Maybank GM Daily - 20 Jul 2015

FX

Global

      EUR tanked last week and was still on the backfoot around 1.0840 this morning. EU on Fri approved a short-term loan of EUR7.16bn for Greece to repay EUR4.2bn due today to ECB and the rest to the IMF. Athens starts this week with a fresh government, higher tax rates and looser capital controls. Banks will open for business today. The worst is yet to come for PM Tsipras who needs push a second tranche of reforms at the parliament on Wed.

      Dollar managed to gain against most majors with the exception of GBP which appreciated 0.7% against the greenback. NZD was the worst hit, down 2.6%, hammered by weak dairy auctions. Asia was a mixed bag with MYR and INR net gainers on the USD, up 0.2% each. CNH also eked out 0.1% gain. KRW and SGD were the worst hit, down -1.5% and -0.9% respectively, as weaker growth prospects weighed.

      The data calendar quietens this week with Indonesia still out to celebrate Idul Fitri. Australia’s 2Q CPI is due on Wed. RBNZ meets on Thu and consensus expects another 25bps cut in view of weak dairy auctions. South Korea releases its 2Q growth numbers soon after and growth is expected to slow to 0.4%q/q (sa) from previous 0.8%. Singapore’s CPI is also due the same day and little price pressure is seen in Jun. That could also continue to weigh on the SGD amid increasing expectations of MAS to ease. The preliminary estimates of manufacturing data (Markit) will take centrestage on Fri with China to kick off the PMI-mfg global releases in Asia morning. Expect the manufacturing sector to remain in contraction, albeit at a slower pace. Thereafter, Markit will also release the data from Europe and US for Jul. In the US, apart from the manufacturing data, home sales are due. Earnings reports will continue to hold investors’ attention. Dollar remains on the rise as investors continue to price in a lift-off from the Fed within the year.

Currencies

      DXY – Upside Bias. USD pushed higher to end the week on a near 3-month high. Move higher was supported by CPI inflation and Fed Chair Yellen’s semi-annual testimony which reiterated that a first rate hike is likely to be some time this year, which remains consistent with our long-held 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. DXY was last at 97.99 levels this morning.  Next resistance at 98.40/50 levels (76.4% fibo retracement of Apr high to May low); support at 97.37 (61.8% fibonacci retracement) before 96.50 (100 DMA). Day ahead, expect 97.50 – 98.30 range; better buyers on dips. Daily/weekly momentum/stochastics bullish underlying bias remains intact. Week ahead brings MBA mortgage applications; Jun existing home sales (Wed); Jun CFNAI; initial jobless claims (Thu); Jun new home sales; Jul prelim manufacturing PMI (Fri).

      EUR/USD – Re-focus on Monetary Policy Divergence. EUR continued to decline; lows seen around 1.0830 levels this morning as market re-focuses back on monetary policy divergence. ECB raised the cap on ELA to Greek banks by EUR900mn (for this week); Greek banks will re-open to provide limited banking services later today and previous daily withdrawal limit of EUR60 has been replaced with weekly withdrawal of EUR420 limit. Capital controls remain in place while Athens stock market remained shut.  With EUR7bn bridging loan approved, Greece look set to make the EUR3.5bn repayment due to the ECB today. Meanwhile Greek PM Tsipras reshuffled cabinet (just sworn in) ahead of second parliamentary vote on Wed. Day ahead 4-hourly momentum is indicating a mild bearish bias. Week ahead expect 1.07 – 1.0950 range. Week ahead brings GE Jun PPI (Mon); FR Jul manufacturing confidence (Wed); EC Jul consumer confidence (Thu); EC, GE, FR prelim manf/services/ composite PMI (Fri).

