THE dollar edged up 0.66% to 97.2 owing to bids for safe papers amid growing concerns on a global economic slowdown following the inverted US yield curve and falling sovereign bond yields in Europe.
Also, the recent economic release for the week were rather downbeat with the Dallas Fed manufacturing index for March slipped 5 points to 8.3 from 13.1 a month earlier, weighed down by slowing new orders (2.4 in March from 6.9 in February); a decline in growth of orders (-1.9 from 3.4, slipping for the first time since December 2016); weaker shipments (5.8 from 10.7).
Besides, the fourth-quarter GDP revised lower to 2.2% quarter-on-quarter (q-o-q) from its initial reading of 2.4% and the 3.4% in previous month, partly due to the slowdown in personal consumption and decline in public spending. Lastly, the corporate profit in fourth quarter stayed flat at US$2.08 trillion for two consecutive sessions.
In the commodity market, the Brent crude oil rose 0.91% to US$67.80 per barrel, mainly due to the further disruption in Venezuela. Venezuela’s main oil export port and its four cruder upgraders were unable to resume operations following a massive power blackout, the second in a month.
Moreover, the short-term supply disruption in US have also lent support to oil price. However, the surprise increase in US inventories capped the gain in the oil prices. According to Energy Information Administration, the inventories added 2.8 million barrels for the week ended on 22 March while the market expected a drawdown of 2.5 million barrels.
The euro weakened 0.80% to 1.122 as the benchmark 10-year German bund yield fell to a 2.5-year low. The 10-year bund eased to -0.016%, weighed down by dimmer economic growth and the uncertainty over Brexit.
Moreover, the dovish comments from European Central Bank president Mario Draghi did little to support the euro. He cited the lower growth prospect and sluggish inflation limited the central bank’s ability to raise rates. The central bank could further delay a rate rise and would look at measures to offset the impact of negative interest rates.
The economic releases also complemented as the March business confidence for EU eased to 0.53 from 0.69 while the German inflation slipped to 1.3% in March from 1.6% in prior month.
The pound continue to remain volatile due to Brexit noises. The UK parliament has taken the driver seat as it voted 329 to 302 in favour for the amendment. It cleared the way for the “indicative votes” which inclusive of
(1) remain in custom union;
(2) second referendum;
(3) Labour’s Brexit plan;
(4) access to single market;
(5) revoke Article 50;
(6) no deal;
(7) remain in custom union and access to single market and
(8) free-trade agreement.
However, the House failed to reach a concession as no clear winner from the indicative votes. Meanwhile, pound fell further despite Prime Minister Theresa May offer to quit her job to gather support on her deal. By the end of the week, the pound dipped by 1.14% to 1.304.
The Japanese yen softened 0.60% to 110.6 against the stronger dollar. The summary of opinion from Bank of Japan (BoJ) released during the week with the main highlight be some BoJ members voiced concern over the impact of global demand slowdown and the value-added tax hike in October 2019 while cited some room to review on their bond buying operation.
Meanwhile, the February unemployment rate eased to 2.3% from 2.5% in January while the industrial production declined 1.0% year-on-year (y-o-y) in February following a 0.3% climb in the previous month. Lastly, retail sales decelerated to 0.4% y-o-y in February from the 0.6% a month earlier.
All Asian ex-Japan currencies’ basket weaken against the stronger dollar. Thai baht came in as the worst performer, down 1.02% to 31.9 following a possible delay in forming a new government. At the same time, we noticed foreign investors turned sellers in Thailand’s stock exchange for the week, posting an outflow of US$100mil.
Meanwhile, Chinese yuan fell 0.44% to 6.739 as industrial profits declined by 14% y-o-y in February compared to a gain of 10.3% y-o-y in January.
The ringgit weakened by 0.26% to 4.159 against the dollar in tandem with regional peers. Besides, the local bourse was affected by the global equities rout, closing 0.50% lower at 1,641.33 while recording a net foreign outflow of RM146.6mil.
This week, the focus was on Bank Negara’s annual report. The central bank projects the 2019 GDP to grow between 4.3% and 4.8%, continue to be supported by domestic activities, underpinned by sustained expansion in private sector activity amid public sector rationalisation.
US Treasuries (UST) Market
Treasury yields (UST 10-year minus UST 3-month yields) inverted for the first time since August 2007. The inversion stoked fears in the market as it inverted signal is viewed as a reliable recession indicator in one-year ahead period.
As such, treasury bond yield rallied across the curve due to growing concerns over the strength of the US and global economy. As at yesterday, the 2-, 5-, 10-and 30-year benchmark UST yields stood at 2.25%, 2.22%, 2.40%, and 2.82%, respectively.
Malaysian Bond Market
The release of Bank Negara’s annual report for 2018 pushed the Malaysian Government Securities (MGS) yields lowered by 3–8 basis points (bps) especially from the belly of the curve. The statement released were deemed dovish, fuelling expectations that a potential cut in the benchmark policy rate will be coming later this year. During the meeting, Bank Negara also revised GDP forecast to 4.3-4.8% for 2019 while inflation forecast reads at 0.7-1.7%.
In addition to that, there was also the reopening of the 30-year MGS 07/48 with a size of RM4bil, gathering a decent bid-to-cover of 2.33 times with a high/low spread of 4.6 bps between 3.745% and 3.699% while averaging at 3.726%. As at yesterday afternoon, the 3-, 5- ,7- ,10- ,15- ,20- and 30-year benchmark MGS yields settled at 3.38%, 3.54%, 3.72%, 3.76%, 4.06%, 4.30% and 4.57%, respectively.
The Markit iBoxx ABF Malaysia Bond Index, an index comprising of MGS, Government Investment Issue (GII) and Government Guaranteed (GG), returned 0.339% in the week from March 21, 2019 to March 28, 2019 as the index yield remained fell from 3.83% to 3.80%. 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 as the fund yield fell from 3.86% to 3.83%. Month-to-date, the fund returned 1.315% versus 1.289% return posted by the index.
Flows to govvies fell slightly by 1.8% to RM21.76bil from RM22.16bil in prior week. Activities in MGS slid 14.5% week-on-week (w-o-w) to RM9.58bil from RM11.21bil while in the GII segment, trading activities jumped 12.1% w-o-w to RM11.36bil versus RM10.14bil in the week prior. However, interest in treasury bills slowed down by 61.7% to RM310mil from RM810mil in the prior week.
In the GG/AAA segment, Prasarana Malaysia Bhd 2021–2034 tranches topped the list with RM880.4mil changing hands at 3.684%–4.391%. Next, DanaInfra Nasional Bhd 2021–2049 tranches traded between 3.739% and 4.592% on top of RM850.0mil changing hands. These were followed by Lembaga Pembiayaan Perumahan Sektor Awam (LPPSA) ’25–46 Islamic medium-term notes tranches with yields between 3.902% and 4.760% on the back of RM210mil volume.
Meanwhile, in the AA segment, Edra Energy Sdn Bhd ‘24-37 tranches topped the list with RM191.1mil changing hands between 5.246%-6.189%. Also, Public Bank ’10-28 issuance settled at 4.453% on top of RM160.0mil. Besides, Sarawak Energy Bhd 2026–2033 tranches saw RM75.0mil flow through 4.257%–4.659%.
Ringgit Interest Rate Swap (IRS) Market
The IRS curve was seen easing lower across the curve by 4-6 bps. As at yesterday’s noon pricing, the 3-month Klibor stood at 3.69%. Elsewhere, the 5-year credit default swap lower by 1.9% to 66.3.
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