Equities sank overnight as financial markets continue to digest the aftermath of Brexit. Chancellor George Osbourne commented that UK will face the future from “a position of strength”.

FX

Global

      Equities sank overnight as financial markets continue to digest the aftermath of Brexit. Chancellor George Osbourne commented that UK will face the future from “a position of strength”. The rating agencies clearly begged to differ as S&P decisively downgraded UK’s sovereign rating from AAA- to AA-, expecting a deterioration of UK’s economic performance including its large financial services sector. Fitch followed suit and UK’s rating was cut to AA from AA+, also lowering the growth projection for the UK.

      Overnight events should keep GBP and EUR under pressure and risk appetite, weak this week. Mild retreats in Brent weigh on the MYR. There are really few data releases out of the region today – Vietnam’s Jun trade, YTD 2Q GDP and perhaps retail sales, industrial production due anytime by Thu. Regional investors are left with the lingering impact of Brexit event to chew on.

      Beyond Asia, US 1Q GDP is due along with Core PCE. EU summit starts in Brussel – the first after Brexit. Interestingly, Fed Yellen and Mark Carney cancelled their participation at the ongoing ECB forum. Stock markets are likely to remain jittery as uncertainty over UK leadership and EU contagion effects linger. Meanwhile, in the absence of strong market cues, FX market players may choose to take profit from risk-off trades.

   Currencies

   G7 Currencies

      DXY – Supported. Dollar index remains largely supported overnight as risk aversion remains the theme. US and EU equities continued to slide. 10Y UST yield fell to record lows of 1.4327%. DXY was last seen at 96.36 levels. Technicals suggest dollar index may extend its rebound. Key resistance at 96.50 (200 DMA). A break above (on daily close basis) could see further upside towards 97.96 (76.4% fibo retracement of 2016 high to low). Support at 95.80 (50% fibo). We think cautious tone could continue as markets continue to digest the unprecedented Brexit fallout and we think USD could still remain supported on dips. Week ahead brings GDP (1Q); Core PCE QoQ (1Q); Consumer confidence, Richmond Fed (Jun); S&P/CS House Prices (Apr) on Tue; Fed’s Powell speaks; Personal spending (May); PCE Core (May); Fed’s Yellen participates in panel at ECB forum; Pending home sales (May); Fed’s stress test results on Wed; Chicago Purchasing Manager (Jun) on Thu; ISM Mfg, PMI (Jun) on Fri.

      EURUSD – Risk of Short Squeeze Intra-day; Sell on Rallies. EUR tested several times below 1.10-figure overnight but managed to see the pair largely supported around 1.0980 levels. While daily momentum remains bearish bias, we think the pair could be subjected to some upside intra-day as indicated on the 4-houly momentum and stochastics. Upside could test 1.1080, 1.1150 levels. We are biased to sell on rallies towards 1.1150 – 1.12 levels for a move back below 1.10-handle.. Pair was last seen around 1.1020 levels. Support at 1.0940 (61.8% Fibonacci retracement of Dec low to May high), 1.0780 (76.4% fibo). Resistance at 1.11 (200 DMA), 1.1230 (100 DMA). Week ahead brings EU Summit in Brussels on Tue; ECB forum in Portugal (Mon – Wed); EC industrial confidence (Jun) on Wed; CPI estimate/ core (Jun) on Thu; EC Mfg PMI (Jun); Unemployment rate May) on Fri.

      GBPUSD – Bearish Bias but Caution That Upside Squeeze Can Hurt. There were some more Brexit moments overnight as England was dumped out of the Euro cup quarter finals with 1-2 humiliating defeat to Iceland. S&P has downgraded UK credit rating by 2 notches to AA (Negative outlook), citing policy framework and constitutional issues while Fitch cut UK’s rating by 1 notch to AA (negative outlook), citing the likelihood of “an abrupt slowdown”. The downgrade saw GBP plunged to a low of 1.3121.  As of last night, outgoing-PM Cameron is expected to be replaced as early as early-Sep instead of by Oct and has rejected calls for a second referendum. There will be no formal negotiations between the EU and UK before the Article 50 is triggered. Uncertainty (i.e. domestic politics, negotiations with EU, etc.) is expected to drive sentiment in the near term. Watch out for political-headlines to keep GBP volatile and keep the currency under pressure.  While we think GBP downside pressure could persist, we caution that GBP shorts unwinding (if any) on profit-taking, may see a volatile and equivalent large move to the upside (possibly 1.36 or 1.3840 levels). GBP was last seen at 1.3230 at time of writing. Daily momentum remained bearish and GBP could test lower towards 1.30-handle. Resistance at 1.36. Week ahead brings CBI reported sales (Jun) on Tue; Nationwide House Prices (Jun) on Wed; GDP (1Q); Business Investment (1Q) on Thu; PMi Mfg (Jun); Unit labor cost (1Q) on Fri.

