Maybank GM Daily - 26 Jun 2015

FX

Global

      It was another round of taiji session for the Greeks and Troika as efforts to secure a deal continue to drag on with no sense of urgency. Greek PM Tsipras told reporters that “the European history is full of disagreements, negotiations and then compromise… So after the comprehensive Greek proposals, I’m confident that we will reach a compromise that will help the euro zone and Greece to overcome the crisis”. While the Troika is still holding firm for the removal of early retirement incentives and raise VAT on some industries in Greece, the timeframe of implementation has now been pushed out. There are still many issues to iron out before another Euro-group meeting on Sat ahead of 30th Jun IMF repayment deadline.

      FX markets were generally caught in a subdued range. USD was a touch softer with the DXY closing the NY session around 95.20; EUR remains resilient amid Greek mess. USDCHF jumped above 0.94-handle after SNB’s Jordan said the currency was still “significantly overvalued”. In AXJs, USD/MYR remains an elevated levels amid fears of rating downgrade. In Asian central bank meetings yesterday, both the BSP and CBC kept policy rate on hold. Both USDPHP and USDTWD are little changed.

      Day ahead expect FX markets to remain in subdued ranges as markets continue to focus on ongoing Greek development. There is also little in the way of key economic data/events to focus on. Of interest would be Jun Univ. of Michigan sentiment for US. For EUR, we reiterate our view of treating it like a funding currency; we will continue to watch DAX (as a proxy of risk sentiment) and Greek development (driver of risk sentiment) and trade EUR (as a second derivative to the proxy).

Currencies

        DXY – Watching Greece. USD was slightly softer overnight despite better than expected May personal spending data (strongest in 6 years) as Greek uncertainty continues to weigh on sentiment.  Focus remains on Greek development (next Eurogroup meeting on Sat). Day ahead expect range of 94.75 – 95.50 (50 DMA) to hold, with some bias to the downside. 4-hourly momentum and stochastics are indicating a bearish bias.  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 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 Jun Univ. of Michigan Sentiment; Fed’s George speaks (Fri).

       EUR/USD – Continue to Trade it Like a Funding Currency. EUR was little changed overnight, around the 1.12 handle. There was still no compromise on the Greek saga.  Greek PM Tsipras told reporters overnight that “the European history is full of disagreements, negotiations and then compromise… So after the comprehensive Greek proposals, I’m confident that we will reach a compromise that will help the euro zone and Greece to overcome the crisis”. German Chancellor Merkel said political will is there for Greek deal. While the Troika is still holding firm for the removal of early retirement incentives and raise VAT on some industries in Greece, the timeframe of implementation has now been pushed out. There are still many issues to iron out before another Eurogroup meeting on Sat ahead of 30^th Jun IMF repayment deadline. That said we continue to hold on to our view for an eleventh hour deal. We highlighted in a note on Wed about the inversed relationship (YTD correlation coefficient at -0.689) between DAX and EUR. We reiterate that EUR has regained its funding currency status once again. While it may sound strange but think about the ‘general rule of thumb’ of selling JPY in risk-on environment and buying JPY in risk-off environment. The same logic applies to EUR, furthermore both EUR and JPY are in the midst of conducting QE. We will continue to watch 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 continue to caution for potential choppy price action amid thin liquidity. Next support targets 1.1135 (50 DMA), 1.1060/70 levels (100 DMA and 38.2% fibo of 1.1467 – 1.0819) sees firm support. Resistance at 1.1220 (61.8% fibo) before strong resistance at 1.1467 (May 2015 high). We caution that a break above those levels could see EUR closer to 1.17/1.18 levels.  

      GBP/USD – Caution for Downside on Budget Presentation in Jul. GBP held ground; closing around 1.5750 levels overnight. We continue to cautious for profit-taking given the recent run-up and for potentially further 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. Next support seen at 1.5640 (38.2% fibo of May trough to Jun peak), before 1.5550 (50% fibo and 21 DMA). Upside likely to be capped at 1.5750/80 levels.

