THE US dollar softened 0.44% to 96.8 largely owing to an improving risk appetite following the UK averting a “no-deal” exit and progressive trade talks. The market cheered after the Trump-Xi summit is now postponed to next month, signalling strong commitments to seal a deal by both parties.
The greenback was also weighed down by the slower headline and core inflation, triggering speculation that the Fed will keep rates unchanged. The former came in at 1.5% year-on-year (y-o-y) in February from 1.6% y-o-y in January while the latter eased to 2.1% y-o-y in February versus 2.2% y-o-y in January.
Meanwhile, other key economic releases for the week came in on a slightly positive note. January’s retail sales rose 0.2% month-on-month (m-o-m) after a 1.6% m-o-m sharp drop a month earlier while durable goods orders for January inched up 0.4% m-o-m from 1.3% m-o-m in December.
On the commodity market, Brent crude oil further extended its rally by 1% to US$67.20 per barrel as the supply cut from Opec took a toll on global supply. In its monthly report, global supply was seen to rise by 1.40 million barrels per day (mb/d) to 63.59 mb/d while global demand edged up 0.03 mb/d to 99.02 mb/d in first-quarter 2019. It complemented the Energy Information Administration report, which observed a drawdown of 3.86 million barrels in the week ended March 8.
The euro gained 0.52% to 1.130 against a weaker greenback. Meanwhile, economic data for the week were rather mixed with the EU industrial production rebounding to 1.4% m-o-m in January from a 0.9% decline in December. However, Germany’s industrial production shrank 0.8% m-o-m in January after a 0.8% growth in December.
The pound experienced a roller-coaster ride this week with three parliamentary votes over Brexit in the short span of three days. Firstly, Prime Minister Theresa May was able to get a last-minute concession from the EU on the Irish backstop prior to the first vote of the week. However, the hope was shortlived with the attorney general rebuffing the concession as it was not legally binding.
Resultantly, May’s Brexit deal failed to pass the House for the second time with a smaller margin of 149, thus sending the pound to as low as 1.30.
The parliament has also stated that it did not wish to leave the EU without a deal in place. May is set to present her deal for the third time on March 20 ahead of the EU Council meeting. It will determine how long the Article 50 extension will be. With all these developments, the pound rose 0.70% to 1.324 by the end of the week.
The Japanese yen softened 0.44% to 111.7 after a weaker data release for the week. Core machinery orders, which exclude ships and electrical equipment, declined further by 5.4% m-o-m in January from 0.3% in December. At the end of the week, Bank of Japan kept its interest rate on hold at -0.1% and the 10-year Japanese Government Bond around zero level, in line with expectations.
The performance of major Asia-ex Japan currencies was mixed for the week with the Indian rupee coming in as the best performer. It appreciated by 0.76% to 69.4 owing to strong foreign flows into its stock market, recording an inflow of US$1.6bil.
Meanwhile, the Chinese yuan gained 0.05% to 6.72 despite moderating retail sales and industrial production in February. The retail sale stabilised at 8.2% y-o-y in February for three months in a row while industrial production eased to 5.3% y-o-y in February after a 5.7% increase in the prior month, the slowest pace since 2002.
On the other hand, the Philippine peso and Singaporean dollar fell 0.78% and 0.16% to 52.6 and 1.36, respectively. Lastly, the Thai baht weakened by 0.26% to 31.8 as Thailand is scheduled to hold a general election on March 24.
The ringgit rose 0.02% to 4.091 against the weaker dollar. Despite the FBM KLCI gaining 0.6% to 1,675, it recorded a net foreign outflow of RM472mil.
On the data front, January retail sales rose albeit slowly by 10.6% y-o-y from 12.4% a month earlier. Moreover, the industrial production in January inched up 3.2% y-o-y after a 3.4% rise at the end of 2018, and beating the market expectation of 2.4%. Besides, unemployment stayed flat at 3.3% in January.