      GBP/USD – Consolidate. After an early week rally off the back of BoE Carney’s hawkish tilt, GBP ended little changed into Fri close. BOE Carney then attempted to talk down rate hike expectation - said that a rate hike decision “will likely come into sharper relief at the turn of the year”; noted that rate normalisation has traditionally been more modest in the UK than in US; and highlighted that current account deficit remains large and the right policy mix could be for monetary policy to remain accommodative amid tighter fiscal policy. GBP was last at 1.5610 levels; next resistance at 1.5630 (50% fibo of Jun high to Jul low), before 1.57 levels (61.8% fibo). Support at 1.5560 (50 DMA and 38.2% fibo). Could see some consolidation; day ahead expect 1.5560- 1.5650 range. Week ahead brings Jun retail sales (Thu).

      USD/JPY – Upside Risks. USD/JPY climbed back above the 124-handle on Fri, reversing its dips towards the 120-levels. Pair continues to bounce higher as risk-off sentiments ease and dollar resurges. Momentum indicators are still bullish bias, though oscillators are at overbought levels that could suggest further upside risks. Hurdle nearby is around 124.75 and a firm close above that level exposes the next barrier around the 126-figure. Our long standing view is for the BOJ to ease in Oct 2015. Any dips could see support around 123.30 (top of the ichimoku cloud forming below price action). By all accounts, PM Abe’s approval rating has dipped following the government’s push for its unpopular defense legislation, and this approval dip could put the Third Arrow of Abenomics at risks and we will continue to monitor the situation. Week ahead has the Cabinet Office Monthly Economic Report for July (Tue); May all industry activity index and Jun Machine Tool Orders (Wed); and Jun Trade (Thu.

      AUD/USD – Whippy Trades. This pair is weighed by lower commodity prices and dollar strength. Last seen around 0.7370, pairing is still bearish with next support seen around 0.7260. However, momentum indicators still lack conviction. A bearish breakout is in the making with a weekly close achieved below the recent low of 0.7372. Risks are certainly to the downside but we do not rule out a squeeze to the upside given the lack of momentum. That would give the bears more momentum.  Daily MACD hangs low though the forest shows decelerating bearish momentum. The weekly MACD is near the zero line with RSI showing near oversold conditions. That could indicate that the current downmove would be a grind. 2Q CPI is due on Wed and a stronger print of 0.8%q/q is expected compared to the previous 0.2%. That could pare expectations of a rate cut in the nearterm.

      USD/CAD – Soggy Growth, Soggy CAD. USDCAD ended last week at a high of 1.3007 and hovered thereabouts this this morning. Pair is gaining bullish momentum though next resistance is not far away at 1.3065. With oil prices still on the bearish trend, expect USDCAD to remain supported. 1.2835 could support unexpected offers ahead of the next at 1.2660. Jun CPI came in as expected at 1.0%y/y with core surpassing expectations with a flat growth compared to expectations for a 0.1% fall. That provided little support for the CAD as overall price pressure is still anaemic. Retail sales for May will be the only release this week, out this Thu.

      NZD/USD – Fade Rallies. NZD briefly traded below 0.65-figure (0.6499 low on 16 Jul) amid broad USD strength.  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 on 23 Jul on weak dairy prices (9^th consecutive GDT auction decline), falling CPI, PPI amid weakening demand. We expect at least another 25bps cut in 23 Jul meeting, with a slight bias for a 50bps cut. NZD was last at 0.6520 levels this morning; daily momentum/stochastics are bearish bias. Next support at 0.65 level, before 0.6430. Remain better sellers on rallies. Week ahead bring Jun credit card spending (Tue); RBNZ meeting (Thu); Jun trade data (Fri).

Asia ex Japan Currencies

      The SGD NEER trades 0.44% below the implied mid-point of 1.3633 with the top end estimated at 1.3359 and the floor at 1.3906.

