Maybank GM Daily - 23 Jul 2015

FX

Global

      The mood in overnight trade remained negative with DJI, S&P and NASDAQ closing in red, pressured by lower tech earnings such as that of Apple. Data-wise, existing home sales came in slightly above expectations, providing some support for the greenback. Elsewhere this morning, the latest tally shows Greek government has voted to approve the bailout bill, implementing the second tranche of reforms required. Earlier, ECB raised ELA ceiling by EU900mn. EUR was last seen at day high around 1.0940.

      RBNZ lowered overnight cash rate by 25bps to 3.00%. NZD bounced after the decision as markets interpreted the statement less dovish than expected. That brought the NZD above the 0.6650 against the USD before the pair slips back towards the 0.66-figure.

      Early Asian starters were a mixed bag with Nikkei up +0.4% while Kospi slipped -0.2% as we write. The latter was dragged by the 2Q GDP number which missed consensus (2.3%y/y) with a print of 2.2%. BOK Jeon said that the spread of MERS had material impact on growth but assured that domestic demand would improve from 3Q as the impact of MERS and drought fade. Naturally, KRW would take a hit, down -0.5% against the USD. THB remains under pressure after a 0.8% depreciation yesterday amid concerns over growth.

      Data calendar remains light for Asia with only Singapore’s Jun CPI due. Price pressures are expected to remain subdued. Beyond Asian hours, Europe releases confidence data and US will release its weekly initial jobless claims. Eyes are still on the earning reports in the US as tonight is scheduled to be the busiest day of the earnings season. That would also perhaps give some direction to the USD. 

Currencies

      DXY – Correction. USD snapped 4-straight sessions of gains on a lack of catalyst for follow-through while US equities fell on disappointing earnings report overnight. DXY was last at 97.30 levels this morning (vs yesterday high of 98.15).   We continue to maintain our long-held view for the first rate hike (25bps) in Sep as data continues to suggest that growth path remains intact. It remains our base-line scenario for the pace of tightening to be gradual, given that Fed will take into consideration domestic growth and external environment – China rebalancing risk, Greek development and USD strength. Day ahead, 4-hourly momentum is mild bearish bias; next support at 96.50 (100 DMA); remain better buyers on dip. Resistance remains at 98.40/50 levels (76.4% fibo retracement of Apr high to May low). 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 – Consolidation. EUR rebounded tracking other funding currencies (i.e. JPY, CHF also rebounded vs USD) amid broad USD weakness and equity decline. Overnight high at 1.0969; last sighted around 1.0950 levels. Little news/data-flow overnight except that S&P upgraded Greece rating to CCC+ and revised outlook to stable (from negative) to reflect improved liquidity after conditional bailout agreement and bridge financing. Focus tonight on Greek parliament second vote to pass latest reform measures to allow for further bailout talks to take form.  Day ahead could see a sustained squeeze higher; daily stochastics is rising from oversold levels.  Resistance at 1.0965 (50% fibonacci retracement of Mar low to Apr high) before 1.10 (100 DMA). Support at 1.0810 (trend-line support from the lows in Mar and Apr). 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 – Tactical Sell. GBP eased overnight amid broad USD strength. GBP was last at 1.5570 levels; day ahead could see some consolidation with mild bias to the downside; daily stochastics is showing signs of falling from overbought areas. Intra-day expect 1.5470 – 1.56 range. Next resistance at 1.5605 (21 DMA), Support at 1.5470 before 1.5420 (200 DMA). Week ahead brings Jun retail sales (Thu).

      USD/JPY – Rangy. After sliding to a low of 123.57 yesterday, USD/JPY is back on the uptick above the 124-handle, helped not only by the firmer dollar but also a trade deficit of JPY69bn in Jun, which overshadowed the pick-up in exports (+9.5% y/y). Intraday bearish momentum appears to be petering out and stochastics is showing mild bullish bias. But the lack of further catalyst could see the pair remain rangy for now. Immediate resistance remains around 125.15 ahead of the next at 124.50. Support is still at 123.80 before the next at 123.20 and dips should be an opportunity to buy. Our base case remains for the BOJ to ease in Oct 2015.

