Maybank GM Daily - 16 Jul 2015

FX

Global

       EUR was little inspired this morning, still hovering around 1.0930 after the Greek parliament voted to accept the bailout package. Overnight, the dollar rose even before Fed Chair Yellen gave her semi-annual testimony to the Congress. Her message was perceived to be rather upbeat. She reiterated that the first rate lift-off is likely within 2015 as she expects growth to pick up. Responding to questions, she said that raising rates earlier allow the central bank room to follow a more gradual path. The DXY touched a high of 97.31 before levelling off.

       NZD fell this morning after a poor volume outturn at the Fonterra Dairy auction. CAD was also a laggard after BOC lowered policy reference rate by 25bps to 0.50% along with a downgrade in growth forecast. Risk appetite is lifted a little this morning after the Greek parliament accepted the reform package in exchange for the bailout. Nikkei and Kospi were up in moderate black. Even so, KRW remained on the slide, down -0.3% against the USD. Asian FX is a mixed bag. Eyes will still be on the Shanghai Comp after the benchmark index closed 3% lower yesterday. That was in spite of a better growth of 7% recorded for 2Q in China.

       Data-wise, Singapore’s Jun NODX was up 4.7%y/y, above consensus at 2.0%. Apart from that release, the data docket is light in Asia. Singapore, Malaysia and Indonesia are away for longer weekend from tomorrow. Beyond Asia, ECB meets today. No move is expected from them. Thereafter, Fed Chair Yellen delivers the next half of her semi-annual testimony tonight.

Currencies

       DXY – Another Yellen Testimony and Housing Data to Watch. USD rallied overnight off the back of better than expected US data – PPI, IP, Empire Manufacturing, Fed Beige Book reporting a broad recovery across all districts amid Fed Chair Yellen’s semi-annual testimony (part 1, part 2 later tonight). While she offered little hints, she continued to reiterate her recent speech last Fri that first rate hike to be projected at some time this year. She added that Fed could hold an impromptu press conference if policy was tightened at a meeting where a press conference has not been scheduled. 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. We continue to reiterate that the 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 levels at 96.40-50 (100 DMA), 95.60 levels (21 DMA). Day ahead, 4-hourly momentum/stochastics are indicating a mild bullish bias for the near term. We remain better buyers on dips. Weekly momentum/stochastics bullish underlying bias remains intact. Week remaining brings 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 – “Yes” Vote on Greek Bailout Bill. EUR fell overnight, 1.0931 low was traded this morning following the “Yes” vote on Greek bailout bill (229 members of the 300-member parliament voted in approval to pass legislation on the latest set of measures in an attempt to satisfy pre-conditions required to secure the EUR86bn bailout package. Among those who opposed the bill were 32 members from PM Tsipra’s own Syriza party – a sign of potential political backlash which could see a cabinet reshuffling as early as later this evening. Next steps see the other Euro-member states voting to approve the bailout (85% majority required in this emergency instance) – expect headlines to drive EUR sentiment. Next focus on ECB meeting later as ELA cap could soon be raised to allow for liquidity and he could be questioned by media on how the short term financing can be bridged. Greece needs to repay the ECB EUR3.5bn SMP bond maturing on 20 Jul. EUR was last at 1.0934 levels; 4-hourly momentum is indicating downside bias; expect 1.0850 (61.8% fibo of Mar low to May high) – 1.1010 (100 DMA) range ahead of Greek parliament outcome. Week remaining sees EC May trade; EC Jun CPI; ECB meeting (Thu); EC May construction output (Fri).

       GBP/USD – Bias to Buy Dips. GBP rally was capped as unemployment rate, claimant count and weekly earnings disappointed markets amid broad USD strength. GBP closed little changed overnight at 1.5640 levels. This morning, pair traded 1.5630 levels. While labor data was a touch softer, they remain healthy and continues to show improvement. We remain better buyers on dips towards 1.5560 levels (50 DMA), off the back of strong fundamentals – labour data and BoE Carney’s hawkish tilt. Daily momentum/stochastics continue to indicate a mild bullish bias. Key resistance at 1.5640 (21 DMA); a daily close above could see an extension of the rally towards 1.5750 levels. Support at 1.5550 (50 DMA).

