Global Forex Market
THE US dollar began the week on a softer note but gained momentum following Federal Reserve (Fed) chair Jerome Powell’s optimism on the US economy and his reaffirmation on Federal Open Market Committee’s stance in gradual rate hike; at the same time dismissing concerns of trade war.
While the US dollar index (DXY) witnessed knee-jerk reaction after President Donald Trump’s criticism on the Fed’s monetary policy (an unprecedented move for more than two decades), the greenback gained 0.69% to 95.164. On the data front, June retail sales slowed to down to 0.3% month-on-month (m-o-m) from 1.3% m-o-m in May.
Over the week, Brent fell by 3.72% to US$72.53 per barrel following news that Trump is considering to tap on the country’s emergency oil supplies to push down crude oil prices.
Furthermore, US officials announced that they would consider the request from certain countries for permissions to import Iranian crude oil while the supply outages in Libya eased, thus easing concerns over tighter oil supply, fuelling the drop in the crude oil prices.
On a separate note, the US Energy Information Administration reported a rise of 5.84 million barrels in US crude inventories compared to the previous week.
Amidst a relatively quiet calender week, the euro slipped 0.6% to 1.164 on the back of the stronger dollar.
Meanwhile, on the data front, June inflation rose to 2% year-on-year (y-o-y) from 1.9% y-o-y driven by volatile energy prices. However, core inflation in June posted a 2-month low of 0.9% y-o-y from 1.1% y-o-y in May, raising some doubts on the sustainability of price pressure in the bloc.
The pound tumbled 1.7% to 1.301 due to intensified Brexit noises. Prime Minister May suffered an unexpected defeat on a Brexit amendment in the UK parliament but later managed to squeeze in a narrow victory on another Brexit trade bill.
Meanwhile, economic release was rather mixed which includes May unemployment rate staying flat at 4.2%, wage growth decelerating to 2.7% y-o-y from 2.8% y-o-y in April, and June consumer price index (CPI) and core CPI growing 2.4% and 1.9% y-o-y compared to 2.4% and 2.1% y-o-y, respectively, in May.
The Japanese yen depreciated by 0.16% to 112.9 largely due to the stronger dollar. However, the yen managed to cap loses after positive economic release, which includes June trade balance recording a surplus of 721 billion yen from a deficit of 581 billion in May and core inflation rising to 0.8% y-o-y in June from 0.7% y-o-y in May.
The Asia ex-Japan currencies depreciated against the stronger dollar with the Chinese yuan leading the pack. It shed 1.3% to 6.7751 as the central bank was easing its monetary stance to cushion the trade war impact.
Meanwhile, the Indian rupee slid 0.7%, hitting an all-time low of 69.05 as the hawkish Fed and weakening yuan fuelled the sell-off in rupee. The Indonesian rupiah weakened 0.3% to 14442 amid Bank Indonesia keeping its benchmark interest rate at 5.75%.
The ringgit broke the 4.05 levels, depreciating 0.5% to end at 4.064 largely on the back of the stronger dollar. Besides, the weakening of the Chinese yuan kept sentiment in the ringgit subdued.
Meanwhile, the local bourse posted a gain of 1.9% to 1,759 but recorded a net foreign outflow of RM183mil. On the data front, the June CPI decelerated significantly to 0.8% y-o-y from 1.8% y-o-y in May while the May unemployment rate stayed flat at 3.3%.
US Treasuries (UST) Market
US Treasuries continued to flatten this week, albeit rather slowly. With political rumblings in the US coupled with escalating trade tensions depressing growth expectations, yields eased from the belly to the long end of the curve; compressing spread between the short and long end.
The 10/2 spread currently stands slightly below 25 basis points (bps) as at yesterday noon; the pair’s tightest level in five years. Currently the 2-, 5- and 10-year benchmark UST yields stands at 2.59%, 2.74% and 2.84% respectively.
Malaysian Bond Market
Local govvies largely witnessed subdued trading activities this week as market players took to the sidelines in anticipation of Malaysia June CPI and lack of fresh catalyst with regards to US-China trade tensions.
While the market reacted with strong buying interest after the June CPI, bidding momentum was short-lived as profit takers emerged on the back of the ringgit weakness.
As at yesterday noon, the 3-, 5-, 7-, 10-, 15-, 20- and 30-year benchmark Malaysian Government Securities settled at 3.58%, 3.78%, 3.98%, 4.09%, 4.56%, 4.80% and 4.91%.
Trading activities for the benchmark local govvies’ slowed down to RM6.8bil from last week’s RM10.6bil.
Meanwhile, trading activities in the secondary corporate bond market improved from last week, with total trading volume increasing to RM2.7bil versus last week’s RM1.7bil.
Some 63% of the trading volume was from GG/AAA with 33% from the AA segment and the remaining 4% from the A segment.
In the GG/AAA segment, notable trades include 2022–2041 Prasarana Malaysia Bhd tranches, which closed with mixed yields between 4.21% and 5.04% and a total trading volume of RM400mil.
Besides, 2024-2047 DanaInfra Nasional Bhd tranches registered mixed yields of between 4.23% and 5.15% with RM320mil changing hands.
Furthermore, interest was seen in 2020-2026 Pengurusan Air SPV Bhd bonds, which closed with yields mixed between 4.02% and 4.35%, and RM185mil traded.
Meanwhile, ‘05/25 and ‘07/31 Jambatan Kedua Sdn Bhd bonds ended with yields mixed between 4.35% and 4.73% and a volume of RM120mil.
Elsewhere in the AA segment, notable trades were seen in the 2021-2032 Sarawak Energy Bhd tranches, which recorded a trading volume of RM150mil with yields closing mixed between 4.45% and 5.19%.
Furthermore, ‘09/18 Malayan Banking Bhd bond posted a trading volume of RM141mil and closed with yields 12 bps lower at 4.09%.
There was some interest in 2023-2035 Southern Power Generation Sdn Bhd tranches, settling with yields mixed between 4.67% and 5.34%, recording a total trading volume of RM100mil.
In addition, 2018-2022 Public Bank Bhd tranches registered yields mixed between 4.12% and 4.68% with RM95mil changing hands.
Ringgit Interest Rate Swap (IRS) Market
As at yesterday’s noon pricing, the 3-month Klibor stood at 3.69%. Elsewhere, the 5-year credit default swap was lower over the week by 3.9% to 93.3.
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