Maybank GM Daily - 23 Jun 2015

FX

Global

      Greece’s new proposal was received with optimism and the EU leaders will meet again on Thu ahead of the EU Council meeting for a potential deal. US stocks took the positive lead from European equities and DJI, S&P and NASDAQ ended overnight session around 0.6% higher.

      The FX space was less reactive to the news with EUR hardly changed against the greenback. Antipodeans were the laggards with AUD down -0.5% and NZD -0.7% lower. The DXY index finished the session mildly higher, on the back of better existing home sales for May. In the region, positive risk sentiments favoured the KRW and MYR up 0.7% and 0.3% respectively. JPY weakened -0.5% against USD.

      Eyes are still on the Eurozone though swings are expected to happen in the equity markets. Currencies may take a less direct hit. The EUR in particular, have been shrugging off Greek headlines. In Asia, China returns from long weekend to celebrate dragon boat festival and Jun HSBC flash PMI-mfgis due later at 0945 (SGT). Consensus expects a marginal improvement to 49.4. A sub-50 print would continue to fuel RRR cut speculation.

      Other than China’s manufacturing data, Singapore releases May CPI (cons.: -0.4%y/y vs. prev. -0.5%). Beyond Asia, preliminary PMI numbers are also due out of the rest of the world including Europe and the US. With Fed still data dependent, markets will watch US durable goods orders.

Currencies

       DXY – Upside Squeeze. USD firmed marginally on better than expected existing home sales data overnight. Day ahead could see some upside squeeze; 4-hourly momentum and stochastics are mild bullish bias. Intra-day range of 94.10 – 95.00 expected. Focus on durable goods orders tonight, which could provide catalyst for direction. We continue to reiterate our view for a 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 May durable goods, capital goods order; May new home sales; Flash manufacturing PMI; Apr house price index; Jun Richmond Fed mfg; Fed’s Powell speaks (Tue); 1Q GDP (Wed); 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 – Greece Hands the Ball Back to the Troika. Optimism that a deal could be in place drove EUR to  briefly above the 1.14-handle before EUR turned lower again. Pair closed 1.1341 overnight. While Dijsselbloem said that Sunday's Greek proposal is "a welcome step in a positive direction"..."broad and comprehensive"..."a basis to restart the talks." He also indicated that work needs to be done to see if "it all adds up." The Eurogroup will meet again Thursday ahead of the EU Council meeting "with a view to reach a possible deal." Grexit risks remain; we continue to caution for choppy price action amid thin liquidity. Next support targets 1.1220 (61.8% fibo of 1.1467 – 1.0819) before 1.1070 levels (50 DMA and 38.2% fibo). Resistance likely to be capped 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 EC, GE, FR Jun services/composite PMI (Tue); 1Q FR GDP; Jun GE IFO (Wed); GE Gfk consumer confidence (Thu); GE May retail sales; EC May money supply (Fri).

      GBP/USD – Profit-Taking. GBP eased from recent highs; traded down to low of 1.5806 overnight before closing around 1.5820s. We continue to cautious for potential profit-taking given the recent run-up. Next support seen at 1.5660 (76.4% fibo of May peak to Jun trough). Over the medium term we remain bullish. We remain better buyers on dips, targeting next objective at 1.5970. Week ahead brings May BBA loans for house purchase (Wed); CBI Jun reported sales (Thu).

      USD/JPY – Range. USDJPY climbed back above the 123-handle overnight, first on Greek optimism and then later on positive US housing data. Pair is on the slow grind higher, capped by Kuroda’s comments on 10 Jun that stemmed JPY weakness.  Sighted currently around 123.40, pair is now bias to the upside as indicated by both intraday momentum and stochastics. Upside could be capped by the intraday ichimoku cloud forming above price action. New resistance is now seen around 123.80 ahead of the next at 124.15.  Any dips today should see support around 122.80.