US Treasuries (UST) Market
The UST 10-year inched towards a 2019 low due to a weaker inflation print, signalling lower expectations for the Fed to raise rates in 2019 amidst a mid-week Brexit setback, and a strong UST 10-year auction garnering a bid-to-cover (BTC) ratio of 2.59 times.
However, yields closed weaker by the end of the week partly due to improving risk appetite following the progress in the trade war added with the UK averting a “no-deal” Brexit.
By end of the week, yields on the front to the belly of the curve eased 0.9 to 1.4 basis points (bps) while it steepened slightly at the back-end of the curve. As at yesterday, the 2-, 5- and 10-year benchmark UST yields stood at 2.46%, 2.42% and 2.62%, respectively.
Malaysian Bond Market
Moody’s reaffirmed Malaysia’s sovereign A3 rating, citing the country is supported by very high economic strength, which reflects a large and diverse economy that is growing at a relatively strong pace and boasts high levels of competitiveness.
The action expanded the risk appetite for local papers, with strong buying momentum focused on the longer end, pushing the yields lower by 5–13 bps with the Malaysian Government Securities (MGS) 30-year yield dropping 13 bps to 4.62%. The spotlight in this week was on the new issue of the 20Y Government Investment Issue (GII) 09/39 with a size of RM2.5bil on top of a RM2bil private placement, gathering a rather strong BTC of 2.76 times with a high/low spread of 3.5 bps between 4.480% and 4.445% while averaging at 4.467%.
As at yesterday afternoon, the 3-, 5- ,7- ,10- ,15- ,20- and 30-year benchmark MGS yields settled at 3.47%, 3.58%, 3.78%, 3.84%, 4.19%, 4.40% and 4.63%, respectively.
The Markit iBoxx ABF Malaysia Bond Index, an index comprising the MGS, GII and GG, returned 0.327% in the week March 7-14, 2019 as the index yield fell from 3.90% to 3.87%. In the same period, the ABF Malaysia Bond Index Fund, an exchange-traded fund which tracks the index, posted a return of 0.291% in the net asset value (NAV) as the fund yield fell to 3.90% from 3.93%. Month-to-date, the fund returned 0.567% versus 0.564% posted by the index.
The flow to govvies dropped 27.9% to RM20.66bil despite the 20-year GII auction gathering a strong reception of 2.76 times BTC ratio. Out of the total weekly flows, 53.1% are directed to the GII and 45.9% to the MGS.
Activities in the MGS tumbled by 36.4% to RM9.48bil this week while the GII’s flow declined 19.8% to RM10.97bil. However, short-term bills saw an increased flow of over 2 times to RM210mil this week from RM82mil last week.
In the GG/AAA segment, Perbadanan Tabung Pendidikan Tinggi Nasional (PTPTN) ‘2024-2032 tranches topped the list with RM275mil changing hands at 4.020%–4.501%. Next, Danga Capital Bhd ‘20-33 Islamic medium-term notes (IMT)N tranches traded between 3.953% and 4.528% on top of RM262mil flow.
These were followed by Lembaga Pembiayaan Perumahan Sektor Awam (LPPSA) ‘10/38 IMTN paper, which yielded 4.629% with RM80mil changing hand.
Meanwhile, in the AA segment, Celcom Network Sdn Bhd ’19-26 tranches attracted RM315.0mil, changing hands at 3.921%–4.498%. Also, Jimah East Power Sdn Bhd ‘12/27 issuances settled at 4.598% on top of RM220mil. Besides, Bumitama Agri Ltd ‘09/19 issuance saw RM41.6 flow through 4.293%–4.319%.
Ringgit Interest Rate Swap (IRS) Market
The IRS curve was seen easing lower by the end of the week by about 1 bps. As at yesterday’s noon pricing, the 3-month Klibor stood at 3.69%. Elsewhere, the 5-year credit default swap fell 3.5% to 63.7.
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