Maybank GM Daily - 3 Jul 2015

FX

Global

       DXY retreated a tad to hover around the 96-figure as we write in early Asia after NFP missed expectations with a print of 223K. The May’s number was also revised lower to 254K from 280K. Unemployment rate fell to 5.3% from 5.5%, helped by the decline in labour force participation rate. Despite the tighter labour force, average hourly earnings were flat in Jun, missing expectations for a 0.2% growth. Along with the labour report, factory orders also disappointed with a decline of -1.0% m/m for May. 10-year yields pulled back under the 2.4%-figure. Equities closed in small red.

       Looking ahead, US breaks for Independence Day Holiday today.  The rest of the world might see some adjustments to Fed hike expectations. With the NFP out of the way, focus should return to the Greece saga with referendum this Sunday. Four allies of Tsipras’ coalition have turned against him by urging the people in Athens to accept more austerity in return for a bailout. ECB will discuss emergency Greek funding on Monday.

       Nearer to Asia, Shanghai Comp and Shenzhen remained on the slide, bucking the trend of most regional equity indices. However, sentiments are likely to revert to caution as everyone eyes the Greece saga for any signs of contagion. On the data docket, Australia’s retail sales will be out followed by Malaysia’s trade numbers, due at noon.

Currencies

        DXY – Consolidation Ahead of Greek Referendum Weekend. USD rally paused overnight following slightly disappointing jobs number – Jun NFP printed slightly softer (223K vs. Cons. 233K while May NFP was revised downwards (254K vs. 280K prev); average hourly earnings disappointed (0% m/m vs. Cons. 0.2%). DXY was last at 96.10 levels; high of 96.42 levels was traded overnight. Day ahead expect 95.50 – 96.50 range; market likely to lighten position ahead of Greek Referendum on Sunday. Looking out technically, next resistance at 96.50 (50% fibo retracement of Apr high to May low) before 97.40 (61.8% fibo). We reiterate DXY needs to make a close above that level for further upside to gather momentum. Support at 95.30 (50 DMA), 94.20 levels (trend-line support from May to Jun troughs) likely to hold. Bullish momentum remains intact on the daily chart. Medium term, 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. The latest FOMC statement remains consistent with our house view. US markets closed for Independence Day holiday on Fri.

§  EUR/USD – Greek Referendum Sunday. EUR firmed overnight on USD weakness following slightly softer US NFP/wage growth numbers. There was relatively little news out of Greece overnight – IMF said Greece needs EUR36bn over the next 3 years and easier terms on existing debt to keep finances sustainable; while media carried headlines that ECB will review Greece’s ELA cap on Mon.  PM Tsipras and Fin. Minister Varoufakis continue to campaign for a “No” vote. EUR was last at 1.1090; sitting on its trend-line support (Apr – May troughs). Pair could trade in muted range of 1.1050 – 1.1150 ahead of risk event. Day ahead brings EC May retail sales (Fri).

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       GBP/USD – Range. GBP eased to a low of 1.5565 before retracing most losses to close at 1.5609 on broad USD weakness. US construction PMI was better than expected.  Daily momentum/ stochastics continue to indicate a mild bearish bias. Next support at 1.5550 (50% fibo of May low to Jun high), before 1.5505 (50 DMA). Day ahead see 1.5650 – 1.5640 (21 DMA) range. We continue to be cautious for potential downside pressure in the near term on UK’s second budget statement (8 Jul) in a year. We reiterate that a Conservative-led government could be seen pursuing a tighter fiscal policy via spending cuts (in order to return to budget surplus by 2019) if it is to stick to its election manifesto pledges. No details have been shared publicly. Focus will be on how the Conservatives fulfil a pledge to cut GBP12bn in welfare spending. Week remaining brings Jun services/composite PMI (Fri).

       USD/JPY – Buy on Dips. USDJPY slipped on weaker than expected US NFP overnight. This morning continues to trade to the soft side; last sighted at 122.85.  Day ahead could see some downside pressure; 4-hourly momentum/stochastics are indicating a bearish bias; support seen around 122.10 levels. Tentative signs of bullish divergence emerging on the daily chart; favour buying on dips.

       AUD/USD – Range. AUD remained as choppy as ever with an initial slide to sub-0.76 levels almost entirely reversed by early Asia. This pair is now hovering around 0.7640. Daily momentum indicators show some risk to the downside. A daily or weekly close below the 0.76-figure is still required for greater extension towards the year low of 0.7533.  Trade deficit narrowed to A$2.75bn in May from previous A$4.1bn. Retail sales will be out next at 0930 (SGT). Consensus expects a 0.5%m/m growth in May from a flat growth in Apr.

      USD/CAD – Breaking Out Higher. USDCAD touched a high of 1.2633 before reversing lower to levels around 1.2540 even before the NFP number was out. CAD strength was also spurred by the improvement in RBA Canadian Manufacturing PMI to 51.3 for Jun from the previous 49.8. Intra-day chart shows that MACD has lost all bullish momentum though prices are still on the uptick. We see two-way trades today with support seen around 1.2510. Topsides will be resisted by the 1.26-figure. Oil prices are on the slide and that could cue in more bullish attempts for the USDCAD.