      USD/SGD – Headed Towards 1.37. The USD/SGD rally last week saw several of our resistance levels taken out. The pair’s bounce higher should continue this week, supported by a resurgent dollar and weaknesses in the EUR and JPY. Moreover, sluggish growth in 2Q has increased speculation that the MAS could move at its Oct policy meeting, supporting the pair further. Pair is heading towards the 1.37-handle with daily MACD showing bullish momentum, though stochastics is at overbought levels. A firm close above the 1.37-handle should see the pair headed towards 1.3755 (76.4% Fibo retracement of the 1.3938-1.3151 downswing). Any dips could see the pair headed back towards 1.3580. We have Jun CPI and IPI due on 22 and 24 Jul respectively and significant downside surprises from IPI (cons.: -0.5% y/y) after the better-than-expected NODX print could lift the pair higher.

      AUD/SGD – A Squeeze In the Making. AUD/SGD hovered around 1.0095 this morning, with bears losing momentum as the cross made higher lowers for the past two weeks. SGD weakness is the main driver. An ascending triangle is in the making and there could be a squeeze towards the 1.0284. Daily MACD forest shows that bearish momentum has diminished while the weekly chart shows some indecisiveness around parity. We still await the clearance of the 1.0160 for the next at 1.0300. Support is seen around parity.

      SGD/MYR – Approaching 2.76 Levels. Cross continues to ease from multi-year highs; last at 2.7790 levels this morning. Cross continues to be weighed by SGD weakness. Daily momentum and stochastics continue to show signs of mild bearish bias. Next key support at 2.76 levels (50 DMA).

      USD/MYR – Downside Bias. USDMYR opened marginally higher around 3.8065 levels this morning (vs.  3.7968 close Fri) off the back of USD strength. Technically, we continue to see downside pressure; daily momentum/stochastics are bearish bias.  A decisive close below 21 DMA at 3.7830 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 1-year high; high at 1152 levels this morning. Bullish formation remains intact, with momentum/oscillators supporting further upside. We highlighted last week that 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 for the week ahead –2Q GDP (Thu).

      USD/CNH – Tilting Higher. USD/CNH steadied around 6.2120 this morning, still sticky around the 100-DMA at 6.2150.  The latter seems to be guiding the pair lower and the daily ichimoku is not providing much support to prices. CNH discount to CNY has narrowed to around 30 pips. 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). In news, a report from the State Informational Centre indicate 7% growth seen with moderate recovery expected in the second half fo the year. Consumer prices could rise 1.6% while PPI may fall3.4%. Vice FinMin says China has achieved goal of stabilizing domestic equity markets (Securities Daily). In other news, Quanzhou is now included in the cross-border yuan loan trial program and firms within can borrow offshore yuan from banks in Taiwan. Markit prelim. PMI-mfg for Jul is due on Thu (Cons.: 49.8 vs. prev. 49.4).

      SGDCNY – A Bit More Downside To Go. Last seen around 4.5240, the daily MACD reflects downside momentum of the pair with both MACD and signal line under the zero line as well as the forest. RSI, on the other hand, indicates oversold conditions. The weekly momentum indicators are a tad more bearish and we may even see a dip towards the 4.4560.

    USD/INR – Capped. USDINR slipped on Fri and ended lower at 63.4737. 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 hovered around 63.75 this morning, still supported by the bottom of the daily ichimoku cloud. Next support to watch is at 63.58. This also coincides with the 100-DMA. We await the clearance of the support region for further bearish extensions and that would also lead spot prices lower. At home, Central Board of Excise and Customs member Krishnan told the press that India has resolved to introduce GST from 1 Apr, 2016.Five bids were received for building the IT infrastructure for the tax and the GST law is being drafted urgently.

      USD/IDR – USD/IDR – Closed For Holidays Until 21 Jul.  Onshore markets are closed for the Idul Fitri holidays until Tue (21 Jul) and will re-open on Wed. With onshore markets out, focus is on the 1-month NDF. 1-month NDF is on the slide after climbing higher over the past few sessions. Sighted around 13447, the NDF is showing no strong momentum in either direction while stochastics is bullish bias, suggesting further downside could be limited ahead. 

