Maybank GM Daily - 29 Jun 2015

FX

Global

      The weekend brought fresh impetus or perhaps turmoil after a huge sell-off on Fri. Greece announced a referendum on 5 Jul to vote on the latest proposal from the creditors, scheduled after the payment due to IMF on 30 Jun. That leaves a lot of room for uncertainty in between as Greece declared a bank holiday today along with a decree on capital controls. EUR gapped down towards 1.0960 this morning.

      Nearer to home, China lowered lending rate to record low of 4.85% and lowered 1-year deposit rate by 25bps to 2.00%. PBOC also lowered RRR for selective banks including city commercial and rural commercial banks by 50bps. Further monetary easing should be positive for Asia but markets could be distracted by concerns of contagion from Greece with a softer EUR a cue for firmer USD/AXJs. Nonetheless, we would be too presumptuous to think that currencies would trade in a one-side bias this week amid the current jittery environment.

      Jun NFP is the other elephant in the room, due on Thu because of Independence Day Holiday in the US this Fri. Consensus expects a 230K addition, a little above the average of 215K seen since 2012. A stronger number could propel the greenback higher, already underpinned by the soggy EUR.

      Investors will also eye PMI numbers on 1 Jul (Wed) along with Asia’s usual tranche of data at the start of the month. Korea Jun exports are due along with its inflation numbers. Indonesia and Thailand’s Jun CPI are also out that day. These are the usual data which could be overshadowed by the current concerns over the Greek referendum as well as NFP on Thu.

Currencies

        DXY – Upside Squeeze. USD was broadly stronger this morning, with DXY gapping to 96.26 (vs. 95.47 close Fri). Move came off the back of risk-off sentiment arising out of Greece – Greek referendum on credit proposal, Greek capital controls and Greek banks’ closure till 6 Jul. Greek concerns likely to weigh on sentiment. Next resistance at 96.50 (50% fibo retracement of Apr high to May low), before 97.40. Mild bullish momentum remains intact. Day ahead expect 95.75 – 96.80 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 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. Week ahead brings May pending home sales; Jun Dallas Fed Mfg activity (Mon); Apr S&P/CS house prices; Jun Chicago Purchasing Manager, consumer confidence; Fed’s Bullard to speak (Tue); 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 – Risk-Off. Greek referendum (announced on 27 Jun for 5 Jul), Greek banks’ closure and Greek capital controls derailed sentiment and sent EUR lower on knee-jerk reaction. EUR traded a low of 1.0955 this morning (vs. 1.1130 close Fri) but post knee-jerk has seen the EUR surging back towards 1.1030. Next support on the EUR at 1.0970; a daily close below could possibly open further downside towards 1.0820 levels (May lows). Resistance at 1.0660/70 (previous support), 1.1150 could attract fresh selling pressures. Expect EUR to trade wide ranges, gyration as market takes into consideration recent Greek development (risk-off) vs. EUR as funding currency status as well as China interest rate cuts over the weekend. We wish to add a note of caution that a risk-off event may not be extremely EUR-negative as unwinding of EUR hedges could lend support and mitigate EUR’s decline to some extent. Week ahead brings Jun EC consumer confidence; GE Jun CPI (Mon); FR May PPI; EC, GE Jun unemployment rate; EC Jun CPI estimate (Tue); 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.

      GBP/USD – Consolidation; Downside Risk. GBP fell on risk-off sentiment this morning; low of 1.5664 was traded before reversing some of its earlier losses towards 1.57 levels. We continue to 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. 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. Week ahead brings Jun GfK Consumer confidence; 1Q F GDP; 1Q current account (Tue); Jun Mfg PMI (Wed); Jun Construction PMI; Jun Nationwide house prices (Thu); Jun services/composite PMI (Fri).

