Maybank GM Daily - 14 Jul 2015

FX

Global

Risk sentiments took a turn for the better in Asia after an unanimous agreement was reached on Greece at the EU Summit on Mon, just in time for Greek banks to be recapitalized. The EUR respected the decision and spiked towards the 1.12-figure at the announcement of the deal before drifting one figure lower for the rest of the session as riskier assets gain favour. The DAX ended +1.5%, in tandem with Euro Stoxx up +1.8%. Moving on, the clock ticks for the Greeks to push through reforms within 72 hours (until 15 Jul).

       Risk appetite continues to be positive this morning with USDJPY still on the rise towards 124. DXY gains on the back of soggy EUR. Amongst the regional currencies, KRW is the laggard, down -0.6% against the greenback. SGD weakened as well, down -0.3%, weighed by the shocking advanced estimate of GDP for 2Q. Singapore contracted -4.6%q/q (saar). Year-on-year, growth slowed to 1.7% from the previous 2.8% (Cons.:2.4%).

Australia is due to release NAB business surveys for Jun. AUD slipped to sub-0.74 levels, wary of China’s 2Q GDP due tomorrow. Bank Indonesia decides on policy reference rate today, expect the decision to be out in late afternoon. In the meantime, China is due to release its credit numbers anytime. India is due to release its Jun trade data as well. Eyes are still on Greece and potential political crisis within the Syriza party after Prime Minister Alexis Tsipras accepted one of the most demanding austerity packages which include surrendering much of its sovereignty to EU supervision. Elsewhere, Germany releases ZEW survey outcomes for Jul as well as CPI. EU Finance Ministers meet (again). In early NY session, US retail sales is expected to slow to 0.3%m/m growth from previous 1.2%.

Currencies

       DXY – Needs to Close Above 97.37 for Further Upside. USD was broadly stronger overnight with DXY higher, nearing 97-levels at time of writing this morning ahead of key data releases starting later today (retail sales tonight) and Fed Yellen semi-annual testimony (Wed-Thu). Expect Yellen to reiterate her recent speech last Fri that first rate hike to be sometime this year. We continue to reiterate our view for the first rate hike (25bps) in Sep as data continues to suggest that growth path remains intact. We also believe that the pace of tightening will be gradual, given that Fed will take into consideration domestic growth and external environment – China rebalancing risk, Greek crisis and USD strength into consideration. Looking on bullish momentum on the daily chart remains intact. DXY needs to make a daily close above 97.37 (61.8% fibonacci retracement of Apr high to May low) for further upside to materialise.  Next support at 96.40 (100 DMA), 95.60 levels (21 DMA).  We remain better buyers on dips. Weekly momentum/stochastics bullish underlying bias remains intact.  Heavy week ahead for the US with Jun retail sales, import prices (Tue); Jun PPI; Jul Empire manufacturing; Jun IP; Fed’ Beige book; Fed’s George to speak; Fed’s Yellen semi-annual testimony to House Financial panel (Wed); Jul Philly Fed business outlook; Fed’s Yellen semi-annual testimony to senate banking panel (Thu); Jun housing starts, building permit, CPI; Jul Univ. of Michigan sentiment; Fed’s Fischer to speak (Fri).

       EUR/USD – Funding Currency Remains At Play. A deal was finally agreed, potentially worth up to EUR85bn over the next 3 years. Next steps include Greek PM Tsipras getting parliament to approve the overall agreement in-principle and legislate a number of specific measures including significant changes to tax and pension systems, labor/product market reforms, privatization of assets; before the ESM parliamentary process begins. Failure to comply with the legislation will void the latest bailout agreement. Meanwhile capital controls and ECB’s ELA cap are likely to remain in place till progress is seen. While there seems to be a deal, EUR’s relief rally fell short of 1.12-handle before the decline to below 1.10-handle. We like to reiterate EUR as a funding currency play. In times of risk assets rallying, funding currencies tend to get sold. Indeed market saw the weakening in funding currencies overnight – CHF, JPY, EUR.  Should risk assets build on momentum, EUR could see further downside. Next support at 1.0960 levels (50% fibo retracement of mar low to May high), before 1.0850 levels (61.8% fibo). Resistance at 1.1050/60. Week ahead GE Jul ZEW; GE Jun CPI; EC May IP; EU Finance Ministers meeting (Tue); FR Jun CPI (Wed); EC May trade; EC Jun CPI; ECB meeting (Thu); EC May construction output (Fri).

