Global Forex Market
THE US dollar was seen muted earlier in the week amid a short working week as markets were closed for Martin Luther King Day.
Besides, growing uncertainties over trade and global economy after the International Monetary Fund (IMF) downgraded 2019 growth forecast to 3.5%, added with noises from the partial US government shutdown, also induced some downside pressure on the dollar.
However, the dollar regained momentum on the back of positive economic releases which include:
(1) manufacturing purchasing managers’ index (PMI) in January rising further to 54.9 from 53.8 in December; and
(2) jobless claims recording an all-time low of 199,000 as for the week ended Jan 19 versus 212,000 (consensus: 220,000) from the previous week.
On a separate note, progress on the US government shutdown was rather disappointing as the Senate’s votes on two proposals to end the shutdown have failed, fuelling speculations that President Trump could issue a national emergency order to fund his wall without congressional support. By the end of the week, the dollar gained 0.28% to 96.60.
Brent lost 2.57% to 61.33 due to concerns on a global slowdown. The number of active rigs in the US dropped from 873 to 852 as at Jan 18. However, both the Energy Information Administration and American Petroleum Institute reported a surprise increase of 8 million barrels and 6.55 million barrels, respectively, in US inventory during the week. Internal conflict in Venezuela that led to a civil war could disrupt the supply market as the US-backed opposition leader was declared acting president.
The euro fell 0.52% to 1.130 due to the overall dovish view during the European Central Bank’s (ECB) monetary policy meeting. Meanwhile, the ECB left the benchmark rate at 0.0% as expected but policymakers acknowledged the economic risk tilted downwards, fuelling expectations that the central bank will be keeping interest rates beyond the summer of 2019.
Besides, the euro was dragged further following a disappointing eurozone’s preliminary manufacturing and service PMI data print, which pointed towards a further slowdown in January to 50.7 and 50.5 from 51.1 and 51.4, respectively, in December.
The pound was the best performer among the G4 peers, appreciating 1.51% to 1.307 following a slew of positive Brexit headlines. At the start of the week, Prime Minister May presented her alternative options after her recent defeat and plans to seek the EU’s confirmation over an Irish backstop while firmly rejecting the idea of a second referendum.
But further impetus to the pound was seen after the Labour Party seemed to be formally backing a delay to the Article 50 process. Apart from that, the pound was also supported by strong labour market data, with November’s unemployment rate improving to 4.0% from 4.1% in November (consensus: 4.1%) while wages rose 3.4% year-on-year (y-o-y) from 3.3% y-o-y in October (consensus: 3.3%).
The Japanese yen climbed by 0.13% to 109.6 largely due to growing uncertainties over trade and global economy after the IMF downgraded growth forecast to 3.5% in 2019. However, gains were pared after Bank of Japan (BoJ) ended its monetary policy meeting on a dovish tone.
The BoJ left its interest rate unchanged at -0.10% as expected. It slashed core consumer price index (CPI) forecast to 0.9% y-o-y from 1.4% y-o-y in 2019 and maintained its stimulus programme as risk to global growth is tilted to the downside.
On the data front, December’s exports contracted by 3.8% y-o-y from a gain of 0.1% y-o-y in November, bringing full-year average for 2018 to 4.1% y-o-y, much lower compared with 11.8% y-o-y in 2017.
The majority of Asian ex-Japan currencies weakened against the dollar save for the Indian rupee, Thai baht and Indonesian rupiah. The pullback from Brent crude oil helped lift rupee and rupiah by 0.15% to 71.1 and 0.06% to 14,170, respectively.
Meanwhile, the South Korean won depreciated by 0.61% to 1,129 amid Bank of Korea’s move to keep interest rates unchanged at 1.75% while fourth quarter 2018 GDP estimate came in better than expected to 3.1% y-o-y from 2% y-o-y in third quarter 2018 (consensus: 2.8%). Similarly, the Philippine peso fell by 0.59% to 52.9 amid fourth-quarter 2018 GDP edging slightly higher to 6.1% y-o-y from 6% y-o-y in third-quarter 2018.
