THE US dollar firmed up following remarks from voting member Dennis Lockhart that “it would take a “significant deterioration in the economic picture” for him to not support a rate hike in September.
Market is not quite pricey for the first rate hike in September and for the October meeting the probability of a rate hike at the Oct 28 meeting is just under 40% as per calculations by CME based on where the Fed Funds Futures are trading currently. The recovery also tracked higher US yields and to a lesser extent, the highest ISM non-manufacturing print since 2005 and the decline in oil prices.
WTI sold-off to US$44.8, which is the lowest level seen since March 20 as the Energy Department reported product builds and a production uptick. The two-year US yields which tracking Bunds hit a new trend high of 0.756%.
The euro ended on a weaker note to levels last traded in mid-July on the back of a strong US dollar and weaker-than-expected eurozone economic data pushed it lower.
Eurozone retail sales fell by 0.6% in June well below analyst expectations of a 0.3% drop. The Greek stock market plunged after a five-week shutdown brought about by fears that the country was about to be dumped out of the economic area, highlighting the fact that Greek bailout needs more working out.
The focus was on the pound as the Bank of England’s (BoE) monetary policy committee – which released for the first time, its latest interest rate decision, its meeting minutes and the high-profile quarterly Inflation Report on the very same day. The meeting minutes and the post-Inflation Report conference revealed that a small minority group of the BoE members have started to vote for a rate rise.
The yen pushed spot up through 124.5 and flirted with 125 handle after an upbeat Markit final services PMI. It has been fairly breath taking especially yield differential conviction is relatively weak and the Bank of Japan stood pat and retained its growth/inflation assessment.
The BoJ continued to reiterate that it did not see the need for further easing at this juncture.
Asian currencies with the exception of the ruppe and the Hong Kong dollar ended broadly lower against the US dollar.
Leading the top losers was the ringgit, which fell 1.55%, followed by the yen of 0.59% and the Singapore dollar of 0.45%. The Singapore dollar was boosted by fresh selling by hedge funds and interbank players as well as some position adjustments ahead of the long jubilee weekend in Singapore.
The ringgit was the only Asian currencies that made new highs given the relatively weak reserves coverage ratio with the short-term debt to reserves ratio close to 100% and reserves to import cover also barely over six months’ worth of imports.
Stronger-than-expected trade surplus which grew to RM7.98bil (RM5.51bil in May) arising from an unexpected increase of 5% in exports, however, failed to excite markets positioning. The currency gapped up to trade to 3.8955 on lower oil prices and strong selling in the local equity while the one-month NDF continued to surge higher to above 3.9100.
Foreign institutions were net sellers of the local equity at RM2.9bil in July 2015 and year-to-date, net foreign selling has amounted to RM11.6bil respectively.
Global yields were responding to the euro’s long-end curve with the 30-year Bund yield up 17 basis points. Correspondingly, the two-year US Treasury (UST) yields which tracks Bunds hit a new trend high of 0.756%. On Friday’s 11.00am pricing, the two-, five- and 10-year UST traded at 0.71%, 1.62% and 2.23%.
Malaysian bond market
Trading activities in local govvies were much lighter as players took a cautions stand in response to the depreciating ringgit and weak market sentiments.
Local govvies saw RM7.5bil trading volume, translating into a daily average of RM1.9bil. This was lower compared with the preceding week’s total trading value of RM19.7bil, an equivalent of RM3.9bil daily. On Friday’s 11.00am pricing, the three-, five-, seven-, 10-, 15-, 20- and 30-year benchmark Malaysian Government Securities yields settled at a respective 3.31%, 3.75%, 4.02%, 4.14%, 4.33%, 4.37% and 4.71%.
In the secondary private debt securities market, we saw a decreased in trading activities this week compared with last week. Total trading volume for the week hit RM1.2bil, averaging RM312mil daily, compared with last week’s average of RM752mil. About 55% of the trading volume was contributed by the GG/AAA segment, 44% by the AA segment, with the remaining by the A segment.
In the GG/AAA segment, 2019-2025 tranches PLUS bonds traded mixed to close at the range of 3.99% to 4.46% with a collective trading volume of RM50mil. Meanwhile, Perbadanan Tabung Pendidikan Tinggi Nasional ‘03/24 eased 1 basis point to close at 4.32% with RM100mil done. The AAA rated Manjung Island Energy Bhd ‘11/21 saw yield declining 1 basis point to settle at 4.23% with RM20mil changed hands.
Trading activities in the AA segment this week were lower compared with the preceding week. 2016-2026 tranches Sarawak Energy Bhd bonds traded mixed to close at the range of 3.91% to 4.73% with a collective trading volume of RM75mil.
Malaysia Airport Holdings Bhd ‘12/24 saw yield declining 1 basis point to close at 5.02% with a trading volume of RM100mil. YTL Power International Bhd ‘08/18 and ‘03/23 eased 1-4 basis points to close at 4.18% and 4.60% with a total trading volume of RM40mil.
Ringgit IRS market
As at Friday’s 11.00am pricing, the interest rate swap (IRS) curve shifted lower on the belly of the curve but the three-month KLIBOR remained steady at 3.69%.
For enquiries, please contact:
Did you find this article insightful?