       GBP/USD – Bias to Buy Dips. GBP rallied towards 1.5589 high following Greek agreement yesterday but turned lower towards 1.5480 at time of writing on broad USD strength. Daily stochastics are turning higher from oversold levels – tentative signs of mild bullish signals. Bias to buy on dips. Some levels to watch include - next resistance at 1.5530 (50 DMA) before 1.5640 (21 DMA). Support at 1.5430 (200 DMA) before 1.5260/80 (100 DMA).. Week ahead brings Jun CPI, PPI, RPI; ONS Jul house prices (Tue); May employment change, average weekly earnings (Wed).

       USD/JPY – Bullish. With global risk appetite improving after the Greek agreement, USD/JPY bounced higher and appears headed towards the 124-handle. Currently sighted at 123.60, intraday MACD is showing bullish momentum, though stochastics is in overbought territory. Still upside could be limit as markets watch US retail sales data out tonight for directional clues. For now, 124-figure is the hurdle to cross with any dips likely to see support around 122.80.

       AUD/USD – Bearish Now, Upside Squeeze? AUD slipped below 0.74 this morning, little helped by the better than expected trade numbers out of China.  Conditions are bearish for this pair at this point with prices pressing towards year low of 0.7372. A clearance there opens the way towards the 0.7260. Still we warn of an upside squeeze towards the 0.75 given some hints of bullish divergence. That still lacks a signal. Barrier is seen at 0.7450 ahead of the next at the 0.75-figure. NAB business conditions are due later at 0930 (SGT) for Jun.

       USD/CAD – Bullish Bias. USDCAD was underpinned by sliding oil prices with the pair last seen around 1.2760. Oil prices were weighed by anticipation of another positive supply shock from the seemingly imminent Iran nuclear deal. Pair may continue to have bullish bias with MACD still pointing north.  Expectations of a 25bps rate cut this Wed also support the USDCAD. The 1.2630-level should slow offers, ahead of the next at 1.2560. Conditions are still bullish though momentum seems to be waning on the daily MACD. This week has Bank of Canada meeting on Wed followed by Jun CPI on Fri.

       NZD/USD – NZ Dairy Auction Tonight. NZD remains soft off the back of broad USD strength. We caution that the pair could still squeeze higher; possibly towards 0.6830/50 (21 DMA; 23.6% fibo of 0.7564 – 0.6622). Daily stochastics is showing tentative signs of rising from oversold levels while MACD is exhibiting a tentative bullish divergence.  Remain better sellers on rally; will reassess bearish bias on break above 0.71 levels (50% fibo retracement; 50 DMA). NZ dairy auction focus tonight.We continue to reiterate our long-standing 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.  Week ahead brings Jun BusinessNZ manufacturing PMI; 2Q CPI (Thu).

Asia ex Japan Currencies

       The SGD NEER trades 0.06% below the implied mid-point of 1.3597 with the top end estimated at 1.3324 and the floor at 1.3869.

       USD/SGD – Bullish. USD/SGD surged this morning following the weaker-than-expected advanced estimates for 2Q15 GDP.  The economy expanded by just 1.7% y/y (cons.: 2.4%) vs. 1Q’s 2.8% (revised higher), and contracted by a larger 4.6% q/q annualised (cons.: -1.5%) compared to the upwardly revised 4.2% for 1Q. Growth was dragged lower by weak manufacturing (-4.0% y/y) and a moderation in services (3.0% y/y vs 1Q’s 4.2%). Construction was a bright spot, rising 2.7% in 2Q vs. 2.1% in 1Q. As we noted yesterday, this downside surprise dragged the USD/SGD higher. Sighted currently at 1.3615, pair is now bullish momentum, though stochastics is in overbought levels. Immediate resistance is around 1.3640 (61.8% Fibo of 1.3938-1.3151) ahead of the next at 1.3700. Any dips today should see support around 1.3550 (our resistance level turn support)..

