Maybank GM Daily - 8 Jul 2015

FX

Global

       European leaders set a Sunday deadline for Greece to accept the demands for a bailout. Grexit has become a real possibility that the EU has to prepare for. In addition, Greece has to detail its reform plans to improve the competitiveness of the economy and raise funds for repayment before the final assessment this weekend. Just to recall, banks remain closed today along with capital controls. EUR dipped low 1.09s before rebounding higher to levels around the 1.10-figure as we write in early Asia.

       New York indices closed in black, albeit after a choppy session as concerns over Greece continued to cap gains. However, sentiments were more cheerful (relative to the rest of the world) as investors are optimistic of 2Q earnings season. It was no wonder that dollar is in favor given strength expected from the US as well as jittery risk sentiments that also favor the safe haven. The dollar is back on the driver seat.

       The data calendar for Asia is light today. Beyond Asia, ECB Coeure will speak. UK will release its budget today and a poor fiscal statement could imply a delay in any plans for BOE to hike. Minutes of the 16-17 Jun FOMC meeting will be released tonight at 2am (SGT) and that should be closely scrutinized. We recall that the statement on 17 Jun was more dovish than markets expected. Fed Williams will also speak on the outlook. In the meantime, expect some focus to be on China’s equity markets as well, which ended in red after a strong session Mon.

Currencies

       DXY – Range. USD eased overnight on widening trade deficit following a strong start. Wider trade deficit suggests the negative impact the USD has brought to US exports, and fuelled some paring back of expectation for a Fed tightening in Sep. DXY was last at 96.70. Daily momentum continues to indicate a mild bullish bias while stochastics is showing tentative signs of turning lower from overbought areas. Next support at 96.30 (100DMA) before 95.80 (50% fibo retracement of Apr high to May low), Intra-day could see 96.20 – 97.00 range ahead of FOMC minutes (from 16-17 FOMC meeting) – to be released at 2am SGT Thu. We remain better buyers on dips.   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 initial jobless claims; FOMC meeting minutes; Fed’s Williams, Kocherlakota, Brainard, George to speak (Thu); Fed’s Yellen and Rosengren to speak; May wholesale inventories (Fri).

§  EUR/USD – Range. EUR dipped to 1.0916 low prior to the Euro-group meeting on Greece yesterday before reversing some early losses to close the session above the 1.10-handle, despite no new proposal from Greece yesterday. Greek leaders promised to present a new proposal later today while Euro-group leaders gave Greece until Sunday for a deal to be done or face an exit. Expect headlines out of Europe re Greece proposal to drive EUR sentiment.  Range of 1.0820 – 1.1050; bias to sell rally towards 1.1050-60 levels. Last sighted at 1.0995 levels. Week ahead brings ECB’s Coeure speaks; May GE trade, current account balance (Thu); May FR IP, manufacturing production (Fri).

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       GBP/USD – Focus on Budget Speech. GBP remains on a back-foot, fell to 1.5414 low as manufacturing production numbers came in weaker than expected. Focus today on Budget (730pm SGT) and tomorrow on BoE meeting (watch for the tone of the accompanying statement). We continue to caution for potential downside risks in the near term on UK’s second budget statement (8 Jul) in a year. 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. 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. Daily momentum continues to indicate a bearish bias while stochastics is showing tentative signs of turning from oversold areas. Daily close below the key support at 1.5450 (61.8% fibo; 200DMA) is expected to see GBP taking another leg lower.  Next support seen at 1.5350 (76.4% fibo of May trough to Jun peak), Week ahead brings Budget statement (Wed); BoE Meeting – no change in policy rate and asset purchase plan; RICS house price balance (Thu); May construction output, trade balance (Fri). 