       USD/JPY – Gradual Grind Higher. USD/JPY is bouncing higher towards the 124-handle in the wake of US Fed Chair Yellen’s testimony yesterday that signalled a 2015 lift-off in the fund rate was still on track and the passage of the reform package by the Greek government. Yesterday, the BOJ continue with its existing policy of expanding the monetary base at an annual JPY80tn pace as expected but surprised with a cut to its inflation outlook for the FY2015 (Apr 2015-Mar 2016) to 0.7% from 0.8% and for FY2016 to 1.9% from 2.0%. Also cut was its growth outlook to 1.7% from 2.0% for FY2015 but maintained its FY2016 growth forecast at 1.5%. These downward revisions increased the possibility that the BOJ could add to its ultra-loose monetary policy in Oct, which is in line with our longstanding view. Momentum indicators continue to signal no strong bias while oscillators are at overbought levels. Further upsides are thus likely to be gradual with topside likely to be capped by 124.15 and dips supported by 123.40.

       AUD/USD – Whippy Trades. AUD is hit overnight by the rise in dollar and was last seen around 0.7373 making fresh year lows as we write. We still await a close below the 0.7372 low for a confirmation of a bearish breakout. Daily MACD hangs low though the forest shows decelerating bearish momentum. We still stick to our view that a close below recent low of 0.7372 is required to open the way towards the 0.7260. Failing that could see an upside squeeze past 0.7500 to 0.7533.

       USD/CAD – Soggy Growth, Soggy CAD. USDCAD came within striking distance of the 1.30-figure and is still hovering around 1.2930 as we write. Trend is still bullish after BOC cut interest rate by 25bps to 0.50% as lower oil prices continue to affect growth prospects.Oil and gas investment will drop by almost 40% this year. BOC said that QE might be utilized if needed. This pair is reaching 2008-2009 highs with 1.3007 marking the next resistance ahead of the next at 1.3065. Support is seen around 1.2660. Jun CPI is due on Fri (Cons.: 1.0%y/y).

       NZD/USD – Bottomless Pit? NZD continue to fall further off the back of a huge decline in GlobalDairyTrade auction prices overnight (9^th consecutive decline; -11%), soft 2Q CPI (released this morning; 0.4% q/q vs. Cons. 0.5%) amid broad USD strength. NZD traded a fresh more than 5-year low of 0.6560 at time of writing. 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 CPI, PPI amid weakening demand. We expect at least another 25bps cut in 23 Jul meeting, a slight risk for a 50bps cut. Next support at 0.65 level, before 0.6430.

Asia ex Japan Currencies

       The SGD NEER trades 0.35% below the implied mid-point of 1.3610. The top end is estimated at 1.3336 and the floor at 1.3882.

       USD/SGD – Consolidation. The USD/SGD moves higher continue as the dollar climbed higher overnight. However, the climb higher is likely to be temporarily stemmed by the better-than-expected NODX print this morning where NODX rose by 4.7% y/y in Jun after contracting by 0.3% in May, supported by a resurgence in electronics exports (up 7.6% y/y vs. May: -2.5%) though pharmaceuticals shipments continue to weigh (down -5.2% y/y vs. May: -0.7%). Still, upside pressure remains as indicated by intraday MACD which shows bullish momentum still, though stochastics remains at overbought levels. With onshore market’s close tomorrow for Hari Raya Puasa, price action could be muted ahead. With our resistance at 1.3640 taken out overnight, new barrier is now around the 1.37-figure. Any reversal is likely to find support around 1.3600. Retail sales rose by 6.1% y/y in May, better-than-the 3.0% expected by the market and Apr’s 5.0%, but failed to stem the pair’s climb higher.

       AUD/SGD – Stuck in Range. AUD/SGD slammed lower, reversing out earlier gains and last seen around 1.0075. MACD forest shows waning bearish momentum and we are of the view that it could turn higher in the near-term. Price action seems to indicate a failure for bears to reassert given the higher lows in the past few sessions. A clearance of the 1.0160 is needed for the next at 1.0300. Support is seen around parity.

       SGD/MYR – Approached 2.78 levels, Next 2.76? Cross continues to ease from multi-year highs of 2.8250; last at 2.7850 levels off the back of SGD weakness while Ringgit held steady. Daily momentum and stochastics continue to show signs of mild bearish bias. The overnight close below support at 2.7980 (21 DMA) has seen the cross ease towards 2.78 levels; next key support at 2.76 levels (50 DMA).

       USD/MYR – Downside Bias. USDMYR opened marginally higher from yesterday Asia close off the back of a firmer USD ; around 3.8075 levels this morning (vs.  3.8030 close yesterday). Malaysia Jun CPI was slightly above expectation (2.5% vs. Cons. 2.4%) due to GST-follow through impact, increase in cigarette prices as well as an upward adjustement in domestic fuel prices in Jun.  Day ahead expect the pair to trade with mild bearish bias; intra-day range of 3.79 – 3.81 expected. Daily momentum is mild bearish. A decisive close below 21 DMA at 3.7740 levels could see the pair ease further towards 3.7550 levels (23.6% fibo retracement of Apr low to Jul high).

