Global Forex Market
THE US dollar appreciated by 0.48% to 95.8 largely due to:
(1) hawkish comments from the Fed chair expressing optimism on the economy and stating the Fed may raise rates past “neutral” which drove market expectations for further hikes;
(2) September ADP employment change rose more than expected to 230,000 from 168,000 in August (consensus: 185,000); and
(3) September ISM Non-Manufacturing PMI expanded faster to 61.6 points compared to 58.5 points in August (consensus: 58.0).
Nonetheless, the most anticipated Nafta deal had finally been sealed between North America and Mexico days after months of heated exchange among the alliance countries.
The trilateral deal, renamed as USMCA (US-Mexico-Canada agreement), was signed after Canada Prime Minister Justin Trudeau soften the tone and agreed to the deal.
In the commodity space, Brent crude price rose 2.25% to close at US$84.58 per barrel due to persistent supply concerns over the Iran sanctions despite the Energy Imformation Administration reporting US inventory build-up of close to 8 million barrels last week.
Towards the end of the week, the price gain in oil was seen capped after reports emerged saying that Opec, mainly Saudi Arabia, had reached a private agreement with Russia to increase their daily crude oil “spare production” of 1.4 million barrels, which eased supply concerns.
The euro lost 0.55% to 1.151 against the stronger US dollar after Italy’s Finance Minister Giovanni Tria presented the 2019 Italian budget at the Euro group meeting, which ended with a failure following EC President Juncker’s warning of a Greek-style crisis.
However, the euro clawed back some loses after the Italian government said it would gradually reduce budget spending to 2.2% and 2.0% GDP in 2020 and 2021, respectively.
Besides, the Italian government dismissed concerns that the EU would reject its 2019 budget plan and called for an “open and constructive dialogue” on the budget plan.
The pound weakened by 0.16% to 1.303 largely after Brexit negotiations showed new progress, with the EU agreeing to put in writing for its future trade offer as requested by the UK and the bloc’s executive commission to discuss “the outline of the new partnership with the United Kingdom” on Oct 10.
However, the cable reversed some loses following reports claiming Ireland will be backing UK Prime Minister Theresa May’s plan for an all-UK customs with the European Union.
The Japanese yen strengthened marginally by 0.02% to close at 113.9 against the US dollar following a report that Bank of Japan will tolerate further increase in super-long yields as long as the 10-year yield is capped around its 0% target.
Meanwhile, economic release were rather mixed with:
(1) Third-quarter 2018 Tankan Large Manufacturers Index slipping to 19 points from 21 points in second-quarter 2018;
(2) September consumer confidence rising to 43.4 points compared to 43.3 points in August; and
(3) August household spending accelerating to 2.8% year-on-year (y-o-y) versus 0.1% y-o-y in July.
All Asian ex-Japan currencies depreciated against the greenback following the rising crude oil and strong sell-off in the US 10-year Treasury note.
Leading the pack was the Indonesian rupiah, depreciating 1.88% to 15179.0 against the US dollar, followed by the Indian rupee, losing 0.92% to 73.584 due to its reliance of crude imports.
The Singapore dollar shed 0.69% to 1.381 while the Chinese yuan will only resume trading after the one-week holiday.
The ringgit slid 0.2% to 4.147 against the US dollar during the week. Though the local bourse closed 0.01% lower at 1,790.11 points, it recorded a net foreign fund inflow of RM129mil.
In the month of August, trade surplus shrank the most to RM1.6bil as import expanded 11.2% y-o-y while export contracted by 0.3% y-o-y.
US Treasuries (UST) Market
Over the week, we saw the 10-year UST yields rise to a high of 3.22%, while the the 2/10 spread widened to 31.9 basis points (bps) following the hawkish speech by Fed chair Jerome Powell, who indicated that the Fed may raise rates past “neutral” which drove market expectations for further hikes.
The upward pressure in UST was also complemented by positive economic release. As at yesterday, the 2-, 5- and 10-year benchmark UST yields stood at 2.87%, 3.05% and 3.19% respectively.
Malaysian Bond Market
The local bond market started the month relatively quiet but yields inched up towards the end of the week as UST 10-year yields rose to a high, triggering bearish sentiment towards the Emerging Market which pushed up local govvies’ yields across the curve.
As at yesterday noon, the 3-, 5-, 7-, 10-, 15-, 20- and 30-year benchmark Malaysian Government Securities yields settled at 3.62%, 3.79%, 4.00%, 4.11%, 4.54%, 4.71% and 4.92%, respectively.
Flows for local govvies were slow at RM8.1bil compared to last week’s RM11.9bil.
Meanwhile, trading activities at the corporate bond space decreased to RM2.2bil versus last week’s RM2.8bil. Some 66% of the trading volume was from the GG/AAA segment, with 30% from the AA segment and the remaining 4% from the A segment.
In the GG/AAA segment, strong interest was seen for Prasarana Malaysia Bhd’s 2020-2042 tranches, which saw yields mixed between 3.88% and 4.97% with RM575mil traded.
Interest was also seen for DanaInfra Nasional Bhd’s 2024-2047 papers, with yields closing mixed between 4.11% and 5.06% on the back of RM455mil flows.
Also, Lembaga Pembiayaan Perumahan Sektor Awam’s 2022-2032 papers recorded trades amounting to RM120mil, with yields easing to a range between 4.00% and 4.65%.
Meanwhile, Jambatan Kedua Sdn Bhd’s 05/25 bond saw yields easing 4 bps to 4.21%, with RM90mil changing hands.
For AA-rated papers, interest continued to be seen in the energy sector, with Sarawak Energy Bhd’s 2019-2035 tranches posting a trade volume of RM70mil with yields closing lower at between 4.07% and 4.95%.
Besides, CIMB Thai Bank Public Co Ltd’s 2019 papers were seen traded 5 bps lower at 4.55% on the back of RM60mil flows.
Meanwhile, interest was also seen in TSH Sukuk Ijarah Sdn Bhd’s 03/22 and 04/23 papers, which closed at 4.71% and 4.78%, respectively, with RM50mil traded.
Lastly, ‘07/20 Krung Thai Bank Public Co Ltd saw yields close unchanged at 4.70% with RM42mil traded.
Ringgit Interest Rate Swap Market
As at yesterday’s noon pricing, the 3-month Klibor stood at 3.69%. Elsewhere, the 5-year credit default swap rose by 5.9% at 98.22.
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