       USD/JPY – Bearish; Buy On Dips. USDJPY gapped lower at the opening to 122.82 from its Fri's close of 123.85 on safe haven flows following Greece's decision to hold a referendum on 5 Jul. Pair briefly hit a monthly low of 122.11 before bouncing back to the 123.00-region, possibly on the back of BOJ's governor Kuroda's speech committing to the 2% inflation target, which he said "will never be compromised" as well as Greece's imposition of capital controls on Mon morning. Also helping is the worse-than-expected Jul's industrial production (-2.2% m/m vs. est. -0.8%), which signalled that the economic recovery remained uneven. Downward pressure is likely to remain in the near term on global risk aversion as markets focus remains Greece. There could be some support though should data this week prints to the downside. Daily MACD remains 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). Only an abrupt move and close below 120 would cast doubt over the pair's medium term bullish setup. Our longstanding view is for the BOJ to ease in Oct 2015; remain better buyers on dip. Week ahead brings May earnings (Tue); 2Q Tankan; Jun mfg PMI (Wed); Jun composite/services PMI (Fri).

       AUD/USD – Pressing Lower. AUD slipped to a low of 0.7587 this morning before reversing around 0.7630. Markets are undecided on the events that have unfolded over the weekend. Investors prefer to err on the side of caution as the Greek government scrambles to enforce capital controls. Daily momentum tools are turning bearish but this pair still requires at least a daily close below the 0.76 to confirm a bearish breakout. Next support is seen around 0.7570 ahead of the next at 0.7533. Week ahead brings May home sales; RBA Stevens speaks in London (Tue); May building approvals; Jun commodity index (Wed); May Trade data (Thu); May retail sales (Fri).

      USD/CAD – Left Out of the Action? USDCAD steadied around 1.2340 this morning, almost nonchalant to the global volatility. Pair is underpinned by risk off sentiments which favours the greenback and weighs on the oil prices.  Barrier is still seen at 1.2390, marked by the 100-DMA. Dips to meet support at 1.2310 ahead of the next at 1.2276.  This week brings growth numbers for Apr (Tue), RBA Canadian Manufacturing PMI (Thu).

       NZD/USD – Consolidate with Upside Bias Near Term. NZD gapped lower in the open and traded a low of 0.6787 on risk-off sentiment driven by Greek developments. We continue to caution for potential upside squeeze, possibly towards 0.6880 levels. Daily/4-hourly momentum and stochastics are exhibiting tentative signs of bullish bias. Day ahead NZD likely to consolidate 0.6790 – 0.6880 levels.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 ahead brings May building permits (Tue); Jun QV House prices, commodity prices (Thu).

Asia ex Japan Currencies

      The SGD NEER trades 0.04% below the implied mid-point of 1.3549. We estimate the top end at 1.3279 and the floor at 1.3820.

       USD/SGD – Rallying. USDSGD gapped higher at the opening to 1.3532 from Fri’s close of 1.3498, underpinned by global risk aversion over Greece. Pair hit an intraday high of 1.3566 this morning but has since reversed course and is back at the 1.3532 level. Upward pressure is likely to remain at least until the Greek referendum on 5 Jul. Daily MACD is showing tentative signs of bullish momentum, though stochastics is bullish bias, suggesting that the rally could continue. A sustained daily close above 1.3530-50 levels (100DMA and 50% Fibo) could see a further extension towards 1.3640 (61.8% Fibo). 1.3450 should be supportive the week ahead. Quiet data week ahead with only Jun PMI on tap on Thu.

       AUD/SGD – Awaiting A Breakout. AUD/SGD was choppy this morning with a tug of war evident within 1.0288-1.0368 within the first few hours of trade.  Like the AUDUSD, this cross also 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. Watch risk sentiments as well as markets’ reaction to RBA Glenn Stevens’ jawboning in his speech tomorrow. A clearance of support at 1.03-figure opens the way towards Mar low of 1.0243.

       SGD/MYR – Waning Bullish Momentum. Cross eased marginally towards 2.7950. While the cross could face further upside pressure, possibly towards 2.80-2.82 levels , we caution 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).

