Global Forex Market
THE dollar’s strength sustained for the second consecutive week, up 0.13% to 97.2 over the week largely on the back of positive economic news which includes healthy labour market with non-farm payrolls adding 196,000 jobs in March after a 33,000 gain in the previous month with weekly jobless claims falling to the lowest in 50 years by 8,000 to 196,000 in the week ended April 6, and March’s faster-than-expected factory gate inflation up 2.2% y-o-y compared with 1.9% y-o-y in February (cons: 1.9%).
However, the dollar’s gain for the week was capped following the downward revision on the US GDP in 2019 by the IMF to 2.3% from 2.5% previously, fuelling concerns on the strength of the US and global economy; weaker-than-expected core CPI, up 2.0% y-o-y in March from 2.1% y-o-y in February; as well as dovish FOMC minutes.
The gloomy global outlook took a toll on oil prices as Brent closed lower by 0.38% to US$70.83/bbl for the week. Moreover, the US administration is expected to extend Iranian sanction waivers. This drove the oil prices further down along with the 7.03 million barrels increase in US inventories, according to the EIA’s weekly report. However, the supply disruption in Venezuela and continuous tightening from Opec kept the oil price floating above the US$70 mark.
Meanwhile, the euro weakened 0.09% to 1.125 following a dovish outlook painted by the ECB president and the risk that the region is facing suggests the need for more stimulus from the ECB to prevent the region from slipping into recession. Nonetheless, during the ECB’s monetary policy meeting, policymakers made no changes to its monetary policy as expected. It left the key interest rates steady and repeated that it planned to hold them at current levels at least through the end of the year. Moreover, the pair was partly weighed down after the US threatened to levy tariff on the US$11bil worth of export goods which offset the optimism from the closer EU-China ties.
The second extension for Brexit has lifted fears of a no-deal Brexit in the near term which boosted the pound to as high as 1.312. The six-month extension ends on Oct 31, the last day before the next EU commission takes over. Although the UK is allowed to leave the bloc earlier if a deal is agreed, it isn’t all good news to the parliament as it will require the UK to participate in the upcoming EU election. Moreover, the prospects of May’s replacement and a general election pressed the pound down by 0.02% to 1.306 by the end of the week.
Demand for the yen rose early in the week after the IMF slashed its forecast for global economic growth this year, saying a slowdown could force world leaders to coordinate stimulus measures. The world economy will grow 3.3% this year, down from the 3.5% the IMF had forecast in January. However, the yen erased its weekly gains as it braced for a potential clash with the US over trade talks. Nonetheless, reports surfaced that the bilateral trade talks are expected to start next week.
Asian ex-Japan currencies saw a mixed performance over the week against the dollar. The best performer of the week was the Indian rupee, up 1.1% to 68.9 driven by sustained foreign fund inflows into the equity market by US$565mil for the week as India goes to the polls. Meanwhile, the Singapore dollar weakened by 0.13% to 1.356 largely due to risk-off sentiment on global markets.
The ringgit came in as the worst performer, losing 0.38% to 4.113 largely due to risk-off sentiment following woes on global growth. As a result, the KLCI shed 1.2% to 1,642 while foreigners continued to be net sellers, recording an outflow of RM163mil. At the same time, the marked deceleration in February’s industrial production, up 1.7% y-o-y from 3.2% y-o-y in January as well as slower retail sales which rose by 8.5% y-o-y compared with 10.6% y-o-y, contributed partly to the weaker ringgit.
US Treasuries (UST) Market
The downward revision on the US GDP triggered strong buying across the curve. The buying was also supported by the weaker-than-expected core inflation print which read at 2.0% y-o-y in March from 2.1% y-o-y in February (cons: 2.1%) added with dovish FOMC minutes. However, the US Treasuries erased some of its gains by the end of the week, with a curve bear-flattening following March’s faster-than-expected factory gate inflation, up 2.2% y-o-y compared with 1.9% y-o-y in February (cons: 1.9%). Over the week, the overall benchmark yields closed 1-2bps lower. As at Friday, the 2-, 5-, and 10-year benchmark UST yields stood at 2.35%, 2.31%, and 2.50% respectively.
Malaysian Bond Market
The local bond market started off with some selling pressure as Norway’s sovereign wealth fund announced a divestment plan on its US$1 trillion holding of Emerging Market bonds from 10 countries which include over RM8bil worth of Malaysian government bonds. The MGS yield curve rose 1bps-3.5bps across the board.
However, the selling pressure tapered following the release of dovish FOMC minutes. Nonetheless, the highlight for the week was the GII RM3.5bil 5-year new issuance auction which gathered a strong BTC of 2.313x with high/low/average of 3.669%/3.627%/3.655%. As at Friday morning, the 3-, 5-, 7-, 10-, 15-, 20- and 30-year benchmark MGS yields settled at 3.39%, 3.56%, 3.66%, 3.77%, 4.07%, 4.29% and 4.58% respectively.
The Markit iBoxx ABF Malaysia Bond Index, an index comprising the MGS, GII and GG, returned 0.1% in the week from April 4 to April 11, 2019 as the index yield remained unchanged at 3.78%. In the same period, the ABF Malaysia Bond Index Fund, an ETF which tracks the index, posted a return of 0.076% in the NAV as the fund yield inched up from 3.81% to 3.82%. Month to date, the fund returned 0.212% versus a 0.266% return posted by the index.
Flows to local govvies fell 37.6% to RM14.62bil from last week’s RM23.42bil. Activities across all segments dropped; MGS down 40% w-o-w to RM8.72bil from RM14.50bil while interest for GII declined 32.3% w-o-w to RM5.73bil from RM8.46bil in previous week. With no interest in the SPK, short-term bills (MTB/MITB) skidded 16% w/w to RM168mil this week.
Likewise in the PDS market, flows slipped 11.3% w-o-w to RM3.42bil in this week from RM3.86bil. Some of 80.9% of the trade volume came from the GG/AAA segment while 16.2% were attributed to AA-rated papers and the remaining 2.9% from the A segment or lower.
In the GG/AAA segment, flows were dominated by Lembaga Pembiayaan Perumahan Sektor Awam (LPPSA) ‘2026-2036 papers, which closed with firmer yields between 3.910% and 4.345% on the back of RM665mil.
Prasarana Sukuk Murabahah ‘24-47 tranches garnered RM465mil with yields settling at 3.839%–4.659%. Interest was also seen in Danainfra Nasional Bhd ‘24-49 issuances with RM460mil traded and yields closing at 3.780%–4.710%.
On to the AA segment, Celcom Network ‘08/19 issuance saw yields trading 3.840%–3.944% with RM145mil changing hands. Edra Energy Sdn Bhd ‘23-38 IMTN saw yields closing firmer between 5.197% and 6.169% with RM131.5mil traded. Lastly, interest was seen in Southern Power Generation Sdn Bhd 2023-2032 tranches which saw yields closing mixed between 4.351% and 4.559% on a trade volume of RM55mil.
Ringgit Interest Rate Swap (IRS) Market
The IRS curve was seen steepening from the belly to the longer end of the curve by 0.5–1.0bps. As at Friday’s noon pricing, the 3-month KLIBOR stood at 3.69%. Elsewhere, the 5-year CDS lower by 2.8% to 55.2.
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