       USD/JPY – Better buyers on Dips. USDJPY remains supported on dips; low of 122.00 overnight on continued safe-haven flows over Greek concerns. Also downward pressure came from the better-than-expected current account surplus of JPY1.9tn (cons.: JPY1.6tn) in May. Near term resistance seen at 122.80 (50DMA) while next support levels seen at 122 before 121.85. Pair is showing no strong momentum this morning, though stochastics are tentative bearish bias; remain better buyers on dips. Meantime only an abrupt move and close below 120 would cast doubt over USDJPY’s medium term bullish setup.  Our long-standing view is for BoJ to ease in Oct 2015.

       AUD/USD – Another Falling Knife. AUD slipped towards the 0.74-figure this morning. Momentum indicators flag bearish conditions for this pair and AUD printed 0.7440 as we write against the USD. Expect weak risk sentiments and the recent decline in prices of iron ore to keep the AUD on the backfoot though bullish divergence on intra-day tools indicates a likely squeeze towards the 0.75-figure again. Cash target rate was held at 2.00% by RBA with little fresh cues on the July Statement.  We think with AUD now below the 0.75-mark, there is even less urgency for the central bank to adjust interest rate at this point. Expect this pair to remain in choppy trade within 0.7400-0.7533. Beyond the near-term, bids are likely to be short-lived.

       USD/CAD – Bullish. USDCAD cleared the 1.27-figure and came within next resistance at 1.2784 before reversing lower towards the 1.27-figure this morning. Intra-day tools still point to the north and retracement in the latter part of New York session is only a breather for the bulls. Uptick in oil prices provides tentative support for the Cad. Next resistance beyond 1.2784 is the year high at 1.2835. Support is now seen around 1.27-figure. Jun housing starts are due on Thu followed by jobless report on Fri.

       NZD/USD – Sell on Rallies. NZD remains soft near 5-year lows; last at 0.6650 levels at time of writing.  We remain better sellers on rally; looking for a move towards our 0.65 objective. Continue to reiterate our bearish bias on the NZD on a combination of drivers including mounting expectation of RBNZ cutting OCRs on multiple occasions on weak dairy prices, falling PPI amid weakening demand. NZ PM Key said while he is confident growth will remain robust, he agrees that NZD ‘could well’ fall lower than 0.65 (Mon). 

Asia ex Japan Currencies

       The SGD NEER trades 0.01% below the implied mid-point of 1.3583. The top end is estimated at 1.3312 and the floor at 1.3854.

       USD/SGD – Upward Tilt. USDSGD is climbing higher, taking out key resistance at 1.3550 this morning, despite the softer dollar tone. Global risk aversion as well as FOMC minutes early Thu morning should keep the pair bid. 4-hourly momentum is still pointing to bullish bias, though stochastics showing tentative downside bias. A firm break/daily close above 1.3550 could see further upside towards 1.3630 (Jun high). In the interim, 1.3600-figure should act as resistance. Range of 1.3525-1.3600 should hold intraday.

       AUD/SGD – Approaching Parity. AUD/SGD retains a heavy tone this morning, now seen at 1.0080. Poor risk appetite could continue to hammer the cross lower, not helped the least by the fall in Shanghai Composite. Any U-turns will be resisted by 1.0160 ahead of the next at 1.0300. Strong support is seen at parity but that could be visited soon enough.

       SGD/MYR – Hovering at Highs. Cross remains at multi-year highs of 2.81 levels despite a weaker SGD as Ringgit weakness overwhelms on domestic concerns. Beyond 2.82 resistance could subject the pair for further upside pressure, possibly towards 2.8350 levels. Failing which, we see the cross easing back towards the 2.78-2.80 range.

       USD/MYR – Into Uncharted Areas. USDMYR remains at multi-year highs of 3.8070 levels (at time of writing) as domestic concerns continue to weigh on the currency. We caution that domestic concerns could remain for a while and this is expected to weigh on the Ringgit. 4-hourly stochastics is turning lower from overbought areas while bullish momentum appears to be waning in the near term. Taken together, intra-day could see some mild downside pressure; expect 3.7950 – 3.8150 range.

