Maybank GM Daily - 1 Jul 2015

FX

Global

      Greece failed to make the payment to IMF yesterday, sending the DAX, CAC and Euro Stoxx lower. Risk aversion did not spill into New York session however and US equities managed to stay in the black for most part of the session, making slight recovery from the sell off on Mon. Data released was supportive with consumer confidence index up 101.4 in Jun from previous 94.6.  Chicago Purchasing Manager for the same month also improved to 49.4 from 46.2 in May. Earlier in the day, Euro-area CPI estimate came in a tad softer at 0.2%y/y for Jun, meeting expectations. Nonetheless, the positive number triggered a squeeze for EUR to a high of 1.1278 before reversing to levels around 1.1130 as we write in early Asia. It was the AUD that clocked the most gains on Tue, up 0.4%, still reeling from the news of double cut from China. NOK appreciated 0.1% while the rest ended overnight session, weaker against the USD.

      As promise, Fitch released its credit rating report for Malaysia yesterday, affirming its long-term foreign currency rating at ‘A-‘ with outlook revised to stable. The revision reflected an improvement in fiscal finances, noting the fall in budget deficit from 4.6% of GDP to 3.8% as well as the implementation of GST and fuel subsidy reforms. Its external liquidity is still above the ‘A’ median and growth rate still favourable. SGDMYR slumped to 2.77 at last sight, still on the slide.

      China kicks off the HSBC PMI-mfg release today before the rest of the world. The official PMI-mfg was out at 50.2 steady from May’s reading. Expectations of the release might be revised lower ever since China eased over the weekend. Earlier this morning, South Korea CPI came in flat at Jun, missing consensus at 0.1%. Exports and imports shrank by 1.8%y/y and 13.6% respectively. Trade surplus widened to USD10.2mn. Australia’s building approvals are due for May, followed by Vietnam’s and Indonesia’s PMI. Indonesia and Thailand will release inflation numbers around noon.

Currencies

        DXY – Range; Mild Upside Bias. USD firmed overnight on EUR weakness after EU continue to hold firm in their offer to Greece (despite the deadline extension). US data overnight was a mixed bag with consumer confidence better than expected, while Chicago PMI and S&P/CS house price were slightly weaker than expected.  DXY was last at 95.50 levels. Next support at 94 levels (trend-line support from May to Jun troughs). Next resistance at 96.50 (50% fibo retracement of Apr high to May low), before 97.40. 4-hourly momentum/stochastics are indicating a mild bullish bias. Day ahead expect 95.10 – 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 remaining 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 fell overnight on EU hard stance – no change to terms in offer to Greece, EU’s Juncker said that a “No” vote on referendum would lead to Grexit while Greece honoured their defiance call to NOT pay the IMF yesterday, joining the likes of Zimbabwe, Somalia, Sudan in missing repayment to IMF. EUR traded a low of 1.1112 overnight; early rally was capped at 21 DMA. Some downside pressure could persist on the day; 4-hourly momentum/stochastics are mild bearish bias. Intra-day range of 1.1040 – 1.1220 expected. Week ahead brings 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.

       GBP/USD – Consolidation. GBP eased despite an upside revision to 1Q GDP and real incomes. GBP was last at 1.5695; momentum/stochastics are indicating a mild bearish bias. Next support at 1.5620 (21 DMA); before 1.5550 (50% fibo of May low to Jun high). Resistance at 1.5750/80 (23.6% fibo) likely to cap rallies. 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. 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. Focus will be on how the Conservatives fulfil a pledge to cut GBP12bn in welfare spending. Week ahead brings Jun Mfg PMI (Wed); Jun Construction PMI; Jun Nationwide house prices (Thu); Jun services/composite PMI (Fri).

       USD/JPY – Tentative Bullish Bias. USDJPY is wobbling this morning, hovering around 122.50-region at last sight, pulled in two directions by the better-than-expected 2Q Tankan survey results and the improved global sentiments overnight. 2Q Tankan showed that large manufacturers’ sentiments improved unexpectedly, rising to 15 (cons.: 12) from 12 in 1Q. Similarly, those for large non-manufacturers rose to 23 (cons.: 22) from 19. However, sentiments of small manufacturers slipped lower to zero in 2Q from 1Q’s 1, while those for non-manufacturers rose to 4 from 3. Intraday MACD and stochastics are now showing tentative signs of bullish bias. While the risk to the pair is to the upside for now, there remains potential downward pressure in the near term on the Greek situation. Look for resistance at 122.80 ahead of the next at 123.20 (61.8% Fibonacci retracement of 121.52-125.86 upswing), while support is at 122.20.

