IN a mostly muted week, better-than-expected US retail sales provided the market with some catalyst. In most cases, good US data would spur risk-on and consequently an appreciation of risk currencies.
Paradoxically, the US dollar strengthened on lower likelihood of quantitative easing being employed because of the relatively better than expected US data. Other US data released this week were also mixed.
US industrial production as of July 12, increased by 0.6% month-on-month. US CPI was unchanged for a second month but the core CPI rose by 0.1%. In contrast, the Empire Manufacturing survey fell to 5.85 on Aug 12 down from 7.39 previously.
Also, US building permits jumped to the highest level in four years, rising to an 812,000 pace, the most since August 2008. This week US initial jobless claims were almost changed. All in, the flow of bad news from the US appears to have abated for the moment.
The eurozone's second-quarter GDP contracted by 0.2% from the preceding quarter, within consensus forecast and the contraction was softened by the better-than-expected-growth in Germany. Germany's GDP expanded by 0.3%, above consensus of 0.2% growth, but lower than the previous quarter's 0.5%.
In Asia, economic data was mixed. Korea's unemployment rate unexpectedly declined to 3.1% in July, a seventh-month low on increasing number of self-employed workers and service-sector jobs even as Europe's debt crisis dragged down exports.
Japan's second-quarter GDP moderated by 1.4%, down from a 5.5% expansion previously. Japan's reconstruction-fuelled rebound waned in the quarter as consumer spending growth most stalled and export gains diminished, increasing the chance for monetary and fiscal stimulus.
Singapore's GDP contracted by an annualised 0.7% from 9.5% growth the prior quarter. Pharmaceutical output countered declining electronics manufacturing. Declining economic growth prompted it to trim its 2012 growth forecast to 1.5-2.5%, from 3%.
This week, the market was fairly subdued. Could this be the calm before the storm? One only has to look towards Europe and not ponder too much. Also, the calmness of the market has often lulled many investors into complacency but experienced investors will tell you the market can turn moody very quickly.
US Treasuries (UST) market
Over the week, US Treasuries declined as yields surged higher across the maturity spectrum following recently announced better-than-expected economic data; improved retail sales and building permits from the United States. At the time of writing, US Treasury yields for two-, five- and 10-year notes seen settling at 0.29%, 0.8% and 1.82% respectively.
Malaysian bond market
This week, sell-off was seen in the local govvies market sending yields higher across the maturity spectrum. Selling momentum in local govvies were mainly driven by higher US Treasury yields and the ringgit interest rate swap (IRS) levels. US Treasuries yields were seen heading north this week in anticipation the Federal Reserves may delay announcement of further stimulus at the upcoming Federal Open Market Committee meeting in mid-September following a slew of better-than-expected US data.
Malaysia posted a better-than-expected second GDP at 5.4% year-on-year, versus a revised 4.9% in the preceding quarter. Despite a more challenging external front, domestic demand continued to remain as an anchor of growth.
As of Thursday's close, Malaysian Government Securities 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 3.16%, 3.37%, 3.52% and 3.62%, respectively. The 15- and 20-years yields meanwhile, ended at 3.82% and 3.93% respectively. Overall trades in the MGS/Government Investment Issues market saw a collective volume of RM16.7bil with daily average trade volume higher at RM4.2bil versus the prior week's average of RM3.6bil.
In the private debt securities market, a total of RM2.6bil worth of trades done with 63% coming from the GG/AAA segment, 34% from the AA segment and the balance from the single-A segment. For the week, daily average trade volume came in at RM659mil worth, higher than the RM477mil average seen in the previous week.
In the GG/AAA segment, active trading was seen for Industrial Bank of Korea 02/17 with collective trades worth RM210mil done. Interest also emerged for the OCBC 06/13 with RM200mil changing hands, with yield settling at 3.56% level.
In the AA-segment, trading interest was seen in the banking and power sectors with both making 44% and 35% respectively of the total trade in the segment. Notably, RM95mil of Tanjung Bin Power 08/29 were traded. Meanwhile Sarawak Energy bonds maturing 2018-2027 saw collective volume of RM60mil done with yields easing between 3-5 bps. Elsewhere, Malayan Banking 08/16 saw RM60mil trades transacted.
In the single-A segment, AMMB Holdings 08/17 and 08/19 garnered trading volume of RM15mil and RM10mil respectively.
Ringgit IRS market
The ringgit IRS rates climbed significantly higher during the week as sell down in govvies and growing optimism in US economy prompted market to reassess the expectation of policy rate cutting. The ringgit IRS rates ended the week 8-13 bps higher.
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