FX
Global
Greece submitted a new bailout proposal that includes
pension savings and tax increases to secure the EUR53.5bn for the country to
remain in the EU. Interestingly, fresh terms of the proposal are similar to that
rejected by the voters on 5 Jul. The local press says that the Syriza party
could split over the reforms. The party will hold a meeting in early European
hours today. Overnight trade was still cautious with the optimism in
European markets not quite shared with the bourses in New York. DJI, S&P
and NASDAQ ended up +0.2% each. Adding to the cautious sentiments, IMF’s
downgraded its 2015 global forecast to 3.3% from previous 3.5%. Initial jobless
claims came in at 297K, above the average forecast of 275K.
Asia had a mixed session on Thu. There was “euphoria” in
the Chinese markets with Shanghai Comp up +5.8% after CSRC banned major
shareholders from cutting stakes in the next six months. That could perhaps
ensure some stability in the markets. Risk aversion pared with most Asian ex
Japan currencies gaining against the greenback on Thu. UST 10 year yields
surged to levels around 2.34% in Asia morning.
The data calendar in the region is a little busy with
Philippine’s exports due anytime, followed by India’s industrial production.
China’s liquidity numbers as well as India’s trade data could be released
anytime starting from today. Focus on China again as at least 31 stocks to
resume trading today. After Asia, market players await the verdict from the EU
Summit on Greece this weekend. Beyond Asia, eyes are on Fed Yellen’s speech.
Before that, Fed Rosengren speaks as well.
Currencies
DXY – Yellen
Speaks Later. DXY closed marginally higher overnight. Slightly softer this morning
(96.35 at time of writing vs. 96.60 close overnight). Focus today on Fed Chair
Yellen’s speech tonight (1230am SGT) where she is expected to give a speech on
US economic outlook (watch for outlook and tone for signs of policy bias) in
Cleveland. On a technical note, daily stochastics is showing some signs of
slight bearish bias. For day ahead expect DXY to trade range-bound between
95.75 and 96.60 as key event risks await – Yellen’s speech and EU28 summit
weekend. Other risks that could drive sentiment include Shanghai equities. 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. DXY was last at 96.20. Day ahead Fed’s Rosengren is also due to
speak before Yellen; data - May wholesale inventories (Fri).
EUR/USD – Range Ahead of EU28 Summit. EUR was
marginally higher this morning (last at 1.1067 vs. 1.1036 overnight close).
While Greece is proposing for 3 year bailout plan which includes debt
restructuring and a package of growth measures of EUR35bn, it submitted its
reform proposal submitted yesterday – corporate tax increase, new VAT
legislation, pension savings of 1% of GDP in 2016 was largely similar to EU
Commission’s 26 Jun plan. This suggests some sort of conciliatory tone and
could well pave the way for possible progress on Sun (EU28 Summit). Meanwhile
German Finance Minister Schaeuble agrees with the IMF that a haircut is needed
for debt sustainability but added that it would infringe the system of the EU.
Looking on, Greece parliament is expected to vote on late-Fri, to endorse the
credit proposal by the Leftist government while ECB Weidmann said capital
controls must stay in place and ELA capped until a deal is agreed. We
acknowledge the risks of Grexit may have risen but maintained baseline
view that Greece will manage to salvage a deal, given the recent proposal
submitted is largely similar to what was proposed by the EU in Jun. Day ahead
expect the EUR to trade in muted range of 1.1030 – 1.1150 ahead of risk-event
weekend. 4-hourly momentum is slight bias to the upside. Day ahead brings
May FR IP, manufacturing production (Fri).
GBP/USD – Bias to Buy
Dips. While UK’s Conservative budget did not
turn out as tight as feared, BoE meeting yesterday was pretty much a non- event
as fallout from Chinese equities and Greek’s ongoing concerns may have kept BoE
hawkish members from offering any clues. Next BoE meeting (6 Aug) could be key
to watch. GBP was last at 1.5370. Next support at 1.5270 (100 DMA); daily
momentum continues to indicate a bearish bias while stochastics is showing
tentative signs of turning from oversold areas. Expect 1.5330 – 1.5420 range
intra-day; bias to buy dips near 100 DMA. Day ahead brings May construction
output, trade balance (Fri).
