Global forex market
THE main event that drove markets this week was last week's non-farm payroll (NFP) from the United States. The July NFP which came in at 163,000 above expectations of 100,000.
The better than expected NFP gave the bounce the market wanted, after many dour weeks of bearishness. It was a case of market looking for a breath of good news. As such the market reacted positively to the NPF numbers, which under normal circumstances would not have been so euphoric.
Forex markets are currently pricing the chance of quantitative easing and the possibility of the US economy is not as bad.
Separately, the ISM's non-manufacturing index advanced to 52.6 from 52.1 in Jun-12, mainly attributed by an increase in new orders. While the US initial jobless claims unexpectedly dropped by 6,000 in the Aug-4 week to 361,000 in contrast, continuing claims climbed up by 53,000 in the week ended July 28 to 3.332 million.
The eurozone's PMI composite index improved slightly from 46.4 in June 12 to 46.5 in July, however it remained below the 50 reading while the UK's industrial production in June contracted by -2.5% month-on-month due to the extra public holiday for the queen's jubilee. Industrial production fell less than estimated in June, indicating the recession may not have been as deep in the second quarter as previously reported.
In Asia and Australia, central banks held rates steady. The Reserve Bank of Australia left the overnight cash-rate target unchanged at a 2.5-year low of 3.5% for a second month, citing a domestic expansion that is weathering a global slowdown. The Bank of Japan refrained from adding stimulus and left key rate at 0-0.1%. The Bank of Korea held benchmark interest rate steady at a 14-month low of 3% and The Bank of Indonesia held its interest rate at a record low of 5.75% for a sixth consecutive month. Indonesia's economy unexpectedly accelerated by 6.37% last quarter as rising investments helped the nation withstand Europe's sovereign crisis.
China's CPI, industrial production and retail sales growth slowed in July. China's July CPI slowed for a fourth straight month to 1.8% year-on-year from the prior month's 2.2% growth.
Indonesia's second-quarter GDP expanded by 6.37% y-o-y, above expectations and previous quarter's 6.10% and 6.32% respectively. The Indonesian economy unexpectedly accelerated as rising investments countered the declining exports, thus reducing pressure for monetary easing as the nation withstands Europe's sovereign-debt crisis. Nonetheless, household consumption (circa 60% of the GDP) grew 5% y-o-y, private investment rose 12.3% and government spending rose 7%.
This week, the forex market shrugged off concerns of the global economy especially concerns with the eurozone. Nonetheless, once this euphoria is over, reality will bite and fear will re-emerge. At the point of writing, the euro dipped below US$1.23 suggesting that risk appetite is waning. Until we have stronger indicators from the United States and European Union, its best to err on the side of caution.
US Treasuries (UST) market
At the time of writing, US Treasury yields for two-, five- and 10-year notes seen at 0.27%, 0.73% and 1.69% respectively. Treasuries yield rose on the back of better initial jobless claims that were lower than expected.
Malaysian bond market
As of Thursday's close Malaysian Government Ssecurities benchmark yields had closed higher across the board versus last week's closing levels. Yields on the three-, five-, seven- and 10-year benchmarks stood at 3.05%, 3.23%, 3.33% and 3.4%, respectively. The 15- and 20-years yields meanwhile, ended at 3.64% and 3.77% respectively. Overall trades in the MGS/Government Investment Issues market saw a collective volume of RM17.8bil with daily average trade volume higher at RM4.5bil versus the prior week's average of RM2.4bil.
In the private debt securities market, a total of RM2.4bil worth of trades done with 48% coming from the GG/AAA segment, 49% from the AA segment and the balance from the single-A segment. For the week, daily average trade volume came in at RM596mil worth, a tad lower from the RM691mil average seen in the previous week.
In the GG/AAA segment, active trading was seen for 1Malaysia Development Bhd 05/39 with collective trades worth RM200mil done. Interest also emerged for the Export-Import Bank of Korea 09/12 with RM200mil changing hands, with yield settling at 3.31% level.
In the AA-segment, trading interest was seen in the power sector bonds. RM150mil of Kimanis Power bonds maturing 2018-2028 were traded. Meanwhile Tanjung Bin Energy bonds maturing 2024-2030 saw collective volume of RM126mil done with yields easing between 2-32 bps. Elsewhere, Public Bank bonds maturing 2014-2017 saw RM87mil trades transacted.
In the single-A segment, banking sector bonds contributed 87% of total trades transacted. RHB Capital 09/12 and 12/13 were traded at a volume of RM8mil and RM20mil respectively. Meanwhile Ambank 02/13 closed at 3.69% with a total volume of RM20mil traded.
Ringgit interest rate swap (IRS) market
The ringgit rates were traded within a tight range during the week as hedging activities were well capped by selling interest despite the higher US treasuries yields and improved sentiment. The ringgit IRS rates ended the week 2 ~ 3 bps higher.
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