Global forex market
WITH a slew of better-than-expected data releases out of the United States together with China's third-quarter gross domestic product meeting expectations, overall risk appetite somewhat improved during the week.
In the Unted States, the pace of housing started to improve in September by 15% to an annual rate of 872,000 exceeding the forecast level of 770,000. Some bright spots of data out of the United States are suggesting that its economy is gradually levelling up. Similarly, building permits rose to an annual rate of 894,000 in September versus the prior month's reading of 801,000. Industrial output in the United States gained 0.4% in September after a 1.4% drop in August, as production levels by US manufacturing companies' regained momentum. Meanwhile manufacturing in Philadelphia gained traction in October for the first time in six months with the Philadelphia index rising to 5.7 from -1.9 in September. On a separate note, jobless claims increased by 46,000 to 388,000 in the week ended Oct 13 from a revised reading of 342,000 previously. According to the US Labour Department, state level administrative issues was the cause for distortion in data, thus affected seasonal adjustments for the beginning of the quarter.
In the eurozone, inflation rate for the 17-member region held steady at 2.6% year-on-year in September from 2.7% back in August. Recall, the European Central Bank in September forecasts euro-area inflation to average at about 2.5% in 2012 and 1.9% in 2013. .
In Asia, China's third-quarter GDP moderated further to 7.4% year-on-year, lower than the 7.6% expansion in the second quarter but was within market expectations.
Meanwhile, industrial production, fixed investment and retail sales gained in September, beating expectations 9.2% (August: 8.9%), 14.2% (August: 13.2%) and 20.5% (August: 20.2%) respectively. According to the People's Bank of China deputy governor Yi Gang, the Chinese economy is expanding at a slower but still robust pace and may grow 7.8% in 2012. Policymakers in China will continue to take steps to stabilise growth and has relatively large room to use monetary and fiscal policies.
Bank of Thailand (BOT) unexpectedly cut its key policy rate by 25 bps to 2.75%. The bank's monetary policy committee voted 5-2 to ease its key policy rate and cited that with upside risk to inflation contained, policy easing was warranted to shore up domestic demand.
US Treasuries (UST) market
At time of writing, yields on US Treasuries seen edging higher across the maturity spectrum compared with previous week's close. Yields on two-, five- and 10-year notes seen settling at 0.29%, 0.78% and 1.82% respectively following a slew of better than expected US data this week, from somewhat more positive pace of housing starts to improving industrial production data.
Malaysian bond market
During the week, Bank Negara commented that Malaysia is in a better position and can manage capital inflows caused by further monetary easing in advanced economies. The central bank assured that the country has policy tools and flexibility to absorb any excess liquidity. The Malaysian financial system has reached a level of maturity in terms of development and is able to intermediate these flows, both surges of inflows as well as reversals.
In the Malaysian Government securities (MGS)/Government investment issues (GII) market, RM12.4bil trades were transacted with a daily average trading volume of RM3.1bil versus last week's average of RM2.4bil. During the week, most MGS benchmarks across the maturity spectrum were traded between 1-3bps lower than previous week. On the shorter end of the curve, the three-year, five-year and seven-year benchmarks ended the day 3.09%, 3.24% and 3.4%. Meanwhile, on the longer end of the curve, the 10-year, 15-year and 20-year benchmarks closed the day at 3.42%, 3.69% and 3.9% respectively.
In the private debt securties (PDS) market, a total of RM1.5bil worth of trades done with 46% coming from the GG/AAA segment, 44% from the AA segment and remaining balance from the single-A segment. For the week, daily average trade volume was RM374mil, easing from the RM383mil average a week earlier.
In the GG/AAA segment, active trading interest was seen in Hyundai Capital 13 with RM100mil worth of trades done at 3.7%. Meanwhile, PLUS bonds maturing 2020-2027 garnered RM110mil of trading volume with yields closing between 4%-4.5%.
In the AA-segment, trading interest was seen in Tanjung Bin Power maturing 2019-2024 which garnered RM70mil worth of trades. Meanwhile, Malayan Banking '8/16 and '5/19 closed at 4.03% and 4.17% respectively with a collective volume of RM70mil transacted. Within the single-A segment, AmBank 22 garnered RM111mil in trading volume.
Ringgit (MYR) interest rate swap (IRS) market
MYR IRS rates were relatively unchanged throughout the week despite surge in US Treasuries yields and rate cut by BOT. Trading in MYR IRS remains sideway as statement from policy maker continue to indicate no change from their current stance.
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