Global foreign exchange market
RISK appetite was given a strong boost in the first trading day of 2012 by a string of solid manufacturing data around the world. The official China manufacturing PMI climbed back to expansion level of 50.3 in December. China's non-manufacturing PMI also rose impressively from 49.7 to 56.0 in December.
India's PMI added 3.2 points to 54.2 in December. The Australian manufacturing PMI also rose for the first time in six months in December, up from November's 47.8 to 50.2. The UK manufacturing PMI rose from revised 47.7 to 49.6 in December while Swiss SVME PMI rose sharply from 44.8 to 50.7 in December. Sentiments were firm after the release of better-than-expected US ISM manufacturing index, which rose to 53.9 in December.
Euro's recovery, however, lost steam and weakens after data showed inflation eased in December. Eurozone CPI flash estimate moderated from 3% to 2.8%. The data prompted some speculation that easing inflation would give the European Central Bank rooms for rate cut even though the benchmark rate is back to record low of 1% after two rate cuts last year. European economic data released was generally soft, with Germany's November retail sales unexpectedly falling by 0.9% month-on-month (m-o-m), eurozone October new industrial orders rising by a smaller-than-expected 1.8% m-o-m and the November PPI slowing to 5.3% year-on-year (y-o-y). Poor bond auctions in France and Hungry and a struggling banking sector have combined to create an air of negative risk sentiment in the region. The euro fell below 1.28 for the first time in nearly 16 months and as of writing the euro/US dollar traded at 1.2797 levels.
The US dollar index rose 0.78% for the week to 80.894. It added to gains after employment data and jobless claims hint to an improving US labour market. The ADP employment data showed a rise of 325,000 jobs in December, the largest monthly employment gain since the series began in 2001. During the last week of December, jobless claims fell to 372,000 from 381,000 the previous week.
The pound declined 0.15% to 1.5503 despite a stronger-than-expected reading on activity in the British construction and services sector in December. The UK construction PMI came out at 53.2 while the services sector PMI rose to a five-month high of 54.
Australian dollar/US dollar peeled back from eight-week high of 1.0384 to 1.0256 as improving signs in the US labour market had investors favouring the greenback across the board. Against the yen, the US dollar rose 0.44% to 77.18.
The US dollar were generally softer against the Asian currencies for the week. Europe's debt concern reverses the risk-on mood and makes the greenback stronger and that is impacting the performance of Asian currencies, including the ringgit. The Bloomberg-JPMorgan Asia Dollar index increased 0.05% to 115.21. The ringgit however slid 0.69% to 3.1490.
Data releases in Asia were dominated by CPI figures. Indonesia's inflation slowed for a fourth straight month in December to 3.79% y-o-y from 4.15% in November, the lowest level since March 2010. Philippine inflation rate eased to 4.2% in December from 4.8% while Taiwanese consumer price inflation rose to 2.03% in December from 1.01% in November.
European jitters are weighing on risk appetites more broadly, with most commodity and emerging currencies slipping. Uncertainties on the European debt front still remain, while focus will also be on whether US data continues to improve with the release of non-farm payrolls report. With euro continue sliding, expect negative sentiments towards the eurozone debt problems resurfacing and could weigh down on Asian currencies. As such, we expect the US dollar to trade within the range of 3.1300 to 3.1700 against the ringgit.
US Treasuries (UST) market
At time of writing, UST yields for two-, five-, 10-year traded 1bp to 6bps lower on weekly basis, to close at 0.259%, 0.881% and 1.995% respectively.
Malaysian bond market
Given the benign inflation and interest rate outlook, local govvies yield saw continue flattening as investors return to bargain hunting mode. Benchmark Malaysian Government securities (MGS) yields were rather flattish as at Thursday close. At the shorter end, the three-year MGS yield was untraded at 3.02%, the five-year yield closed 1 bp up at 3.22% while the seven-year yield closed 1 bp down at 3.49%. At the longer end, the 10-year yield was 1 bp lower at 3.69%, the 15-year yield was unchanged at 3.92% while the 20-year yield was down 1 bp to 4.08%. Overall, RM8.9bil trades were recorded in the MGS/GII market with daily average trading volume much higher at RM3bil compared with RM1.1bil in the final week of December, 2011.
The private debt securities space on the other hand, saw average trading volumes holding steady at RM439mil versus RM432mil previously. The AA-segment accounted for a larger portion of trades for a change, making up 53% of the RM1.3bil trading volume relative to the 44% contribution reflected by the GG/AAA segment.
In the GG/AAA segment, notable trades were seen on ADCB 9/15, with yields easing 16 bps to 4.14% with RM85mil done since it was last traded in mid-December. UMW Holdings Ltd 9/14 closed unchanged at 3.6% with RM80mil done.
In the AA segment, buying interest was seen in financial institution bonds which accounted for nearly 80% of trading volume. Yields on Sabah Development Bank bonds maturing in August 2012 closed 4 bps lower at 3.47% with RM105mil done in total, while AmBank bonds maturing in March, 2015 were seen trading flat at 4.15% with RM50mil done in total. MNRB Holdings bonds maturing December, 2012 trades emerged this week, with yields ending higher by 56 bps to close at 4.99% after MARC recently downgraded its credit rating.
Ringgit interest rate swap (IRS) market
The first week of the year saw the ringgit IRS traded higher as market participants started positioning themselves for the new financial year and market sentiment turned positive ahead of US job data. The rates ended the week 2~ 4bps higher.
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