Global Forex Market
ANOTHER week, another dip for the US dollar, falling by 0.28% to 95.74 on Thursday, mainly weighed down by political turmoil surrounding Trump following the release of e-mail chain by Donald Trump Jr where a Russian lawyer offered detrimental information on Hillary Clinton.
Additionally, the dollar was also dragged by dovish comments by Fed’s Brainard who urged policymakers to move cautiously on further rate hikes in order to lift inflation to its 2% target.
During the week, Fed chair Janet Yellen gave her testimony where she also stressed on a gradual approach to tightening due to the recent slowdown in inflation.
Meanwhile, produce price index in June rose more-than-expected to 0.1% month-on-month (m-o-m) for the second consecutive month while initial jobless claims for the week ended July 8 dropped to 247,000 from 250,000 previously.
Brent crude oil rebounded this week with a rise of 3.6% to US$48.4 per barrel after favourable Energy Information Administration (EIA) and American Petroleum Institute (API) reports for the week ending July 7.
The EIA reported that US domestic crude supplies dropped to 7.56 million barrels while API reported a huge decline in US crude oil inventories of 8.133 million barrels.
The euro was the second-worst-performing G10 currency, having declined 0.03% primarily dragged by comments by European Central Bank’s Rimsevics where he said that the central bank’s asset purchasing programme could continue for at least a couple of years amid low inflation.
In May, industrial production rose to 1.3% m-o-m from 0.3% m-o-m in April.
The pound rose against the US dollar by 0.4%, led by improvement in unemployment data, which dropped to its lowest since June 1975 to 4.5% in May from 4.6% in April.
Further supporting the pound was Bank of England’s McCafferty’s hawkish statement on Thursday which urged the central bank to unwind its £435bil quantitative easing programme early.
The yen strengthened by 0.6% due to the drop in 10-year US Treasury yields following Yellen’s dovish congressional testimony. During the week, Bank of Japan’s (BoJ’s) Kuroda reiterated the central bank’s continuation of its stimulus programme until inflation reaches BoJ’s target of 2%.
All Asia ex-Japan currencies appreciated against the US dollar. In China, inflation was steady at 1.5% year-on-year (y-o-y) for the second consecutive month in June, maintaining its fastest inflation since January 2017 as food prices declined while non-food prices eased.
In India, headline inflation continued to moderate for the third consecutive month to a record low of 1.54% y-o-y from 2.18% y-o-y, dragged by the biggest decline in food prices on record.
The ringgit appreciated by 0.12% against the greenback but was the second-worst-performing Asian currency this week.
The ringgit was supported by the lift in crude oil prices, lower 5-year credit default swap (CDS), Bank Negara’s more upbeat tone on the domestic economy and May’s industrial production which expanded by 4.6% y-o-y from 4.1% y-o-y in April.
At the latest monetary policy meeting, Bank Negara left the overnight policy rate unchanged at 3% with no change to the statutory reserve requirement, which is at 3.5%.
Furthermore in its statement, Bank Negara reflected a more upbeat mood on growth while envisaging inflation to be contained.
US Treasuries (UST) Market
US Treasury yields fell across the curve this week following Yellen’s congressional testimony where she expected gradual increase in interest rates over the next few years as weakening inflation remains a concern.
At Friday’s 11am pricing, the 2-, 5- and 10-year UST traded at 1.36%, 1.89% and 2.34% respectively.
Malaysian Bond Market
Local govvies yield curve rose this week amid the global bond selloff while investors were cautious ahead of Bank Negara’s monetary policy meeting on Thursday.
At Friday’s 11am pricing, the 3-, 5-, 7-, 10-, 15-, 20- and 30-year benchmark Malaysia Government Securities (MGS) yields settled at 3.39%, 3.74%, 3.94%, 3.98%, 4.46%, 4.61% and 4.80% respectively.
Trading activities eased this week compared to the previous week where benchmark local govvies registered a trading volume of RM7.8bil compared to the previous week’s value of RM8.9bil.
The secondary corporate bonds market also recorded more trading activities compared to last week. Week to date, total trading volume was lower at RM600mil compared to last week’s RM1.41bil. About 36% of the trading volume was contributed by the GG/AAA, 58% by the AA segment and the remaining 6% by the A segment.
In the GG/AAA segment, notable trades included ‘12/17 Cagamas MBS bond whereby yields closed 12 basis points (bps) higher at 3.75% with RM60mil changing hands. There was also interest in the ports sector where Pelabuhan Tanjung Pelepas bond maturing ‘09/20 saw yields close higher at 4.05% with a trading volume of RM30mil.
Also having garnered some interest was ‘01/30 TNB Western Energy bond, which recorded a trading volume of RM30mil with yields 7 bps lower at 4.81%. Meanwhile, Cagamas tranches maturing 2018-2024 traded at mixed yields of 3.86%-4.36% respectively, with RM30mil changing hands
Elsewhere in the AA segment, notable trades included 2020-2027 MMC Corp tranches, which recorded a total trading volume of RM90mil with yields higher at 4.91%-5.43%.
Also garnering interest this week was 2019-2023 UEM Sunrise tranches, which recorded a collective trading volume of RM60mil where yields traded unchanged or lower at 4.49%-4.81%.
Meanwhile, ‘02/21 and ‘10/21 UMW Holdings bonds traded at lower yields of 4.69% and 4.75%, respectively, with a collective trading volume of RM40mil.
Tanjung Bin Energy Issuer bonds maturing ‘09/30 and ‘03/31 recorded mixed yields at 5.04% and 5.07%, respectively, with RM20mil changing hands.
Ringgit IRS Market
As at Friday’s 11am pricing, the interest rate swap (IRS) curve rose on the longer end despite the lower 5-year CDS. Elsewhere, the 3-month Klibor remained at 3.43%.
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