      AUD/USD – Caught in a Range. AUD slipped to end Mon on a bearish note but some recovery is seen this morning and the pair prints 0.7740 as we write. The 100-DMA on the 4-hourly chart supports the prices on dips but directional bias is still unclear. Intra-day momentum tools show bearish conditions though daily momentum indicators have little bias on either side. Expect this pair to be draw towards the 0.7774-mark (61.8% Fibonacci retracement level of the Mar-May rally).  Two-way trade is more likely within 0.7680-0.7800. Any upside surprise to China’s HSBC flash PMI-mfg for Jun, due later, could bring the pair to the upper bound of the recent range but it would take a huge upside surprise for its lead to be meaningful. Little other key data in the week ahead. 1Q house price index today.  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 – Suspended in Cloud. USDCAD steadied around 1.2320, still suspended in the daily ichimoku cloud.  1.2357 has been a strong barrier to watch and we continue to expect this level to resist bids.  A break out of the 1.2100-1.2380 range is needed for stronger directional bias beyond the near-term. There is no key data due this week.

      NZD/USD – Sell on Rallies. NZD continues to push lower on much weaker than expected 2Q Westpac consumer confidence data. The latest reading was the largest decline since Sep 2014. Consumer confidence typically leads consumption growth data in NZ; and this data suggests that consumption growth could potentially decline further and could fuel expectation for further RBNZ cuts ahead.  NZD was last at 0.6870; daily momentum and stochastics continue to indicate a mild bearish bias. We continue to reiterate our view for further downside pressure 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 expect at least another 25bps cut and the next cut could come as soon as the next meeting in Jul. Still favor to add to shorts on rally towards 0.6980 for a move towards 0.65 objective. Week ahead brings May credit card spending (Mon); May trade data (Fri).

Asia ex Japan Currencies

      The SGD NEER trades 0.48% above the implied mid-point of 1.3458. The top end is estimated at 1.3191 and the floor at 1.3725.

      USD/SGD – Slow Grind Higher. USDSGD is on the slow grind higher after slipping below the 1.33-handle yesterday. Pair is currently hovering around 1.3358 with both intraday MACD and stochastics showing tentative signs of bullish bias. For bulls to take control, we need to see a clear break of 1.3400-1.3410 (50DMA) for further up-moves towards 1.3530-50 levels (100DMA and 50% Fibo). Support at 1.3270-80 (200DMA) should hold firm intraday. Bias to buy on dips still. May CPI is on tap today and market is expecting inflation to fall by 0.4% y/y, and unless the data surprises on either side, we do not expect any significant impact on price action today.

      AUD/SGD – Awaiting A Breakout? AUD/SGD is still within the 1.0300-1.0500 range, hovering nearer to the lower bound at 1.0330. 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 and relative SGD resiliency. While we continue cautioned that the SGD/MYR could face further upside pressures, possibly towards 2.80-2.82 levels, should the cross continue to make higher lows and same level highs (mini ascending triangle), we observed that bullish momentum could be waning. Daily stochastics is at overbought areas; thought yet to show tentative signs of turning lower. See 2.79 – 2.81 range intra-day.

      USD/MYR – Watch Fitch. USDMYR traded 3.72 – 3.74 range yesterday before closing around 3.7325. Day ahead pair could trade 3.1750 (21 DMA) – 3.7450 with mild upside bias, tracking USD strength. Domestic concerns is expected to keep the pair supported. 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 should rating review stays status quo.

      USD/KRW – Range. USDKRW opened higher in the open (1100 vs. 1098 close yest).  Day ahead could see the pair trade range between 1098 – 1100 amid mild USD strength; 4-hourly stochastics is at oversold levels while bearish momentum is showing tentative signs of easing. 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 was last seen around 6.2040 and its gap with USDCNY widening a tad to around 50pips. Onshore markets in China return from their Dragon Boat Festival celebrations. USDCNH support is still seen at 6.1990 (200DMA). An ichimoku cloud is forming above price action that could cap upside, which suggest rangy trades ahead. 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 19 Jun, USD/CNY was fixed 22 pips lower at 6.1104 (vs. previous 6.1126). The US-China strategic and economic dialogue starts tonight in Washington but HSBC flash PMI-mfg for Jun will also take some focus. Consensus expects a mild improvement in the data to 49.4 from May’s 49.2. In news, PBOC Deputy Governor Pan Gongsheng commented that PBOC will start QDII2 in places where “conditions are ripe”, according to Securities Times. China’s Beige Book note that retail and property drive recovery.

