AMID a short working week as markets closed in conjunction with Presidents’ Day, the dollar softened by 0.31% to 96.6 largely owing to improving trade sentiment after President Trump cited trade talks were “very productive”.
Besides, the dollar was partly weighed down by weaker economic release as both industrial and manufacturing output fell 0.6% month-on-month (m-o-m) and 0.9% m-o-m in January from a gain of 0.1% m-o-m and 0.8% m-o-m respectively in December 2018. However, the dollar capped some losses following the release of FOMC minutes as the Fed hinted that it might end its normalisation on the balance sheet later this year. The minutes also seemed to suggest that the Fed has an upward bias in its next move on interest rate as there was no indication of a rate cut in the minutes.
In the commodity space, Brent crude oil rose 0.86% to US$67.1/barrel on the back of further tightening from Saudi Arabia as the kingdom partially closed Safaniya, the world largest offshore oilfield.
At the same time, crude oil received further impetus following US sanctions on Iran and Venezuela, followed by Saudi energy minister’s comment which suggested that the market will be “balanced” around April. On a separate note, US inventories added 3.672 million bbl by the end of 15 Feb from 3.633 million bbl in the week prior.
The euro rose 0.22% to 1.134 largely on the back of a weaker greenback. In addition, the euro also received some support from the positive Brexit development. Meanwhile, economic releases during the week include: (1) ZEW Economic Sentiment Index which penciled at -16.6 points in February from -20.9 points in January; (2) February’s Flash Consumer Confidence declining albeit at a slower pace of -7.4 points compared to -7.9 points in January; (3) Markit Manufacturing PMI est falling into the contraction region in February at 49.2 points from 50.2 points in January – the demarcation is 50; and (4) Markit Services PMI est expanded further to 52.3 points from 51.2 points in January.
The pound surged 0.92% to 1.304 on the positive Brexit progress made following the recent meeting between Prime Minister Theresa May and European Commission president Jean-Claude Juncker. In their joint statement, both agreed to underline the “temporary nature” of the Irish backstop with proper legal assurances and they would look for a possible alternative in replacing the backstop. Nonetheless, labour market data released during the week indicated further tightening despite the economy showing a gradual slowdown due to Brexit uncertainty.
The unemployment rate remained at 4.0% for the second straight month in December, while hiring gained further to 167K in November from 141K in October. Average earnings, excluding bonus, rose 3.4% y-o-y in December, the same rate as in November, outpacing inflation for the sixth straight month, implying the economy is in real returns which helped ease consumers’ rising living cost.
However, by end of the week, the pound experienced some downside pressure after Fitch put the UK credit rating on negative watch.
The yen slipped 0.07% to 110.7 on poor economic release. The data includes: (1) exports contracting more than expected to -8.4% y-o-y in January from -3.9% y-o-y in December 2018 (consensus: -5.5%); (2) February Nikkei Manufacturing PMI is falling for the first time since 2016. It came in at 48.5 points from 50.3 points in January; (3) December’s Machinery Order down 0.1% m/m from 0% m-o-m in November 2018; and (4) headline inflation rate easing to 0.2% y-o-y in January from 0.3% y-o-y in February.
The dollar depreciated across Asia ex-Japan currencies. The best performer of the week was the yuan, up 0.65% to 6.723 owing to positive trade progress. Meanwhile, the rupiah appreciated by 0.26% to 14,071 amid Bank Indonesia keeping interest rate unchanged at 6.00%, as widely anticipated. During the meeting, governor Perry Warjiyo reiterated that the central bank’s focus is on safeguarding external resiliency, keeping the current account deficit at safe levels and ensuring the attractiveness of local assets.
Meanwhile, the Philippines peso, Singapore dollar, and Indian rupee recorded a gain of 0.32% to 52.2, 0.24% to 1.353, and 0.16% to 71.2, respectively.
The ringgit strengthened by 0.21% to 4.077 after trade optimism brewed risk appetite on emerging markets. The FBM KLCI closed 2.2% higher at 1,731 but recorded a net outflow of RM19mil. January’s inflation rate is the week’s only economic release, coming in at -0.7% y/y in January from 0.2% y/y in December 2018.
US Treasuries (UST) Market
The market cashed in on positive US-China trade talks. Both countries are on track to draft out the agreement outline, pushing the yields higher. Besides, yields were seen higher after the release of FOMC minutes. In the minutes, the Fed hinted that it might end its normalisation on the balance sheet later this year amid acknowledging growing risk and uncertainty in the economy. As at Friday, the 2-, 5- and 10-year benchmark UST yields stood at 2.47%, 2.46% and 2.65% respectively.
Malaysian Bond Market
In the local bond market, improving risk profile pushed back the greenback, trading activities were softer with buying momentum seen on the belly part of the curve. Despite an improved global risk appetite, the FBM KLCI registered a net outflow of RM18.8mil. Besides, fixed income volume dropped in general, with total govvies decreasing 48.6% to record RM15.11bil worth of trade during the week. The benchmark yield curve flattened 0.5bp-1.5bps, with secondary trading activies focusing on the MGS space. As at Friday afternoon, the 3-, 5- ,7- ,10- ,15- ,20- and 30-year benchmark MGS yield settled at 3.57%, 3.71%, 3.87%, 3.89%, 4.30%, 4.49% and 4.71% respectively
The Markit iBoxx ABF Malaysia Bond Index, an index comprising MGS, GII and GG, returned -0.085% in the week 14 Feb 2018–21 Feb 2019 as the index yield inched up from 3.97% to 3.99%. In the same period, the ABF Malaysia Bond Index Fund, an ETF which tracks the index, posted a return of -0.069% in the NAV as the fund yield went up from 3.95% to 3.98%. Month to date, the fund returned 0.649% versus 0.652% posted by the index.
Malaysia Government Securities (MGS), which consist of conventional government issuances, attracted RM6.59bil compared with RM17.51bil in previous week. On the other hand, Government Investment Issues (GII), which aaccounted for Islamic government issuances, made up RM8.23bil from last week’s RM11.72bil. Futhermore, GG-rated Private Debt Securities (PDS) saw an 18.3% drop in voume to RM1.20bil during the week, making up 55.73% of the totoal weekly transaction. AAA-rated issuances fell to RM380.0mil, weighted 17.55% of total volume while AA-rated issuances made up of 22.4% of total transaction as RM484mil changed hands.
In the GG/AAA segment, flows were focused on Danainfra Nasional Bhd ‘22-49 tranches which saw RM390mil changing hands at a range of 4.470%-4.991%. Next, Khazanah Nasional Bhd 2023-2024 zero-coupon tranches attracted a total volume of RM160.0mil, yielding between 4.033% and 4.050%, followed by Lembaga Pembiayaan Perumahan Sektor Awam (LPPSA) ‘28-38 tranches, with RM190.0mil changing hand at between 4.241% and 4.731%.
On the AA-rated front, notable trades included Sarawak Energy Bhd ’22-29 which posted RM110.0mil between 4.217% and 4.580%, and Konsortium Lebuhraya Utara-Timur KL Sdn Bhd ‘12/28 which traded at 4.666% on top of RM60.0mil.
MYR Interest Rate Swap (IRS) Market
As at Friday’s noon pricing, the 3-month Klibor stood at 3.69%. Elsewhere, the 5-year CDS slid 0.4% to 70.57.
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