       USD/JPY – Consolidation. USDJPY edged lower towards 123.30 on the back of a softer dollar tone but has since bounced back to hover around 123.50-60 range. Pair did not react materially to the inflation and employment data released this morning that showed core inflation rising by 0.1% y/y in May, beating market expectations of no change, and jobless rate at 3.3%, in line with market estimates. Markets instead remained focused on concerns over Greece with safe haven flows keeping the pair within it current tight 123.30-50/124.15 range. Kuroda’s comments on 10 Jun continue to cap the pair. Both intraday MACD forest and stochastics are showing bearish bias. We continue to watch for a daily close below support at 122.54 (76.4% Fibonacci retracement of 121.52-125.86 upswing) 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). For now, consolidative trades within 123.30-50/124.15 should hold intraday; we remain better buyers of the dollar on dips.

       AUD/USD – Caught in a Range. AUD firmed on broad USD weakness. Last sighted at 0.7720. Expect pair to remain range-bound 0.77 – 0.78  in absence of fresh catalyst. Daily momentum lack conviction; while stochastics is indicating mild bearish bias. 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 – Range-Bound. USDCAD was softer overnight tracking USD weakness despite the fall in oil prices overnight. No data in the day ahead to focus on. Daily momentum lacks conviction. Pair is expected to take cues from USD. Day ahead expect the pair to trade range of 1.2290 (38.2% fibo of 1.2563 – 1.2128) – 1.2390 (100 DMA).

       NZD/USD – Consolidate with Upside Bias Near Term. NZD pushed as high as 0.6924 overnight, before turning lower after RBNZ said it is exploring more options for financial stability – “monitor effect of LVRs…  explore additional macro-prudential policy options for managing the financial stability implications of housing market cycles”  to trade around 0.6885 levels (at time of writing). May Trade data (released early this morning) reported a surplus on larger than expected weakness in imports, while exports also fell. Decline in exports was mainly driven by the decline in milk powder, butter and cheese. We continue to hold to our call for potential upside squeeze, possibly towards 0.7030 (23.6% Fibonacci retracement of 0.7744 – 0.6815). Daily momentum and stochastics are exhibiting tentative signs of bullish 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. 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). Day ahead NZD likely to consolidate 0.6950/60 – 0.6920/30 levels.

Asia ex Japan Currencies

      USD/SGD NEER trades 0.290% above the implied mid-point of 1.3506. The top end is estimated at 1.3237 and the floor at 1.3775.

       USD/SGD – Poised For Further Upside? USDSGD continues to bounce within the 1.3400-1.3480 range. Pair is currently wobbling around the 1.3440-region, pulled one side by JPY strength and the other by EUR weakness. May industrial production print is on tap this afternoon and will be closely watched as a bellwether for GDP growth in 2Q. Market is expecting a contraction of 2.6% y/y with downside surprises possibly lifting the pair higher towards the upper bound of its intraday trading range at 1.3480. A clean break here could see further upmoves towards 1.3530-50 levels (100DMA and 50% Fibo) as we had noted previously. Intraday MACD still showing tentative signs of bullish momentum while stochastics is showing little directional bias ahead. Support today is still seen around the 1.34-handle. Bias to buy on dips still.

       AUD/SGD – Awaiting A Breakout. AUD/SGD is still awaiting a breakout of the 1.0300-1.0500 range, last seen around 1.0388, weighed by the relative weakness of the AUD. 50-DMA at 1.0466 continues to caps bids. A dearth of fresh catalyst on the data front could mean more range-trading within the 1.0300-1.0500 band. A break of this range is needed for better directional clue. 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 hover around all-time highs of 2.80 amid Ringgit weakness; last at 2.8010. While we continue to reiterate that SGDMYR could face further upside pressure possibly beyond 2.80 towards 2.82 levels, we caution for potential technical correction given that daily stochastics is now in overbought areas and daily momentum appears to be waning. A technical pullback could see the cross ease towards 2.7350 levels (38.2% Fibonacci retracement of  2015 trough to peak).