       AUD/SGD – Stuck in Range. AUD/SGD is still stuck in narrow band within 1.000-1.0120. Parity is still threatened at this point was last seen around 1.0060. Momentum indicators suggest that downside momentum could be waning while price action shows bids towards the 1.0116 meet eager offers. Resistance is hence seen around 1.0116 ahead of the next at 1.0300. Parity is a psychological support.

       SGD/MYR –Signs of Bearish Bias Underway. Cross is easing from multi-year highs of 2.8250; last at 2.7970 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 2.7790-2.7980 range. Meantime resistance still seen around 2.8250 levels.

       USD/MYR – Range. Downside seems shallow towards 3.7885 levels yesterday as the pair opened higher this morning; last at 3.8060 off the back of broad USD strength. P5+1(US, UN, Russia, UK, France and Germany) with Iran deal could weigh on oil prices and on the Ringgit.  Day ahead expect the pair to trade 3.79 – 3.82. Daily stochastics is showing signs of turning lower from overbought areas while momentum is flat. A decisive close below 21 DMA could see the pair ease further towards 3.7550 levels (23.6% fibo retracement of Apr low to Jul high). Data focus for the week on Jun CPI inflation. We expect a marginal pick-up from prior month’s print.

       1s KRW NDF – Double-Top; Sell Rallies. The pair pushed higher this morning; high at 1141 levels off the back of broad USD strength; higher USDJPY. We continue to reiterate our medium term bearish view for KRW -  on  concerns over 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.  Tactically on the day, favour leaning against strength off interim double-top at 1140; tight s/l at 1143. Daily stochastic is exhibiting early signs of turning lower from overbought areas. Day ahead see 1132 – 1140 range. Data for the week – Jun unemployment (Wed); Jun PPI (Fri).

       USD/CNH – Reverting to Onshore. USD/CNH is still stuck around 6.2170 this morning, still sticky around the 100-DMA at 6.2177. MACD indicates mild bullish conditions for this pair though resistance is seen around 6.2292. CNH discount to CNY remains around 90pips, suggesting depreciation pressure on the CNY. 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). USD/CNY was fixed 32 pips higher at 6.1165 (vs. previous 6.1133). CNYMYR was fixed 36pips higher at 0.6140 (vs. prev. 0.6104). Jun trade numbers turned out to be better than expected with a 2.8%y/y growth in exports accompanied by a -6.1%y/y contraction in imports (Cons.: -15.5%). Trade surplus narrowed a tad to USD46.5bn. China Business News report that the Chinese currency may remain stable this year for its inclusion in IMF’s SDR basket. The top decision makers are aware of its impact on trade. Elsewhere, Premier Li Keqiang sees downward pressure on growth momentum and “targeted control” is necessary to prevent risk and to support growth. PBOC to continue prudent monetary policy and proactive fiscal policy (BBG).

         USD/INR – Pressing Lower. USDINR remained in tight ranges on Mon, closing slightly higher at 63.5175 on the back of stronger dollar. Downside pressure seems to be waning on daily MACD. Spot prices are still in a neutral position, suspended in the thick of the daily ichimoku cloud. Trades to remain within 63.19-63.80. 1-month NDF edged higher this morning, on the back of stronger USD, albeit still nearer the bottom of the ichimoku cloud. Next support to watch is at 63.56. This also coincides with the 100-DMA at 63.513. We await the clearance of the support region for further bearish extensions and that would also lead spot prices lower. At home, CPI picked pace to 5.40%y/y from the previous 5.01% on the back of higher food and beverage prices as well as uptick in fuel and lighting costs. Finance Secretary Mehrishi said that Jun inflation should not cause concerns as oil prices and monsoon season could temper price pressures in the coming months. Data-wise, WPI is due today and Jun trade data could be released anytime.

       USD/IDR – Rangy.  USD/IDR climbed higher above the 13300-levels this morning underpinned by a dollar resurgence. Pair was last sighted around 13327 with both momentum and oscillator indicators showing bearish bias, suggesting upside could be limited ahead. We have BI policy meeting later this afternoon and consensus and our economic team are expecting BI to hold rates steady. With a short-trading week ahead due to the Idul Fitri holidays (16-21 Jul), trades are likely to be range-bound within 13250-13400 intraday. With the Greek situation nearing a resolution, domestic growth concerns and approaching US Fed rate normalization are still likely to keep the pair supported. 1-month NDF climbed higher towards the 13450-levels this morning with both intraday MACD and stochastics showing bullish bias. The JISDOR was fixed higher at 13309 on Mon, slight higher than Fri’s 13304. Foreign funds sold a net USD8.27mn in equities yesterday, but added a net IDR0.47tn to their outstanding holding of government debt on 10 Jul (latest data available).

