Global forex market
THE US dollar is up 2.5% against a basket of currencies as market players switched focus amid improving equity market sentiment and better US data.
Strong rebound of most bourses after the global stock market sell-off showed improvement of sentiment in equity markets. As a result of improved sentiment, low yielders sold off most heavily as market players searching for higher return, in reaction to stronger US second-quarter GDP growth numbers. The second estimate of the growth was revised up to 3.7% against 2.3%.
This resulted in the euro unwinding its gain as market players shifted their focus back on the US dollar to take profit on the euro’s recent gain. The release of positive data and the rebound in the eurozone equities market failed to keep the euro on further gains. German business confidence improved unexpectedly to a three-month high of 108.3 in August despite fears of a sharp slowdown in China. Credit to eurozone firms and households accelerated in July, suggesting that the European Central Bank’s accommodative monetary policy is gradually working its way into the private sector.
The yen weakened 1.5% against the US dollar as consumer prices continued to disappoint expectations. It rise only 0.2% in July, slowing from 0.4% in June and far below the 2% inflation target of the Bank of Japan (BoJ). However, the BoJ is still confident that it can achieve the 2% inflation target with the current level of monetary stimulus.
Other Asian currencies with the exception of the baht were closed broadly higher against the greenback. Top gainers were the won, followed by the Taiwanese dollar and the rupee as local equities rebounded from the recent sold off as bargain hunting in stocks and rate cuts in China provided some stability to markets.
Meanwhile, the agreement between South and North Korea has helped support the strengthening of the won. The rupee reacted positively to Reserve Bank of India’s decision to use its foreign exchange reserves to stabilise the currency.
The People’s Bank of China heightened its supportive measures by cutting the reserve requirement ratio (RRR) by 50 basis points to 18% for large financial institutions, which is releasing an estimated 650 billion yuan into the banking system. At the same time, both the one-year lending rate and deposit rates were lowered by 25 basis points to 4.6% and 1.75% respectively.
The ringgit rose 0.7% against the US dollar, the first weekly gain since July 17, ignoring the high one-month US dollar/ringgit volatility. The local currency was enjoying a ride on the recent rebound in crude oil prices and the strong buying of local equities – that rebounded from the low of 1,503.68 to above at 1,600. On macro front, Malaysia has unveiled the structure and functions of the Special Economic Committee (SEC) which will consider immediate and medium-term planning to further strengthen the country’s economic fundamentals.
Upbeat revised of the US second-quarter GDP growth and improved risk sentiment pushed up the US Treasuries (UST) yields. At Friday’s 11.00am pricing, the two-, five- and 10-year UST traded at 0.68%, 1.49% and 2.17%.
Malaysian bond market
Trading activities in local govvies were lighter. Most local govvies were under selling pressure tracing the movement on UST and the downtrend in local debt papers as a result of the ringgit’s volatility. The week saw re-opening of 10-year Malaysian Government Securities ‘09/25 which garnered a bid-to-cover ratio of 2.033 times at an average yield of 4.453% due to strong buying interest by onshore real money.
Local govvies saw RM11.4bil trading volume, translating into daily average of RM2.9bil. This was lower compared with the preceding week of total trading value of RM14.6bil, an equivalent RM2.9bil daily. At Friday’s 11.00am pricing, the three-, five-, seven-, 10-, 15-, 20- and 30-year benchmark MGS yields settled at a respective 3.51%, 4.05%, 4.36%, 4.42%, 4.73%, 4.8% and 4.95%.
In the secondary private debt securities (PDS) market, we saw a lower volume in trading activities compared with last week. Total trading stood at RM1.4bil, averaging at RM342mil daily compared with last week’s RM405mil. About 41% of the trading volume was contributed by the GG/AAA segment, 58% by the AA segment, with the remaining by the A segment.
In the GG/AAA segment, ADCB Finance (Cayman) Ltd ‘05/17 and ‘11/17 increased 13-14 basis points to close at 4.42% and 4.46% with a collective trading volume of RM15mil. Meanwhile, Asian Development Bank ‘02/17 eased 2 basis points at 3.71% with a total RM56mil done. The AAA rated, PLUS ‘01/28 saw yield increase 7 basis points to settle at 4.97% with RM10mil changed hands.
Trading activities in the AA segment this week were lower compared with the preceding week. 2015-2021 tranches of CIMB Bank Bhd bonds increased 0-11 basis points to close at 4.27%-5.6% with a collective trading volume of RM95mil. 2017-2021 tranches of First Resources Ltd bonds increased 1-9 basis points at 4.26%-4.57% with a total trading volume of RM35mil. YTL Power International Bhd ‘08/18 and ‘10/24 increased 4-8 basis points to close at 4.35% and 4.77% with a total trading volume of RM70mil.
MYR IRS market
As at Friday’s 11.00am pricing, the interest rate swap (IRS) curve shifted upward on tighter onshore liquidity conditions and higher than average ringgit’s volatility. The three-month KLIBOR increased 4 basis points to the level of 3.73% this week.
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