USD/JPY – Rebound. After
sinking to a low not seen since 22 May of 120.69, USDJPY bounced
back above the 121-handle to 121.65 in the wake of a resurgence in the Chinese
stock market. Intraday momentum and oscillators are now signalling bullish
bias. With risk appetite back on the rise, upward pressure on pair seems likely
ahead. Upmoves todady are likely to meet resistance first at the 122-handle and
then at 122.54 where an intraday ichimoku cloud is forming that could cap price
action. Any dips today is likely to find support around 121.00.
AUD/USD – Sell on Rallies. AUD bears attempted to charge below the 0.74-figure
but the stability in the Chinese equity markets and better job numbers for Jun
lifted currency above the mid-0.74. Bearish momentum on the daily MACD
seems to be waning. Expect weak risk sentiments in China and the recent decline
in prices of iron ore to keep the AUD on the backfoot. 0.7500 seems to be a
resistance to clear before the next at 0.7533.
USD/CAD – Bullish.
USDCAD had a slight retracement on Thu, steaedying around the 1.27-figure this
morning. Risk sentiments improved and positive oil prices also lent some
support to the CAD. Still, bullish momentum on the daily chart seems to be on
the wane. Intra-day tools signal bearish risks. Support is back at 1.2667
should prices are able to clear the 1.27-figure. Data was also supportive of
the CAD with housing starts higher at 202.8K vs. previously revised 197K.
Jobless numbers are due toay with unemployment rate expected to tick higher to
6.9% from previous 6.8%. Net change in employment is expected fall by around
10K.
NZD/USD – Upside Squeeze Underway. NZD continues
to enjoy a rebound; last at 0.6755 at time of writing. Could squeeze further
towards 0.6830/50 levels (21 DMA; 23.6% fibo of 0.7564 – 0.6622); stochastics
is turning from oversold levels while MACD is exhibiting a bullish divergence.
Remain better sellers on rally; will reassess bearish bias on break above 0.71
levels (50% fibo retracement; 50 DMA). 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.
Asia ex
Japan Currencies
The SGD NEER trades 0.23% above the implied mid-point
of 1.3544. We estimate the top end at 1.3275 and the floor at 1.3814.
USD/SGD – Limited Downside. USDSGD held steady around the 1.3496-region as risk appetite improved
with the rebound in the Chinese stock market and easing Grexit concerns.
Intraday MACD and stochastics continue to signal bearish bias ahead, suggesting
the potential for downside pressures in the near term. Still, the approaching
Fed fund rate lift-off in Sep and lingering concerns over Chinese economic
growth and Grexit should limit downside; we continue to favour accumulating the
pair on dips. 1.3480 should limit dips intraday while any rebound could be
capped around 1.3530.
AUD/SGD – Pressing On Parity. AUD/SGD was lifted off the low of 0.9994 and was last seen around 1.0068
this morning. Momentum indicators suggest that there could be some upticks in
this cross but price action suggest that upside could be limited. Resistance is
seen around 1.0116 ahead of the next at 1.0160. Parity is a psychological
support.
SGD/MYR – Easing. Cross is easing from multi-year highs; last at 2.8060
levels. Daily momentum and stochastics are exhibiting tentative signs of mild
bearish bias; next support at 2.7980 (21 DMA). Break below could see the cross
ease further towards the 2.77-2.79 range.
USD/MYR – Ringgit Relief.
USDMYR continues to ease from recent
multi-year highs; last at 3.7840 levels at time of writing on mild USD weakness
this morning and oil price strength overnight. We continue to caution that
domestic concerns could remain for a while and this is expected to weigh on the
Ringgit. Technically, daily stochastics is turning lower from overbought areas
while momentum is exhibiting tentative signs of bearish bias. Taken together,
intra-day could see further mild downside pressure; next support at 3.7650-80
levels (21 DMA). A decisive weekly close below 21 DMA could see the pair ease
further towards 3.7550 levels (23.6% fibo retracement of Apr low to Jul high).
