FX
UK PM David Cameron told Labour Chief to go. A new PM will be announced
on 2 Sep. Risk aversion dissipated as markets started to expect monetary easing
by central banks around the world, including the BOE. GBP was lifted above the
1.35-figure at one point before easing under the handle by early Asia. The
sense of optimism was so strong, not even weaker-than-expected US person income
and pending home sales dented stock gains. Equity indices clocked a second
session of gains overnight and Asian stocks are likely to follow suit according
to the futures. Meanwhile, 31 banks passed the Fed’s annual stress tests except
Deutsche Bank AG and Banco Santander SA.
News of PBOC in the offshore yuan markets dragged the USDCNH under the
6.66-figure, providing even further anchors to the rest of the USDAXJs. USDJPY
was last seen around 102.80 after briefly touching the 103 handle. Buoyant risk
sentiments extended beyond North Asi. The Indian Cabinet approved the 7th pay
panel recommendation, allowing central government employees to get a
substantial hike in pay & allowance. The potential boost to private
consumption was enough to set the SENSEX on rally and pushed the USDINR under
the 67.70-level.
Day ahead has a few events of note in the region. CBC could be the first
central bank to ease after Brexit. While there were already expectations for
them to shave 12.5bps off their benchmarket interest rate before the event, a
move at this time could add to the risk-on mood in the market. Elsewhere,
Philippines’ President-elect Dutarte would be sworn in today. Thailand exports
and BoP Current Account balance are due. Expect relief rallies to be short-lived
and further whippy trades ahead.
Currencies
G7 Currencies
DXY – Supported on Dips. Dollar index drifted lower as markets
shrugged off Brexit scare. DXY was last seen at 95.70 levels. Daily
technicals suggest dollar index remains supported. Shorter term technical
suggest that the index could see some pullback.
Support at
95.80 (50% fibo) before 95.20 (100 DMA). 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). In overnight data,
personal spending was up while pending home sales was down. Fed’s stress test
(part 2) conditionally passed Morgan Stanley but requires the investment bank
to show they have enough capital to cover a downturn and they have to show the
Fed that they have the processes in place to assess what losses they might have
if things get bad. MS has up to end of 2016 to resubmit its plan or will be
barred from paying dividends in the future. The US units of Deutsche and Banco
Santander failed the stress test. Week remaining brings Chicago Purchasing
Manager (Jun) on Thu; ISM Mfg, PMI (Jun) on Fri.
EURUSD – Sell on Rallies. EUR remains on a drift higher amid USD pullback. Last
seen around 1.11 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 remains bearish bias; 4-houly stochastics in
nearing overbought conditions. Resistance at 1.11 (200 DMA), 1.1230 (100 DMA).
Support at 1.0940 (61.8% Fibonacci retracement of Dec low to May high), 1.0780
(76.4% fibo). Week remaining brings ECPI estimate/ core (Jun) on Thu; EC Mfg
PMI (Jun); Unemployment rate May) on Fri.
GBPUSD – 1Q GDP on Tap; Political
Headlines to Drive Direction. GBP-short squeeze continues as the pair
shrugged of post-Brexit blues to trade as high as 1.3534 amid thin
liquidity. We do not rule out further short squeeze but prefer to sell on rally
as uncertainty on separation remains. GBP was last seen at 1.3430 at time of
writing. Daily momentum remained bearish and GBP could test lower towards
1.30-handle. But 4-hourly momentum suggests upside squeeze could continue
towards 1.3570 (23.7% fibo retracement of that 2 day decline of 1.5018 –
1.3121), 1.3840 (38.2% fibo). Week remaining brings GDP (1Q); Business
Investment (1Q) on Thu; PMi Mfg (Jun); Unit labor cost (1Q) on Fri.
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 Sell. NZD inched higher amid USD pullback
and easing of Brexit fears. ANZ Business confidence rose in May, to its
highest level since Dec 2015. NZD was last seen around 0.7105 levels. Daily
momentum remains mild bearish bias. 4-hourly stochastics is nearing overbought
conditions. Suggest selling on rallies towards 0.7130 for a move towards
0.70-handle. Some technical levels to watch – support at 0.7030 (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).
AUDUSD – Beware of Profit Takers. AUDUSD surged above 0.7460 on positive risk sentiments. Despite the
morning rebound, momentum indicators are suggesting waning bullish momentum.
Next barrier is seen around 0.7505 (9 Jun high). We are wary of profit-taking
amid underlying caution that pulled the AUDUSD back towards support at 0.7286
(200-DMA). May private sector credit is due today. 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 – Softening Within Range. USDCAD backed away from the
100-DMA and was last seen around 1.2940. First support to break is seen around
1.2880 (21,50 DMA). The convergence of the two moving averages suggest more
range-trading ahead. Stochastics indicate room on both sides and MACD is mildly
positive. The 200-DMA at 1.3329 which is near the 38.2% Fibonacci retracement
of the Jan-May sell off acts as a further deterrence for aggressive bulls. Oil
prices have been pretty resilient and that has given some support to the CAD.