      USDJPY – Bias To Sell On Rallies. USDJPY remains heavy this morning as risk aversion continues to favour JPY longs. As the USDJPY slides lower towards the 100-levels, there is increasing expectations that both the MoF and BOJ will intervention to slow the pace of appreciation. Still, the warning by US Treasury Secretary that there must be legitimate reason for intervening in the FX markets suggests that Japan is unlikely to gain G7 support in its cause and would have to go ahead alone. The Nikkei futures are lower this morning, and allude to potential downside risks for the pair intraday. Pair was last seen around 101.80 levels. Daily momentum remains bearish bias and stochastics continues to climb higher from oversold levels. With the threat of intervention lingering, pair should remain supported around current levels for now, though markets could test the MoF’s and BOJ’s convictions. USDJPY remains within its current trench channel for now. Support nearby remains at 101.00 (lower bound of the trench channel) before 99-levels (year’s low). Should confidence in Abenomics fade, a move towards the 95-handle seems likely. Any rebound is likely to be capped around 103.80 (38.2% Fibo retracement of May-Jun downswing); 105.25 (50% Fibo). Expect 101-105 for the week with bias to sell on rallies. Week ahead has May retail sales (Wed); May preliminary industrial production (Thu); May jobless rate, May CPI, 2Q Tankan Survey results, Jun final Nikkei PMI Mfg (Fri).

      NZDUSD – Sell Rallies. Modest rebound in Kiwi this morning. Pair was last seen around 0.7015 levels. Daily momentum is mild bearish bias while stochastics has fallen from near-overbought conditions. Support at 0.7010 (21 DMA), 0.6930 (50% fibo retracement of May-2015 high to Aug-2015 low). Resistance at 0.7130 (61.8% fibo), 0.7360 (76.4% fibo). Bias to sell rally towards 0.7130. Week ahead brings May building permits and Jun business confidence (Thu).

      AUDUSD – Weighed. AUDUSD was last seen around 0.7360, off its overnight low of 0.7330. This pair was dragged by soured risk sentiments overnight as equities sold off. Despite the morning rebound, momentum indicators are suggesting waning bullish momentum still. Pressure is to the downside. Even so, we suspect some flight to Australia’s AAA bonds could temper bearish moves. 200-DMA is the keey support around 0.7286 now. May private sector credit is due on Thu. The 2016 Federal Elections is eyed on Sat and opinion polls show that the race is still tight with only a marginal lead by the Coalition. A Labor party win could put Australia’s AAA rating at risk as they are likely to allow greater deficit in the next four years before its projected balance budget by 2020/2021.

      USDCAD – Firm, Still Within Range. USDCAD extended its climb yesterday and was last seen around 1.3066. This pair needs to clear the barrier around 1.3160 (May high). Stochastics indicate more room for upside and that is insync with a mildly positive MACD. Upmove is still capped by 1.3079 . Beyond this lies the 200-DMA at 1.3329 which is near the 38.2% Fibonacci retracement of the Jan-May sell off. Oil prices have been pretty resilient and that has given some support to the CAD. Pullbacks to meet the 50-DMA at 1.2864. Apr GDP is due this Thu. Consensus expects a mild print of 0.1%m/m vs previous -0.2%. Year-on-year, growth should quicken to 1.4% from previous 1.1%.

Asia ex Japan Currencies

      The SGD NEER trades 0.75% above the implied mid-point of 1.3710. We estimate the top at 1.3438 and the floor at 1.3983.

