Rally in equity markets continue for a third consecutive session, as markets shrugged off Brexit fears. S&P500 nearly retraced last week’s losses; UK FTSE100 has more than retraced its losses and surged to 2016-highs

FX

Global

      Rally in equity markets continue for a third consecutive session, as markets shrugged off Brexit fears. S&P500 nearly retraced last week’s losses; UK FTSE100 has more than retraced its losses and surged to 2016-highs. Credit markets were calmer. But bond yields remained near record lows. Commodity markets were mixed – oil prices were softer on easing supply disruptions while metal prices were firmer. On FX, USD had a mixed session – firmer against EUR, GBP and CNH while softer against most AXJs.

      In overnight action – S&P downgraded European Union’s credit rating by 1 notch to ‘AA’ grade, citing  their opinion of “cohesion within the EU” which they considered to be “neutral rather than positive rating factor” and that the “bloc may have less budget flexibility after Britain’s departure”. EUR initially declined off the back of that but had later rebounded. Across the channel, comments from BoE’s Carney that there is a need for GBP to find a new level and the BoE will probably have to ease (monetary) policy over summer saw renewed selling interest in the GBP. Swinging closer to home, USDCNH had a squeeze up by over 300pips to as high as 6.6814 on Reuters report that China was willing to let Yuan fall to $6.80. Pair later reversed after PBoC condemned the reports as misleading and reiterated that Yuan does not have fundamentals for long-term depreciation and China to keep Yuan basically stable.  

      On data release this morning, China Jun Mfg PMI was 50.0 (in line with expectation but modestly lower than May’s print of 50.1). Non-mfg PMI was better than previous print (53.7 vs. 53.1). Day ahead brings more PMI data across other regions including US and EU. In Asia, Indonesia Jun CPI and Malaysia May trade data are on tap. HK and TH are closed for holidays today. Expect market liquidity to be poor. Suggest cautious trading. Favor selling GBP and EUR on rallies. Expect USD/AXJ to trade recent range.

Currencies

   G7 Currencies

      DXY – Supported on Dips. USD was mixed overnight - modestly firmer against most G3s and CNH, slightly weaker against most AXJs. UST yields were broadly lower for tenors beyond 2yrs. OIS futures continue to price in no fed hike over the next 12 months. DXY was last seen at 95.70 levels. Daily momentum and stochastics indicators continue to indicate a mild bullish bias. Key resistance at 96.50 (200 DMA). Only a break above on daily close basis could see an extension of the rally towards 97.96 (76.4% fibo retracement of 2016 high to low). Support at 95.80 (50% fibo) before 95.20 (100 DMA). In overnight data release, Chicago PMI surprised to the upside. Focus today on ISM Mfg and PMIdata.

      EURUSD – Sell on Rallies. EUR slipped amid S&P’s downgrade on European Union’s credit rating to ‘AA’ grade. But EUR later rebounded. Last seen around 1.1110 levels. We retain our call to sell EUR on rallies towards our sell-zone of 1.1100 (200 DMA) - 1.1150 levels for a move back below 1.10-handle. Daily momentum is mild bearish bias. Support at 1.1070 (50% Fibonacci retracement of Dec low to May high), 1.0940 (61.8% fibo), 1.0780 (76.4% fibo). Resistance at 1.11 (200 DMA), 1.1230 (100 DMA). Day ahead EC Mfg PMI (Jun); Unemployment rate May) on Fri. On the downgrade decision, S&P said they assessed their opinion of “cohesion within the EU” which they considered to be “neutral rather than positive rating factor”. They added that the EU’s outlook was considered stable but added that the “bloc may have less budget flexibility after Britain’s departure”

      GBPUSD – Sell Rallies. GBP tumbled off the back of BoE Carney’s comments – he said there was a need for GBP to find a new level and will probably have to ease (monetary) policy over summer. Markets pricing of next BoE rate cut in Jul are now at 57% (from 34%) and for Aug at 75% (51%). GBP was last seen at 1.3350 levels. We still favour the trade from the short-side as uncertainty on separation remains, but prefer to sell on rallies. Daily momentum remained bearish and GBP could test lower towards 1.30-handle. Resistance at towards 1.3570 (23.7% fibo retracement of that 2 day decline of 1.5018 – 1.3121), 1.3840 (38.2% fibo). Price action suggests a potential bearish flag formation in the making (1.3220 – 1.3570). Break below 1.3220 should see a bigger push lower. Day ahead brings PMi Mfg (Jun); Unit labor cost (1Q).

      USDJPY – Range. USDJPY is a tad softer after breaching the 103-handle briefly this morning, as investors took advantage of any moves in either direction to take profit. However, further downside could be limited as the worse-than-expected drop in industrial production (May P: -0.1%; cons.: +1.9%; Apr: -3.3%) could reignite expectations of further BOJ easing measures. Pair was last seen around 102.80 levels. Daily momentum shows bearish bias remains intact but waning and stochastics continues to climb higher from oversold levels. Pair should continue to hover within its current trench channel. Support is at 101.95 (23.6% Fibo retracement of May-Jun downswing); 101.90 (lower bound of the trench channel). Further reduction in confidence in Abenomics could see a move towards the 95-handle. Upticks should meet resistance around 103.80 (38.2% Fibo). Continue to expect 101-105 to hold intraday with bias still to sell on rallies. May jobless rate, May CPI, 2Q Tankan Survey results, Jun final Nikkei PMI Mfg are on tap tomorrow.