        USD/INR – Downside Risks. USD/INR was sticky around the 63.50 with spot prices hardly changed throughout Mon. Prices are still hovering around the upper bound of the bullish cloud at 63.50 which coincides with the 50-DMA. Daily momentum indicators show increasing bearish conditions now. The 1-month NDF steadied around 63.80, last seen around 63.80. Bias is still to the downside for both spot prices and NDF though prices are still supported. Eye the break of 63.50 for spot prices.

      USD/IDR – Consolidation.  USD/IDR is edging higher this morning to around 13312, playing catch-up with its regional peers. Both intraday MACD and slow stochastic remains bearish bias that could cap upside.  Still downside pressure on the pair remains as domestic concerns (lacklustre growth and persistent current account deficit) weigh. Look for the pair to remain in consolidative trades within 13250-13400 ahead. 1-month NDF is easing slightly this morning towards 13350 levels after climbing higher above to 13600-levels overnight. Intraday MACD is showing mild bullish bias, though stochastics is indicating little bias in either direction. The JISDOR was fixed lower at 13318 yesterday from Fri’s 13324. Yesterday, foreign funds sold a net USD4.75mn in equities and added a net IDR2.34tn to their outstanding holding of government debt on 19 Jun (latest data available).

      USD/PHP – Rangy. USD/PHP continues to stick close to the 45-handle, sighted around 45.040 currently. Intraday MACD is showing mild bearish momentum though stochastics is indicating little bias in either direction, suggesting that further upside moves today could be capped. Look for 44.880-45.270 range to hold. BSP meets on Thu 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. We remain buyers of the pair on dips. 1-month NDF is back on the climb above the 45-handle, sighted around 45.080 currently. Both intraday momentum and stochastics are showing tentative bullish bias. Foreign funds sold off a net USD15.34mn in equities yesterday.

      USD/THB – Range-Bound.  USD/THB climb to an overnight high of 33.740 on dollar strength before easing this morning to below 33.700 levels as the dollar came off. Both intraday MACD and stochastics are showing little bias in either direction, suggesting range-bound trades are likely in the near term. Rangy trades are also reinforced by the intraday ichimoku cloud forming above price action. For now, pair should continue to track global events and dollar moves ahead with the pair likely to stay range-bound within a tighter 33.610-33.760 range intraday. Foreign funds bought a net THB95.33mn and THB735mn in equities and government debt yesterday.

Rates

Malaysia

      Local government bonds ended mixed, with buying still seen on 3y MGS 10/17 and 7y MGS 9/22 as both benchmarks ended 2bps lower from last. This week will see the announcement on the 5y reopening GII 8/20 auction size. We reckon players may take the opportunity in the current positive sentiment to push yields lower. Volatility in MYR bond market still persists and market remains fragile.

      IRS market was superbly quiet yesterday. Nothing was dealt in the market. 3M KLIBOR remain unchanged at 3.69%.

      PDS credit traded a tad quiet. Volumes were thin with most players staying on the offer side. GG and AAA papers in the 5-10y bucket still saw some good two way flows. Aman 3/20 changed hands at 4.14%, while Cagamas 10/20 was taken at 4.11%. Krung Thai Bank opened book for its Basel lll Tier 2 10NC5 MYR500m issuance which closed at 5.10%.

Singapore

      SGS prices fell due to a rise in short term funding rates and the curve underperformed the SGD IRS curve. Furthermore, selling gathered pace after UST futures declined. SGS yield curve steepened with yields higher by 5-6bps. Bond swap spreads generally narrowed by 2-4bps in light trading.

      Quiet tone seen in the Asian credit space, with China market out due to the Dragon Boat Festival. Apart from that, market appears to be on a wait and see mode on how the Greek crisis will unfold. IGs and HYs were mostly unchanged amid thin volumes. We heard a couple of Chinese issuances are in the pipeline – Bohai Leasing is coming out with CNH issuances, while China Life Insurance and Tianjin Binhai are eyeing some USD deals.

Indonesia

      Indonesia’s bond market crept up yesterday although the govt bonds were opened by same level with previously. Offshore and foreign banks seemed to purchase both short tenor and benchmark series of bonds. Anecdotal evidence stated that several short covers occurred in the market.  Bond’s yields declined by 16-24 bps across the tenors during yesterday session.