Maybank GM Daily - 9 Jul 2015

FX

Global

      China’s equity rout weighed on US equities as benchmark indices opened in the red. The Fed Minutes was perceived to be dovish. Some officials cautioned against premature rate hike decisions while others think conditions for the rate hike have been met or are almost ready. Meanwhile, Fed William’s comments suggest he is more focused on data rather than market volatility. Elsewhere European bourses were in mild red as well. Greek banks will remain closed until Mon. Withdrawal limit is capped at EUR60/day. PM Tsipras will have to deliver specific proposals on Thu though ECB official said any plans from them will have credibility issues.

       The dollar softened from Tue highs and the DXY index last printed around 96.26, still around the 100-DMA. Sentiments were still cautious but NZD found demand from overstretched positions.  JPY and NZD were the main gainers overnight up 1.5% and 1.2% respectively. AXJ currencies were less moved with SGD the only gainer, up +0.3% against the USD by the close of Wed. On the other end, KRW weakened -0.6% against the greenback.

       More measures from CSRC to stabilize the Shanghai Comp with the latest prohibiting big shareholders (>5%) from cutting stakes for the next six months. Some focus on China’s inflation today apart from its stock markets. Other Asian bourses have seen some spillover  effects on Wed with HSI closing -5.8% lower, Taiex down 3%. The rest of Asian markets were in more moderate red. Australia’s labour report is due this morning and any downside surprise could add the drag on the soggy AUD.  In the meantime, BOK held 7-day repo rate unchanged at 1.50%, as expected by everyone surveyed including ourselves. BNM’s decision on overnight policy rate will wrap up Asian session. This central bank is not expected to move as well. Beyond Asia, we watch BOE as they convene later today. US initial jobless claims are also due.

Currencies

       DXY – Focus on Fed Speeches. USD eased overnight on FOMC minutes. Overall the FOMC minutes was dovish. On the timing of rate hike, most participants believed that the pre-requisites for monetary policy normalisation have yet to be achieved while a number of them cautioned against a premature decision. While growth outlook was downgraded as per Jun FOMC projection, FOMC members highlighted their concerns on Greece and China. Taken together these pose a slight risk to our house view for Fed to begin tightening rate in the Sep meeting. 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. DXY was last at 96.20. Daily momentum continues to indicate a mild bullish bias while stochastics is showing tentative signs of turning lower from overbought areas. Next support at 95.80 (50% fibo retracement of Apr high to May low), Intra-day could see 95.75 – 96.50 range. We remain better buyers on dips.  Week ahead brings initial jobless claims; Fed’s Kocherlakota, Brainard, George to speak (Thu); Fed’s Yellen and Rosengren to speak; May wholesale inventories (Fri).

       EUR/USD – Slight Bias to Upside. EUR erased initial losses (from sub-1.0950) to close at 1.1077 overnight on hopes of a deal between Greece and the Institution. The D-Day (deadline) has been set for Greece – submission of proposal by Thu and deal has to be met by Sun 12mn. EU28 will be present at the EU summit on Sun. Following Greece’s request for a 3^rd bailout, Greece is expected to submit the reform details later today. EUR was last at 1.1070. Momentum is slight bias to the upside. Next resistance at 1.1180 (21 and 50 DMAs). Intra-day expect 1.1030 (100 DMA) – 1.1160 range. Week ahead brings ECB Coeure’s speech; May GE trade, current account balance (Thu); May FR IP, manufacturing production (Fri).

       GBP/USD – Focus on BoE. GBP fell to a near-1month low of 1.5330 overnight on UK budget speech which we had earlier cautioned (see previous GM Daily). Briefly, 2015 growth forecast was revised slightly lower to 2.4% (from 2.5% previously); faster pace of fiscal tightening this year, followed by slower pace for 2016-2019; and a later return to fiscal surplus in 2019/20, from 2018/19 (initially expected). Focus today on BoE meeting (watch for the tone of the accompanying statement). Next support at 1.5270 (100 DMA); daily momentum continues to indicate a bearish bias while stochastics is showing tentative signs of turning from oversold areas. Expect 1.5280 – 1.54 range intra-day. Week remaining brings BoE Meeting – no change in policy rate and asset purchase plan; RICS house price balance (Thu); May construction output, trade balance (Fri). 

