by 2.0x – 3.0x from its indicative target issuance while our view on the indicative yield are as follows SPN-S15012016 (range: 6.000% – 6.100%), PBS006 (range: 8.530% – 8.630%), PBS007 (range: 8.900% – 9.000%) and PBS008 (range: 7.680% – 7.780%).

       Corporate bond trading traded heavy amounting Rp737 bn. BACA01SB (Subordinated Bank Capital I Year 2014; Rating: idBBB-) was the top actively traded corporate bond with total trading volume amounted Rp180 bn yielding 11.988%.