       1s KRW NDF – In Search of 1167? The pair continued to push higher towards more than fresh 1-year high; high at 1149.85 levels this morning. Bullish formation remains intact, with momentum/oscillators supporting further upside. On technical thoughts, A weekly close above 1140 is expected to see an extension of the rally, possibly towards 1167 levels (bullish trend channel resistance). On macro thoughts, 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.  Data remaining for the week –Jun PPI (Fri). Today, Finance Minister Choi takes questions at parliament.

       USD/CNH – Tilting Higher. USD/CNH steadied around 6.2150 this morning, still sticky around the 100-DMA at 6.2171. MACD still indicates mild bullish conditions for this pair though resistance is seen around 6.2164 at the 100-DMA. CNH discount to CNY persists at around 65 pips, suggesting persistent depreciation pressure on the CNY. A clear breakout of the 6.2000-6.2240 range is still needed for better directional cues. 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 21 pips higher at 6.1173 (vs. previous 6.1152). CNYMYR was fixed 27 pips lower at 0.6116 (vs. prev. 0.6143). CNYSGD edged higher this morning, on the back of SGD weakness as CNY was kept steady against the dollar. Momentum indicators suggest bullish conditions in the pair though 0.2210 could be top given overbought conditions in this cross. 0.2189 is a support to watch. In news, China posted a growth of 7% in 2Q citing an improvement in industrial production at , investment and retail sales. A researcher from the Ministry of Finance stated that upward momentum in the economy could negate downward pressure. An editorial by China Securities Journal also pointed out that consolidation in the stock market in the short-term is normal.

         USD/INR – Pressing Lower. USDINR slipped yesterday and ended lower at 63.3925 on Tue with a bearish engulfing candle. 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 closed lower as well with offers supported by the bottom of the ichimoku cloud. Next support to watch is at 63.54. 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, RBI Deputy Governor Khan said that the new Euroclear model trading and settlement will be within India. The central bank is also still in discussion with the government on refreshing FII debt limits and there are “no time line for resetting limits”. That could temper optimism and lower portfolio inflow pressures on the INR.

       USD/IDR – Closed For Holidays Until 21 Jul.  Onshore markets are closed for the Idul Fitri holidays from today till next Tue (21 Jul) and will re-open on Wed. 1-month NDF slide lower to 13430 amid quiet trades as onshore market closed for a week-long holiday. The JISDOR was fixed higher at 13329 yesterday from Wed’s 13320. Ahead of the week-long holiday, foreign funds sold a net USD21.86mn in equities yesterday, and also removed a net IDR0.38tn from their outstanding holding of government debt on 14 Jul (latest data available). The trade surplus narrowed to USD477mn in Jun from USD955mn in May as the decline in imports (-17.4% y/y) continued at a faster pace than the drop in exports (-12.9%), but failed to provide the IDR with a sustained lift. 

       USD/PHP – Bullish. USD/PHP is on the uptick this morning following the resurgence dollar overnight. Even the improvement in overseas remittances (up 5.8% y/y in May vs. Apr’s 5.1%) failed to lift the PHP, which remained under downside pressure on global risks concerns, particularly the lift-off in US Fed fund rate. Pair is currently hovering around 45.270, testing our resistance level at 45.270. A firm break here could see the pair headed towards the 45.40-handle. Both momentum indicators and oscillators are bullish bias, suggesting potential for further upside ahead. Any dips today is likely to be supported around 45.160, the top of the intraday ichimoku cloud forming below price action. Onshore markets are closed tomorrow for the Eid Al-fitr holiday. 1-month NDF traded above the 45.50-levels, currently sighted around 45.53, with intraday MACD showing bullish momentum and stochastics at overbought levels. Sentiments reversed and foreign funds sold a net USD10.52mn of equities yesterday.  In the news, BSP board member Felipe Medalla said that an inflation rate below 1% would give room to the central bank to cut the reserve requirement ratio (which currently stands at 20%) to spur greater lending. At the same time, he reiterated that additional monetary stimulus was unnecessary for now as the sluggish growth was a function of government underspending. As well, interest rates in the Philippines need not raise in response to the US Fed fund rate lift-off as it had already raised borrowing cost domestically last year.