Apr GDP is due tonight. 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%. In
separate news, visitor spending rose 11%y/y for 1Q, underpinned by the cheaper
CAD.
Asia ex Japan Currencies
The SGD NEER trades 0.97% above the implied mid-point
of 1.3621 with the top estimated at 1.3351 and the floor at 1.3891.
USDSGD - Buy On Dips. USDSGD is little changed after
slipping lower for the past two sessions as Brexit concerns begin to fade. Pair
broke below the 1.35-handle yesterday and has remained there since. Still, the
pair is only half-way to retracing to where it was at before Brexit occurred.
Pair was last seen at 1.3780 levels. Daily momentum and stochastics continue to
point to mild upside risk. We remain bias to buy on dips at current 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).
AUDSGD - Choppy. AUDSGD hovered around 1.0050, a tad firmer than before. AUD and SGD
bulls continue their tug of war, resulting in little directional bias. MACD
shows little directional bias with stoch almost entering overbought conditions.
Barrier is still seen at 1.0124 before 1.0221. Moves have been choppy and will
still be. Support is seen at 0.9900 (76.4% Fibonacci retracement of the Jan-Apr
rally) before 0.9720.
SGDMYR – Bearish Momentum. SGDMYR fell amid MYR
outperformance; last seen around 2.98 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– Cautious of Short-Term Rebound
Here. USDMYR gapped lower in the open, tracking gains in oil prices, USD
pullback as post-Brexit fears abated. Pair was last seen at 4.0180
levels. Momentum remains bearish bias but 4-houly stochastics indicate the pair
is at near oversold conditions. The break of support at 4.04 (50 DMA) puts next
support at 3.9850 (23.6% fibo retracement of 2016 high to low). Cautious of
rebound here. Resistance at 4.05 (100 DMA), 4.0760 (21 DMA). Week
remaining brings Jun PMI and May trade data (Fri).
1s USDKRW NDF – Range-Bound. 1s KRW fell amid another session of recovery in
sentiment over while USD pulled back. May IP data (released early morning)
surprised to the upside. Note that this was a sharp rebound from prior month of
-1.3%. Pair was seen around 1154 levels. Daily and 4-hourly momentum remains
mild bearish bias but 4-hourly stochastics is at oversold conditions. Could see
a bounce intra-day. See range of 1150 – 1160 intra-day. Week remaining brings Jun PMI, CPI,
trade as well as May current account balance (Fri). The government yesterday
announced KRW20tn of fiscal stimulus package including KRW10tn of extra budget
while BoK was said to provide more than KRW3tn of short term liquidity this
week via OMO, following Brexit event.
USDCNH – Softer. Intervention dragged the USDCNH
to levels around 6.6550. Barrier at 6.6820 is still intact. Interestingly, CNY
is also weakening trade-weighted wise. Risk-on mood may see this pair trade
within the 6.63-6.68 range. USDCNY was fixed 12 pips lower at 6.6312 (vs.
previous 6.6324). CNYMYR was fixed 58 pips lower at 0.6051 (vs. previous
0.6108). Week ahead has BOP current account balance for 1Q today 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. China’s Beige Book showed some
strength in the services and construction sector. According to New York-based
research group CBB international, services revenue, hiring, capex and profits
have rose from a poor first quarter. However, output, new domestic orders,
receivables and payables weakened compared to a year ago.
SGDCNH – Expect Further Upside
To Be A Grind. SGDCNH remained elevated, last seen
around 4.9382. Risk recovery has swung the SGDCNH back on the uptrend but
momentum indicators continue to wane. Stochastics are showing signs of falling
from overbought levels so we prefer to lean against its strength. 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 – Still In Uptrend. This
cross hovered around 1.658, extending its upmove. 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 – Back Into Range. The 1M NDF hovered around 67.90,
weighed by a sense of optimism after the Cabinet approved the pay hike for
central government employees. Other noteworthy news include the confirmation of
Monsoon Parliament to commence on 18 Jul to 12 Aug, a cabinet reshuffle likely
next week. The pullback in USDINR 1M NDF has quelled bullish momentum. The
barrier at 68.3656 (23.6% Fibonacci retracement of the Oct-Feb 2015 rally) is
still intact before the next at 69.43. Support is seen at 67.4850. Outflows may
take a pause now. Investors sold USD31.7mn of equity and bought USD64.8mn of
debt on 28 Jun. No tier one data due expect PMI-mfg for Jun on Fri.
1s USDIDR NDF – Capped. After sliding for the past three sessions,
1s USDIDR NDF is on the uptick this morning on possible profit-taking
activities. 1s NDF was last seen around 13210 levels. Daily momentum and
stochastics are bearish bias, suggesting risks remains to the downside. Upmoves
today could thus be capped around 13280 (23.6% Fibo retracement of the Jan-Mar
downswing); 13360 (100DMA). New support is at 13110 levels (23 Jun low);
13000-figure (year’s low on 17 Mar). Expect 13000-13400 range to hold still
intraday. The JISDOR was fixed lower again at 13166 yesterday from 13256 on
Tue. Investors remained positive on equities yesterday with foreign funds
buying USD131.01mn – a level not seen since Feb - yesterday. They had however
removed IDR2.16tn from their outstanding holding of government debt on 28 Jun. Jun Nikkei PMI Mfg, Jun CPI are due tomorrow.
