Maybank GM Daily - 6 Jul 2015

FX

Global

      The weekend was packed with action with the Chinese authorities unleashing a flurry of policies to support domestic equity markets with 28 IPO issuances frozen, 21 major securities brokers to spend CNY120bn (15% of their total net assets) on blue chip ETFs and several fund companies (25 on Sat, 69 on Sun) pledging to buy shares. This was after Chinese stocks continued their decline even after margin lending rules were relaxed last Wed. Impact of these measures was felt this morning as Shanghai Comp opened 5.7% higher.

      On the other end of the world, Greeks shocked the rest of Europe with a resounding 61% rejection to more austerity measures demanded by creditors from EU and IMF. EUR gapped down again this morning but is back on the uptick again. EU Finance Ministers are summoned to a Summit on Tue to discuss Greece. Despite efforts to downplay the possibility of a Grexit, that meeting is now closely watched for any hint of a “Grexit”.

      Risk off favours the dollar, true to its nature as safe haven. The picture is less clear in Asia with INR, up 0.8% against the USD in the past week, followed by TWD and IDR at +0.3%. SGD and MYR were the laggard of the lot. Apart from risk sentiments, MYR is hammered by allegations of PM Najib pocketing funds supposedly USD700mn from 1MDB.

      For the week ahead FX market is expected to take cues from further Greek development. China’s CPI/PPI inflation data will also be eyed on Thu. Central bank meetings – RBA (Tue), BoE, BoK and BNM (Thu) will also be of keen interest. We expect all 4 to keep policy rates on hold at 2%, 0.50%, 1.5% and 3.25%, respectively,  We continue to favor buying the USD on dips against AXJs especially those facing both domestic and external challenges, in particular the KRW, MYR, THB and IDR. We see potential EUR relief rally on post-Greek referendum, but expect upside to be capped at 1.1450/70 levels.

Currencies

      DXY – Range. DXY enjoyed a jump higher on the fall in EUR, following Greek referendum results. But move higher in the DXY has started to ease; last at 96.40. Looking on daily momentum and stochastic are indicating a mild bullish bias. Next resistance at 96.50 (50% fibo retracement of Apr high to May low) before 97.40 (61.8% fibo). Support at 95.30 (50 DMA), 94.20 levels (trend-line support from May to Jun troughs) likely to hold. We remain better buyers on dips.   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. Week ahead brings May composite/service PMI; Jun ISM non-manf (Mon); May trade (Tue); initial jobless claims; FOMC meeting minutes; Fed’s Williams, Kocherlakota, Brainard, George to speak (Thu); Fed’s Yellen and Rosengren to speak; May wholesale inventories (Fri).

§  EUR/USD – 61.3% Voted No. EUR made an early drop this morning towards 1.0970 low on results of Greece “NO” vote to referendum on creditor proposal. Looking on, German Chancellor Merkel and French President Hollande will meet tonight before a Eurogroup emergency meeting on 7 Jul; ECB also meets later today to decide on ELA funding (it is unlikely to the cap will be raised since referendum results was not what Euro-lenders were looking for). This move felt like last Mon when Greece made an announcement for a Referendum while ECB capped ELA funding to Greece- that saw an initial drop to 1.0955 before rebounding back to 1.1227 for the day. EUR was last sighted back above the 1.10-handle. Next support still seen around 1.0950/70 levels (76.4% fibo of 1.0819 – 1.1436), before 1.0820 levels (May low). Upside could stay cap under 1.1130 levels. Week ahead brings Jun EC, GE, FR retail PMI; May GE factory orders (Mon); May GE IP; May FR trade (Tue); ECB’s Coeure speaks; May GE trade, current account balance (Thu); May FR IP, manufacturing production (Fri).