       USD/THB – Bullish Bias.  USD/THB surged towards the 32.200-levels underpinned by a firmer dollar tone. Last sighted around 34.176, pair is signalling bullish momentum though stochastics remains at overbought levels. Upward pressure remains on domestic growth concerns with Finance Ministry cutting its 2015 growth outlook to 3.0% from 3.7% previously yesterday on expectations of export weakness. Pair has since taken out our resistance levels at 34.150 and a firm close today above that level would extent bullish control towards 34.300-handle. Dips should see support around 34.110. Continued improvement in risk appetite led foreign funds to buy a net THB0.12bn and THB0.79bn of equities and government debt yesterday, helping to cap the pair climb higher.

Rates

Malaysia

§  Lackluster trading session in the government bond market heading towards the Raya holidays and we expect tomorrow to be quiet as well. Some late allocation reporting done on the recently reopened 30y MGS 9/43 as it ended 2bps lower from previous close. Malaysia’s 2Q15 headline inflation came in at +2.1% YoY (1Q15: +0.7% YoY). Our economic team revised down 2015 inflation forecast to 2.0-2.5% (previous: 2.5-3.5%) on 1Q’s abnormally low inflation and possibility of crude oil prices staying around current levels for the rest of 2015.

§  IRS market remained quiet with the curve ending flatter. We only heard a trade reported on the 3y rate. 3M KLIBOR stayed unchanged at 3.69%.

§  PDS market was also muted. AA names at the belly traded at previous done levels while longer dated papers traded 1-3bps wider. In the GG space, JCorp 22 widened 1bp, Prasa 30 tightened 1bp, and better buying interest on longer dated papers but very few offers. For AAAs, strong bidding and two way quotes seen at the belly with Telekom 10/24 trading 3bps tighter at 4.43%. Bid-offer spreads for Aman and Plus also tightened 1-3bps. We believe AAA and GG 9y papers offer more value than the 10y as the latter is trading only 3-5bps above the former.

Singapore

§  SGS market traded mixed despite the rally in UST. The 2y was up about 2bps in yields, while the 5y and 15y were down 1-3bps, and elsewhere ended unchanged. The 10y SGS closed the same at 2.63%.

§  In Asian credit space, market was trading heavy on the new issuances in the morning. Korgas 25, which was priced at +110, traded to 108/103 only to close around reoffer. Sumitomo’s new 10y paper was last seen around 125/122 (priced at 130). Although Chinese equities were lower, Chinese property names mostly dealt unchanged to slightly higher. Some buying seen again on 5y Korean SOE. Sovereigns traded higher as well, with INDOIS 25 last taken at 97.625. INDONs and quasis were mostly taken along the curve. New issuances: 1) Nonghyup Bank (A1) issuing 5y USD at T+140bps; 2) KDB (Aa3) issued SGD200m 3y bonds at 2.05%; and 3) Tianjin Binhai (Baa1) announced 3y and 5y USD issuances guiding at around T3+245bps and T5+265bps.

Indonesia

§  Indonesia bond market moved sideways and closed lower during the final trading day of the week amid a surplus June trade balance and accelerating China 2Q 15 growths by 7.0% YoY. Indonesia statistics issues June trade balance numbers which came in at a surplus of US$477.0 mn (vs US$1,077 mn in May). Both exports and imports continue to grow negatively on a year on year basis hence the decline of imports growth was much more rapid. Our economist in his snapshot report further explained that the increasing in monthly exports performance was driven by improvements in the economy of Indonesia's major trading partners which had impacted to the increasing demands for goods and services from these countries. He added that the increasing monthly exports were also triggered by seasonal factors ahead of Ramadan and Eid holidays. Increasing monthly imports performance was driven by seasonal factors ahead of Ramadan and Eid holidays. Indonesia bond market will be closed today and will re-open on Jul 22^nd due to Eid Al Fitri holiday. 5-yr, 15-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 7.947%, 8.267%, 8.416% and 8.464% while 2y yield shifts down to 7.669%. Trading volume at secondary market was seen very thin at government segments amounting Rp3,845 bn with FR0070 (10y benchmark series) as the most tradable bond. FR0070 total trading volume amounting Rp917 tn with 23x transaction frequency and closed at 100.638 yielding 8.267%.

§  Corporate bond trading traded thin amounting Rp171 bn. BEXI01BCN3 (Shelf registration I Indonesia Eximbank Phase III Year 2013; B serial bond; Rating: _idAAA) was the top actively traded corporate bond with total trading volume amounted Rp30 bn.