Global forex market
MARKET sentiments were weaker with the market-wide deleveraging effort and we have seen another significant step towards risk aversion as we are just another 46 days away from US fiscal cliff. Bearish global equity markets and stand-off between Republican House Speaker John Boehner and President Barack Obama offered an additional push while unfavourable chatter on top fundamental themes helped spread the fear which translated into a bullish breakout for the US dollar that cleared the confluence of the 100 and 200-day moving averages.
The speculative sparks drove markets to ignore that the Federal Open Market Committee minutes reported a number of the group's rank favoured more quantitative easings after Operation Twist expired. The euro marched lower against the US dollar towards 1.26 as bulls hammered by deferment of Greece's aid tranche, a consistent disappointment of macro reading and a consistent path of crisis for the government funding market. On the other hand, newswires had not been kind to Japanese markets with the worrying 3.5% contraction on annualised third-quarter gross domestic product (GDP) and the dissolution of parliament by Prime Minister Yoshihiko Noda, hence national vote for the lower house will be held on Dec 16. Evidenced by unwinding in both equities and carry interest, the yen (a preferred safe haven and funding currency) dropped across the board.
Asian currencies traded in a narrow band against the US dollar (+/-0.2%), a reflection of bearish equity markets, flattish commodity markets conditions and holiday effects. Implied volatilities were broadly unchanged but picked up in the yen and Taiwan new dollar due to movements in capital outflows.
Volatilities are set to remain heightened given the ongoing fiscal deficit talks in the United States and the expected release of GDP figures across Europe. The eurozone economy is literally nose diving with economic expectations in Germany fell well below consensus forecasts in November. The Center for European Economic Research or ZEW said its closely watched economic index fell to -15.7 in November from -11.5 in October suggesting a rather dismal outlook for the next six months and there are indications that European banks still prefer to hoard cash with their central banks rather than lend it out.
China's recovery is gaining credibility with growth of China's electricity consumption accelerated to 6.1% in October from September's 2.9%. Having said that the yuan's appreciation since August would likely to take a break following from Obama's re-election and the imminent retirement of the central bank's governor Zhou Xiaochuan following from his absent from the list of 205 members of the Communist Party's Central Committee.
The other Asian macro momentum continued to show signs of modest moderation. Singapore's September retail sales and NODX fell short of expectations while Malaysia's, Singapore's and Hong Kong's third-quarter GDP growth moderated on the back of softer industrial production and weak external demand. Indonesia's motorcycle sales fell 12.3% in October from 14% a month ago a common indicator for broader consumption trend and its current account deficit evidently being funded by volatile financial flows following a first surplus in the overall balance of payment in the third quarter since the second quarter of 2011.
Equity flows were mixed with Korea, Indonesia and Taiwan reported an outflow. Korea accounted for more than half of the region's outflows at US$603mil and Indonesia recorded a third consecutive week of outflow.
US Treasuries (UST) market
At time of writing, yields on US Treasuries on two-, five- and 10-year note seen settling at 0.24%, 0.62% and 1.58% respectively.
Malaysian bond market
During the week, trading volume in local bonds generally thinned due to a shorter trading week in conjunction with the recent public holidays. Overall benchmark government bond yields seen trading range bound, hovering near previous week's closing levels.
In the Malaysia Government securities (MGS)/Goverment Investment Issues market, RM3.1bil worth of trades transacted at the time of writing with a daily average trading volume of RM1.6bil versus last week's average of RM2.9bil. During the week, MGS benchmarks traded mixed. The yields on the five- and 10-year benchmarks closed lower at 3.15% and 3.45%, while the seven- and 20-year benchmarks traded unchanged at 3.4% and 3.91% and the yields on three- and 15-year MGS transacted higher at 3.02% and 3.69%.
In the private debt securities market, a total of RM329mil worth of trades was done with 75% coming from the GG/AAA and the remaining 25% from the AA segment. For the week, daily average trade volume was RM165mil, down from the RM386mil average seen in the previous week.
In the GG/AAA segment, PLUS bonds maturing 20182027 garnered investors' interest with total volume of RM124mil done. Meanwhile, GG-tranche PASB 06/18 traded unchanged at 3.6% with RM40mil done.
In the AA-segment, banking bonds generated nearly 50% of the total trades transacted during the week. Notably, RHB Bank 11/12 and CIMB Group 05/13 garnered a combined trading volume of RM29mil.
Ringgit (MYR) interest rate swap (IRS) market
MYR IRS rates were traded higher during the week after Bank Negara, as expected, kept the overnight policy rate unchanged last week. Volume was significantly low for the short week. MYR IRS rates ended the week 2~3 bps higher.
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