The ringgit lost 0.8% to 4.145 amid Bank Negara’s decision to maintain interest rates at 3.25%. We noticed some cautiousness in Bank Negara’s tone as it presented two key issues:
(1) trade tension has started to yield a material impact on global trade and investment; and
(2) domestic inflation is expected to rise moderately and will follow global oil prices, which have been volatile.
Meanwhile, the local bourse edged higher over the week, registering a gain of 0.08% to 1,698 with a net flow of funds of RM293mil. On the data front, December’s consumer price index came in below expectation at 0.2% y-o-y, same as in the month prior (consensus: 0.4%).
US Treasuries (UST) Market
The US-China trade talk development took the world for a spin again. Trump’s polarised decision on trade talks likely worsened China’s economy slowdown, pushing US treasuries yield curve lower. Furthermore, the IMF cut 2019 forecast growth rate to 3.5% from 3.7%, sparking concerns on global growth momentum.
Equity markets, on the other hand, saw its biggest drop since the Christmas sell-off during mid-week while the UST10 eased 7 basis points (bps) to the 2.72% levels. But the longest government shutdown has yet to see the light at the end of the tunnel with the fight between Trump and Democrats intensifying.
As at yesterday, the 2-, 5- and 10-year benchmark UST yields stood at 2.57%, 2.57% and 2.75%, respectively.
Malaysian Bond Market
In the local bond market, it was a slow start to the week after a long weekend break as traders stayed on the sidelines ahead of Bank Negara’s monetary policy committee (MPC) meeting.
During the latest MPC meeting, Bank Negara kept the overnight policy rates unchanged while the statement released was fairly neutral, against some market expectations of a dovish Bank Negara.
CPI growth rate was flat at 0.2% y-o-y in December, back to whole year low. As at yesterday afternoon, the 3-, 5- ,7- ,10- ,15- ,20- and 30-year benchmark Malaysian Government Securities (MGS) yield settled at 3.58%, 3.74%, 3.90%, 4.07%, 4.40%, 4.58% and 4.79%, respectively.
The Markit iBoxx ABF Malaysia Bond Index, an index comprising MGS, GII and GG, returned 0.011% in the week from Jan 17, 2018 to Jan 24, 2019 as the index yield dropped from 4.04% to 4.03%.
In the same period, the ABF Malaysia Bond Index Fund, an exchange-traded fund which tracks the index, posted a 0.017% jump in net asset value (NAV) as the fund yield inched up from 4.02% to 4.03%. Month-to-date, the fund returned 0.71% versus 0.68% return posted by the index.
Within the govvies segment, total treasuries volume dropped 71% from RM25.29bil to RM7.18bil. The MGS declined from RM12.96bil to RM2.19bil while the Government Investment Issue (GII) decreased from RM11.37bil to RM2.07bil.
On the other hand, the private debt segment more than doubled to RM6.10bil from last week’s RM2.85bil. The GG/AAA segment was mostly traded as it made up about 35.9% of this week’s trade, with the AA and A segments contributing 21.4% and 37.5%, respectively.
In the GG/AAA segment, flows were focused on Cagamas Bhd’s 2019-2021 medium-term notes which saw RM320mil changing hands in the range of 3.722%–4.088%. Next, Danainfra Nasional Bhd’s 2021-2047 issuances attracted RM75mil with yields between 3.900% and 5.003%, followed by Public Bank ‘04/19 issuance which was traded at 3.784% on the back of RM60mil.
On the AA-rated front, Malakoff Power Bhd ‘21-30 posted RM30mil between 4.376% and 4.688%. Next is Hong Leong Bank Bhd ‘06/24 paper which saw RM30mil at 4.089%. Lastly, Gamuda Bhd ’20-22 tranches collected RM20mil between 4.303% and 4.559%.
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 dropped 1.18% to 86.7.
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