       USD/PHP – Capped. USD/PHP gapped higher at the opening to 45.215 from yesterday’s close of 45.152 underpinned by the dollar resurgence overnight. Pair has eased slightly to hover around 45.208 at last sight with both intraday MACD and stochastics showing tentative bearish bias, suggesting that further upside could be capped. Look for 45.270 to curb further upside moves, though a firm break here could see a move towards 45.4000, while 45.000 should be supportive. 1-month NDF continues to inch higher, above the 45.300-levels with intraday MACD and stochastics bullish bias. Despite risk-on sentiments, foreign funds sold a net USD1.83mn of equities yesterday.

       USD/THB – Supported.  USD/THB remained above the 34-figure this morning, sighted around 34.053, as the dollar resurges. Also not helping are concerns about China’s growth prospects as well as sluggish domestic macroeconomic environment. Foreign funds continued to sell-off a net THB1.11bn of equities yesterday but this was more than offset by the purchase of a net THB5.15bn in government debt, helping to cap upside risk to the pair. With the 34-handle taken out, new resistance is now seen at 34.150. Any dips should be supported around 33.920 (50DMA).

Rates

Malaysia

§  Government bonds had a slow start to the holiday shortened week with some buying seen on the front ends amid thin liquidity. Players turn to today’s auction of a retap on the 30y MGS 9/43. Nothing was traded at WI with the last quote seen at 4.73/65%.

§  The IRS market was very quiet and nothing traded in the market. We heard only the brokers were seen quoting in the morning. 3M KLIBOR stay unchanged at 3.69%.

§  PDS market was also quiet, with a fair amount of trades done at the short end of the AA curve. Imtiaz, BGSM and Malakoff traded at MTM levels. In the HG space, only Aman 24s were traded, widening 1bp to 4.50%. Other trades were potential crosses. Positive news on the Greece debt crisis could lead to some pick up in liquidity next week.

Singapore

§  SGS yield curve rose 4-6bps with the 10y closing at 2.64%. Short end bonds remain fairly biddish as funding is still relatively low. SGD IRS curve was also higher by 3-5bps. Bond swap spreads are beginning to tighten a little. The 10y is at -20.5bps mid, down from a high of -23bps.

§  Liquidity is thin in the Asian credit space as market seems to be cautious. There was some buying interest on IG names after news broke that Greece reached a deal at the EU summit. With the selloff in UST, most Chinese IGs tightened 3-5bps. Recent new issues did better with BCHINA, GLPSP, CNOOC and SINOPE being sought after. Away from China, levels were mostly unchanged. China Minsheng Investment is starting its roadshow for a USD issuance that has a SBLC from China Construction Bank Corporation and is expected to be rated A1 by Moody’s.

Indonesia

§  Indonesia bond market closed higher supported by Eurozone approval of Greece bailout. There were not much market sentiments during the day especially ahead of long Ramadan holiday. Today, Bank Indonesia will conduct their Board of Governor meeting in deciding the direction of its reference rate. However, we believe that Bank Indonesia would maintain their reference rate at current point of 7.50%. DMO wont conduct their weekly auction today and next week and would conduct it during the final week of the month. 5-yr, 15-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 7.930%, 8.208%, 8.324% and 8.437% while 2y yield shifts down to 7.703%. Trading volume at secondary market was seen thin at government segments amounting Rp9,340 bn with FR0068 (20y benchmark series) as the most tradable bond. FR0068 total trading volume amounting Rp2,334 tn with 113x transaction frequency and closed at 99.400 yielding 8.437%.

§  Corporate bond trading traded heavy amounting Rp862 bn. ASDF02ACN5 (Shelf registration II Astra Sedaya Finance Phase V Year 2015; A serial bond; Rating: AAA(idn)) was the top actively traded corporate bond with total trading volume amounted Rp293 bn.