1s KRW NDF – Double-Top? The pair rejected
its 1140 resistance and turned lower; 1131 levels this morning. Daily bullish
momentum appears to show tentative signs of easing while stochastic is
exhibiting early signs of turning lower from overbought areas. Next support at
1125, before 1122 (76.4% fibo retracement); resistance at 1135.
USD/CNH – Reverting to
Onshore. USD/CNH is seen around 6.2160 this morning, in anticipation
for another lower fixing of the USDCNY reference rate. Intra-day MACD indicates
bearish conditions for this pair and prices could be drawn lower towards next
support at 6.2110. Persistent declines in the stock markets have weakened the
CNH considerably with a discount of more than 100 pips to its onshore peers. A
clear breakout of the 6.2000-6.2240 range is still needed with 100-DMA at
6.2199 under pressure this morning. We continue to hold the view that the
central bank wants to ensure a steady yuan. Key support for USDCNH is still
seen at 6.2029 (200DMA). On Thu, USD/CNY was fixed 24 pips lower at
6.1151 (vs. previous 6.1175). CNYMYR was fixed 2 pips lower at 0.6143 (vs.
prev. 0.6145). At least 31 China stocks will resume trading today and so
the Shanghai Comp will be closely watched. Some China banks offered
preferential loans amid the market volatility. In other news, CSRC has ordered
listed companies to protect stock prices (21st Century Business
Herald). The regulator also suspended reviews of IPOs and other share sales
(BBG). Data-wise, China’s money supply and aggregate financing data will be
released. Consensus expects marginal improvement.
USD/INR – Suspended In the Cloud. USDINR remained suspended in the cloud though this pair took an offered
tone with a close at 63.39 vs its opening value of 63.5550. Daily MACD shows
waning downside momentum for spot prices and we think that spot prices are in a
neutral position, suspended in the thick of the daily ichimoku cloud. Intra-day
trades to remain within 63.19-63.80 at this point. 1-month NDF is pressing
lower though the bottom of the ichimoku cloud is still the support to watch at
63.56. We 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. Support for the INR comes from above along with lower
rainfall. The India Meterological Department reported rainfall of 4% below
normal as of 8 Jul and that could pare rate cut expectations of the RBI.
Industrial production for May will be released in late Asia (Cons.: 4.0%y/y vs.
previous 4.1%). Trade numbers for Jun could be released anytime from today.
USD/IDR – Rangy.
USD/IDR is on the slide this morning to around 13317, helped by the rally in
the Chinese stock market yesterday as well as easing concerns over Grexit.
Still, pressure remains to the upside given lingering Grexit concerns, Chinese
growth slowdown, approaching US Fed fund rate lift off as well as domestic
concerns. Intraday MACD is showing no strong momentum, though stochastics is
tentatively bearish bias. Further downside today should be limited by 13250
(50DMA), while any rebound should meet resistance around 13350. 1-month NDF
eased off to the 13425-region after climbing to a recent high of 13485
yesterday with market signals now pointing to a bearish tilt. The JISDOR was
fixed marginally higher at 13347 yesterday from Wed’s 13346. Waning risk
appetite saw foreign funds sell a net USD36.19mn in equities yesterday, which
weighed on the IDR.
USD/PHP – Limited Downside. USD/PHP inching lower this morning after slipping below the
45.200-levels yesterday, playing catch-up with its regional peers. Pair
continues to bounce well-within its current trading range of 44.885-45.410.
Further downside could be limited given the cautious mood ahead of the EU
meeting this weekend and approaching Fed fund rate lift off. Four-hourly MACD
is showing no strong momentum, though stochastics remains bullish bias. Further
dips should be supported around 45.000, while any rebounds are likely to be
capped around 45.270 still. We favour buying the pair on dips. 1-month
NDF is holding steady around 345.30-levels as the risk environment improved with
both intraday MACD and stochastics are still bearish bias. Negative sentiments
weighed on equities again with foreigners selling a net USD25.68mn yesterday.
