STRONGER US dataflow and upbeat commentary from Federal Reserve chair Janet Yellen were the catalysts for broad-based US dollar strength during the week.
In the House testimony, Yellen mentioned that the US economy is “performing well” and that if dataflow remained solid then a December rate hike would be a “live possibility”. She also added that core inflation remained below target but survey measures of inflation expectations are reassuring. Elsewhere, the increase in the ADP employment, the strong non-manufacturing ISM survey, and the narrowed trade deficit all helped to support the strengthening of US dollar.
The non-manufacturing ISM survey increased to 59.1 in October from 56.9, with new orders and employment components improved.
The yen weakened against the US dollar on the back of Bank of Japan’s (BoJ) October minutes that showed it’s worried that the recent drop in crude oil prices could delay 2% CPI. The central bank also blamed firms for a slow rise in wages amid record profits. It also warned that prolong slowing growth in emerging markets could weigh on exports.
Most Asian currencies were on the weakening bias against US dollar, except the rupiah, the Taiwanese dollar and the baht. The rupiah strengthened against the greenback after Indonesia announced the new revaluation rule that encourage more investments. Under the new rule, companies that revalue their property assets before the end of the year will pay a tax rate of 3%, down from 10% currently. Indonesia is also boosting the domestic capital market by scrapping double taxation on REITs established in the country.
The Taiwanese dollar strengthened as President Ma Ying-jeous’s plan to meet China President Xi Jinping stoked optimism that improving relations between the two historical foes will boost Taiwan’s economy.
At the time of writing, the ringgit remained stable on a depreciation bias against the US dollar on the back of high one-month non-deliverable forward that hovered above 4.30 level and the weaker oil prices. Crude oil prices continued to remain under pressure due to supply-side news and strong US dollar. News that Russian oil output broke a post-Soviet record in October for the fourth time this year, together with Iran’s plan to raise production by 500,000 barrels a day and the rising US crude oil inventories all weighed on oil prices.
On the macro front, Malaysia manufacturing PMI survey showed that its manufacturing activity dipped further into contraction territory as production and new orders continued to drop. Elsewhere, Bank Negara kept the overnight policy rate unchanged at 3.25% and showed cautious that downside risks to global growth remain high.
Two-year US treasury (UST) yield hit their highest levels in 4½ years in response to Yellen’s speech and positive US economy data flows. At Friday’s 11.00am pricing, the two-, five- and 10-year UST traded at 0.82%, 1.63% and 2.23%.
Malaysian bond market
Trading activities in local govvies were lighter this week, as most market players adopt a wait and see strategy ahead of a key US labour market report which will shape expectations of a possible US interest-rate hike in December.
Local govvies saw RM10.3bil trading volume, translating into daily average of RM2.6bil. This was lower compared with the preceding week’s total trading value of RM11.9bil or RM2.4bil daily. At Friday’s 11.00am pricing, the three-, five-, seven-, 10-, 15-, 20- and 30-year benchmark Malaysian Government Securities yields settled at a respective 3.59%, 3.75%, 4.08%, 4.14%, 4.37%, 4.48% and 4.71%.
In the secondary private debt securities market, we saw a lower volume in trading activities this week compared with last week. Total trading volume stood RM1.3bil, averaging RM331mil daily compared with last week’s RM570mil. About 32% of the trading volume was contributed by the GG/AAA segment, 60% by the AA segment, with the remaining by the A segment.
In the GG/AAA segment, 2021-2040 tranches DanaInfra Nasional Bhd saw yield traded higher at 3-9 basis points to close at 4.22%-4.98% with a collective trading volume of RM68mil. Meanwhile, 2016-2025 tranches Pengurusan Air SPV Bhd traded at mixed to close at 3.62%-4.57% with a total trading volume of RM105mil. Small Medium Enterprise Development Bank Malaysia Bhd saw yield eased by 6 basis points to settle at 4% with RM75mil changed hands.
Trading activities in the AA segment this week were lower compared with the preceding week. Sabah Development Bank Bhd both ‘08/19 saw yield traded 0-2 basis points to close at 4.76% with a collective trading volume of RM80mil. RHB Islamic Bank Bhd ‘05/19 saw yield remained unchanged to close at 4.67% with a trading volume of RM75mil. WCT Holdings Bhd ‘04/20 remained unchanged at 4.77% while ‘10/21 eased 1 basis point to settle at 4.95% with a total trading volume of RM21mil.
MYR IRS market
As at Friday’s 11.00am pricing, the long end of the interest rate swap (IRS) curve shifted upwards following an increase in probability of a US rate hike in December. Meanwhile, the three-month KLIBOR remained unchanged at 3.74% this week.
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