       USD/KRW – Buy on Dips. USDKRW opened and gapped higher this morning; last at 1136 (vs. 1130 close yesterday) tracking broad USD strength as Greek concerns weighed on sentiment. Remain better buyers on dips. 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 – Turning Higher. USD/CNH spiked to a high of 6.2279 before reversing lower to levels around 6.2230. Intra-day tools indicate bullish momentum. Persistent declines in the stock markets have weakened the CNH considerably with a discount of 132 pips to its onshore peers. A clear breakout of the 6.2000-6.2240 range seems to be inevitable with 100-DMA at 6.2199 now cleared this morning. We continue to hold the view that the central bank wants to ensure a steady yuan. USDCNH support is still seen at 6.2019 (200DMA). USD/CNY was fixed 9 pips higher at 6.1175 (vs. previous 6.1166). CNYMYR was fixed 52 pips lower at 0.6140 (vs. prev. 0.6146). Vice Commerce Minister Wang Shouwen said China is confident of reaching 7% GDP target for 2015. In other news, China raises margin requirement for CSI 500 index futures.

         USD/INR – Back into The Cloud. USDINR bounced from its lower opening yesterday and closed at 63.46. Daily MACD still shows downside momentum for spot prices. USD/INR is in the thick of the cloud now, likely to remain within 63.19-63.80 at this point. Risks are tilted to the downside with MACD flagging bearish momentum on the daily chart. 1-month NDF is off the bottom of the daily ichimoku cloud, last seen around 63.80. Await the clearance of 63.555-support for further bearish extensions and that would also lead spot prices lower. That could come later rather than sooner.

       USD/IDR – Stuck in Range.  USD/IDR is inching higher this morning to around 13339 at last sight despite the softer dollar tone as domestic concerns continue to put upside pressure on the pair. Not helping was data out yesterday that showed foreign reserves dipped to USD108.03bn in Jun, the fourth month that it fell, possibly suggesting central bank activities to prop up the IDR. Price action should remain confined within the 13290-13390 range. 1-month NDF is creeping higher this morning to around 13426 with market signals still lacking. The JISDOR was fixed lower at 13313 yesterday from Mon’s 13353. Foreign funds sold a net USD10.68mn in equities on Tue and removed a net IDR1.21tn from their outstanding holding of debt on 3 Jul (latest data available).

       USD/PHP – Range. USD/PHP is on the slide this morning on the back of a softer dollar tone, last seen around 45.228. Nevertheless, pair remains well-within its current trading range of 44.885-45.410. Pair should continue to trade within those ranges intraday given that four-hourly MACD is showing no strong momentum. Look for support today around 45.000, while upmoves should be capped around 45.270.  In contrast, 1-month NDF is inching higher after breaking above the 45.340-levels yesterday to around 45.36 as we write. Sentiments improved yesterday with foreigners buying a net USD2.05mn of equities.

       USD/THB – Still Tilting Higher.  USD/THB is again testing above the 34-handle on global risk aversion despite the softer dollar tone this morning. Pair is finding support around 33.920 before the next at 33.850. Still, intraday MACD is indicating bullish momentum, suggesting any dips could be limited. We continue to expect further upmove above the 34-figure with resistance around 34.150.  Yesterday, foreign funds added a net THB0.54bn in equities but sold off a net THB0.21bn in govt. debt. In the news, the government has named Veerathai Santiprabhob as the new governor of the BoT to replace Prasarn Trairatvorakul, who retires end-Sep. Governor-designate Veerathai is no stranger to the central bank having sat on the monetary policy committee. Veerathai takes charge on 1 Oct.

Rates

Malaysia

       Local government bond prices softer yesterday. The belly of the curve saw better sellers with 7y and 10y MGS benchmarks ending +5bps. We noted bulk trades done on short dated GII 7/15s and 9/15s, suggesting ASW unwinding as USDMYR remain elevated. Further ASW unwinding may result in the curve bear flattening before steepening.

