Maybank GM Daily - 2 Jul 2015

FX

Global

       Greek PM Tsipras said he was willing to accept the latest offer as the basis for talks on a new deal late Wed but German Chancellor Merkel ruled out such discussions until after the referendum on 5 Jul. A sense of desperation is evident in the Athens’ government after its Finance Minister Varoufakis said the government may accept strict measures if debt is sustainable. ECB still did not raise the ELA for Greece. EUR made a brief peek above the 1.1150-level before reversing lower to sub-1.1050 as we write early Asia. The greenback reigned yesterday, backed by the stronger ADP employment number (at 237K) as well as improvement in manufacturing numbers.

       The stronger ADP number built expectations for a stronger NFP print, due tonight ahead of Independence Day Holiday in the US tomorrow. AUDNZD is seen at lofty ranges, hovering around 1.14. Earlier on Wed, China’s HSBC PMI-mfg came in lower at 49.4 for Jun vs. expectations at 49.6. Chinese Premier Li spoke in Paris yesterday, assuring that he saw signs of recovery with the growth target of 7% still “achievable” this year.

       MYR reacted favourably to the Fitch report but USD/MYR was back above 3.7710 this morning, underpinned by dollar strength. Expect the rest of USD/AXJ to also be supported by the firm greenback as focus remain on NFP tonight that could cue in the Fed hike within the year. Hong Kong and Thailand return from a day’s break. Singapore’s PMI for Jun is also due but that release is likely to be eclipsed by the NFP release in the US while Greek headlines may be discounted until the referendum.

Currencies

        DXY – Eyes on Payrolls Tonight. USD firmed for a second consecutive session overnight on better than expected ADP employment, ISM manufacturing, construction spending data. DXY was last at 96.30 levels. Next resistance at 96.50 (50% fibo retracement of Apr high to May low), before 97.40 (61.8% fibo). DXY needs to make a close above that level for further upside to gather momentum. Support at 94.20 levels (trend-line support from May to Jun troughs) likely to hold firm. Day ahead expect 95.75 – 97.00 range. Bullish momentum remains intact on the daily chart. 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. Day ahead brings 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 – Driven by Greek Sentiment. EUR was under pressure overnight on broad USD strength amid sentiment driven by Greece. While Greek PM Tsipras suggested that Greece would meet most of its demands of its creditors in the most recent proposal offered, he continued to campaign for a “No” vote for the referendum probably in hope of using it as a scare tactic to get the Institutions to soften their stance on the proposal. EU leaders remain firmed in their stance while ECB continues to cap ELA funding. EU leaders now want to wait till Sun to see the Referendum results before any deal can be agreed. Overnight, Moodys cut Greece rating deeper into junk territory. EUR was softer; traded a low of 1.1032 this morning (we continue to point to the inversed relationship between DAX and EUR overnight).  Some downside pressure may persist on the day; 4-hourly momentum/stochastics are indicating a bearish bias. Intra-day range of 1.0950 – 1.1150 expected. PMI data out of Euro-area, Germany and France saw a modest improvement; while Spain and Italy slipped. Week remaining brings 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 – Further Downside Risk. GBP fell overnight (2 week low) on weaker than expected PMI manufacturing data. GBP was last at 1.5610; low of 1.5589 was traded overnight. Momentum/stochastics continue to indicate a mild bearish bias. Next support at 1.5550 (50% fibo of May low to Jun high), before 1.5505 (50 DMA). Day ahead see 1.5650 – 1.5640 (21 DMA) range. We continue to be cautious for potential downside pressure 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 remaining brings Jun Construction PMI; Jun Nationwide house prices (Thu); Jun services/composite PMI (Fri).

       USD/JPY – Capped. USDJPY climbed back above the 123-handle following the better-than-expected US ADP print. Currently sighted around 123.34, pair remains biased to the upside with intraday MACD showing bullish momentum and stochastics fast approaching overbought levels. Further upside though could be capped around 123.50 by the lower bound of the intraday ichimoku cloud forming above price action. A break of the 123.50-level could see the pair headed back towards 124. Still, there remains potential downward pressure in the near term on the Greek situation. 122.80, which was our previous resistance level, is now supportive of the pair.

      AUD/USD – Range. AUD ended Wed with a bearish engulfing candlestick, last seen around 0.7640, still under pressure. Daily momentum tools are still not showing much bias at this point. Strength of the USD overwhelms bullish attempts. May building approvals came in firmer than expected with a 2.4%m/m growth, up 17.6%y/y. That hardly moved the AUD/USD pairing as the USD strength dominates. Players to focus on US NFP tonight and a stronger number than consensus (233K) could press the AUD/USD lower towards 0.7530. May Trade data (Thu); May retail sales (Fri).