      USDSGD - Buy On Dips.  After climbing higher for the past two sessions due to Brexit, USDSGD is a tad softer this morning on possible profit-taking before the close of 1H. Still, pair is likely to remain choppy ahead as markets attempt to discern the impact of a Brexit on the global economy. Pair was last seen around 1.3620 levels. Daily momentum and stochastics indicate mild upside risk. Bias to buy on dips around 1.3480 levels, looking for a move towards 1.3640 (61.8% Fibo retracement of the May-Jun downswing); 1.3680 (100DMA) before 1.3720 (76.4% Fibo retracement). Further upside should meet barrier at 1.3640 (61.8% Fibo retracement of the May-Jun downswing); 1.3720 (76.4% Fibo).

      AUDSGD - Choppy. AUDSGD slipped towards parity but is now on the upmove, lifted by the AUD. Barrier is still seen at 1.0124 before 1.0221. This cross seems poised for further upsides at this point as momentum indicators show sticky bullish bias. However, we likely to warn that moves have been choppy and will still be. Support is seen at 0.9900 (76.4% Fibonacci retracement of the Jan-Apr rally).

      SGDMYR – Little Momentum. SGDMYR held steady; last seen around 3.0250 levels. Daily momentum is flat and not indicative of a clear momentum. We remain slight bias to lean against strength. Resistance remains at 3.0480 (trend-line resistance from the highs of Nov and Jan) before 3.0640 (76.4% fibo retracement of Oct high to Apr low). Support at 2.9980 (200 DMA), 2.99 (50% fibo), before 2.9570 (38.2% fibo, 100 DMA).

      USDMYR– Upside Risk. USDMYR remained supported amid softer oil prices, cautious risk sentiment and a supported USD. We shared that on relative value plays amongst the AXJs, we see more downside pressure to KRW, MYR, PHP and INR given its high-beta plays to sentiment and oil prices as compared to IDR and SGD. USDMYR was last seen at 4.1150 levels. We expect some upside risk but 200 DMA should cap the up-move. Resistance at 4.1430 (50% fibo) before 4.17 (200 DMA). Support at 4.0720 (38.2% fibo retracement of 2016 high to low).  Week ahead brings Jun PMI and May trade data (Fri).

      1s USDKRW NDF – Bias to Buy Dips. 1s KRW traded higher amid cautious risk sentiment and USD strength. Last seen around 1183 levels. Daily momentum and stochastics suggests some mild upside risk. Bias to buy dips towards 1175 levels (200 DMA) for a move back up to 1190 levels. Week ahead brings Jul business survey indicators (Wed); May IP (Thu); Jun PMI, CPI, trade as well as May current account balance (Fri). The government announced KRW20tn of fiscal stimulus package including KRW10tn of extra budget while BoK was said to provide more than KRW2tn of short term liquidity this week via OMO, following Brexit event.

      USDCNH – Uptrend Resumed. USDCNH has been on the upmove this morning and was last seen around 6.6780. Next barrier at 6.6820 is being tested while dips to meet support at 6.6181 (before the 21-DMA at 6.5919). We do not rule out moves towards 6.70 as what we have anticipated in a case of a Brexit. Interestingly, CNY is also weakening trade-weighted wise. USDCNY was fixed 153 pips higher at 6.6528 (vs. previous 6.5375). CNYMYR was fixed 2 pips lower at 0.6155 (vs. previous 0.6157). Week ahead has industrial profits for May today, BOP current account balance for 1Q on Thu and then PMI-mfg, non-mfg and Caixin’s PMI-mfg on Fri. We continue to expect PBOC to use adhoc measures like pledged supplementary lending, medium term lending facility and standing lending facility to supply credit to the targeted sectors that require more liquidity support. Post-Brexit fears may build case for broad based RRR cuts but doing so may generate flows to assets that are prone to bubbles (real estate in the tier-one property sectors), undo deleveraging efforts in the economy and unhinge the CNY. PBOC clarified that there was no limits on bank interest rates. The central bank will persist with its efforts to improve the market-based interest rate mechanism.

      SGDCNH – Retracements. In an environment of dollar strength, SGDCNH is doomed to shift lower and this cross was last seen around 4.9075. Momentum indicates the same. Stochastics are in overbought levels and MACD forest continues to wane in bullish bias. Caution to keep SGDCNH on the backfoot but a risk recovery could keep the SGDCNH on the uptrend. Barrier is still seen around 4.9151 before 4.9420. Pullbacks to meet support at 4.8827 before 4.8400. Both have been tested before. 50-DMA is the next support at 4.8205 to watch.

