THE dollar inched up 1.02% to 97.7 partly due to the resurgence of concerns on global slowdown and the better-than-expected economic release. As the trade talks between the United States and China seem to be stalled, positive economic releases for the week pushed the dollar close to the 97 level.
The ISM non-manufacturing PMI in February printed an increase to 59.7 from 56.7 with the new orders index jumping from 57.7 to 65.2, signalling non-manufacturing sectors are still going strong.
Furthermore, the private sector added 183K jobs in February, compared with 300K a month earlier. Besides, the non-farm labour productivity in the fourth quarter of 2018 (4Q18) edged up 1.9% quarter-on-quarter from 1.8% a quarter earlier.
In the commodity space, Brent crude oil rose 1.0% this week to US$66.30/bbl amid the continuous supply cut from Opec and the imposed US sanctions against Venezuela and Iran. Venezuela’s state-run oil company PDVSA declared a maritime emergency this week due to problems in accessing tankers and personnel to export the oil which further suppressed the global oil supply. However, the addition in US oil inventories kept a lid on the gain in oil prices as the EIA reported a 7.1 million barrel rise for the week ended March 1.
The euro dropped 1.30% to 1.119 as concerns on the slowdown in the eurozone economic growth intensified. The OECD slashed its full-year forecast from 1.8% to just 1.0% for 2019. The biggest downgrades were for Germany where it expects a growth of 0.7% this year while it anticipates a recession for Italy. The technical recession in Italy piled up pressure on the euro with the nation’s GDP shrinking 0.1% q-o-q for the second time in the last quarter of 2018.
In the meantime, the European Central Bank (ECB) retained the policy rate and announced a new round of targeted long-term refinancing operation (TLTROs) to support the economy against the global headwinds after ending its quantitative easing (QE) last December. The TLTROs will begin in September and mature in March 2021. It also lowered its GDP growth forecast from 1.6% to 1.1%. For the economic data, the final reading on February’s service PMI edged up to 51.9 from 51.0 in January while the retail sales in January rebounded 1.3% m/m from -1.4% m/m a month earlier.
However, the third estimation for the fourth quarter in 2018 reported a 0.2% q-o-q growth which brings the full-year growth to 1.8% from the 2.5% in 2017.
The pound dipped 0.72% to 1.309 for the week against a stronger greenback. The stalemate over the Irish backstop proved to be persistent after the new British negotiator, attorney general Geoffrey Cox came back empty handed from the EU.
The “killings by British soldiers were not crimes” comment from Prime Minister Teresa May’s Northern Ireland Secretary complicated the relationship between London and Dublin.
Meanwhile, UK February’s service PMI rebounded to 51.3 from 50.1 in January. New car sales also followed suit, up 1.4% y-o-y in February from the -1.6% y-o-y.
The yen strengthened 0.15% to 111.6 amid the reignited fear of the global slowdown.
The market turned to safety assets after both the OECD and ECB slashed their growth forecast while reciting the threat of protectionism and global headwinds. Along with the lack of positive catalysts from trade talks, these supported the yen to float above the 111.6 level.
Meanwhile, the household spending was up 0.7% m-o-m from the -0.1% m-o-m in December, the fastest growth since August. January average cash earnings rose 1.2% from 1.5% in February.
ECB’s QE pushes major Asia-ex Japan currencies lower. The Philippine peso and Singapore dollar suffered the biggest loss among Asian peers, shaving off 0.83% and 0.45% to close at 7.850 and 1.361 respectively against the dollar. The rupiah weakened 0.09% to 14,233 while the baht inched down just 0.01% to 31.80. US trade data pushed the Indian rupee higher by 1.28% to 70 against the greenback.
The yuan was down by 0.11% to 6.70 against the strengthening dollar. China just experienced its worst fall in exports during February. The trade surplus plunged to US$4.12bil from US$32.3bil the previous month, missing the consensus US$26.38bil. Export slumped 20.7% y-o-y and import declined 5.2% y-o-y at the same time.
