Global Forex Market
A BRANCH of the Federal Reserve, the Federal Open Market Committee (FOMC), sent new signals about a possible rate hike in December 2016 with inflation finally showing signs of behaving the way Fed Reserve officials want it to.
Inflation has “increased somewhat since earlier this year”. Officials also noted that the odds for a rate hike in December have also moved higher to 78% from 65.9% two weeks ago.
Market anxiety persists ahead of the US Presidential election on Nov 8 after the Federal Bureau of Investigation (FBI) reopened the probe against Hillary Clinton, with some polls indicating that Trump is leading slightly ahead of Clinton.
Equity volatility surged to its highest since July. The US dollar declined 1.3% to its three-week low, global equity suffered major selling with safe haven flows into Swiss franc, yen, the euro with a rally in gold and global bonds.
December gold futures posted a one-month high on Wednesday as investors continued to shed equities and move money into the safety of the gold market. Oil prices continued to ease to the one-month low over uncertainties of major oil producers to discuss a proposal to curb crude production.
Back on Sept 28, Opec announced it had agreed to support a plan to reduce oil production.
The yen strengthened against the US dollar by over 1% amid safe-haven driven demand as global stocks came under pressure. The pair has broken its 200-day moving average at JY104.15 on route to making a two-week low at JY103.35 pointing to the possibility that the one-month rally, since the late-September lows near JY100.00, is now in a reversal. The low liquidity due to the holiday in Japan also contributed in making it easy but it also showed how much risks exist and how nervy the market is.
The euro strengthened 1.06% against US dollar as the “risk-off” environment drives flows back to the single currency. German unemployment figures hit a fresh record low of 6% last month. The sign of growth supported this flow to the single currency.
The key focus, however, was the British pound. It appreciated 1.5% to US$1.245 against US dollar given UK’s High Court ruling on Brexit and the outcome of Bank of England’s (BoE) meeting. The court ruled that the government must hold a vote in parliament before starting the two-year countdown to Brexit and the BoE said it is no longer expecting to cut interest rates again this year. The rates market has dramatically priced out BoE’s easing expectation with the 10-year gilts rising 3.1 basis points to 1.199%.
Asian currencies with the exception of the rupiah and the Philippine peso closed broadly stronger against the US dollar. Top gainers were Singapore dollar that rose 0.51% against US dollar on safe-haven flow, Taiwanese dollar that rose 0.49% against US dollar due to equity related inflows and the strengthening of CNY against US dollar from its weakest point of CNY6.786 to close at CNY6.759.
The Korean won stayed relatively unchanged despite South Korea’s President Park Geun-hye’s troubles. Her approval ratings fell to 5%, an all-time low for any South Korean president and underscoring the impact of the influence-peddling scandal.
Ringgit rose 0.15% to around RM4.191 against US dollar due to a decline in the 1-month USD/MYR volatility, appreciation of CNY against US dollar amid continued weakening in US dollar. This was despite the intensified sell down in local equity of RM599.5mil compared to last week’s selling of RM396.8mil in line with regional markets.
US Treasury yield curve shifted lower ahead of the US presidential election with an increased demand of safe haven assets like US Treasuries. On Friday’s 11am pricing, the 2-, 5- and 10-year UST traded at 0.81%, 1.26% and 1.80%.
M’sian Bond Market
Trading volume in the benchmark local govvies was low with yields settling mixed across the board as uncertainties over the coming US election dampened the demand of local govvies.
The benchmark local govvies registered a trading volume of RM9.7bil, which was lower compared to the preceding week’s trading volume of RM15.3bil. On Friday’s 11am pricing, the 3-, 5-, 7-, 10-, 15-, 20- and 30-year benchmark MGS yields settled at a respective 2.99%, 3.31%, 3.50%, 3.63%, 4.05%, 4.29% and 4.59%.
The secondary corporate bonds market also recorded a lower volume in trading activities compared to last week. Week-to-date, total trading volume stood at RM2.5bil compared to last week’s total of RM3.7bil. About 42% of the trading volume was contributed by the GG/AAA, 55% by the AA segment and the remaining 3% by the A segment.
In the GG/AAA segment, notable trades included 2016-2033 tranches of Cagamas bonds which recorded a collective trading volume of RM570mil. Yields ended at the range of 3.11%-4.75%. Prasarana bonds maturing 2022-2041 saw yields traded mixed to settle at the range of 3.91%-4.81% with RM150mil changing hands. We also saw some trading interest at 2020-2037 tranches of PLUSbonds, where yields closed mixed at 3.80%-4.83% with a collective trading volume of RM85mil.
Elsewhere in the AA segment, Celcom ‘10/21 and ‘10/26 garnered a collective trading volume of RM296mil with yields settling at 4.70% and 4.95% on the news that the company will fund the spectrum fees mainly through its internally generated funds and existing sukuk programme.
DUKE 3 maturing at 2032-2039 saw yields settled at 5.06%-5.38% with RM145mil changing hands. In energy sector bonds, 2030-2032 tranches of Jimah East Power bonds traded mixed to close at 4.84%-5.05% with a trading volume of RM100mil. 2021-2035 tranches of Sarawak Energy bonds also saw yields ended mixed at 4.17%-4.96% with RM116mil traded.
MYR IRS Market
As at Friday’s 11am pricing, IRS curve remained unchanged across the curve ahead of US election while the 3-month Klibor was stable at 3.40%.
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