       AUD/USD – Back in Range. AUD edged even higher yesterday and steadied around the 0.77-figure. Pair was able to get past the 0.7683 (76.4% Fibonacci Retracement of the Apr-May rally). Daily momentum tools are not showing much bias at this point. The 0.7683 has become a support level. RBA Stevens wasted no opportunity to reiterate that further deprecation of the AUD is both likely and necessary. He also assured that Australia’s direct exposure to Greece is miniscule which explains the AUD upmove that bucks the trend of the majors. AUD is still reeling from the double cuts in China and intra-day chart shows bullish tilt. Next barrier to break is 0.7725 ahead of the 0.7774. May building approvals are due today and the rest of the week brings May Trade data (Thu); May retail sales (Fri).

      USD/CAD – Breaking Out Higher. USDCAD steadied around 1.2490 this morning after the rally yesterday. Pair is underpinned by recovery in the USD as well as the disappointment in the growth number printed for Apr today. GDP shrank -0.1%m/m, missing expectations for a 0.1% expansion. Even the rise in oil prices failed to provide much support for the CAD. 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. The 100-DMA at 1.2389 has become a support level. Next data to watch is RBA Canadian Manufacturing PMI, due on Thu.

       NZD/USD – Risk of Upside Squeeze. NZD tested a fresh-5 year low of 0.6748 weighed by risk-off sentiment and 4-year low business confidence data. NZD was last at 0.6784. Focus today on GDT auction prices later tonight. 4-hourly stochastics is showing tentative signs of turning higher from oversold areas; we continue to caution for a risk of near term 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 remaining brings Jun QV House prices, commodity prices (Thu).

Asia ex Japan Currencies

      The SGD NEER trades 0.02% below the implied mid-point of 1.3487. The top end is estimated at 1.3218 and the floor at 1.3757.

       USD/SGD – Consolidating Lower. USDSGD appears to be in consolidation mode after coming off from a recent high of 1.3566 (29 Jun). Pair is currently edging lower to 1.3465 on the back of improved global risk sentiments. Still, upside risks abound as the Greek referendum and US NFP approaches. Both intraday MACD is still showing bearish momentum though stochastics is indicating little bias in either direction, suggesting that further dips could be limited. Support is still seen around 1.3450 before the next at 1.3430 (50DMA) while upside is likely to meet resistance around 1.3480.

       AUD/SGD – Awaiting A Breakout. AUD/SGD tracked the AUD for most part of Tue with market players taking profit this morning. Last seen around 1.0380, the cross is back within the 1.0300-1.0450 range. While momentum indicators show upside bias, recent price action suggests that bears may be at an advantage given a lack of higher highs and more lower lows. That said, 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. A clearance of support at 1.03-figure opens the way towards Mar low of 1.0243.

      SGD/MYR – Waning Bullish Momentum (alas!). Cross finally eased; low of 2.7675 levels this morning; last at 2.7750 levels following Fitch review (upside revision to outlook). We cautioned for a while - 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) – still holds.

       USD/MYR – Fitch Revised Outlook to Stable. Fitch made the announcement after market closed yesterday – maintained Malaysia’ credit rating and revised its outlook to stable from negative (perceived as a surprise to some). Statement cited improving government finances and steady growth as factors for the move. Fitch sees progress on GST and fuel subsidy reform as supportive of government finances. Ringgit rose more than 1% vs. the greenback (USDMYR closed at 3.7733 yesterday) this morning. We earlier mentioned that upside pressure will gradually ease should rating review stays status quo. With Fitch out of the way, USDMYR is expected to take cues from USD and oil moves. Meantime we caution that declines in the pair could be mitigated as other concerns - vulnerability to external development remains amid possible Fed tightening in Sep (USD strength). On the technicals, support at 3.7290 (23.6% fibo of Apr low to Jun high), before 3.6930 (38.2% fibo). Daily momentum and stochastics are exhibiting tentative signs of a bearish bias.

       USD/KRW – Range. USDKRW traded 1114.70 – 1121.63 range (with a bearish bias) yesterday.  Day ahead could see the pair trade range between 1114 and 1122 with mild bias to the downside. 4-hourly stochastics is indicating a mild bearish bias. Local media Yonhap reported supplementary budget in response to MERS, to be worth about KRW15tn; parliamentary approval likely before 20 Jul. Data released this morning - Jun CPI was flat (slightly lower than expected); traded surplus widened on falling imports while exports fell by smaller than expected.  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 remaining brings 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 higher this morning to around 13347 underpinned by a firmer dollar. However, pair continues to trade in a tight 13280-13390 range. Both intraday MACD and stochastics are showing no strong bias for now, suggesting range-bound trading ahead is likely. Still upside pressure is likely to remain until there is clarity over Greece. Moreover, domestic concerns (lacklustre growth and persistent current account deficit) should also add to the upside pressure ahead. Look for the pair to hover still hover within 13250-13400 intraday. 1-month NDF remains elevated above the 13400-levels though it is on the slide this morning towards 13420-levels with intraday MACD and stochastics showing no strong bias. The JISDOR was fixed lower at 13332 on Tue from Mon’s 13356. Foreign funds bought a net USD17.88mn in equities yesterday but removed a net IDR1.15tn from their outstanding holding of government debt on 29 Jun (latest data available). We have Jun CPI on tap today and market is expecting headline inflation to accelerate to 7.4% y/y.