      AUD/USD – Whippy Trades, Upside Squeeze? This pair is back under the 0.74-handle as the USD regains strength. We still do not rule out the upside squeeze given the lack of bearish momentum on the daily chart. Although RBA Glenn Stevens mentioned that rate cut is still on the table, we see that as merely keeping that option open. We still see a great inertia for the central bank to take cash target rate below 2.00%. Support is seen around 0.7340. Nearby resistance is seen around 0.7230 ahead of the next at 0.7490, 0.7533 (Apr low). Intra-day chart shows bearish conditions for the pair but there is still a lack of conviction. Expect 0.7340 to deter aggressive offers.

      USD/CAD – Soggy Growth, Soggy CAD. USDCAD touched a high of 1.3048 and is still hovering thereabouts as we write. Upmove is still a grind as RSI flags overbought conditions on intra-day and daily chart. This pair is on an uptrend, underpinned by soggy oil prices. Key support is seen at the tenkan-sen of the daily ichimoku cloud around 1.2857Momentum is still bullish and next resistance is not far away at 1.3065. Next support is seen at 1.2660. Retail sales for May is due tonight. Consensus expects a rebound to 0.6%m/m  from the previous contraction of -0.1%.

      NZD/USD – Eyes on RBNZ (tomorrow; 5am SGT). NZD squeezed higher overnight amid broad USD weakness; overnight high was 0.6654; last sighted at 0.6630. Focus on RBNZ meeting tomorrow – both the OCR decision and the statement. A 25bps to bring the OCR down to 3% appears to be a done deal (market expectation). We are biased for a 50bps cut as we remain concerned over the dairy sector (prolonged weakness in dairy prices can weigh on the dairy sector income, asset quality in banks’ lending books and given that a significant % of total dairy lending is in floating rate loans; an aggressive rate is expected to ease pressure on the sector).   On the statement front, we caution for a potential tweak to its expectation on NZD exchange rate given that recent decline accelerated. Words like “NZD remains overvalued”’ “further significant downward adjustment (on NZD) is justified” could potentially be omitted. Taken together, while OCR could see an aggressive adjustment, it may not necessarily imply a significant downward move on the NZD. Furthermore NZD short CFTC positioning stands at unprecedented high, which could further raises the potential of a short squeeze. Upside squeeze towards 0.6670 (23.6% fibo of Jun peak to Jul trough), 0.6730 (21 DMA) cannot be ruled out. That said continue to reiterate our long-standing bearish bias for NZD on a combination of drivers including further expectation of RBNZ cutting rates for 2015; weak dairy prices weighing on dairy sector, falling CPI/ PPI amid weakening demand. Week remaining brings RBNZ meeting (Thu); Jun trade data (Fri).

Asia ex Japan Currencies

      The SGD NEER trades 0.25% below the implied mid-point of 1.3638. The top end is estimated at 1.3364 and the floor at 1.3911.

      USD/SGD – Bullish Bias. The USD/SGD is back on the bounce higher in line with the uptick in the USD/JPY. Pair has lost most of its bearish momentum and stochastics is bullish bias, suggesting potential for further upside ahead. With our resistance level at 1.3670 tested this morning, a daily close above this level could see the next barrier at 1.37-figure. Support today is seen around 1.3640. In the news, the IMF concluded in its Article Four assessment that the current monetary policy setting was appropriate and that the NEER band is appreciating at an annual rate of 1% down from about 2% before the Jan policy move.

      AUD/SGD – A Squeeze In the Making? AUD/SGD dropped in early Asia this morning, last seen around 1.0070. AUD bears seem to be gaining advantage at this point but momentum is still bullish for this cross on the daily chart. Still, the ascending triangle that we have been observing is marred by recent bearish sessions. Even so, given the momentum indicators, we do not want to rule out a squeeze towards the 1.0284. The weekly chart shows some indecisiveness. We still await the clearance of the 1.0160 for the next at 1.0300. Key support is seen around parity.

      SGD/MYR – Sell Rallies. Cross continues to trade around 2.7830 levels this morning (vs. 2.7822 close yesterday). Day ahead could see some upside pressure as indicated by MACD/stochastics. Upside could re-visit2.7960/70 levels (21 DMA). Medium term, we continue to see further downside pressure. Favor a tactical sell on rallies towards 2.7970 levels (21 DMA) for a move towards 2.7620 levels (50 DMA). Break below opens way for further move towards 2.74 (61.8% fibonacci retracement of May low to Jul high).