       NZD/USD – Wary of Upside Squeeze Intra-day. Another day, another big figure lower as NZD continue to push to a low of 0.6663 yesterday; before recovering most losses to close 0.6722 on USD weakness.  Intra-day could see an upside squeeze towards 0.6820 levels; 4-hourly momentum/oscillator indicators are indicating a mild upside bias. Medium term we continue to reiterate our bearish bias 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 still expect at least another 25bps cut and the next cut could come as soon as the next meeting in Jul. We see an increasing shift from the market in terms of quantum and frequency of rate cuts. We are still looking for a move towards our 0.65 objective. We will reconsider bearish bias only if upside squeeze breaches above 0.7230 (50% Fibonacci retracement). 

Asia ex Japan Currencies

      The SGD NEER trades 0.30% above the implied mid-point of 1.3518. We estimate the top end at 1.3248 and the floor at 1.3787

       USD/SGD – Range. USDSGD was softer overnight following broad USD weakness on US payrolls data. 4-hourly momentum is pointing to some downside pressure on the day; next support seen at 1.3450 levels (21 DMA), before 1.3390 (50 DMA). Day ahead expect muted range of 1.3450 – 1.3520 ahead of Greece event over weekend. On data release overnight - Singapore Jun PMI came in slightly above expectation (50.4 vs. Cons. 50.2) due to increases in new orders, production and inventory. This is the second consecutive month of expansion for SG PMI.

       AUD/SGD – Awaiting A Breakout. AUD/SGD touched a low of 1.0259 before making a slight recovery above the 1.0300 again. The close below 1.0300 on Thu suggests that bears are in control but we do not see sufficient clarity for a short target given the lack of momentum. Weekly chart hints of bullish divergence. Directional bias is thus unclear at this point. Still, the recent clearance of support at 1.03-figure opens the way towards Mar low of 1.0243.

       SGD/MYR – Consolidation. Cross continues to hover around 2.79 levels. Daily momentum/stochastics continues to exhibit mild bearish bias; we continue to watch for price action to see if downside move gathers further momentum.  Next support at 2.7650 (23.6% fibo retracement of 2015 trough to peak); while interim resistance at 2.80.

       USD/MYR – Range. USDMYR reversed post-Fitch losses and traded a high of 3.7843 yesterday. Pair traded a touch lower this morning on broad USD weakness following slightly softer US NFP data; last sighted at 3.7640. Day ahead, 3.75 – 3.78 range likely to hold. Looking out USDMYR is expected to take cues from USD and oil moves amid Greek event weighing on sentiment intra-day. Meantime we caution that other concerns - vulnerability to external development remains amid possible Fed tightening in Sep (USD strength) will continue to weigh on the Ringgit. On technicals, support at 3.7520 (21 DMA) remains key; only on a daily close below could see further downside. Next support at 3.7290 (23.6% fibo of Apr low to Jun high), before 3.6930 (38.2% fibo). Daily momentum and stochastics are exhibiting tentative signs of a bearish bias.

       USD/KRW – Buy on Dips. USDKRW gapped lower in the open (1122 levels vs. close of 1125), tracking broad USD weakness overnight. Day ahead could see the pair trade range between 1115 and 1125 with mild bias to the upside. 4-hourly momentum is indicating waning bullish momentum. Remain better buyers on dips. We continue to reiterate our medium term bearish view for KRW -  on  concerns over MERS weigh on 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.  This morning, government confirmed approval of supplementary budget worth KRW15tn in response to MERS outbreak – allocation will go to medical institution, tourism, small businesses to pay wages, job creation and on drought.

       USD/CNH – Unperturbed. USD/CNH is still unperturbed at 6.2030, not gaining much directional bias at all. The yuan continues to be shielded from the volatility elsewhere in the world. Pair is still within the 6.2000-6.2240 range and market players anticipate a slightly higher USD/CNY fixing after the overnight dollar recovery. USDCNH support is still seen at 6.2005 (200DMA). Risks are tilting to the upside as daily ichimoku cloud thins out ahead. Prices are likely to remain sticky around 50-DMA at 6.2050. We continue to hold the view that the central bank wants to ensure a steady yuan. USD/CNY was fixed 11 pips lower at 6.1160 (vs. previous 6.1171). CNYMYR was unchanged at 0.6072. The CSRC warned that it will “strictly” punish manipulation after stocks remain on the decline. Investigations are ongoing for recent short-selling activity for stock index futures (BBG).

         USD/INR – Back into The Cloud. USD/INR slid further to close at 63.5125 on Thu, slicing into the ichimoku cloud. MACD shows falling momentum on the chart. 1-month NDF also slumped in tandem yesterday and threatened the lower bound of the daily ichimoku ckoud around 63.5550. Last seen around 63.70, pressure is to the downside. We expect same sideway trades for spot prices as well with some downside bias. 63.3075 marks the next support while 63.7700 resist bids. RBI Governor Rajan said that regulators will review the foreign investment limit in government debt twice a year and added that there is a commitment to steady expansion in the absolute value of FII participation (BBG). Finance Minister Arun Jaitley also said that India’s cabinet have approved to spend INR500bn to provide irrigation to each farm land.