       USD/PHP – Edging Lower. USD/PHP is edging lower this morning, playing catch-up with its regional peers. Pair is hovering around 45.050 at last sight, though upward pressure remains in the near term as there is still no clarity on the Greek situation and we have US NFP on Thu. Both intraday MACD and stochastic are bearish bias. An intraday inchimoku cloud is forming below price action and could limit downside ahead. Look for support around 45.000 before the next at 44.880. Any rebound is likely to be capped by 45.270. 1-month NDF is on the slide this morning but still well-within its current trading range of 45.000-45.300 with four-hourly MACD showing no strong momentum, though stochastics is tentative bearish bias. Foreign funds bought a net USD11.28bn in equities yesterday as sentiments improved.

       USD/THB – Closed For Holiday.  Onshore markets are closed for the mid-year holiday today, though government offices remain open. Markets will re-open tomorrow. Amid quiet trades, USD/THB is on the slide below the 33.800-levels after climbing to 33.850 earlier in the morning. Despite the weak trade print, the better than expected current account surplus should continue to weigh on the pair ahead. Still, upward pressure remains in the near term on global risk aversion. Both intraday MACD is still showing bearish momentum, though stochastics is now bullish bias. Look for range trading within 33.700-33.850 intraday. We have Jun CPI on tap today and market is looking for another decline in headline inflation of -1.0%. Foreign funds bought just a net THB76.29mn of equities but sold a net THB0.33bn of government debt yesterday.

Rates

Malaysia

       Government bonds saw buying interest with the 7y MGS 9/22 leading the way. Flows mostly centered on the 7y benchmark which closed 6bps lower. The 10y MGS 9/25 was also bought up, ending -3bps. This was ahead of expected Fitch’s announcement on its rating review for the country.

       In the IRS market, rates were pushed lower towards day end led by foreign players. 5y IRS traded from 3.96% to 3.94%. Short end basis also widened which we believe may be due to some foreign players unable to offload FX forwards. 3M KLIBOR unchanged at 3.69%.

       PDS space was rather muted, with most players staying sidelined or selling short to medium term papers. We saw some buyers on Aman 22 and Aman 25 that transacted at 4.23% and 4.42% respectively, much lower than MTM levels. Some transactions were also seen on long end Danainfra papers. The GG space was rather active with Putrajaya Holdings’ upcoming MYR900m issuance in the pipeline.

Singapore

       Softer short end rates lent some support to the SGS market as yields closed 1-3bps lower with a slight flattening bias. Sentiment still cautious with US NFP numbers due later this week and on the other hand a potential fallout from the Greece referendum.

      Asian credit space traded a little better. IGs tightened 2-3bps, while HYs mostly unchanged. INDONs and PHILLIPs appear supported with the long end papers trading about 0.20pts higher.

Indonesia

      Indonesia bond market closed higher at the end of month. Market sentiments remains minimal hence buying appetite by offshore buyers increased. 5-yr, 15-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 8.028%, 8.286%, 8.371% and 8.466% while 2y yield shifts up to 7.779%. Trading volume at secondary market was seen heavy at government segments amounting Rp38,963 bn with FR0070 (10y benchmark series) as the most tradable bond. FR0070 total trading volume amounting Rp3,223 tn with 90x transaction frequency and closed at 100.521 yielding 8.286%.

       Indonesian government conducted their sukuk auctions and received incoming bids of Rp3.87 tn bids versus its target issuance of Rp2.00 tn or oversubscribed by 1.9x. However, DMO only awarded Rp2.17 tn bids for its 6mo SPN-S which was sold at a weighted average yield (WAY) of 6.77919%, 1y PBS008 at 7.77997% while 5y PBS006 was sold at 8.52246%. Incoming bids were mostly clustered on the front end tenors. PBS007 bid was rejected during the auction. Bid-to-cover ratio during the auction came in at 1.29X – 2.08X. Aside from conducting the weekly auction, DMO also issued SDHI 2020 D through private placement of hajj funds worth of Rp1 tn. SDHI 2020 D pays an 8.20% fixed coupon with a tenor of 5y. SDHI 2020 D is a non tradable series. On total, Indonesian government has raised approx. Rp295.3 tn worth of debt through domestic and global issuance which represent 65.4% of this year target of Rp451.8 tn.

       Corporate bond trading traded heavy amounting Rp845 bn. SIKISAT04B (Sukuk ijarah Indosat IV tahun 2009; B serial bond; Rating: idAAA(sy)) was the top actively traded corporate bond with total trading volume amounted Rp100 bn.