       USD/MYR – Still Watching Fitch. USDMYR traded higher towards 3.7835 this morning, tracking 1s NDF close (3.79), broad USD strength amid Greek risk-off sentiment.  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. Meatime pair could still push higher towards 3.79 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. Intra-day support at 3.7650.

      USD/KRW – Buy on Dips. USDKRW gapped higher in the open (1123.45 vs. 1116.44 close) following risk-off sentiment arising out of Greek development. Pair was last sighted at 1125.5 at time of writing.  Day ahead could see the pair trade range between 1120 and 1130 with mild bias to the upside. Daily/ 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. Week ahead brings May Industrial Production (Tue); Jun CPI, trade, PMI (Wed); May current account (Thu).

       USD/CNH – Tilting Higher. USD/CNH tilt higher this morning after China cut benchmark interest rate and lowered RRR for some banks over the weekend. Pair last printed 6.2140, firmer within the 6.2000-6.2240 range as market players anticipate a higher USD/CNY fixing on dollar strength. 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 26 Jun, USD/CNY was fixed 11 pips lower at 6.1137 (vs. previous 6.1148). CNYMYR was fixed 23 pips lower at 0.6045 (vs. 0.6068).  The cut was timed right after a pretty sharp correction in the stock markets amid some speculation that China might be at the end of an easing cycle. The government officials are making it very clear that no, it is not. A simultaneous delivery of RRR cut and interest rate cut is rare and apart from soothing sentiments at home, the officials would want to suppress real interest rate. The government is signalling that easing cycle is far from over in the hope of stabilizing the equity markets and maintaining the positive wealth effect and household demand. On top of that, few would disagree that China still needs help to boost credit growth and the removal of loan to deposit ratio would also be able to aid that aspect.

         USD/INR – Sideways. USD/INR closed on Fri at 63.64, still underpinned by the bullish cloud. Pair is likely to be supported by dollar strength when it opens today with 50-DMA as a support level.  We do not expect dramatic action as the 1-month NDF steadies around 63.94 this morning. This week could be another one that has little directional bias with range trading seen within 63.30-64.00. RBI spokeswoman Alpana Killawala clarified Governor Rajan’s comments at the 25 Jun London conference that he did not imply or suggest any risk of the world economy slipping into a new Great Depression. In other news, India’s government officials see no case for gold imports duty cut at this point. Deputy Governor of RBI Gandhi urged for more capital for banks in the future.

       USD/IDR – Range-Bound.  USD/IDR continues its climb above the 13300-levels to start the week following waning risk appetite on the back of the Greek referendum. Daily MACD is showing no strong momentum while stochastics is indicating tentative signs of bullish bias. Still, upside pressure on the pair is likely to remain until there is clarity over Greece. Moreover, domestic concerns (lacklustre growth and persistent current account deficit) as well as month-end dollar demand should also add to the upside pressure ahead. Look for the pair to hover between 13250 and 13400 for the week ahead amid a quiet data week with only Jun CPI on tap (Wed). 1-month NDF climbed above the 13400-levels as risk appetite waned with daily MACD showing no strong momentum and stochastics mild bullish bias. The JISDOR was fixed higher at 13338 to end the week on Fri from Thu’s 13323. Foreign funds sold a net USD20.78mn in equities last week but added a net IDR17.27tn to their outstanding holding of government debt on 22-25 Jun (latest data available).

       USD/PHP – Bullish Bias. USD/PHP continues its climb above the 45-figure this morning on deteriorating global risk appetite.  Pair is currently sighted around 44.215 with daily MACD is still showing no strong momentum though stochastics is indicating tentative signs of bullish bias. Markets should remain focused on Greece given the quiet data week ahead. Look for 44.880-45.400 range to hold this week. 1-month NDF inched higher above the 45-handle to 45.270 with daily MACD still showing no strong momentum and stochastics tentative signs of bearish bias. Foreign funds sold a net USD0.66bn in equities last week.