1s USDPHP NDF - Mild Upside Ahead Of New
President’s Swearing-In. 1s USDPHP NDF is back on the uptick above
the 47-figure, possibly taking profit after being on the slide in the past two
sessions. 1s NDF was last seen around 47.05 levels. Momentum indicators still
show bullish bias intact with stochastics still at overbought levels. This
suggests the potential for further rebounds ahead. Further upticks should meet
resistance around 47.20 (50% Fibo retracement of the Jan-Mar downswing).
Support remains at 46.870 (38.2% Fibo). Expect range trades within
46.750-47.400 to hold intraday and we favour buying on dips. Risks were
somewhat supported yesterday with foreign funds buying USD8.27mn in equities
yesterday. We have the inauguration of president-elect Rodrigo Duterte, who
starts his term of office at 12 noon today.
USDTHB - Range-Bound. Like its regional peers, USDTHB
is on the uptick after being on the slide for the past three sessions, likely
on profit-taking activities. Last seen around 35.200 levels, pair has lost most
of its bearish momentum, though stochastics is showing tentative signs of
turning lower. The mixed signals suggests that range trading within
35.100-35.500 is likely ahead. Immediate resistance is at 35.250 (21DMA);
35.320 (50DMA); 35.370 (38.2% retracement of the Jan-Mar downswing). Support at
35-figure. Risk sentiment was mixed yesterday with foreign investors selling
THB0.29bn in equities buy buying THB17.76bn in government debt. We have 24 Jun foreign reserves, May trade, May
current account due today and Jun CPI tomorrow. Onshore markets are closed
tomorrow for the mid-year holiday (bank holiday) though government offices will
remain open.
Rates
Malaysia
MGS saw continued buying with the whole yield curve
moving down 2-7bps as the 30y MGS 3/46 reopening auction saw a strong bid cover
of 2.37x, with heavy participation from end investors. Trading volume was good
with 10y MGII 9/26 posting MYR1.3b of trades done.
IRS was initially lower anticipating a lower KLIBOR
fixing and strong MGS buying momentum. But market was fairly balanced on
receiving and paying interests, and 3M KLIBOR was unchanged at 3.65%. 2y IRS
traded at 3.49%, 3y at 3.51% and 5y at 3.59% and 3.58%. Market appears to have
fully priced in a 25bps rate cut.
Better bidding was seen in PDS market. AAA papers at
the belly and long end were taken on the offer side for names like Plus and
Rantau. Plus 30 and 31 tightened 4bps to 4.64% (G+67bps/Z+63bps) and 4.69%
(G+64bps/ Z+66bps) respectively. Credit spreads seem attractive here at the
belly and long end. Front end was rather muted and traded 1bp wider on Aman
19s. GG curve’s belly tightened 2-3bps while the long end tightened 3-4bps with
names like PASB, Dana, Prasa and SME being traded. AA curve was unchanged to
wider except for SEB 36s which tightened 5bps.
Singapore
SGS opened lackluster seeing the usual sporadic buying
and selling. Later, buying in short dated SGD forwards spurred selling of SGS,
which gapped up 2-3bps in yields amid thin PD liquidity. PDs shaded lower
aggressively, but bottom picking provided some support. SGS yields ended 1-2bps
higher, and SGD IRS closed 1-3bps higher.
For Asian credits, RMs were aggressively seeking
bonds. Asian CDS fell significantly with Malaysia the top performer, dropping
10pts. This led the MALAY and PETRONAS curves rallying 10-12bps. We think there
was short squeeze on top of RM buying. India and China IGs tightened 7-12bps on
short covering amid low liquidity. INDON sovereigns and ROPs also tightened,
trading 1.0-1.25points higher.
Indonesia
Indonesia bond market closed higher supported by
continuation of positive sentiment on the Tax Amnesty bill which was passed by
legislative the day before. The bill is expected to bring in inflows to the
bond market as well as contribute to the state revenue. However, some profits
taking were seen during the day. 5-yr, 10-yr, 15-yr and 20-yr benchmark series
yield stood at 7.277%, 7.418%, 7.645% and 7.692% while 2y yield shifts higher
to 7.213%. Trading volume at secondary market was seen heavy at government
segments amounting Rp22,497 bn with FR0056 as the most tradable bond. FR0056
total trading volume amounting Rp4,088 bn with 119x transaction frequency and
closed at 106.75 yielding 7.418%.
Corporate bond trading traded heavy amounting Rp1,114
bn. ADMF03BCN3 (Shelf Registration III Adira Finance Phase III Year 2016; B
serial bond; Rating: idAAA) was the top actively traded corporate bond with
total trading volume amounted Rp262 bn yielding 8.692%.