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      GBP/USD – Downside Bias. GBP briefly traded a low of 1.5516 this morning, before rebounding towards 1.5560 at time of writing. We continue to caution for potential downside risks 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. Still looking for further downside; daily momentum/stochastics continue to indicate a bearish bias. Next support seen at 1.5550 (50% fibo of May trough to Jun peak), before 1.5450/60 (61.8% fibo and 200 DMA). Upside likely to be capped at 1.5750 levels. Week ahead brings May IP, manufacturing production; GDP estimate (Tue); Budget statement (Wed); BoE Meeting – no change in policy rate and asset purchase plan; RICS house price balance (Thu); May construction output, trade balance (Fri). 

      USD/JPY – Near Term Bearish Bias. USDJPY slipped to a low of 121.70 on Greek referendum results. Pair has rebounded since the dip; last at 122.50. Near term momentum is bearish bias but stochastics is indicating tentative signs of rebound. Looking on we remain better buyers on dips; bullish divergence appears to be forming on the chart; pair could extend rally if managed a close above the 21 DMA at 123.50. Only an abrupt move and close below 120 would cast doubt over USDJPY’s medium term bullish setup.  Our long-standing view is for BoJ to ease in Oct 2015. Remain better buyers on dips.  Week ahead brings May leading, coincident index; BoJ Kuroda speaks (Mon); May current account; Jun bank lending (Wed); Jun machine orders, money stock (Thu); Jun PPI, consumer confidence (Fri).

      AUD/USD – BreakOut. AUD plummeted below the year’s low and gapped down this morning, last printed at 0.7480, as risk appetite remains poor. China’s government is pulling all stops to stabilize the stock markets at home. Real estate is also receiving support as officials buy up empty homes at home to convert them into public housing. Faltering recovery in China dragged on the AUD, triggering the bearish breakout. We do not rule out more choppy trades though actions have shifted lower. Next support is seen at 0.7410 this week. Daily and weekly momentum tools continue to flag downside risks. Last Fri, retail sales came in at 0.3%m/m, missing consensus at 0.5%. RBA meets tomorrow and majority do not expect the central bank to move. The jobs report will tell if recent improvement in the labour market gains traction in Jun.

      USD/CAD – Bullish. USDCAD is still on its way towards recent high of  1.2633 this morning. Daily MACD shows accelerating bullish momentum, backed by USD strength. Nest resistance is seen around 1.2667 ahead ot he 1.27-figure. Oil prices are on the slide and that could spur further upside in the USDCAD pairing. Unexpected U-turns could find support around 1.2540. This week has Jun housing starts, due on Thu followed by jobless report on Fri.

      NZD/USD – Sell on Rallies. NZD slipped to an intra-day low of 0.6646 this morning, tracking other high-beta currencies lower following Greek referendum results. Intra-day could see some rebound, possibly towards 0.6720 levels. We remain better sellers on rally; 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.

Asia ex Japan Currencies

      The SGD NEER trades 0.40% above the implied mid-point of 1.3560. We estimate the top end at 1.3290 and the floor at 1.3830.

      USD/SGD – Range. USDSGD pushed higher this morning tracking US strength. High of 1.3526; last at 1.3512. 4-hourly momentum/stochastics are pointing to some upside pressure. 1.3550 remains a key resistance level; break above could see further upside towards 1.3630 (Jun high). For the day, expect 1.3450 – 1.3550 range. 2Q (Advanced estimates) GDP to be announced between 7 and 14 Jul.

      AUD/SGD – Breakout. AUD/SGD touched below parity before jerking higher to levels around 1.0150. Risk off clearly favours the bears but bulls are clearly not giving up the fight. Looking at the weekly and daily momentum, parity might be revisited. Expect choppy trades within 0.9950-1.0240 this week. RBA is likely to be a non-event but expect the central bank to waste no opportunity to warn that a lower currency is both likely and necessary for economic rebalancing.

      SGD/MYR – Another High. Cross pushed higher this morning following Ringgit weakness on domestic concerns. Cross was last at 2.8180; high printed early this morning at 2.8223. Waning bearish momentum/stochastics on the daily charts; could suggest cross remains supported and may want to try higher since the push lower last week did not gather momentum. Beyond 2.82 resistance could subject the pair for further upside pressure. Failing which, we see the cross easing back toward 2.78-2.80 range.