      MYRCNH – Bulls Backing Off. This cross waffled around 1.6230. CNH and MYR bears are in a tug of war. Support is still seen at 1.6152 (100-DMA) before the 1.5987 (the lower bound of the upward sloping trend channel).  Barrier is tentatively at Fri high of 1.6649 before the next at 1.6800 (76.4% Fibonacci retracement of the 2015 sell-off, close towards Apr high) before 1.7155.

      1s USDINR NDF – Upside pressure. The 1M NDF hovered around 68.30, underpinned by importers demand and risk-off trades. The barrier at 68.3656 (23.6% Fibonacci retracement of the Oct-Feb 2015 rally) is still being tested before the next at 69.43 is exposed. Support is seen at 67.4850. Outflows are likely to continue.  Investors sold USD84.9mn of equity and USD163.7mn of debt on 24 Jun. No tier one data due expect PMI-mfg for Jun on Fri. PM Modi decided to back Governor Rajan yesterday, asking for people to “more responsible about their public comments on officials working for the government”. On the same note, the government has started to constitute the monetary policy panel which will be government appointed experts in the field of economics, banking, finance or monetary policy.

      1s USDIDR NDF – Range. 1s USDIDR NDF continues its slide lower this morning, helped possibly by continued portfolio inflows into Indonesian assets even as global risk deteriorated. This was reflected in the purchase of USD58.47mn in equities by foreign funds yesterday. They had also added IDR1.51tn to their outstanding holding of debt on 24 Jun (latest data available). 1s NDF was last seen around 13415 levels, having lost most of its bearish bias and with stochastics still climbing higher. With risk still tilted to the upside, upside should be capped by 13620 (50% Fibo retracement of the Jan-Mar downswing). Support still at 13360 (100DMA); 13290 (23.6% Fibo). Pair is likely to trade range-bound within 13200-13600 ahead. The JISDOR was fixed higher at 13495 yesterday from 13296 on Fri. Despite global risk aversion, foreign funds purchased Week ahead has Jun Nikkei PMI Mfg, Jun CPI (Fri). The tax amnesty bill is one-step away from becoming reality after the financial commission approved the bill and sent it to the full parliament for consideration. The government is anticipating that the tax plan will draw IDR560tn of funds back to the country, helping to boost tax revenue of around IDR53tn and adding 0.3%-point to GDP. Meanwhile, the budget committee has approved revisions to the 2016 budget, setting the fiscal deficit at 2.35% of GDP, oil price assumption at USD40/bbl and average USDIDR at 13500. It also agreed that growth will be targeted at 5.2% and CPI at 4.0% for 2016.

      1s USDPHP NDF - Temporary Relief?  1s USDPHP NDF is seeing some relief after its recent climb higher, helped by foreign inflows into equities. Yesterday, foreign funds had purchased USD10.58mn of equities and there could be some expectations that this could continue. Still, this downtick could be temporary as risk aversion is likely to re-emerge and lift the 1s NDF higher. 1s NDF was last seen around 47.30 levels. Momentum indicators reaffirm that bullish bias remains intact with stochastics at overbought levels. Further downmoves should find support nearby around 47.170 (50% Fibo retracement of the Jan-Mar downswing) before the 47-handle (200DMA). Upside remains capped by 47.500 (61.8%). We have the inauguration of president-elect Rodrigo Duterte, who starts his term of office at 12 noon on 30 Jun.

      USDTHB - Rangy.  USDTHB is a tad softer this morning on possible profit-taking ahead of the close of 1H. This move lower could be short-lived as global risk aversion remains on lingering concerns about Brexit. Pair was last seen around 35.310 levels. Daily momentum is now very mildly bullish bias and stochastics remains on the gradual climb higher. This suggests that the pair’s climb higher could be a slow grind. Further downside should meet support around 35.120 (23.6% Fibo retracement of the Jan-Mar downswing). Upside remains capped around 35.570 (50% Fibo); 25.610 (200DMA). Risk aversion saw foreign investors selling off THB1.32bn and THB2.00bn in equities and government debt yesterday. Expect range within 35.200-35.500 to hold intraday as markets discern the impact of Brexit on the global economy. Week ahead has 24 Jun foreign reserves, May trade, May current account (Thu); Jun CPI (Fri). Onshore markets are closed on 1 Jul (Fri) for the mid-year holiday.