       USD/THB – Inching Higher.  USD/THB climbed higher towards 33.900 on global risk aversion over Greece. Pair continues to trade within its current trading range of 33.525-33.900. Daily MACD is showing no strong momentum, though stochastics is bullish bias. Ahead of the Greek referendum, upward pressure is likely to remain in the near term on global risk aversion. For bullish extension, we need to see a close above 33.960 (5 Jun high) to expose the next barrier at 34.150. We continue to expect consolidative trades within 33.700-33.920 for now. Fri saw exports on a customs-basis fell by 5.0% y/y in May and imports plunged 20% y/y, resulting in a trade surplus of USD2.42bn. Support this week is seen around 33.450 (50DMA). Last week, Thai assets eked out marginal gains as foreign funds bought a net THB0.59bn and THB0.98bn in equities and government debt. Week ahead brings May mfg production; May trade; May current account (Wed); Jun CPI (Thu); 26 Jun foreign reserves (Fri).

Rates

Malaysia

       Another lackluster day for the local government bond market with levels ending mixed amid very thin liquidity. The auction of the 5y reopening GII 8/20 will take place on Monday. No WI trades have been done so far.

       IRS market was also very quiet possibly due to a lack of catalyst while the Greece debt crisis occupy players’ attention. The 5y IRS traded at 3.945%. 3M KLIBOR remain unchanged at 3.69%.

       PDS ended the week on another quiet note. Buying interest was seen on very long dated Danainfra papers but they traded 1bp wider from MTM levels. Long dated Plus papers were also sought after. For AAs, buying was mostly at the belly of the curve with the exception of long dated TBEI. Some short dated AA names such as JEV and Bumitama also exchanged hands. Generally, bids were unwilling to go lower than MTM levels while offers were unwilling to deal above MTM and this contributed to the lack of liquidity. We have seen GG and AAA bid-offer spreads quoted as tight as 1bp from MTM but neither side is willing to move due to market volatility.

Singapore

       The tail in the 5y SGS auction caused some panic in the SGS market. The SGD2.8b auction drew a modest bid/cover of 1.42x with an average yield of 1.86%. Median yield was 1.95% and cut-off bid came in at 2.03%. SGS 9/20 later played catch up to make up for the difference in yields. SGS elsewhere were up by 1-6bps in yields. As this week is the end of the month, we anticipate less activity ahead of any Greek decision or the new NFP data in July.

       Asian credit market traded thinly, with most players reluctant to add more risk before the Greece situation is sorted out. China Life’s new 60NC5 (priced at 100) did not perform so well, trading 0.25-0.50pts lower than issue price. Chinese IGs were 2-3bps wider, likely troubled by the weakness in the Shanghai stock market. HYs were quiet with thin volumes done on some Chinese property names.

Indonesia

      Indonesia bond market moved sideways on Friday’s trading and closed slightly lower ahead of a weekend that may decide Greece fate in the Eurozone. Sentiments remain minimal during the day. Today, DMO will be conducting USDFR0001 auction with an indicative target of US$500 mn. We believe that incoming bids would be oversubscribed by 1.2x – 1.5x of the sets target with indicative WAY range of 1.450% - 1.550%. 5-yr, 15-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 8.103%, 8.289%, 8.336% and 8.346% while 2y yield shifts down to 7.707%. Trading volume at secondary market was seen heavy at government segments amounting Rp14,246 bn with FR0068 (20y benchmark series) as the most tradable bond. FR0068 total trading volume amounting Rp2,992 tn with 155x transaction frequency and closed at 100.250 yielding 8.346%.

       Corporate bond trading traded thin amounting Rp418 bn. ISAT01CCN2 (Shelf Registration I Indosat Phase II Year 2015; C serial bond; Rating: idAAA) was the top actively traded corporate bond with total trading volume amounted Rp150 bn yielding 9.971%.