       USD/JPY – Capped. USDJPY appears to be taking a breather this morning after plunging towards the 120-handle overnight. Pair hit a low of 120.41 not seen since 19 May on the back of safe-haven flows over Greek concerns and China stock market rout in particular. Also not helping was the less-than-hawkish US FOMC meeting minutes. Core machinery orders – a leading indicator of capital spending – was up 0.6% m/m in May, still pointing to a modest recovery of the economy but the impact on the pair was limited. Markets remained focused on external events, capping upside. Intraday momentum and oscillators are both still bearish bias. With several of our support levels taken out overnight, new support is seen at the 120-figure. A close below 120 would cast doubt over USDJPY’s medium term bullish setup. Near term resistance seen at 121.50 (full Fibo retracement of the May-Jun upswing). Our long-standing view remains for BoJ to ease in Oct 2015.

       AUD/USD – Falling Knife In Line with Iron Ore. AUD slipped through the 0.74-figure at one point overnight and is still pressured towards this figure in Asian morning. Momentum indicators flag bearish conditions for this pair. Expect weak risk sentiments in China and the recent decline in prices of iron ore to keep the AUD on the backfoot. Iron Ore prices have reached new lows for the year. The clearance of the 0.74-figure should see the bears target the next at 0.7261. Beyond the near-term, bids are likely to be short-lived. Employment numbers for Jun are due with consensus expecting no addition in the month. Jobless rate could tick higher to 6.1% from previous 6.0%.

       USD/CAD – Bullish. USDCAD is still supported by the 1.27-figure and pressured towards the next resistance at 1.2784. Last seen around 1.2735, intra-day tools still point to the north and retracement this morning is only a breather for the bulls. Oil prices were on the decline for the fifth consecutive session with WTI down 1.3% for Wed. Next resistance at 1.2784 has to be broken to make way for year high at 1.2835. Jun housing starts are due today. Consensus expects a slightly lower number at 190K for Jun compared to the previous at 201.7K. Thereafter, jobless report is scheduled for release on Fri.

       NZD/USD – Still Sell on Rallies. NZD enjoyed a rebound back above the 0.67-handle on broad USD weakness overnight. NZD was last at 0.6704; we remain better sellers on rally; looking for a move towards our 0.65 objective. Continue to reiterate our bearish bias on the NZD on a combination of drivers including mounting expectation of RBNZ cutting OCRs on multiple occasions on weak dairy prices, falling PPI amid weakening demand. NZ PM Key said while he is confident growth will remain robust, he agrees that NZD ‘could well’ fall lower than 0.65 (Mon). 

Asia ex Japan Currencies

       The SGD NEER trades 0.16% above the implied mid-point of 1.3565 with the top end estimated at 1.3295 and the floor at 1.3835.

       USD/SGD – Upward Tilt. USDSGD slipped an overnight low of 1.3491 before rebounding back above the 1.35-handle towards 1.3525. Quasi-safe haven flows as well as profit-taking is helping to cap upside for now. Both momentum and oscillators are bias to the downside this morning. Pressure though remains on the upside given Fed fund rate lift off still expected in Sep, Chinese stock market rout and Grexit concerns. In the interim, 1.3550 should cap upside, while 1.3480 should limit dips. A firm break/daily close above 1.3550 is needed for further upside towards 1.3630 (Jun high).

       AUD/SGD – At Parity. AUD/SGD presses on parity this morning, last printing 1.0012. Poor risk appetite could continue to hammer the cross lower, not helped the least by the fall in Shanghai Composite. Australia’s jobless report will be eyed for an eventual break of parity. Next support is seen around 0.9960. Any U-turns will be resisted by 1.0160 ahead of the next at 1.0300.