The ringgit strengthened by 0.27% to 4.087. The benchmark rate was untouched at 3.25% in the latest MPC meeting but the tone from the policymaker turned cautious in the latest statement, citing downside risks from the unsolved trade tension and weak commodities outlook.
Nevertheless, January’s trade surplus defied the market expectation of RM9.2bil and grew to RM11.5bil from RM9.7bil the previous month. Exports cooled to 3.1% y-o-y from 4.8% y-o-y (cons: 1.4% y-o-y) while imports were unchanged at 1.0% y-o-y (cons: 1.2% y-o-y). The FBM KLCI closed 0.40% lower to 1,687 while recording a net outflow of RM174.0mil.
US Treasuries (UST) Market
US Treasuries yields slid across the board despite the US-China trade talks were reported to be near completion. December trade deficit in US was the biggest in history, widening US$59.8bil.
However, deficit with China narrowed to US$36.8bil, trade deficit with Mexico and Canada expanded to US$-7.7bil and US$-1.4bil. Also, treasuries yield dropped further after the ECB announced an injection of stimulus packages to the market. The UST 5/2 spread expanded -2.2bps. As at Friday, the 2-, 5- and 10-year benchmark UST yields stood at 2.45%, 2.42% and 2.63% respectively.
Malaysian Bond Market
Local bond players mostly stayed put while awaiting Bank Negara’s MPC meeting statement. Bank Negara held its interest rate at 3.25% during the latest MPC, meeting the market’s expectation. However, it recognised the risk of rge economic and financial environment and this has raised the chance of a rate cut in July’s MPC.
The only auction of benchmark MGS 3-year in the year, which is the 3-year MGS 03/22, attracted a strong BTC of 3.132x with a high of 3.487%, low of 3.470% and average at 3.483% on a RM3bil issue size. As at Friday afternoon, the 3-, 5- ,7- ,10- ,15- , 20- and 30-year benchmark MGS yields settled at 3.46%, 3.59%, 3.78%, 3.87%, 4.26%, 4.46% and 4.71% respectively.
The Markit iBoxx ABF Malaysia Bond Index, an index comprising the MGS, GII and GG, returned 0.237% in the week from 1–7 March 2019 as the index yield fell to 3.90% from 3.99%. In the same period, the ABF Malaysia Bond Index Fund, an ETF which tracks the index, posted a return of 0.275% in the NAV as the fund yield dropped to 3.93% from 3.97%.
Activities in government issues surged 34.9% to RM23.03bil this week. Bullish local buying momentum saw the flow of Government Investment Issue (GII) almost doubled to RM11bil from RM6.12bil, taking 47.8% of total volume of the week. Meanwhile, Malaysia Government Securities (MGS) saw a higher flow as well. Total volume from MGS made up of 51.80% of total flow, an increase of 13.00% to RM11.92bil from RM10.55bil last week.
In the GG/AAA segment, Danainfra Nasional Bhd 2022-2049 tranches topped the list with RM265.2mil changing hands at 3.931%-4.919%. Next, Prasana Malaysia Bhd ‘20-37 IMTN tranches gobbled RM265mil with yields between 3.680% and 4.664%. These were followed by Lembaga Pembiayaan Perumahan Sektor Awam (LPPSA) IMTN 2022-2038 tranches which were traded 3.931%-4.700%.
Edra Energy Sdn Bhd 2022-2038 tranches were most traded among AA-rated papers, seeing a flow of RM400mil and changing hands between 4.200% and 6.299%. Next, Bumitama Agri Ltd 2019 IMTN tranches were traded at 4.200%-5.257% on top of RM210mil followed by Imtiaz Sukuk II Bhd ’19-22 tranches which were traded at 3.851%-4.315% on the back of RM130mil.
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 inched up 3.0% to 61.9.
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