Treasury Pulse: Global forex market

  • Business
  • Saturday, 17 Oct 2015

Global forex market

MARKETS continued to trade with a negative risk bias, not helped by a generally weaker-than-expected set of global economic data.

Things got off to a poor start for the US dollar earlier this month when US job market showed a marked slowdown in hiring for September. The weekly tally fell 7,000 to 255,000 – the fewest since late 1973. Consumer inflation slipped to an annual rate of zero while retail sales rose a mere 0.1% in September, lighter than forecasts of 0.2% and August numbers got revised to zero from 0.2%, which essentially reducing the US dollar’s appeal and boosting the allure of others.

With rising skepticism that the Fed would raise rate anytime soon and pessimism on the China’s economy, the euro continued to creep higher. The currency touched seven-week highs against the US dollar despite the weak shape of eurozone fundamentals.

However, a risk to sustainable gains for the euro would be any push back from the European Central Bank over the euro’s nearly 10% rise from 12-year lows in March. Germany’s influential ZEW survey of investor confidence darkened for the seventh month running in October, hit by the crises embroiling emerging economies and carmaker Volkswagen AG.

Disappointing China trade data continued to rattle global markets as markets were underpinned by bad news. Global stocks were lower as China’s exports dropped 3.7%, fuelled fears that China’s third-quarter real GDP growth to fall below Beijing’s target. Imports in September fell further by 20.4%, compared with 13.8% drop in August, reigniting fears of potential global deflationary pressure via commodity prices and weaker Chinese demand for Australia, New Zealand and Canada’s resource exports.

At the moment, delaying Fed hikes is “bad” for the US dollar and “good” for risk sentiment. By the same token, hopes of further easing in China and Japan are seen as reasons to be positive about risk assets, particularly in Asia. Riding on these developments, the Korean won was best performing Asian currency with 1.4% gain against US dollar as the yen traded below 120.0 and Bank of Korea kept its policy rate steady. It needs Bank of Japan’s new round of quantitative easing encore to get the yen sellers back in action. Despite its move to ease policy, the Monetary Authority of Singapore failed to provide immediate directional bias as the local currency was being traded more of a beta to the performance of the trade weighted US dollar basket and its blended rates. The currency gained 1.3% against US dollar to be the second best performing Asian currency.

The ringgit rose 0.5% against the US dollar, extending its gains for the second consecutive week to close below 4.160 in response to stronger equity markets, drop in credit risk premium as measured by declining one-month volatility and five-year credit default swap rate as well as narrowing spread between spot and non-delivery forward rates. The KLCI continued to soar to above 1,700 on selective buying by both local and foreign funds. Local currency touched lowest of 4.096 on Thursday.

UST market

Ten-year USTreasury yield edged lower on weaker set of global data, higher global stocks and diminishing market expectation for a rate hike in 2015. At Friday’s 11.00am pricing, the two-, five- and 10-year UST traded at 0.59%, 1.33% and 2.01%.

M’sian bond market

Local govvies rallied with buying interest in the front end in response to the ringgit’s appreciation pressure. The week saw the re-opening of the five-year Government Investment Issues ‘08/20 which garnered a bid-to-cover ratio of 1.843 times at an average yield of 3.989%.

Local govvies saw RM6.8bil in trading volume, translating into daily average of RM2.3bil. This was lower, compared with the preceding week’s RM20.3bil total trading value, which is equivalent to RM4.1bil daily. At Friday’s 11.00am pricing, the three-, five-, seven-, 10-, 15-, 20- and 30-year benchmark Malaysian Government Securities yields settled at 3.62%, 3.72%, 4.02%, 4.12%, 4.37%, 4.46% and 4.71% respectively.

In the secondary private debt securities market, we saw a more active trading activities this week, compared with a week earlier. Total trading volume stood at RM1.3bil, averaging at RM436mil daily, compared with last week’s RM239mil.About 79% of the trading volume was contributed by the GG/AAA segment, 20% by the AA segment, with the remaining by the A segment.

In the GG/AAA segment, 2016-2025 tranches Pengurusan Air SPV Bhd traded mixed to close at 3.18%-4.54% with a collective trading volume of RM265mil.

Meanwhile, Gas Malaysia Bhd ‘04/16 remained unchanged to close at 3.95% with a total trading volume of RM123mil. The AAA rated Industrial Bank of Korea‘02/17 saw yield decreased by 16 basis points to settle at 4.15 % with RM120mil done.

Trading activities in the AA segment this week were lower, compared with a week ago. 2015-2021 tranches Malakoff Power Bhd traded at mixed to close at 4% to 5% with a collective trading volume of RM42mil.

PerbadananKemajuanNegeri Selangor ‘10/16 saw yield eased 5 basis points to close at 4.33% with a trading volume of RM20mil. Sabah Development Bank Bhd ‘08/19 eased 1 basis point to settle at 4.76% with a total of RM30mil changed hands.

Ringgit IRS market

As at Friday’s 11:00 am pricing, the IRS curve stayed relatively stable while the 3-month KLIBOR remained unchanged at 3.74% this week.

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