       In the IRS market, short end rates traded higher as some foreigners think BNM may hike rate to stem outflows. The 2y was dealt at 3.71%. We believe market to be defensive on bonds and hence supportive of IRS bids. Wary of holding onto big positions given so much noise domestically and globally. 3M KLIBOR stayed at 3.69%.

       For PDS market, HG space remain muted at the long end of the curve but better buying was seen for the front end with 2-4y Manjung and Plus papers being picked up. Bids for long end GG and AAA names widened 5-10bps as govvies got sold off. We saw keen buying in the AA space at the long end with trades executed at previous done prices to about 1bp wider. Market likely to remain soft given bearish sentiment on the country.

Singapore

       SGS saw strong bidding interest in the belly region with yields lower by 5-6bps. The front and back ends were slightly less biddish with yields down by only 1-4bps. SGD IRS closed 1-3bps lower and may see slight flattening from here on. 10y SGS benchmark ended at 2.64% and bond swap spread at -15.5bps mid.

       In the Asian credit space, weak sentiment in the Chinese market is holding back investors but we have not seen any panic selling yet which is comforting. Overall, some selling in O&G names and Chinese AMCs also traded 2-3bps wider. INDON and PHILIP sovereigns mainly closed unchanged. MALAYS 2025 was given at +75 as opposed to +68 the previous day. Market still seems short on MALAYS and we think there is some room to go for it. China Overseas Land and Investment Ltd (BBB+) opened book for its 4y EUR issuance with guidance at MS+170bps. We continue to like short and low beta names, such as LONGYU 17 and BIDU 18, and to switch out from the 7-10y bucket. Other new issuances in the pipeline include Ping An Real Estate’s CNH deal and Cagamas’ small multi-tranche SGD issuance.

Indonesia

       Indonesia bond market was seen strengthening during the first session of the day. However, bond market moved mixed post auction amid closing slightly higher. We feel mixed on the result of the auction as we expected that incoming bids might be oversubscribed by 3x – 4x of the initial issuance target and expected that investor bids would cluster more on the FR0072 series as DMO is introducing this series for the first time. FR0072 pays an 8.250% fixed rate coupon and is expected to be introduced as the upcoming 20y benchmark series. However, on the other hand, we are satisfied with the awarded WAY during the auction and high demands by foreign bidders during the auction which accounts 42.9% of total incoming bids. 5-yr, 15-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 7.841%, 8.153%, 8.250% and 8.356% while 2y yield shifts up to 7.605%. Trading volume at secondary market was seen heavy at government segments amounting Rp14,364 bn with FR0070 (10y benchmark series) as the most tradable bond. FR0070 total trading volume amounting Rp2,311 tn with 60x transaction frequency and closed at 101.345 yielding 8.153%.

       Indonesian government conducted their conventional auctions yesterday and received incoming bids of Rp26.42 tn bids versus its target issuance of Rp10.00 tn or oversubscribed by 2.6x. However, DMO only awarded Rp15.00 tn bids for its 3mo SPN which was sold at a weighted average yield (WAY) of 6.20290%, 1y SPN at 6.88400%, 11y FR0056 at 8.11830% while 20y FR0072 was sold at 8.37414%. Incoming bids were mostly clustered on the FR0056 and FR0072 series. No bids were rejected during the auction. Bid-to-cover ratio during the auction came in at 1.14X – 3.04X. Foreign incoming bids during the auction were noted Rp11.33 tn or 42.9% of total incoming bids. However, only Rp8.12 tn bid (54.1% of total awarded bids) were awarded to foreign investors. Till the date of this report, Indonesian government has raised approx. Rp15.00 tn worth of debt through bond auction which represents 23.8% of the 3Q 15 target of Rp63.00 tn.

       Corporate bond trading traded heavy amounting Rp712 bn. MDLN01ACN1 (Shelf registration I Modernland Realty Phase I year 2015; A serial bond; Rating: idA) was the top actively traded corporate bond with total trading volume amounted Rp200 bn yielding 11.980%.