      USD/MYR – Broken 3.80. USDMYR traded higher this morning as domestic concerns continue to weigh on the currency. High of 3.8142 was traded; last sighted a touch lower at 3.8060. We continue to caution that other concerns (domestic and external vulnerability) including vulnerability to external economic shocks remains amid possible Fed tightening in Sep (USD strength).  Daily momentum and stochastics are mild bullish bias. Further upside move could put 3.82 in focus for the day.

      USD/KRW – Buy on Dips. USDKRW gapped higher in the open (1128 levels vs. close of 1122), tracking broad USD strength following Greek referendum results.  Day ahead could see the pair trade between 1120 and 1130 with mild bias to the upside. 4-hourly momentum is indicating mild 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. 

      USD/CNH – Unperturbed. USD/CNH edged higher to levels around 6.2070, underpinned by the dollar but still gaining little directional bias still. Pair is now out of the thick cloud and expect USD/CNY to be fixed only a tad higher. 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 6.2019 (200DMA). Prices are likely to remain sticky around 50-DMA at 6.2060. We continue to hold the view that the central bank wants to ensure a steady yuan. USD/CNY was fixed 12 pips higher at 6.1172 (vs. previous 6.1160). CNYMYR was fixed 103 pips higher at 0.6175 (vs. prev. 0.6072). Over the weekend,  Chinese authorities unleashing a flurry of policies to support domestic equity markets with IPO issuance frozen, 21 major securities brokers to spend CNY120bn (15% of their total net assets) on blue chip ETFs and several fund companies (25 on Sat, 69 on Sun) pledging to buy shares. This was after Chinese stocks continued their decline even after margin lending rules were relaxed last Wed. Shanghai Comp opened 5.7% higher. Elsewhere, PBOC extended a 6-month medium term lending facility (MLF) worth CNY250bn at an interest rate of 3.35% to 11 banks on Fri, keeping the capital in the money market whilst a total of CNY384.5bn worth of MLF were due that day. Data-wise, China’s Jun CPI and PPI are due this Thu.

        USD/INR – Back into The Cloud. USD/INR gapped down on Fri and waffled around 63.40 for the rest of the day before closing around that level. MACD continues to show bearish momentum on the chart. 1-month NDF rose this morning, perhaps giving a bullish cue for spot prices. Last seen around 63.90, action is still within the cloud and we reckon both prices ( NDF and spot) may remain stuck in choppy trades in current ranges. Expect spot prices to be confined within 63.19-63.80. At home, the India Meteorological Department said that the monsoon rain level is now 4% above normal since 1 Jun, narrowing the gap from 13% as of 1 Jul. May industrial production is due on Fri.

      USD/IDR – Still Range-Bound.  USD/IDR gapped up this morning, in tandem with most of Asia. Pair was last seen around 13346, still within the 13290-13390 range that it has been trading. Directional bias is still unclear with RSI pointing higher while MACD drifts lower. On the other hand, 1-month NDF is on the uptick, last seen around 133480. The JISDOR was fixed lower at 13316 on Fri vs 13337 previously. Expect a higher fixing in the JISDOR today. Foreign funds bought a net USD12.30mn in equities on Fri. In news, Finance Ministry announced plans to withdraw USd2bn standby loan this year should budget deficit widens. Earlier on Fri, BI Governor Martowardojo told the press that the central bank will maintain current monetary policy to anticipate risks from Europe (BBG), sees inflation above 7% in 2Q and 3Q given El Nino effects and global crude prices.