       USD/MYR – Still Watching Fitch. USDMYR traded 3.75 – 3.7690 range overnight amid fear of rating downgrade. We continue to keep an eye on Fitch review of the country’s sovereign rating; likely to be due in the next few days. Expect upside pressure to ease gradually should rating review stays status quo. Day ahead support at 3.7500; pair could still push higher towards 3.78 levels amid 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. Both are lowest for the region.

       USD/KRW – Range. USDKRW opened and traded higher towards 1117. Yesterday Finance Ministry announced that growth for 2Q may slip below 1%; is currently in the midst of planning fiscal stimulus package of more than KRW15tn (lower than expected to counter the MERS outbreak (amount likely to be confirmed in early-Jul); and issuing government bonds (3,5Y tenor) is inevitable to fund supplementary budget). Day ahead could see the pair trade range between 1112 – 1120 with mild bias to the upside. 4-hourly momentum is mild bullish 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.

       USD/CNH – Trapped in Range. USD/CNH remains stucked in 6.20 – 6.21 range overnight. Support is still seen at 6.1990 (200DMA). Bids are now resisted by the thick daily ichimoku cloud. 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. Pair is still within the broader consolidative 6.19-6.21 range. China’s rail freight volume fell 11%y/y in May, according to NDRC.  Elsewhere, PBOC injected CNY35bn 7-day reverse repo agreements on Thu to meet the short-term funding needs of some medium sized and small financial institutions. In Washington, China’s Vice Finance Minister Zhu Guangyao express his appreciation for Fed’s caution in exiting QE. He also thinks CNY is at a reasonable and balanced level. USD/CNY was fixed 11 pips lower at 6.1137 (vs. previous 6.1148).

        USD/INR – Downside Risks. USD/INR still supported by the bullish cloud but prices moved higher after its opening price to close at 63.5975. Daily momentum indicators show bearish conditions still though prices might need to get past the 63.52-figure for further downside extension. The 1-month NDF steadied around 63.87, capped by the 50-DMA. It could be only a matter of time before spot prices head further south and we eye the break of 63.60 for a reassertion by the bears in spot prices. More comments from RBI Governor Rajan who warns of more “tantrums” from QE and Fed hike. He is also concerned about sub-normal monsoon that could threaten inflation after India’s Institute of Tropical Meteorology predicts a “large scale reduction” in rain fall in the first half of Jul, affecting crops of rice, cotton and soybean (BBG).

       USD/IDR – Bullish Bias.  USD/IDR is on the uptick this morning, playing catch-up with its regional peers. Pair is currently sighted around 13340 with intraday MACD showing waninig bearish momentum and slow stochastic bullish bias.  Aside from domestic concerns (lacklustre growth and persistent current account deficit), month-end dollar demand is also weighing on the IDR. Upmoves today should remain capped by 13350 ahead of the next at 13400, while any dips should find support around 13250. 1-month NDF back on the uptick back above the 13400-levels as risk appetite deteriorated with both four-hourly MACD and stochastics still bullish bias. The JISDOR was fixed higher at 13323 yesterday from Wed’s 13280. Foreign funds sold a net USD11.29mn in equities but added just a net IDR0.69tn to their outstanding holding of government debt on 24 Jun (latest data available).

       USD/PHP – Grinding Higher. USD/PHP is inching higher on the back of firmer dollar tone but remains well-within its current trading range of 44.970-45.270. Global risk aversion should keep the pair supported today. Both intraday MACD is showing no strong momentum and stochastics is mildly bullish bias. Expect the pair to trade within the 44.880-45.270 range intraday. We remain buyers of the pair on dips. 1-month NDF continues to trade in a tight range within 45.000-45.300 and is currently hovering around 45.180 at last sight with both intraday MACD and stochastics showing no strong bias in either direction. Foreign funds sold a net USD15.63mn in equities yesterday. BSP keep its key policy rate unchanged at 4.0% as expected on Thu on the back of firmer domestic demand, ample liquidity and inflation manageable. BSP lowered its inflation forecast for 2015 and 2016 to 2.1% and 2.5% from 2.3% and 2.6% respectively.