Rates

Malaysia

      MGS yields lowered 2-4bps amid good volumes as foreign names were seen buying at the belly of the curve ahead of the 30y MGS 3/46 reopening auction. The issue size was announced at MYR2.5b, slightly larger than we expected. WI levels were quoted wide and no trades were reported done.

      Local IRS rates 1-3bps lower, in line with lower regional rates and amid resilient MGS. Some foreigners seem to be selling but not much impact on onshore market. 5y IRS traded at 3.65% and 3.64%. 3M KLIBOR unchanged at 3.65%.

      PDS market saw higher liquidity and better buyers seen for AAA and GG curves. GG curve traded unchanged at the belly and long end, though offers for 10y did tighten 5bps from last Friday’s level. In AAA, Plus curve saw a good volumes at the belly tightening 1bp while the long end tightened 2bps. Putrajaya also saw better buying at the front end but levels were unchanged. Cagamas was taken 2-3bps tighter at the front end. AA curve largely quiet with most trades being crosses.

Singapore

       SGS saw continued buying as UST futures rallied with calmer and lighter trading, but gave up some gains when regional stock markets rebounded. The yield curve lowered 7bps from the 10y onwards and 1-3bps in shorter tenors. Underperformance of the front end was likely due to supply pressure from Tuesday’s SGD1.8b auction of SGS 10/19. Front end yields only lowered after SGD IRS fell sharply on receiving flow. SGD IRS levels were down 6-10bps, steepening a tad. Swap spreads narrowed 1-7bps, most pronounced at the front end.

      Mixed day for Asian credits. Selected names tightened 3-5bps from pre-Brexit levels while others widened slightly. INDON sovereigns were firm, 0.25-0.30cents higher. In China space, quality names rallied close to pre-Brexit levels led by China Nuclear, Shengy Energy and SOE oil majors. Better buying was seen in the 8y-10y bracket. But liquidity seems thin as market remains uncertain. Despite that, Chinese AMC spreads held up fairly well as mid-price came in 2-3bps tighter from last Friday’s close. Global rates may stay low this year following Brexit.

Indonesia

      Indonesia bond market closed with IGS prices moving higher post a significant slump due to UK referendum resulted in UK leaving European Union. The hike was also supported soon passing of the tax amnesty bill. The decision of this bill will be decided today by the legislative. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 7.488%, 7.642%, 7.882% and 7.935% while 2y yield shifts higher to 7.291%. Trading volume at secondary market was seen heavy at government segments amounting Rp17,033 bn with FR0073 as the most tradable bond. FR0073 total trading volume amounting Rp4,297 bn with 76x transaction frequency and closed at 107.51 yielding 7.882%.

      DMO will conduct their bi-weekly sukuk auction today with five series to be auctioned which are SPN-S29122016 (Coupon: discounted; Maturity: 29 Dec 2016), PBS006 (Coupon: 8.250%; Maturity: 15 Sep 2020), PBS009 (Coupon: 7.750%; Maturity: 25 Jan 2018), PBS011 (Coupon: 8.750%; Maturity: 15 Aug 2023) and PBS012 (Maturity: 15 Nov 2031). We believe that the auction will be oversubscribe by 2.0x – 3.0x from its indicative target issuance of Rp4 tn while our view on the indicative yield are as follows SPN-S29122016 (range: 5.75% – 5.85%), PBS006 (range: 7.61% – 7.71%), PBS009 (range: 7.20% – 7.30%), PBS011 (range: 7.80% – 7.90%) and PBS012 (range: 8.15% – 8.25%).

      Corporate bond trading traded heavy amounting Rp1,320 bn. BIIF01ACN2 (Shelf Registration I Maybank Finance Phase II Year 2016; A serial bond; Rating: AA+(idn) was the top actively traded corporate bond with total trading volume amounted Rp340 bn yielding 9.017%.