      USD/CAD – Breaking Out Higher. USDCAD extended rally on Wed now within striking distance of the 1.26-figure. Pair is underpinned by the USD dominance, growing expectations of a rate cut after a dismal growth number for Apr and the slide in oil prices. Daily momentum indicators points north and tentative support is seen this at 1.2560. Next data to watch is RBA Canadian Manufacturing PMI, due on Thu and deterioration from the May’s print of 49.8 could weaken the CAD further. NFP will also be eyed for more dollar strength. Risks are still to the upside with next target seen at 1.2780.

       NZD/USD – Weighed by Dairy Prices. NZD continue to push lower amid another decline in GDT auction prices overnight (8^th consecutive decline) and broad USD strength. NZD was last at 0.6709 (also fresh-5 year low). Daily momentum and oscillator are indicating a bearish bias. 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 are still looking for a move towards our 0.65 objective. We will reconsider bearish bias only if upside squeeze breaches above 0.7230 (50% Fibonacci retracement). ANZ commodity prices fell 3.1% m/m, slightly better than expected than the prior decline of 4.7%.

Asia ex Japan Currencies

      The SGD NEER trades 0.09% below the implied mid-point of 1.3535. We estimate the top end at 1.3264 and the floor at 1.3805

       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. Cross reversed some of its decline yesterday; last sighted at 2.79 levels. While momentum may have turned mild bearish; we continue to watch for price action to see if downside move gathers further momentum.  Next support at 2.7650 (23.6% fibo retracement of 2015 trough to peak); while interim resistance at 2.80.

       USD/MYR – Moving on From Fitch Surprise. USDMYR reversed all of its losses and traded higher this morning; last sighted at 3.7750 on broad USD strength and lower oil prices. 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, the move lower yesterday failed to close below the 21DMA at 3.7490; we continue top watch price action for clearer indication if yesterday’s move lower can further downside to go or merely a relief rally. Next 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 – Buy on Dips. USDKRW gapped higher in the open (1124.77 vs. close of 117.59), tracking broad USD strength overnight. Day ahead could see the pair trade range between 1118 and 1127 with mild bias to the upside. 4-hourly stochastics is indicating a mild bullish bias. We caution that a break above 1127 resistance could open up room for further upside towards 1135 levels. We continue to reiterate our medium term 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 – Back in Range. USD/CNH is still unmoved at 6.2050, not gaining much directional bias at all. The yuan continues to be shielded from the volatility elsewhere in the world. Pair is still within the 6.2000-6.2240 range and market players anticipate a slightly higher USD/CNY fixing after the overnight dollar recovery. 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 1 Jul, USD/CNY was fixed 13 pips lower at 6.1149 (vs. previous 6.1136). CNYMYR was fixed 17 pips higher at 0.6102 (vs. 0.6085). Premier Li said that the downside pressure in the economy did not raise jobless rates in the country. He is still confident of the 7% growth target. HSBC PMI-mfg came in at 49.4, missing the estimate at 49.6. The poorer PMI numbers affected the domestic stock markets with the Shanghai Comp down -5.2%. In other news, the local press reported that Shenzhen home prices have reached record levels, with new home prices rising 6.6% in Jun vs a month earlier.

         USD/INR – Sideways. USD/INR is underpinned by the daily ichimoku cloud, closing a tad lower for the day at 63.6050 on Wed. Bearish momentum on the chart is waning and dollar strength underpin the pair. We anticipate a higher opening today though nothing dramatic as 1-month NDF continues to steady around 63.90, hardly changed from its close on Wed. This pairing is still caught in the cloud and we expect same sideway trades for spot prices as well. At home, India may restrict algorithmic trading to monitor manipulations by traders. This was after RBI warned of systemic risks from a rise in algo orders in Jun.

       USD/IDR – Still Range-Bound.  USD/IDR is edging higher this morning to around 13334 underpinned by a firmer dollar, but continues to trade well-within a tight 13280-13390 range. Four-hourly MACD is showing no though stochastics is now bearish bias, suggesting further upside could be capped for now. Still upside pressure is likely to remain until there is clarity over Greece and as US NFP approaches. Moreover, domestic concerns (lacklustre growth and persistent current account deficit) should also add to the upside pressure ahead. Range-bound trades remains for now within 13250-13400 intraday. 1-month NDF is inching lower this morning but remains elevated above the 13400-levels at 13418 with intraday MACD showing mild bullish momentum and stochastics showing no strong bias. The JISDOR was fixed marginally lower at 13331 on Wed from Tue’s 13332. Risk aversion saw foreign funds selling a net USD15.83mn in equities yesterday and removing a net IDR0.20tn from their outstanding holding of government debt on 30 Jun (latest data available). CPI rose by 7.26% y/y– the fifth month of acceleration - in Jun, lifted by rising food prices, electricity tariffs and fuel prices, reinforcing the limitations to BI’s ability to cut rates to spur growth.