      NZDUSD – Tactical Short. NZD fell during late Asia hours in reaction to a Reuters report that China was willing to let Yuan fall to $6.80.  Kiwi later rebounded into NY close as risk sentiment remains buoyant. NZD was last seen around 0.7140 levels. Daily momentum is flat. Suggest tactical short towards for a move towards 0.7070. Some technical levels to watch – support at 0.7070 (21 DMA), 0.6930 (50% fibo retracement of Apr-2015 high to Aug-2015 low). Resistance at 0.7160 (61.8% fibo), 0.7360 (76.4% fibo).

      AUDUSD – Elections Tomorrow. AUD saw a sharp fall to 0.7380 in response to Reuters report late Asia hours that China was willing to let Yuan fall to $6.80. The rebound was sharp and fast as well, following PboC condemnation of the report as ‘misleading’. AUD was last seen at 0.7440 levels this morning.  Daily momentum is flat. Expect range between 0.7390 – 0.7490 intra-day.  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.

Asia ex Japan Currencies

      The SGD NEER trades 1.11% above the implied mid-point of 1.3610. The top is estimate at 1.3340 and the floor at 1.3879.

      USDSGD – Trade Range.  USDSGD remains on the slide this morning as concerns about Brexit dissipates. A report about PBOC targeting the 6.80 levels provided some excitement yesterday but the rally in the USDSGD was not sustained. As that event showed, the pair remains guided by external events. Last seen around 1.3454 levels, pair is showing very mild bullish bias, though stochastics is showing no strong bias at the moment. Trade the range within 1.34-1.35 intraday. Support at 1.34-handle (50% Fibo of the 2014-2016 upswing). Resistance at 1.35-handle (21DMA).

      AUDSGD – Still Choppy. AUDSGD hovers around 1.0030, a tad softer than before. AUD and SGD bulls continue their tug of war, resulting in little directional bias, though for now the SGD bulls appear to have the upper hand. MACD shows little directional bias with stochastics climbing lower. Barrier is still seen at 1.0128 (200DMA). Moves have should remain choppy ahead as the Australian federal elections draw to a close. Support is seen at 0.9900 (76.4% Fibonacci retracement of the Feb-Apr rally) before 0.9720.

      SGDMYR – Bearish Momentum. SGDMYR eased further amid MYR outperformance; last seen around 2.97 levels. Daily momentum is mild bearish bias. We reiterate our bias to lean against strength. Next support at 2.9720 (50 DMA) before 2.9570 (38.2% fibo, 100 DMA). Resistance at 3.0150 (21 DMA), before 3.0480 (trend-line resistance from the highs of Nov and Jan) and 3.0640 (76.4% fibo retracement of Oct high to Apr low).

      USDMYR– Range. USDMYR fell in the open, tracking the offshore markets overnight which saw 1s MYR at 3.98 levels. Move lower was due to supported sentiment post-Brexit.  Pair was last seen at 3.9950 levels. Momentum remains bearish bias. Next support at 3.9850 (23.6% fibo retracement of 2016 high to low). A break below could see further unwinding towards 3.95 levels. Expect FX liquidity to remain poor, with HK and TH on hols ahead of the long weekend in US. Resistance at 4.04 (100 DMA), 4.0760 (21 DMA). Day ahead brings Jun PMI and May trade data (Fri).

      1s USDKRW NDF – Range-Bound. 1s KRW remains on a decline amid another session supported risk sentiment while USD pulled back. Jun CPI held steady at 0.8% y/y while core inflation was a touch higher at 1.7%.  Pair was seen around 1148 levels. Daily momentum remains mild bearish bias.. See range of 1142 – 1155 intra-day.

      USDCNH – Mildly Firmer. The USDCNH shot up towards the 6.70-figure yesterday afternoon before reversing lower, triggered by a Reuters report citing policy sources that China will allow USDCNY to reach 6.8 within the year. The jump towards 6.70 was completely reversed out within minutes though. This morning, the pair is back on the mild uptick despite official PMI mfg coming in within expectations and non-manufacturing PMI outperforming. Pair was last seen around 6.6735. Barrier at 6.6820 remains intact. Risk-on mood may see this pair trade within the 6.63-6.68 range. USDCNY was fixed 184 pips higher at 6.6496 (vs. previous 6.6312). CNYMYR was fixed 38 pips lower at 0.6012 (vs. previous 0.6051). 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. The official mfg PMI came in within expectations at 50 in Jun. The story though was non-manufacturing PMI that rose 53.7 in Jun, beating estimates of 52.7 and May’s 53.1.

      SGDCNH – Grinding Higher. SGDCNH remained elevated, last seen around 4.93578. Risk recovery has swung the SGDCNH back on the uptrend. Momentum indicators are now showing a mild increase in bullish bias and stochastics at overbought levels. With our multiple resistance levels taken out, new barrier is at 4.9895 levels. Any dips should meet support at 4.9290.