In the news, BSP governor commented that the Philippines had both the fiscal
and monetary space to support the economy, though monetary policy continues to
be driven by inflation outlook. Financial market volatilities though will be
dealt with using other tools.
USD/THB – Capped.
USD/THB has eased off after hitting a multi-year high of 34.058 not seen since
Sep 2009 on Wed as global risk aversion waned as the Chinese stock market
rebounded and Grexit concerns eased. Risk-off yesterday saw foreign funds sell
a net THB3.71bn and THB0.39bn in equities and government, which kept the THB
elevated. Given current market conditions, the 34-handle continues to be in
focus, though the grind higher could be more gradual. Both momentum and
oscillators are pointing to bearish bias. Further upticks are likely to be
capped by the 34-figure. A clean break of the 34-handle is needed for further
bullish extension to the next hurdle at 34.150. Any dips should be supported
around 33.860 (50DMA).
Rates
Malaysia
Local government bond curve flattened as the belly
dipped 2-3bps lower while the 3y benchmark was up 5bps with a good amount done
at that level. Market still choppy as players remain uncertain on the next
move. BNM unsurprisingly kept the OPR at 3.25%.
IRS rates were lower along with USDMYR, which ended
below 3.80, on the back of improved sentiment after a slight comeback in the
Chinese stock market. But nothing traded in the IRS market. Some foreign
parties are advocating flattener trades, thinking short end rates would go
higher on a rate hike. 3M KLIBOR still at 3.69%.
For the PDS market, there was limited trading in the
HG space with Rantau 19 tightening 6bps and Prasa 26 widening 1bp. The AA space
saw particularly active buying with SEB papers being sought after. SEB 16, 22
and 24 tightened 1-2bps. Market focused on Putrajaya Holdings’ new
multi-tranche MYR900m issuance with final price guidance at 4.03% for the 4y,
4.23% for 6y, 4.31% for 7y, 4.41% for 8y and 4.48% for 9y. We think the
tranches are fairly priced against govvies based on current market conditions,
and prefer the 7-9y tranches for better liquidity in the secondary market.
There seems to be strong demand for the 4y may be due to some preference for
shorter duration amid current volatile bond market.
Singapore
Another rally in the SGS market yesterday, post FOMC
meeting minutes. SGS yields down by 1-3bps across the curve with the 10y ending
at 2.51%. SGD IRS largely unchanged to about 1bp higher.
Asian credit market opened weak but turned bull in the
afternoon, tracking the Chinese equity market. A volatile day, with recent
BCHINA rebounding 3-5bps tighter and good demand on COGARD and CITPAC. COGARD
2023 was up about 4pts. Good two way flow was also seen on Chinese O&G and
AMCs. We still like tech names – Lenovo 19 was quick to rebound and Tencent and
Baidu are worth a look at. MALAYS and PETMK still well sought after for short
covering. We believe most players are staying on the offer side and selectively
picking short end papers.
Indonesia
Indonesia bond market corrected after a dip on
previous day. There were minimal market sentiments during the day. Several
statement were given by Indonesia official such as DMO readiness for issuing
Eurobond after Greece issues calm down, placement of OJK excess operational
funds (as a result of fees collected from financial institutions) in Indonesia
government bond through private placement mechanisms and China interest of
Rupiah government bond. 5-yr, 15-yr, 10-yr, 15-yr and 20-yr benchmark series
yield stood at 8.114%, 8.438%, 8.546% and 8.610% while 2y yield shifts up to
7.756%. Trading volume at secondary market was seen heavy at government
segments amounting Rp20,115 bn with FR0070 (10y benchmark series) as the most
tradable bond. FR0070 total trading volume amounting Rp5,872 tn with 89x
transaction frequency and closed at 99.600 yielding 8.438%.
Corporate bond trading traded heavy amounting Rp999
bn. BBRI01ACN1 (Shelf registration I Bank BRI Phase I Year 2015; A serial bond;
Rating: idAAA) was the top actively traded corporate bond with total trading
volume amounted Rp190 bn yielding 8.399%.
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