       USD/PHP – Range. USD/PHP gapped higher at the opening to 45.173 from yesterday’s close of 45.084, underpinned by the firmer dollar. Pair is currently sighted around 45.170 with intraday MACD showing no strong momentum and stochastics remain bearish bias, suggesting that upside could be capped. Still, upward pressure remains in the near term as there is still no clarity on the Greek situation and we have US NFP tonight. An intraday inchimoku cloud continues to form below price action and could limit downside ahead with support nearby at 45.050 (upper bound of the cloud) before the next at 44.890. Further upmoves is likely to be capped by 45.270. 1-month NDF is wobbling around the 45.24-region this morning but remains well-within its current trading range of 45.000-45.300 with four-hourly MACD showing tentative bullish momentum and stochastics bullish bias. After improved sentiments for the past three days, sentiments reversed yesterday with foreign funds selling a net USD8.57bn in equities.

       USD/THB – Limited Downside.  USD/THB is wobbling this morning after climbing to an intraday high of 33.860 as onshore markets re-open after yesterday’s local holiday. Pair is currently sighted around 33.821 but downside is likely to be limited given that both intraday momentum and oscillators are bullish bias. Moreover, the inflation fell by the six consecutive month in Jun, falling by 1.07% y/y dragged lower by soft energy prices, increasing market speculation that the central bank could have more room to cut interest rates, which could weigh on the THB. As well, upward pressure remains in the near term on global risk aversion over Greece. Look for support nearby around 33.770 (50DMA), while rebound could see the pair meet resistance around 33.920.

Rates

Malaysia

       Following Fitch’s unexpected upgrade of Malaysia’s outlook to stable, government bonds rallied with yields 1-11bps lower led by 7y MGS 9/22. A sizable amount was done on the 7y benchmark though not as much at the 10y benchmark which reported a total volume of MYR1.2b. MYR assets and currency may have some room for catch up given it has been the most sold off in the region.

       IRS market viewed Fitch’s action positively. Rates fell further and the curve flattened, though not to the extent of govvies. 2y IRS dealt at 3.65% and the 5y at 3.905-3.900%. Basis also tightened back with buying of FX forwards. 3M KLIBOR remained at 3.69%.

       PDS market rallied as well on the back of Fitch's decision. Competitive bids returned across the curve with buying interest seen in longer dated GG and AAA names. Plus 24, Plus 27 and Telekom 10/24 tightened 2-3bps. The AA curve saw better buying at the belly with most names tightening by 1bp, though some closed slightly wider. We think the momentum could continue and longer dated AAA and GG names could tighten up to another 5bps in the coming days.

Singapore

      There appears to be some paying up on bond swap spread positions as SGS was bidded up despite the lower UST. SGS yields lower by 1-5bps across the curve with the 10y benchmark closing at 2.66%. SGD IRS also got paid up and the curve steepened. Rates about 1bp higher at the 5y and 2-3bps beyond that. If SGD funding stays high, a flattener position may work out.

       Asian credit market was quiet with HK out for public holiday. We did see better buying in Chinese asset management companies and Indian banks, but prices for most names remained unchanged. For sovereigns and quasis, only trade to note was the 5-6bps tightening of PETMK complex. MALAYS also saw some tightening albeit small. INDONs traded better buoyed by the recent tightening in LATAM overnight and some month-end rebalancing.

Indonesia

      Indonesia bond market continues moving higher amid Greece fail payment to IMF. Indonesia statistics released June inflation number which slightly inclines by 0.54% MoM or 7.26% YoY. The hike occurred due to rise in foodstuffs (due to Ramadhan festivity), electricity tariff, and gasoline. However core inflation was seen rather stable at 5.04%. The published inflation number was lower compared to consensus. This might have created the positive sentiment yesterday and increases investors buying appetite. 5-yr, 15-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 7.916%, 8.210%, 8.323% and 8.417% while 2y yield shifts down to 7.743%. Trading volume at secondary market was seen heavy at government segments amounting Rp13,352 bn with FR0070 (10y benchmark series) as the most tradable bond. FR0070 total trading volume amounting Rp3,456 tn with 106x transaction frequency and closed at 100.993 yielding 8.210%.

       Corporate bond trading traded heavy amounting Rp772 bn. SMADMF02ACN1 (Shelf registration sukuk mudharabah II Adira Finance Phase I year 2015; A serial bond; Rating: idAAA(sy)) was the top actively traded corporate bond with total trading volume amounted Rp119 bn.