      MYRCNH – Whippy. This cross whippy this morning, last seen around 1.6720 levels. Barrier is at 1.6800 (76.4% Fibonacci retracement of the 2015 sell-off, close towards Apr high) before 1.7155. Support is seen at 1.63-handle (21DMA) before the 1.6191 (100DMA). 

      1s USDINR NDF – Still In Range. The 1M NDF is on the uptick this morning, last seen around 67.90. It was reported that the government will announced a new central bank governor mid-Jul. NDF has lost most of its bullish bias and stochastic remains on the slide. The barrier is at 68.22 (61.8% Fibonacci retracement of the Feb-Apr downswing) before the next at 68.68 (76.4% Fibo). Support is seen at 67.62 (21DMA). Outflows may take a pause now. Investors sold USD21.49mn of equity and bought USD99.37mn of debt on 29 Jun.

      1s USDIDR NDF – Range. 1M NDF is on the slide lower this morning as Brexit concerns eased and on increasing expectations of further easing measures by central banks post-Brexit. 1M NDF was last seen around 13200 levels. Daily momentum and stochastics remain bearish bias, suggesting risks are still to the downside. Support is seen at 13110 levels (30 Jun low). A break of the 13100-levels could see the pair re-test the year’s low at 12295. Immediate resistance is at 13270 (23.6% Fibo retracement of the May-Jun downswing); 13350 (21, 100DMAs). The JISDOR was fixed higher at 13180 yesterday from 13166 on Wed. Foreign investors purchased USD132.28mn – a level not seen since Feb - yesterday. They had however removed IDR1.70tn from their outstanding holding of government debt on 29 Jun. Jun Nikkei PMI Mfg, Jun CPI are due later today.

      1s USDPHP NDF – Inching Lower.  1M NDF is inching lower this morning after climbing to a high of 47.26 yesterday, possibly on profit-taking activities and from month-end distortions. 1s NDF was last seen around 47.10 levels. Momentum indicators remain bullish bias with stochastics showing tentative signs of falling from overbought levels. Dips should find support nearby around the 47-handle (200DMA); 46.87 (38.2% Fibo retracement of the Jan-Mar downswing). Any rebounds should meet resistance at 47.44 (27 Jun high). Expect range trades within 46.750-47.400 to hold intraday and we favour buying on dips. Risk-supported sentiment led foreign funds to buy USD67.78mn in equities yesterday.

      USDTHB – Closed For Holidays.  Onshore markets are closed tomorrow for the mid-year holiday (bank holiday) though government offices will remain open. Onshore markets re-open on Mon. Positive risk sentiment yesterday saw foreign investors buying THB6.87bn and THB8.67bn in equities and government debt. Jun CPI tomorrow is due later today.

Rates

Malaysia

      MYR govvies still had buying momentum with MGS yields declining 2-4bps lower at the front end of the curve. Foreign interest was particularly strong on long end MGS (15y-30y) with the 20y benchmark ending -2bps from previous done.

      In IRS market, paying interest was stronger despite the firm MGS. Nothing was reported traded in the market. 3M KLIBOR remained the same at 3.65%.

      For PDS, GGs traded unchanged at the belly and long end. AAAs did better as the belly tightened 2-6bps with Aman, Plus and Rantau seeing better bids. Danga 30 at the long end traded on the offer side at 4.62% (G+66bps/Z+62bps). In AA space, Kesturi also did well tightening 5-6bps for the 10y and 11y papers. PDS may play catch up in the next 2 weeks leading into the MPC as spreads look attractive for yield investors.

Singapore

      SGS saw strong bearish tone and selling at the open, with a nervous PD market as liquidity and risk appetite seemed poor. In the afternoon, market reversed despite the weaker UST. There was aggressive buying across the curve, so early morning sellers were frantically covering shorts. SGS yields closed -1bp to +1bp. SGD IRS were unchanged but up 2bps at the 2y.

      For Asian credits, sovereigns mostly remain unchanged. IGs spreads largely tighter on the back of UST movement. China AMC like HRAM traded around 5-7bps tighter. PBOC said that it is willing to tolerate a weaker yuan and this caused volatility in CNH.

Indonesia

      Indonesia bond market closed slightly higher however the market sentiment was seen minimal and buying appetite may have decline ahead of the Eid al Fitr holiday. We believe that the IGS prices would move higher post the long holiday. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 7.261%, 7.404%, 7.635% and 7.667% while 2y yield shifts higher to 7.213%. Trading volume at secondary market was seen heavy at government segments amounting Rp19,084 bn with FR0073 as the most tradable bond. FR0073 total trading volume amounting Rp4,212 bn with 83x transaction frequency and closed at 109.80 yielding 7.635%.

      Corporate bond trading traded thin amounting Rp575 bn. BEXI03BCN1 (Shelf Registration III Indonesia Eximbank Phase I Year 2016; B serial bond; Rating: idAAA) was the top actively traded corporate bond with total trading volume amounted Rp75 bn yielding 8.179%.