Global forex market
OH what a week! The Greek elections dismayed the doomsday soothsayers with the pro-austerity winning the elections thus delaying further catastrophe of the eurozone. The New Democracy and Pasok, won 163 out of 300 seats over last weekend. Resultantly, the euro showed some life but was short lived. It rose to a high of 1.2747 but closed at 1.2560.
The Federal Open Market Committee (FOMC) meeting took wind out of the market. Federal Reserve chairman Ben Bernanke's statement was dour and more dovish than that said in the April meeting a year earlier. The US dollar was mixed after the Fed announced an extension of Operation Twist. Bernanke also say more would be done, if needed, hinting at the possibility of additional quantitative easing.
Fed officials also lowered the US this year's GDP growth forecast from 2.4-2.9% to 1.9-2.4%, while estimates for next year were revised to 2.2-2.8% compared with an earlier projection of 2.7-3.1%. The Fed also forecast jobless rate to average between 8%-8.2% in the fourth quarter from an earlier estimate of 7.8%-8% in April. For 2013, unemployment rate is expected to be around 7.5%-8% compared with the previous estimate of 7.3%- 7.7%.
European PMI manufacturing data for June fell to 44.8 from 45.1. German PMI data disappointedly fell to 44.7 from 45.2 the previous month. While the headline data remains weak, the breakdown of the new orders, inventories and prices data was more positive. Some economists are suggesting a rebound in the fourth quarter.
Similarly, China's HSBC flash PMI fell to 48.1 in June from 48.4 in May, reflecting stressed conditions at small- and medium-size enterprises. This is the lowest index level in seven months.
Inflation wise, India's monthly WPI inflation growth advanced to 7.55% y-o-y in May, from 7.23% in April. Malaysia's CPI is expected to come in at 1.7% compared with 1.9% in April. Despite lower inflation globally, the Philippines kept rates on hold at 4%. The Reserve Bank of India also kept repo rate, cash reserve ratio unchanged at 8% and 4.75%, respectively
This week, Fitch revises India's outlook to negative warning of heightened risks that India's medium-to-long-term growth potential will gradually deteriorate if further structural reforms are not hastened. Moody's downgraded 15 major banks on increased risk of the financial crisis. Resultantly, the ringgit reached a high of 3.1935.
We live in interesting times. Amid the doom and gloom, savvy investors peer beyond the horizon of fear to find value and opportunity. Already early indicators are showing potential bottoming out in the third quarter in China, and maybe later in next for the European Union and the United States. Until then, please have your seat belts on for a very bumpy ride ahead.
US Treasuries (UST) market
With Operation Twist extended to end-2012, UST yields remain supported. At time of writing yields on two-, five- and 10-year notes seen settling at 0.3%, 0.72% and 1.62% respectively.
Malaysian bond market
The local bond market started off on a quieter note, with players preferring to stay on the sideline. Most players adopted a wait-and-see approach with focus towards outcome of the FOMC meeting. With Operation Twist extended to end 2012 and a less sanguine US economic outlook, local govvies ended on a somewhat biddish tone tracking US Treasuries movement. At time of writing, details of the seven-year Government Investment Issue (GII) reopening was announced with issue size worth RM3.5bil. Tender closing date for these bonds is scheduled for next Thursday.
In the Malaysian Government Securities (MGS)/GII market, RM10.6bil trades were transacted with a daily average trading volume of RM2.6bil versus RM2.8bil previously. Benchmark MGS across tenures seen trading steady with yields closing 1-2 bps lower versus previous week. As of Thursday's close, the three-year, five-year and seven-year benchmark ended at 3.07%, 3.21% and 3.38% respectively. Meanwhile longer-dated 10-year, 15-year and 20-year seen settling at 3.5%, 3.79% and 4.03% level respectively.
In the private debt securities market, a total of RM3.3bil worth of trades were done with 58% coming from the GG/AAA segment, 40% from the AA segment and remaining balance from the single-A segment. Daily average trade volume was RM850mil, somewhat thinner from previous week's average of RM980mil.
In the GG/AAA segment, active trading interest was again seen in Khazanah bonds maturing 2016-2020 with a total of RM1.02bil worth of trades transacted. Meanwhile Genting Capital bonds 6/22 garnered total trading volume of RM65mil, closing on a biddish tone at 4.15%. Danga Capital 4/16 also attracted trading interest with volume of RM80mil done at 3.54% level.
Within the AA segment, a slew of Encorp Systembilt bonds maturing 2016-2027 were transacted with a collective volume of RM50mil. Banking sector bonds continue to dominate in terms of trading volume. The newly issued Hong Leong Bank subordinated bonds callable 6/19 was seen debuting at the secondary market space at 4.5% with RM459mil worth of trades done. A slew of Public Bank bonds maturing 2013-2017 were also transacted with total volume worth RM63mil.
Within the single-A segment, AmIslamic Bank 9/16 attracted trades of RM15mil worth at 4.2% while Special Power Vehicle bonds maturing 2015-2019 garnered a collective volume worth RM18mil.
Ringgit interest rate swap (IRS) market
The ringgit IRS rates climbed higher at the start of the week amid expectation that the Fed could further extend and expand their monetary stimulus. However, the elation tapered off when announcement came within market expectation and rates slid at the end of the week. The ringgit IRS rates ended the week relatively unchanged.
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