      USD/PHP – Range. USD/PHP is still stuck in familiar ranges, with a firmer start to the week followed by downticks. Last seen around 45.110, this pair bucks the trend in USD/AXJs. MACD shows little bias on the daily chart though the weekly chart tilts to the upside. Pair is expected to remain supported given little clarity on the Greek situation. Support is seen at 44.916 while topsides could be resisted at 45.40.  1-month NDF has shifted a tad higher, last seen around 45.27. Sentiments were positive last Fri with foreigners buying USD6.5mn of equities on Fri. In news, Philippine Treasurer Roberto Tan said that impact of additional spending stimulus could be seen as early as 2Q. More fiscal expenditure is expected on social services and infrastructure in second half of the year. Meanwhile, BSP Governor Tetango said inflation is within target and sees no need for additional monetary stimulus. Jun CPI is out tomorrow (con.: 1.5%y/y), followed by May exports on Fri.

      USD/THB – Bullish momentum waning.  USD/THB touched a high of 33.969 before easing back to levels around 33.830. Pair is supported by by EUR weakness this morning. There appears to be little signs of acceleration in bullish momentum. Daily MACD forest seems to be retreating towards the zero line and further upmove towards the 34-figure could be a grind.  This week is a data light week with only foreign reserves due.

Rates

Malaysia

      Local government bonds traded softer amidst very thin liquidity despite lower than expected US NFP overnight and stronger UST failed to garner any follow through buying on as most player were seen to prefer to offload any bonds on any rally. Selling pressure on MGS during the late morning hours were seen on the back of a WSJ article which caused market jitters reveals fragile positioning in the MGS market.

      IRS traded slightly higher amidst position squaring and following gthe higher offshore levels. 1y IRS traded at 3.66%, 5y IRS traded at 3.97%. 3M KLIBOR was unchanged at 3.69%.

      The PDS market was quiet on weaker MGS market. We saw buying interest for BGSM papers which tightened 2-3 bps at the belly of the curve. On the GG curve, we saw some trades for Danainfra and PTPTN at the longer end at MTM levels. Interestingly, PTPTN 21s traded 2 bps tighter than Danainfra 21s with the latter perceived as having better credit. Telekom 24s also saw some buying but prices were unchanged. Plus 24s widened 1 bps.

Singapore

      SGS market was volatile, started with a series of profit taking followed by buyers in some other issues but SGS eventually had the belly underperforming, closing around 1bp higher in yields while the front end and longer end closing about 2bps lower. Greece remains a major risk this week as Greeks declined the austerity in a referendum. The 30y SGS was almost 10bps lower WoW, and interesting the 20y bond closed higher in yield than the 30y.

      Asian credit market traded mostly unchanged with US away on holiday last Friday. Most players were reluctant to do anything as those that are trading cash bonds outright are charged a premium for the absence of treasuries. Country Garden was upgraded by Moody's from Ba2 to Ba1 with a stable outlook. The papers rallied almost 0.50 to 0.75pts higher across the curve. On the Malays, Malays 25 and PETMK spreads continue to trade tighter provoked by short covering by market players. Not helping is the news building around 1MDB. Malay CDS traded 3-4bps wider. Fonterra issued CNH800mill 10years paper at 4.50%.

Indonesia

      Indonesia bond prices incline during the final day of the week on the note of mixed data of U.S. employment performance. Indonesia bond market was basically quite. DMO set 3Q 15 issuance target through auction mechanism worth of Rp63 tn while on a separated report, throughout the month of June, foreigner added Rp19.21 tn worth of Indonesia bond to their portfolio. 5-yr, 15-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 7.844%, 8.195%, 8.240% and 8.376% while 2y yield shifts down to 7.639%. Trading volume at secondary market was seen thin at government segments amounting Rp6,694 bn with FR0070 (10y benchmark series) as the most tradable bond. FR0070 total trading volume amounting Rp1,252 tn with 34x transaction frequency and closed at 101.083 yielding 8.195%.

      Corporate bond trading traded thin amounting Rp298 bn. BACA01SB (Subordinated Bank Capital I Year 2014; Rating: idBBB-) was the top actively traded corporate bond with total trading volume amounted Rp60 bn yielding 11.999%.