THE US dollar attempted to embark on a new winning streak after its previous one was halted on Wednesday as investors cashed out some gains. The greenback found a tail wind in May as the markets was rethinking future course for Federal Reserve policy as hawkish squawk from several Fed officials have been keeping hopes flickering for a rate hike in the months ahead.
The jobless claims for the week of May 7 spiked unexpectedly to 294,000 – the highest level since week of February 28, 2015 – along with higher crude oil prices drove US dollar bulls to be on cautious side of the coin. Nearly all of the weekly increase in initial claims was driven by New York State, where claims rose 23,000 week-on-week in seasonally adjusted terms.
Nevertheless, traders were inclined not to push the currency beyond its recent multi-month troughs on suspicions that US growth may be on the cusp of a pick-up. Buying momentum petered out, giving way to a new round of profit-taking in later part of the week.
Euro eased off slightly after spending the past week dribbling from eight-month peaks with the limited guidance from European data this week as the currency looking elsewhere for cues. Global stock gains didn’t help the euro’s cause, as it whet appetite for risk at the expense of low-yielders like the single currency. European equity markets were trading lower as were US stock futures along with bearish macro flows highlighting the bloc’s weak fundamental shape, which could require more stimulus from the European Central Bank.
Japanese yen was heading to test 109 after hitting recent low of 106.3 in response to the release of Bank of Japan (BoJ) minutes for its April meeting. It showed that the BoJ is still assessing the impact of previously introduced negative rates and it has raised the possibility of additional easing, given that risks continue to be skewed to the downside.
The Chinese Communist Party is now officially worried about mounting debt. “A tree cannot grow up to the sky – high leverage will definitely lead to high risks,” said a front-page commentary in the People’s Daily on May 9. Leading the losses were South Korean won (-1.08%), Singapore dollar (-1.02%) and ringgit (-0.74%) as respective equity markets remained under selling pressure despite broad decline in the currency volatility.
Selling pressure on the ringgit continued as the currency became third-worst-performing Asia ex-Japan currency for the review period over equity selling by foreign investors and weaker macro numbers. Industrial production eased to 2.8% in March 2016 from 3.9% a month before along with softer Purchasing Managers’ Index that stood at 47.1 points in April from 48.4 points in March.
The selling pressure, however, was moderated by recovery in crude oil prices as it hit 7-month high of US$47.6 per barrel as International Energy Agency reports expect non-Opec supply to fall while global demand to rise more-than-expected along with declining currency volatility. The one-month US dollar/ringgit volatility moderated from week’s high of 11.05% to close below 10.86% respectively.
US Treasury yield curve flattened as short-term rates responded to hawkish comment by Fed officials. On Friday’s 11:00am pricing, the 2, 5 and 10-year UST traded at 0.75%, 1.22% and 1.74%.
Malaysian Bond Market
Local govvies saw some rally on the front end and the belly of the yield curve on the back of the recovery in crude oil prices which drove the buying interest by foreign and local investors. Moderating 1-month US dollar/ringgit volatility also helped to support investors’ appetite on local govvies.
Local govvies saw RM11.7bil trading volume, translating into daily average of RM2.9bil. This was lower compared to preceding week daily average of RM3.8bil. On Friday’s 11:00am pricing, the 3, 5, 7, 10, 15, 20 and 30-year benchmark MGS yields settled at a respective 3.20%, 3.40%, 3.75%, 3.86%, 4.16%, 4.28% and 4.65%.
In the secondary private debt securities (PDS) market, we also saw a lower volume in trading activities this week compared to last week. Total trading volume for the week stood RM3bil, averaging RM754mil daily compared to last week’s average of RM963mil. About 45% of the trading volume was contributed by the GG/AAA segment and 54% by the AA segment with the remaining 1% in the A segment.
In the GG/AAA segment, 2016-2033 tranches of Cagamas bonds traded at mixed to close at the range of 3.12%-4.81% with a collective trading volume of RM405mil. Meanwhile, 2016-2025 tranches of Aman Sukuk bonds eased 3-24 basis points to settle at the range of 3.65%-4.46% with a total of RM110mil changed hands. 2022-2026 PLUS bonds traded at mixed to settle at the range of 4.17%-4.93% with a total trading volume of RM92mil.
Elsewhere in the AA segment, 2021-2036 Sarawak Energy bonds traded at mixed within the range of 4.44%-5.07% with a total trading volume of RM348mil. Meanwhile, 2016 tranche of Sabah Development Bank bonds eased 8-21 basis points to close at the range of 4.05%-4.15%, with a collective trading volume of RM45mil. CIMB Bank ‘09/18 and ‘10/18 saw yields down 43 and 21 basis points to settle at 4.50% and 4.70% respectively, with RM67mil changed hands.
MYR IRS Market
As at Friday’s 11:00am pricing, IRS curve shifted lower in response to the rally in local govvies and ample domestic liquidity conditions as seen in the one basis point drops in 3-month Klibor to 3.67%, the lowest reading since August 2014.
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