       USD/IDR – Still Range-Bound.  USD/IDR swivelled in tight ranges on Thu and closed at 13337. Pair opened a tad lower at 13330 this morning and intra-day action is likely to remain in familiar ranges within 13280-13390 with little cues from overnight action. MACD is showing downside bias and prices could tilt lower though offers will be supported by domestic concerns including lacklustre growth and persistent current account deficit. 1-month NDF is on the slide, last seen around 133370 though we think a breakout of the 13300-13450 is unlikely. The JISDOR was fixed marginally higher at 13337 on Thu from 13331 previously. Expect a lower fixing in the JISDOR today. Foreign funds bought a net USD14.80mn in equities yesterday. In news, Finance Ministry Director General Askolani said budget deficit is seen at 1.58% of GDP in 2H. He also expects 2H inflation at 4.2%y/y, growth at 5.5% for the same period. FinMin Brodjonegoro said the country spent 35% of 2015 budget as of 25 June though he still expects a spending of 92% of the budget by year end. Foreign reserves for Jun is due today.

       USD/PHP – Range. USD/PHP remained stuck in sideway trades, slightly tilted to the downside in tandem with the dollar retreat overnight. Pair is still seen around 45.075 with intraday MACD showing little bias. Still, upward pressure remains in the near term as there is still no clarity on the Greek situation. An intraday ichimoku cloud continues to form below price action and could limit downside ahead with support nearby at 45.050 (upper bound of the cloud) before the next at 44.890. Further upmoves is likely to be capped by 45.270. 1-month NDF remains well-within its current trading range of 45.000-45.300 with little bias on the momentum indicators. Sentiments remained on the cautious side with foreigners selling USD5.6mn of equities on Thu. In news, Department of Finance said the country has little exposure to Greece with only trade at 0.01% of total exports and 0.02% of imports in 2014. Remittances from Greece is 1.38% of total.

       USD/THB – Tight Ranges.  USD/THB swivelled around 33.80, seen within the 33.75-33.90. Pair is little affected by the dollar moves overnight and there is little sign of a breakout from the recent ranges of 33.70-33.90. Thailand’s consumer confidence fell to 74.4 in Jun from 75.6 previously.  Index of economic sentiment declined to 63.8 from 65.0 after a downgrade in GDP forecast by BOT.

Rates

Malaysia

       Local government bonds traded mixed with yields up 1-4bps as buying did not follow through post Fitch’s action. Instead, USDMYR rose higher and paying interest was seen in the IRS. All eyes were on last night’s NFP.

       IRS market saw some paying up in the afternoon which was sporadic and did not correspond with any action in bonds. 5y and 10y IRS traded at 3.96% and 4.35% respectively. 3M KLIBOR unchanged at 3.69%.

       Local PDS market was muted, tracking the quiet govvy space. Most trades done were due to portfolio rebalancing. Only notable trade was Telekom 24s which traded again at 4.43% with MYR30m done. YTL Power 21s traded 2bps tighter at 4.48%.

Singapore

      In the SGS market, short dated bonds continue to see strong buying interest. The front end of the curve lower by about 2bps while elsewhere closed 1-5bps higher. Overnight rate fell to around 0.25% which lent support to the short end and belly papers. The long end, however, was still shunned by players likely because ahead of US NFP report and uncertainty over the Greece referendum.

       Positive tone in the Asian credit market as buyers outnumbered sellers in early morning. Chinese AMCs and financials did better by 3-5bps and Indian financials also well bidded with most trading 1-2bps tighter. Property space, however, was generally quiet. Market turned very quiet after midday on the uncertain Greek referendum and ahead of US NFP.

Indonesia

      Indonesia bond market moved sideways during the day and closed slightly lower ahead of U.S. NFP and unemployment rate. Bank Indonesia senior’s in an interview stated that they may continue halting BI rate at 7.50%. There was minimum market sentiment yesterday which could drag bond prices higher. However, Indonesia official seems to be very optimist to achieve 2015 government revenues and expenditures as they believe that 91% of tax receipt target and 92% of targeted spending would be reached by year end. 5-yr, 15-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 7.934%, 8.253%, 8.304% and 8.446% while 2y yield shifts down to 7.665%. Trading volume at secondary market was seen thin at government segments amounting Rp8,165 bn with FR0070 (10y benchmark series) as the most tradable bond. FR0070 total trading volume amounting Rp2,142 tn with 73x transaction frequency and closed at 100.730 yielding 8.253%.

       Corporate bond trading traded moderate amounting Rp512 bn. ASDF02BCN5 (Shelf registration II Astra Sedaya Finance Phase V year 2015; B serial bond; Rating: AAA(idn)) was the top actively traded corporate bond with total trading volume amounted Rp85 bn yielding 9.211%.