       USD/THB – Consolidation.  USD/THB continues to trades in a tight range within 33.700-33.820, even as it edges higher underpinned by a firmer dollar tone. Pair was last sighted around 33.770 with intraday MACD forest now showing tentative signs of bearish momentum and stochastics bearish bias, which could cap upside ahead. We continue to expect consolidative trades within 33.700-33.920 for now. Customs trade data is on tap at noon and market is expecting exports and imports to fall by 9.05% and 2.5% respectively in May. Surprises in either direction could see the pair trade closer to the boundaries of today’s trading range. Foreign funds sold a net THB0.37bn in equities and purchased a net THB2.32bn in government debt. 

Rates

Malaysia

       Lackluster session in local government bond market with most trades centered on the 7y MGS 9/22 at the same level. Weakness seen on the 10y benchmark as it was last dealt 2bps higher with better sellers seen after the trade. The issue size on the 5y retap GII 8/20 was announced yesterday at MYR3.0b, as expected. But nothing traded on the WI, last seen quoted at 3.745%/3.725%.

       The IRS market was quiet as well. Nothing was dealt and IRS rates did not even move. 3M KLIBOR stayed the same at 3.69%.

       In the PDS market, more trades were seen in the AA space especially at the belly of the curve, with most names trading 1-2bps wider. Aquasar papers top the volume trading chart. The AAA and GG spaces, however, traded slightly tighter. We saw Danainfra 30 and Danga 30 tighten 1bp while Aman 25s traded at 4.465%. We also saw offers for 9y Plus and Telekom names about 3-5bps lower and believe they offer better value than 10y Aman papers. Overall, liquidity still thin and trades tend to be executed closer to MTM levels as market remains in cautious mode.

Singapore

       SGS curve hardly moved while the SGD IRS curve steepened slightly. SGS 5y and below was 1bp lower in yields while the 10y was up by 1bp. SGD funding is creeping lower and bond swap spreads may see some recovery. The 10y swap spread closed at -16.5bps. Today, we will have the new 5y benchmark SGS auction with a net issue size of SGD2.6b.

       In the Asian credit market, prices mostly unchanged to marginally lower as the Greece drama continue to play out. Focus was on Bank of China’s new multi-tranche/multi-currency issuance. The 3y USD traded 8-10bps tighter while the 5y and 10y were still trading around reoffer rate. New CHINSC 20s did not do so well, ending 0.25-0.40pts lower. China Life came out with its USD deal, a 60NC5 which garnered over USD7b interest. The final guidance tightened to 4% from 4.375% earlier which seems rather tight to us, albeit they are the largest insurance company in China.

Indonesia

      Indonesia bond market slumped after inclining for 3 consecutive days. Profit taking along with minimum market sentiments might have made LCY bond prices decline during the day. Our economist believes that June inflation would reach 7.42% YoY or higher compared to May numbers which reached 7.15% YoY. The reason for such is due to the effect of Ramadan festivity and El Nino. Core inflation is expected to reach 5.08% YoY on the note of rising prices of cars, motorcycles, and electricity tariff as well as weakening Rupiah currency. 5-yr, 15-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 8.102%, 8.233%, 8.330% and 8.4200% while 2y yield shifts up to 7.728%. Trading volume at secondary market was seen heavy at government segments amounting Rp29,760 bn with FR0053 (6y) as the most tradable bond. FR0053 total trading volume amounting Rp7,339 tn with 66x transaction frequency and closed at 100.123 yielding 8.222%.

       Corporate bond trading traded thin amounting Rp292 bn. BACA01SB (Subordinated Bank Capital I Year 2014; Rating: idBBB-) was the top actively traded corporate bond with total trading volume amounted Rp90 bn yielding 11.965%.