       SGD/MYR – Easing. Cross remains at multi-year highs of 2.8130 levels despite a weaker SGD as Ringgit weakness continues to overwhelm as domestic concerns weigh. Beyond 2.82 resistance could see the pair going higher, possibly towards 2.8350 levels. Daily momentum and stochastics are exhibiting tentative signs of mild bearish bias; cross could possibly ease back towards the 2.78-2.80 range.

       USD/MYR – Rally Stalled. USDMYR rally appears to have stalled, albeit at multi-year highs of 3.8030 levels (at time of writing) as domestic concerns continue to weigh on the currency. We caution that domestic concerns could remain for a while and this is expected to weigh on the Ringgit. 4-hourly stochastics is turning lower from overbought areas while bullish momentum appears to be waning in the near term. Taken together, intra-day could see some mild downside pressure; expect 3.7900 – 3.8150 range.

      1s KRW NDF – Buy on Dips. BoK kept policy rate unchanged at 1.5% as expected. 1s KRW continued to push higher overnight; 1140 high was traded on risk-off sentiment following the decline in most equities in Asia and US. 1140 is also the last high in Mar for 2015; daily momentum remains bullish while stochastic is entering overbought territories. Break above this interim double-top could spell further upside. We 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 – Turning Higher. USD/CNH ticked lower this morning, in line with the dollar, last seen around 6.2195. Daily MACD still indicates bullish momentum. Persistent declines in the stock markets have weakened the CNH considerably with a discount of more than 100 pips to its onshore peers. A clear breakout of the 6.2000-6.2240 range is still needed with 100-DMA at 6.2199 under pressure this morning. We continue to hold the view that the central bank wants to ensure a steady yuan. USDCNH support is still seen at 6.2019 (200DMA). On Wed, USD/CNY was fixed 9 pips higher at 6.1175 (vs. previous 6.1166). CNYMYR was fixed 52 pips lower at 0.6140 (vs. prev. 0.6146). There were multiple measures to halt the decline in A shares yesterday with China ordering state owned companies not to cut stock holdings of their listed companies. China froze trading in 1,300 companies amid the market crash on Wed. That is 43% of entire stock market. The latest rule reeks of desperation as CSRC bans big shareholders from selling their stakes in the next six months. In other news, PBOC stated that the central bank will support China Securities Finance Corp. with liquidity to ensure no systemic and regional financial risks. China also raised margin requirement for CSI 500 index. CPI is due today with consensus expecting a tick higher to 1.3%y/y for Jun from previous 1.2%. PPI to fall another 4.6%y/y unchanged from the previous month.

         USD/INR – Suspended In the Cloud. USDINR gapped up on Wed and hovered around 63.55 before closing a tad higher at 63.5963. Daily MACD shows waning downside momentum for spot prices and we think that spot prices are in a neutral position, suspended in the thick of the daily ichimoku cloud. Intra-day trades to remain within 63.19-63.80 at this point. 1-month NDF is off the bottom of the daily ichimoku cloud, last seen around 63.80. We await the clearance of 63.555-support for further bearish extensions and that would also lead spot prices lower. That could come later rather than sooner.

       USD/IDR – Bullish Bias.  USD/IDR is creeping lower this morning to around 13354 underpinned by a softer dollar tone. Still, pressure remains to the upside given persisting global risk aversion over Chinese stock market rout and Grexit concerns as well as domestic concerns. Both intraday MACD and stochastics are bullish bias. Downside should be limited by 13325 (50DMA), while upmoves should meet resistance around 13370 ahead of the next at 13400. 1-month NDF is bouncing higher towards 13500 with market signals pointing to further bullish tilt. The JISDOR was fixed higher at 13346 on Wed from 13313 previously. Foreign funds bought a net USD4.49mn in equities yesterday but removed a net IDR0.81tn from their outstanding holding of debt on 6 Jul (latest data available).

