Global forex market
US dollar remained its downward momentum against broad currencies as market timing for first rate hikes is shifted from late December to first half of 2016, in response to the dovish Federal Reserve minutes and other soft data flows.
The latest Fed minutes showed that downside risk to economic growth prevented the Fed from raising interest rates in September, with most of its officials decided that it would be “prudent” to wait for signs that problem in overseas, especially in China, to dissipate.
Meanwhile, the jump in August trade deficit due to the plunge in exports amid a slowing global economy also added pressure to the greenback. The increase in trade deficit by 15.6% from July also points to a weaker third-quarter US GDP data.
The euro soared against the US dollar despite dovish European Central Bank (ECB) minutes and disappointing German data flows. The ECB’s minutes reaffirmed that the governing council is continuing to see risks to eurozone growth and inflation skewing to the downside. The minutes also emphasise that the central bank is prepared to act further, expand the quantitative easing programme, if required. German factory orders, industrial production, and trade balance for August all reported decline from previously.
The yen also strengthened against the US dollar, riding on the currency sell-off and Bank of Japan’s (BoJ) decision to leave its asset-purchase programmed unchanged. BoJ governor Haruhiko Kuroda says Japanese companies see prices rising into the future, and household inflation expectations haven’t changed. He also highlighted that the business investment plans are strong and further wage gains are likely in next year’s spring pay talks. His confidence on Japan’s economy signalled low probability for additional stimulus in the coming monetary policy at the end of this month.
Asian currencies extended the gain against the US dollar from last week. Top gainer was the rupiah as the Indonesian government unveiled the last installment of a series of three stimulus package. The previous two packages, which released in September, involved deregulation measures to attract domestic and foreign investment. The last installment is focused on cutting domestic operational costs with lower prices of fuel, electricity and gas, micro-loan subsidies and simplifying land permits for investment activities, to support local industries. China equities’ catch-up rally after a week-long holiday also helped support the performance of Asian currencies as this provide a good backdrop to market optimism across global markets.
The ringgit appreciated sharply against the US dollar in response to the surge in oil prices and the Malaysia’s positive trade surplus. WTI surged above US$ 50/bbl for the first time since July after Venezuela Oil Minister said OPec and non-Opec member countries will hold a technical meeting on Oct 21.
Meanwhile, Malaysia trade surplus in August widened to RM10.2bil from a surplus of RM2.4bil in July as exports grew against imports. On the other hand, the surge in KLCI Index to near 1,700 level, the plunge in the ringgit one-month non-delivery forward rate from 4.40 to 4.13, the decrease in Malaysia’s five-year credit-default swap rate and the cross Singapore dollar/ringgit which touched below the 3.00 level also helped support ringgit’s strength against the greenback.
US Treasuries (UST) yield edged higher across the curve as equity market rallied while the September Fed minutes suggest a tactical delay with lingering risks. On Friday’s 11.00am pricing, the two-, five- and 10-year UST traded at 0.63%, 1.38% and 2.08%.
Malaysian bond market
Local govvies rallied in response to the ringgit’s appreciation and stronger oil price where West Texas Intermediate surged above US dollar/50bbl for the first time since July.
Local govvies saw RM16.3bil trading volume, translating into daily average of RM4.1bil. This was higher compared with preceding week’s total trading value of RM15bil, which is equivalent to RM3bil. At Friday’s 11.00am pricing, the three-, five-, seven-, 10-, 15-, 20- and 30-year benchmark Malaysia Government Secuties yields settled at 3.64%, 3.74%, 4.05%, 4.12%, 4.48%, 4.53% and 4.72% respectively.
In the secondary private debt secuties market, we saw a higher volume in trading activities this week compared with last week.
Total trading volume for the week stood at RM900mil, averaging at RM229mil daily, compared with last week’s RM205mil. About 59% of the trading volume was contributed by the GG/AAA segment, 40% by the AA segment, with the remaining by the A segment.
In the GG/AAA segment, 2016-2030 tranches Danga Capital Bhd traded at mixed to close at 3.88%-4.95% with a collective trading volume of RM72mil.
Meanwhile, Pengurusan Air SPV Bhd ‘02/16 eased 22 basis points to close at 3.33% whereas ‘09/20 remained unchanged at 4.23% with a total trading volume of RM190mil. The AAA rated 2025-2026 tranches TNB Western Energy Bhd saw yield traded at mixed to settle at 4.75%-4.85% with RM70mil changed hands.
Trading activities in the AA segment this week were higher, compared with the preceding week. 2020-2021 tranches WCT Holdings Bhd traded at mixed to close at 4.77% to 4.98% with a collective trading volume of RM32mil. Malaysia Airport Holdings Bhd ‘12/24 saw yield eased 1 basis point to close at 5.53% with a trading volume of RM30mil. Sabah Development Bank Bhd ‘08/19 eased 8 basis points to settle at 4.77% with a total of RM60mil done.
Ringgit IRS market
As at Friday’s 11.00am pricing, the interest rate swap (IRS) curve shifted downward in response to strengthening of the ringgit. The three-month KLIBOR remained unchanged at 3.74% this week.
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