THE US dollar resumed its decline, weakening against a basket of major currencies by 0.29% to 91.85. US economic data revealed even higher initial jobless claims at 250K on Dec 30 compared to the previous 247K, bigger trade deficit in November of US$69.68bil from US$68.10bil, and various Markit (manufacturing, services, and composite) indices which beat market consensus in December. Highlight of the week was the Fed officially raising interest rates to 1.25%–1.5% on Thursday after which, the DXY rose to 92.124
Brent crude oil gained 1.79% to US$68.07/barrel, dipping slightly soon after New Year to US$66.57 before rebounding.
Throughout the week, the API and EIA released data to indicate stronger-than-expected demand for crude oil, specifically large draws from inventories i.e. 4.99 million barrels for the week ending Dec 29 compared to the forecast 3.33 million. Simultaneously, political protests in Iran (the third largest Opec member) heightened anxiety over supply disruptions, contributing to the higher oil prices.
The euro rose by 0.52% to a near three-year high of 1.2068 supported by stronger economic data following both December’s Markit Manufacturing and Services PMI expanding to 60.6 from 60.1 and 56.6 from 56.2 in November respectively.
The strong euro was further bolstered by the hawkish comments by European Central Bank’s (ECB) Benoit’s Coeure who said the asset purchase programme may not be extended beyond September 2018.
Simultaneously, ECB’s December economic bulletin reported eurozone’s broad-based economic growth as well as the central bank’s expectations of inflation to gradually pick up.
The pound appreciated by 0.28% to 1.3551 largely on the back of news that the UK could be joining the TPP in an effort to bolster export growth after Brexit. Despite December’s construction PMI dropping more than expected to 52.2 from 53.1 (consensus: 52.8), the pound rebounded on news of Markit/CIPS Services PMI expanding to 54.2 in December from 53.8, previously (consensus: 54.1).
The yen softened by 0.05% to 112.75 against the dollar despite strengthening in the first half of the week. This occurred after the release of December Nikkei Manufacturing and Services PMI which came in lower than market consensus (54.2) at 54 for the former, and (53) at 51.1 for the latter.
At the same time, the yen also fell in response to the recent strengthening of the dollar. All Asia-ex Japan currencies appreciated against the weaker greenback except the Hong Kong dollar, which fell 0.05% over the week.
The rupiah was the best performer for the week, gaining 1.23% following news on annual inflation staying within the central bank’s target despite December inflation accelerating faster than expected to 3.61% y/y from 3.3% in November.
The baht inched up by 0.88% as December inflation rose at a slower pace of 0.78% y/y versus 0.99% in the prior month.
Also, the Korean won, the top performer for 2017, continued its momentum into 2018 climbing 0.45% over the week supported by December foreign exchange reserves which rose US$389.27bil from US$387.25bil in November.
The ringgit exhibited a strong performance against the dollar this week, making a notable 0.99% climb against the greenback as the FBM KLCI saw a large net foreign inflow for three consecutive days amounting to RM574.5mil, ending a near two-year high at 1,803.45 on Thursday.
Economic data released this week includes the Nikkei Manufacturing PMI which fell to 49.9 in December, lower than the forecast of 50.6. Besides that, Malaysia’s November trade balance came in higher-than-expected at RM10bil (consensus: RM9.3bil).
US Treasuries (UST) Market
The US Treasury yields rose across the curve after ADP employment in December surpassed expectations with an increase of 250K jobs while the Markit Manufacturing PMI improved to 55.1 in December, its highest since March 2015. This managed to offset declines seen after FOMC minutes revealed the Fed’s optimism about the economy’s strength amid the passing of Trump’s tax reform.
At Friday’s 11am pricing, the 2-, 5- and 10-year UST traded at 1.96%, 2.27%, and 2.45% respectively.
Malaysian Bond Market
Local govvies’ yields were lower from the belly to the long-end of the curve, continually bolstered by the stronger ringgit while anticipation of an OPR hike may have caused yields on the shorter end to rise.
At Friday’s 11.30am pricing, the 3-, 5-, 7-, 10-, 15-, 20- and 30-year benchmark MGS yields settled at 3.33%, 3.56%, 3.89%, 3.92%, 4.41%, 4.60% and 4.87% respectively.
Trading activities for the benchmark local govvies improved this week. Trading volume for the week stood at RM7.13bil compared to RM2.13bil in the previous week.
In the case of the secondary corporate bond market, trading activities fell compared to the previous week. Week to date, total trading volume was at RM0.64bil compared to previous week’s RM0.73bil.
About 14% of the trading volume came from GG/AAA while 79% was from the AA segment and the balance from the A segment.
In the GG/AAA segment, notable trades included 08/37 Tenaga Nasional bond which closed with yields 1bps lower at 5.09% and a total trading volume of RM35mil. There was also interest in ‘03/22 and ‘03/32 Bank Pembangunan Malaysia bonds which closed with lower yields at 4.40% and 4.94%, respectively, with a total trading volume of RM20mil.
Meanwhile, ‘09/19 Al Dzahab Assets bond also garnered interest, having recorded a trading volume of RM20mil and closed with yields unchanged at 4.55%. Furthermore, ‘05/19 Aman sukuk bond ended with yields unchanged at 4.05% with RM5mil changing hands.
Elsewhere in the AA segment, notable trades were seen in ‘10/22 RHB Investment Bank bond which recorded a total trading volume of RM100mil with yields unchanged at 4.90%.
Meanwhile, ‘03/19 and ‘09/19 Bumitama Agri Ltd bonds recorded lower yields at 4.44% and 4.51%, respectively, with a collective trading volume of RM74mil. Also attracting interest this week was ‘07/19 RHB Bank bond recording a trading volume of RM65mil and closed with yields 3bps higher at 4.63%.
In addition, there was some interest in 2018-2021 Malakoff Power tranches which recorded unchanged or lower yields at 4.18%-4.55% with a total trading volume of RM31mil changing hands.
Ringgit Interest Rate Swap (IRS) Market
As at Friday’s 11.30am pricing, the IRS curve was higher despite lower MGS yields as markets are pricing in for an OPR rate hike. Elsewhere, the three-month Klibor remained at 3.43%.
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