      USD/PHP – Consolidation. USD/PHP is wobbling to start the week, but remains well-within its current trading range of 45.00-45.350. Dollar strength and expectations of an imminent Fed fund rate lift-off should add upside pressure on the pair. Still, unlike its regional peers, growth is still likely to outperform with inflation manageable and these should help the cap any rapid jump in the pair. Pair is showing no strong momentum in either direction, though stochastics is mildly bullish bias, suggesting consolidative moves could be possible. Pair could re-test our resistance level at 45.270 with a firm break here exposing the next at 45.400. 45.160 continues to be supportive for the week. 1-month NDF is on the slide this morning, sighted lower around 45.420 with both daily MACD and stochastics showing bullish bias. Risk sentiments continued to weigh on equities with foreign funds selling a net USD16.48mn on Thu ahead of the long weekend. In the news, BSP governor noted that the Philippines has room to support growth and manage inflation. He also reiterated that the central bank looks at full-year inflation for policy. Week ahead has Jun BOP Overall (Mon) and May Trade (Fri).

      USD/THB – Bullish Bias.  USD/THB continues its grind higher towards the 34.300-levels, lifted not only by a resurgent dollar but also sluggish domestic macroeconomic fundamentals, including weak domestic growth and severe drought conditions. Not surprisingly, the central bank governor has pointed to the general lack of confidence that is keeping the economy from moving forward. Momentum indicators are still pointing to bullish bias though stochastics is at overbought levels, suggesting further upmoves are likely. Upmoves today should meet resistance around 34.300 ahead of the next at 34.500. The 34-figure should be supportive this week. Any dips could be an opportunity to buy the pair. Mixed investor sentiments saw foreign funds selling a net THB0.83bn in equities but purchased a net THB10.63bn in government debt last weeky, helping to cap the pair climb higher. Data-wise, it is a quiet week with just reserves due on Fri.

Rates

Malaysia

       Government bond market was quiet as most players were away for the Hari Raya holidays. Liquidity was thin except for block trades done on MGS 3/17s totaling MYR1.5b with last done at 3.11%. This stock’s trades stuck out like a sore thumb in an otherwise muted pre-holiday market.

       In the IRS market, there were no activities last Thursday and levels ended unchanged. 3M KLIBOR remained at 3.69%.

       PDS market remain muted on the eve of Hari Raya with only MYR26m trades executed. Most of the trades were crosses in the AA space, and there were no trades reported in the high grade space.

Singapore

       SGS yield curve flattened with yields rising 4-6bps at the front end, 1-2bps at the belly while the back end was down 1bp to unchanged. The 10y SGS ended at 2.64%. SGD IRS mostly fell 1-2bps. Bond swap spreads tightened about 2bps as funding inched higher and SGD Fwds remained biddish.

       Asian credits traded mixed post Greece parliament’s approval of new austerity measures for the bailout deal. IGs mostly traded unchanged to 2bps wider. Newly issued BINHCO underperformed, widening almost 20bps in early trade before stabilizing at about 10bps wider across both tranches. The only new issue that traded tighter than reoffer was Korea Nonghyup Bank's 5y paper by about 4bps. Korean names were better bid and quoted at a narrow range. Indian financials also saw good demand at the longer end of the curve with better buyers in the 10-15y. New issuances: 1) China Minsheng Investment Corp (CCB SBLC) issuing a 5y paper at T5+170bps; 2) National Australia Bank (AA2) issuing fixed bonds of 3y and 5y with initial guidance at T3+95bps and T5+110bps; 3) ORIX Corp (A-) issuing a 5y paper guiding at T5+145bps; and 4) Xinjiang Goldwind (BOC SBLC) issuing a 3y Green bond with initial guidance at T+180bps.

Indonesia

       Please note that there is no write-up on Indonesia fixed income as onshore markets have been closed since last Thu.