Treasury Pulse

  • Economy
  • Saturday, 03 Nov 2018

Global Forex Market

THE dollar depreciated by 0.31% to 96.7 largely after improving risk appetite in the global markets added with weaker-than-expected October ISM Manufacturing PMI, which came in at 57.7 points (previous: 59.8 points; cons: 59 points), signalling a slowing momentum in the US economy.

Nonetheless, other economic releases early this week have been holding steady which include: strong 3Q GDP at 3.5% q-o-q (previous: 4.2% q-o-q; cons: 3.3% q-o-q); healthy growth in September’s personal spending which was in line with the consensus (previous: 0.5% m-o-m; cons: 0.5% m-o-m); and October’s consumer confidence hitting 18-year high at 137.9 from 135.3 in September.

Brent oil slumped by another 5.4% to close at US$72.8/barrel from spillover effects of the global stock market selldown. The price has dropped below that level before President Trump announced the Iranian sanction. The sanction will take full effect next week, dropping US imported crude oil from Iran to zero. Besides, 3.22 million barrels were added to the EIA’s inventory compared with 6.35 million barrels in the week before. The API crude oil inventory recorded additional 5.7 million barrels from 9.9 million barrels in the week prior. The production seems to offset the vacuum created by Venezuela and Iran. There is even a possibility of oversupply in crude oil as the inventories build up.

The euro clawed back losses, up 0.31% to 1.141 against the dollar by the end of the week as risk appetite improved. However, the currency was seen taking some beating earlier this week as German Chanceller Angela Merkel announced she would not seek re-election in 2021 which raised concerns over her ability to stabilise the bloc. The currency was further pulled down by the weak 3Q2018 GDP of 0.2% from 0.4%, raising concerns on the ECB’s ability to end its QE by end-2018 and start raising rates in 2019. Other data release includes October inflation rate, which came in at 2.2% y-o-y in line with consensus (previous: 2.1% y-o-y) while core inflation rose higher than expected by 1.1% y-o-y (previous: 0.9% y-o-y; cons: 1.0% y-o-y).

The pound rebounded over the week, strengthening by 1.71% to close at 1.301. The currency gained steam on positive Brexit headlines where the UK Brexit secretary commented that a deal might be achieved on Nov 21, further supported by news that a deal to secure basic access to the EU market for the UK-based financial services is almost there.

In the Autumn Budget announced, the 2019 GDP forecast was upwardly revised to 1.6% y-o-y from the previous 1.3% y-o-y. The 2020 GDP was revised to 1.4% y-o-y (previous: 1.3% y-o-y) while the GDP projections for 2021 and 2022 were maintained at 1.4% y-o-y and 1.5% y-o-y, respectively with 2023 growth forecast at 1.6% y-o-y.

The Japanese yen shed 0.31% to close at 112.72 against the greenback on the back of improved risk appetite. To no one’s surprise, the Bank of Japan (BoJ) kept its interest rate at -0.1% and pledged to guide its 10-year government bond yields around zero percent. In this meeting, the BoJ also said it would keep interest rates extremely low “for an extended period” while trimming its GDP forecast to 1.4% from 1.5% previously and inflation projection was downgraded to 0.9% from 1.0% previously.

As the risk apetite improved, we saw the majority of Asian ex-Japan currencies appreciating against the dollar with the Thai baht leading the pack, rising 1.17% to 32.9 followed by the Philippine peso which gained 0.76% to close at 53.213. The Indian rupee emerged as the worst performing currency, shedding 0.01% to 73.454 despite

The ringgit rose 0.04% to 4.178 against the dollar over the week as risk appetite improved. The local bourse closed 1.38% higher at 1,706.92 while recording a net foreign outflow of RM150.49mil. This week’s data release includes the September PPI which came in at -0.2% y-o-y (previous: -0.3% y-o-y) while the October Nikkei Manufacturing PMI came in at 49.2 points from the previous 51.5 points.

US Treasuries (UST) Market

The volatility in global markets eased as the rout in the equity tapered largely on the back of firmer economic data release early of the week. However, the UST10-year slipped at the end of the week after the October ISM Manufacturing PMI data came in lower than expected at 57.7 points from 59.8 points in September (consensus: 59.0).

On a separate note, the market was seen slightly muted after news surfaced that Trump is preparing for further tariffs on Chinese imports in the event of failed talks between the United States and China. But tension eased after Trump said he had a “very good conversation” with President Xi Jinping, suggesting some progress in the bilateral trade dispute. As at Friday, the 2-, 5-, and 10-year benchmark UST yields stood at 2.87%, 3.00%, and 3.17% respectively.

Malaysian Bond Market

The local bond market continued to see subdued trading activities as sentiments remain cautious ahead of Budget 2019 against the backdrop of a weaker ringgit. Despite volatile movements in global markets, local govvies saw tepid flows skewed towards specific stocks. This was however short-lived as mid-week saw heavy bids across curve, with particular focus on the 10-year benchmarks; possibly due to index rebalancing and month-end flows. Yields shed 3-9 bps across curve before turning sideways ahead of Friday’s budget.

As at Friday morning, the 3-, 5-, 7-, 10-, 15-, 20- and 30-year benchmark MGS yields settled at 3.66%, 3.79%, 4.02%, 4.10%, 4.58%, 4.80% and 4.94% respectively.

Flows for local govvies improved substantially to RM13.0bil compared with last week’s RM7.0bil.

In contrast, trading activities in the secondary corporate bond space tapered off by 64% to RM1.2bil versus last week’s RM3.4bil. Some 41% of trade volume came from the GG/AAA segment while 52% were attributed to AA-rated papers and the remaining 7% from the A segment.

In the GG/AAA segment, heavy interest was seen for Pelabuhan Tanjung Pelepas Sdn Bhd’s 2028-2033 papers which saw RM240mil changing hands with yields closing between 4.45% and 4.89%. Meanwhile, MKD Kencana Sdn Bhd’s 02/23 and 04/23 papers both saw yields closing at 4.11% level on the back of RM50mil flows.

This is followed by Tenaga Nasional Bhd’s 2023-2037 IMTNs which saw yields mixed between 4.73% and 4.91% and RM45mil traded. Lastly, interest was also seen for GENM Capital Bhd’s 2022-2028 MTNs which closed between 4.61% and 4.93% with RM32mil traded.

On the AA-rated front, Fortune Premiere Sdn Bhd’s 2019-2025 IMTNs saw yields closed between 4.76% and 4.99% with RM71mil changing hands. This is closely followed by YTL Power International Bhd’s 2023-2027 papers which closed btween 4.59% and 4.88% and a RM60.5mil trade volume. Meanwhile, Southern Power Generation Sdn Bhd’s 2023-2033 papers closed firmer between 4.50% and 4.92% with RM43.6mil flows. Lastly, Sarawak Energy Bhd’s 2019-2035 papers saw yields closing between 4.06% and 4.95% with RM40mil trade volume.

Ringgit Interest Rate Swap (IRS) Market

As at Friday’s noon pricing, the three-month KLIBOR stood at 3.69%. Elsewhere, the five-year CDS up by 1.20% to 114.60.

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