MARKET saw aggressive unwind of risk exposure with downward pressure on stocks, commodities, treasury yields and risk currencies.
Weak US corporate earnings from the likes of Bank of America, Intel and Yahoo gave Wall Street the chills and Pimco's Bill Gross captured the market mood with a tweet that Monday's global market drop “was not a one-off”, and Wednesday's not a “two-off”. He argued that the gold rout as starting a levered market sell-off and advised piling into safe-haven Treasuries.
The commodity currencies tumbled sharply on news that China unexpectedly tapped on the brakes in the first quarter, with growth advancing 7.7% on the year from the fourth quarter's 7.9% and still faces some downside risks the outbreak of avian flu, the front loading effects in the property market and slowing investment momentum.
Gold and silver putting in fresh lows and Brent contracts traded down through US$100 for the first time since July last year. Gold flows dominated the week as its identity crisis continued with its technical break from range-bound status to the biggest two day move since 1983.
The euro plunged against the yen and greenback as investors fleeing risk for higher ground partly on weaker than expected German investor confidence and after the European Central Bank member and Bundesbank president Jens Weidmann suggested that interest rates may be lowered, while also warning the debt crises could last up to a decade. The April's ZEW Centre for Economic Research dropped to 36.3 from a reading of 48.5 in March, missing expectations of a 42.0 print.
The euro has been buoyed in recent sessions amid expectations that investors would pull money from Japan and it was estimated that Japanese investors to have sold 254 billion yen of foreign currency denominated toshins last week the first net selling in three weeks and Thoshin companies became a net buyers of foreign assets in March for the first time in five months.
In Asian currencies space, the won continued to be the weakest link followed by the Philippines peso and Indonesian rupiah for the week under review. Meanwhile, the People's Bank of China (PBoC) fixed the yuan exchange rate at a higher level of 6.2342 yuan per US dollar or an appreciation of 0.11% and the currency trading band may be widened in its next reforms. The PBOC increased the yuan band to 1% on either side of the rate, from 0.5% on April 16, 2012. This prompted the currency to rally the most in four months to a 19-year high of 6.1723 yuan per US dollar.
The ringgit ended the week on a bullish tone on the back of the record low US dollar/yuan fixing, foreign equity inflows, stronger consumer confidence and continued demand for government bonds as reflected in the Malaysian Government Securities (MGS) 4/33 that garnered a strong bid-to-cover ratio of 2.88 times.
A drop in the MIER's business conditions index (BCI) by 1.5 percentage points to 92.6 in 1Q 2013, the lowest since the first quarter of 2009 and a 1.6% increase in March's consumer prices mainly on the back of increased prices for food and non-alcoholic beverages appeared to have muted effects on the currency.
US Treasuries (UST) generally traded bid during the week amid softer economic data releases from the US economy. Increase in US jobless claims reported this week together with easing Philadelphia Fed index somewhat renewed concerns that the US recovery momentum which started off strong is gradually softening. Philadelphia Fed index for April printed a lower 1.3 reading compared with a prior level of 2.0. At time of writing, yields on two-, five- and 10-year notes were seen settling at 0.22%, 0.71% and 1.7% respectively.
Malaysian bond market
During the week, local govvies mostly advanced higher with yields easing a tad further from previous week's close, supported by a stronger ringgit performance and continued bargain hunting from offshore players. Fresh unprecedented stimulus by the Bank of Japan combined with ultra loose monetary policies from advanced economies have somewhat accelerated further the appeal of carry trade, with Asean local currency government bond markets including Malaysia emerging as a favourable investment destination. At time of writing, yields on benchmark MGS for three-, five-, seven-, 10-, 15- and 20-year seen at 2.96%, 3.16%, 3.33%, 3.38%, 3.61% and 3.82% respectively as per Thursday's close. Trading volume during the week in the MGS/Government Investment Issues registered close to RM10bil with average daily trading volume of RM2.5bil.
On the local PDS market, total trading volume amounted to RM2.5bil, of which 55% came from the GG/AAA, 40% from the AA segments and the remaining trades from the single A segment. Daily average trade volume declined to RM620mil compared with RM857mil average seen last week.
In the GG/AAA segment, active trading was seen on the AAA-rated IBK 07/13 which garnered a trading volume of RM230mil with yields easing 6 bps to 3.38%. Other notable trades include PLUS bonds maturing 2017-2037, which generally saw yields easing this week with a collective trading volume of RM206mil.
In the AA band, trading interest garnered traction with investors continue to hunt for yields. Maybank 18 and '19 garnered a collectively volume of RM100mil with respective last done yields at 4.14% and 4.21% respectively. Elsewhere, YTL Power International's bonds maturing 2013-2023 saw a collective trading volume of RM105mil, last dealt in the range of 3.51% to 4.38%.
MYR IRS market
MYR IRS rates were traded lower as commodities price slump and worsen US data continue to exert pressure on the rates. The IRS curve ended the week by circa 1-7 bps lower.
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