       USD/PHP – Limited Downside. USD/PHP inching lower this morning towards 45.200, playing catch-up with its regional peers. Pair continues to bounce well-within its current trading range of 44.885-45.410. Downmoves are likely to be limited though given global risk aversion. Four-hourly MACD is showing tentative signs of bullish bias. Further dips are likely to find support around 45.000, while any rebounds are likely to be capped around 45.270.  We favour buying the pair on disp. 1-month NDF continues to bounce higher, sighted around 45.360, with intraday MACD showing no strong momentum and stochastics mildly bearish bias. Sentiments deteriorated again with foreigners selling a net USD19.62mn of equities yesterday.

       USD/THB – Still Tilting Higher.  USD/THB hit a multi-year high of 34.058 yesterday (not seen since Sep 2009) as global risk appetite waned on the Chinese stock market rout. Also not helping was on-going concerns over Grexit. With Indonesia and Malaysia bearing the brunt of the earlier market tantrums, focus is now on Thai assets. Yesterday, foreign funds bought a net THB0.56bn in government debt but this was completely offset by the net THB2.32bn sell-off in equities, which weighed heavily on the THB. Pair continues to test the 34-handle this morning after slipping to an overnight low of 33.886. We reckon that some consolidation could take place today with the pair likely to trade rangy within 33.850-34.100 as the pair has lost most of its bullish momentum, with stochastics tilted to the downside. We continue to expect further upmove above the 34-figure with resistance around 34.150.  A clean break of the 34-handle is needed for further bullish extension to the next hurdle at 34.150.

Rates

Malaysia

      Local government bond market opened on a bearish note with players still cutting positions in view of uncertainties in the market. The belly of the curve rose 2-3bps in the morning before seeing some support buying in the afternoon. MGS curve ended 1-6bps higher. With offshore NDF points still at high levels, we saw continued ASW unwinding yesterday.

       The IRS market saw lots of prices, widening of basis and inaction by most parties. Only the 5y IRS was dealt at 4.00%. 3M KLIBOR remain unchanged at 3.69%.

       PDS market was largely quiet against the bearish govvy market backdrop. Trades were mainly portfolio reallocation activity but we did see better buying in short duration AAA and AA names. Prasa 3/24s traded 1bp wider at 4.34%, while TBEI 32 tightened 1bp to 5.51%. We also saw better buyers on Maybank’s 9y sub-debt which tightened 2bps to 4.49% with MYR50m traded.

Singapore

      The SGS market saw a biddish tone ahead of the FOMC meeting minutes last night. However, only some offers were met when bids got to about 11bps lower. SGS yields closed 4-10bps down.

       Despite the rally in UST, Asian credit space was defensive amid the Greece debt crisis (new deadline on Sunday) and further weakness in the Chinese stock market. 10y UST fell below 2.20% and Bunds were volatile on talk of Grexit. Over 1,400 Chinese companies suspended trading yesterday which led to a widening in Chinese IG spread. Sovereign spreads also widened with INDONs and PHILIPs trading 5-8bps wider. Minutes for the last FOMC meeting was released last night.

Indonesia

      Indonesia bond market closed significantly lower due to a meltdown of the China market. The decline occurred a day after bond auction which received a better incoming bids. During the day, DMO also issued SDHI 2025 A worth of Rp2 tn through private placement of Hajj funds. This series pays a fixed coupon rate of 8.30% p.a. and is a 10y tenor syariah bond. This series won’t be available for trade in the secondary market as it’s a non-tradable bond. 5-yr, 15-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 8.038%, 8.454%, 8.604% and 8.701% while 2y yield shifts up to 7.633%. Trading volume at secondary market was seen heavy at government segments amounting Rp19,162 bn with FR0056 (11y) as the most tradable bond. FR0056 total trading volume amounting Rp5,772 tn with 73x transaction frequency and closed at 100.510 yielding 8.301%.

       Corporate bond trading traded heavy amounting Rp925 bn. MDLN02B (Modernland Realty II Year 2012; B serial bond; Rating: idA) was the top actively traded corporate bond with total trading volume amounted Rp200 bn.