      USD/MYR – Focus on 21 DMA. USDMYR hovers around 3.8050 levels this morning (vs. 3.7938 close yesterday) on broad USD strength and soft oil prices. We continue to reiterate our technical view that daily stochastics is turning lower from overbought areas while momentum is exhibiting tentative signs of bearish bias. A decisive close below 3.78 levels (21 DMA has kept USD MYR well supported since mid-May, hence an important support level to watch) could see the pair ease further towards 3.7580 levels (23.6% fibo retracement of Apr low to Jul high). Meantime resistance remains at 3.8250.

      1s KRW NDF – Buy on Dips. The pair resumed its move higher overnight on broad USD strength. 1s NDF traded back above 1160-handle; last seen at 1161.50 this morning (vs. 1158 close overnight). Bullish formation remains intact, with momentum supporting further upside. We continue to see further upside, towards 1167 (bullish trend channel resistance) especially on the technical break above 1140 last week. Day ahead, 4-hourly momentum/stochastics are mild bias to the upside; better buyers on dips; expect 1155 – 1165 range. 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 further support for the pair.  2Q GDP was slightly softer than expected at 0.3% q/q (Cons. 0.4%), authorities cited MERS affecting 2Q growth significantly.

      USD/CNH – Back to Range Trades. USD/CNH rebounded yesterday and stuck to the 100-DMA at around 6.2128. This pair is still capped by this level. CNH discount to CNY have disappeared completely.  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 6.2054 (200DMA). USD/CNY was fixed 4 pips higher at 6.1172 (vs. previous 6.1168). CNYMYR was fixed 7 pips higher at 0.6133 (vs. prev. 0.6127). An article in Beijing Morning Post was published to deny plans that the second-child policy will be fully implemented this year.

      SGDCNY – A Bit More Downside To Go. This cross is now back on the slide, last seen around 4.5420. Key barrier is seen around 4.5645. Pair is on its way towards the support level around 4.5213. The daily MACD reflects slower downside momentum pair. The weekly momentum indicators are a tad more bearish and we may even see a dip towards the 4.4560.

    USD/INR – Still In the Thick of The Cloud. USDINR finished Wed, hardly changed from the start. Closing at 63.5800, this pair is likely to remain suspended in the thick of the cloud. The daily MACD forest still above the zero line. Trades to remain within 63.19-63.80. 1-month NDF drifted higher this morning but was still capped by the 50-DMA at 63.9950. Momentum is increasing bullish here and a clearance of the 50-DMA barrier could open the way towards the next resistance around 64.3325. We await a breakout of the cloud for greater directional clue for the pair. At home, the parliamentary panel has allowed states to receive a levy of as much as 1% on products made in their territory which will last two years after the GST takes effect. This was good progress from a country that had a dozen state levies. The GST is scheduled to take effect from Apr 2016.

      USD/IDR – Range-Bound.  The USD/IDR is rebounding back above the 13400-figure this morning, playing catch-up with its regional peers. However, softer dollar tone currently could cap further upside. Still, upside pressure from external (US Fed tightening) and domestic concerns (persistent current account deficit, anaemic economic growth, stalled reforms) remain. We reckon that pair is likely to trade rangy this morning given that intraday MACD is pointing to bullish momentum but stochastics remains bearish bias. Look for range-bound trades within 13370-13422. A break of 13422 (recent multi-year high on 21 Jul) could see a further upmoves towards 13500. The JISDOR was fixed at a new record high of 13368 yesterday when onshore markets re-opened after the week-long Idul Fitri holidays. 1-month NDF is on climb above the 13500-handlewith both intraday MACD and stochastics now bullish bias. 

      USD/PHP – Capped. USD/PHP is on the uptick, playing catch-up with its regional peers. Pair though continues to trade well-within its current 45.145-45.400 range. Momentum indicators are showing little directional bias, though oscillators are bearish bias, suggesting that further upmoves could be capped. In the absence of fresh catalyst, pair is likely to track dollar moves ahead. Look for intraday range of 45.145-45.330 to hold. 1-month NDF is softening slightly after climbing to an intraday high of 45.420 though  the 1-month has lost most of its bearish momentum and stochastics are bullish bias. Sentiments soured slightly yesterday with foreign funds selling just a net USD5.89mn of equities.

      USD/THB – Bullish Bias.  USD/THB rally continues unabated with the pair now heading towards the 34.80-handle – a high not seen since May 2009. Domestic growth concerns were reignited yesterday when the Commerce Ministry announced its intention to review its 1.2% export target for this year on the back of slower-than-expected global growth. Equities continued to bear the brunt of investor angst with foreign funds selling a net THB2.30bn yesterday, while they bought a net THB0.30bn in government debt. Momentum indicators are now bullish, though stochastics is at overbought levels. With several of our resistance levels taken out, immediate barrier to cross is around 34.770 ahead of the next at 34.870. Any retreat is likely to find support around 34.645, previously our resistance level.

Rates

Malaysia

      Local government bond curve lowered by another 1-2bps on follow through buying, especially at the belly. Partly on the back of broad USD weakness which led USDMYR to come off recent highs. Locals seem thin on positions as upward price movements appear exaggerated. MGS 3y and below lower than onshore funding likely due to new ASW positions and a non-existent short term bills market.

      IRS rates saw abundant quotes with the curve moving lower and flatter, possibly due to ongoing interest and foreign flows in govvies. But nothing was traded. The 4% handle on the 5y IRS remains unbroken. 3M KLIBOR unchanged at 3.69%.

      Local PDS market slightly less active. Long dated GGs traded -1bp to +1bp from MTM despite continued lowering of the govvy curve. PTPTN 24s taken at 4.35%, but SME 19s tightened 2bps. We reiterate that 9y GGs offer better value than 10y with the former being offered only 3-4bps tighter than the latter, such as JKSB and Dana 25s. We think there could be a revaluation soon for the 9y GG curve with a few bps upside. AAA names being dealt were Plus 25s and 27s at MTM levels. In the AA space, Benih Restu tighten 5bps to 4.65% as market is bidding up the name, while others traded at previous levels.

Singapore

      SGS closed 1-4bps lower in yields, in line with the SGD IRS. However, trading was mixed with sellers on rallies and buyers on dips as market remains uncertain on direction. 10y SGS closed at 2.65% with bond swap spread at -15.5bps. SGD funding soften slightly at the shorter end but the longer end remains rather tight.

      Asian credit space busy with new issuances in the morning. The new CCB Leasing priced at +190 then traded to a low of +183 before stabilizing around +185. Kexim’s CNH bond priced at par and traded to around 100.25. Chinese names mostly wider, with those in Tech (BABA, BIDU, TENCNT), AMC and O&G widening 3-5bps. Pipeline is filled with heavy issuances again: 1) BOCOM with USD AT1 Perp NC5 guiding at 5.00%-5.125%. The book garnered an overwhelming USD9b orders, similar to how the first BCHINA AT1 outperformed; 2) Softbank closed its book for the multi-tranche/multi-currency issuance, targeting to sell EUR2.25b and USD2b papers; 3) Fukoku Life Insurance with a USD Hybrid Perp NC10 guiding at 5.00-5.125%; and 4) Shanghai Electric Power is said to be doing a roadshow for USD bonds starting Thursday.

Indonesia

      Indonesia bond market closed with a negative tone on the first trading day post Eid Al Fitr holiday. There was minimum market sentiments during the day supported by depreciating Rupiah currency and thin trading volume as most of the domestic market players might have continued their holiday. 5-yr, 15-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 7.947%, 8.303%, 8.421% and 8.488% while 2y yield shifts down to 7.658%. Trading volume at secondary market was seen very thin at government segments amounting Rp4,365 bn with FR0070 (10y benchmark series) as the most tradable bond. FR0070 total trading volume amounting Rp811 tn with 18x transaction frequency and closed at 100.420 yielding 8.303.

      Corporate bond trading traded heavy amounting Rp888 bn. DART01CN1 (Shelf registration I Duta Anggada Realty Phase I Year 2013; Rating: idA-) was the top actively traded corporate bond with total trading volume amounted Rp200 bn yielding 11.654%.