Treasury Pulse

  • Business
  • Saturday, 20 Apr 2019

Global Forex Market

THE dollar strengthened for the third consecutive week. It rose 0.55% to 97.5 on the back of a string of strong economic data.

The March retail sales reported an upside surprise of 1.6% m-o-m from a contraction of 0.2% m-o-m in February and beating market expectation of +0.9%. Moreover, the drop in initial jobless claims to 192,000 compared with the previous week’s 197,000 suggested the sustained health of the US economy.

The good progression in trade talks with Japan and China helped to shrug off the shortfall in March’s industrial output. Industrial production came in at -0.1% m/m from a +0.1% increase in February, below its consensus of +0.2% m-o-m.

However, the manufacturing PMI remained unchanged at 52.4 in April while the service PMI declined to 52.9 from the previous month’s 55.3.

In the commodity market, Brent crude oil prices edged up 1.11% to US$71.97/bbl as signs of a global supply tightening intensified. The de facto leader of Opec, Saudi Arabia, lowered its output by 277,000 barrels to just under seven million barrels per day (mbpd) in February, according to data from the Joint Organisation Data Initiative.

Along with the unexpected drawdown of 1.40mb in US inventories and the receding fears of demand growth, these fuelled the rise in oil prices and posted a year-to-date gain of 33.8%. However, the strengthening dollar kept a lid on the gain.

The euro fell 0.65% to 1.123 mainly due to the stronger dollar coupled with disappointing economic release. Economic release for the week includes: February’s industrial production recording a smaller decline of 0.3% y-o-y from -0.7% y-o-y in previous month; and the manufacturing PMI est for April continuing to stay in the contraction region for the third consecutive month.

The manufacturing PMI read at 47.8 in April from 47.5 a month earlier and below the market expectation of 47.9.

The poor manufacturing data signals the balance of risk to the economy is still tilted to the downside.

In the meantime, the sterling dropped below the 1.30 level to 1.299, a 0.83% fall for the week. The February labour market showed the unemployment rate remained unchanged at 3.9% with wages growing slightly to 3.4% y-o-y from 3.5% y-o-y in January. Furthermore, retail sales posted a strong reading in March, up 1.1% m-o-m from 0.6% m-o-m in the previous month.

The yen strengthened 0.06% to 112.97 as the April manufacturing PMI approached the “50” expansion/contraction demarcation. It read at 49.5 from the 49.2 a month earlier as input and output prices climbed. However, the fall of 2.7% in March exports from -1.2% y-o-y in February dampen the outlook for Japan’s economy, along with the February industrial output finalising at -1.1% y-o-y from a gain of 0.7% y-o-y in January.

Asian ex-Japan currencies generally weakened across the board owing to a stronger greenback save for the Indian rupee and rupiah. The rupiah added 0.13% to 14,045 as the incumbent Joko Widodo was successfully re-elected president for his second and final term.

The equities market witnessed a strong foreign inflow of US$102mil post-election result.

Meanwhile, the yuan remained largely unchanged for the week, hovering between 6.68 and 6.71. Earlier in the week, the yuan strengthened post-1Q2019 GDP data of 6.4% y-o-y (4Q’18: 6.4%; cons: 6.3%), but it pared gains after uncertainty rose on the sustainability of China’s GDP.

The ringgit was the second-worst performer in the region following a slew of negative headlines on the economy starting off with speculations that Malaysian bonds were at risk of being dropped from the FTSE World Government Bond Index. Selling pressure continued mid-week after Moody’s rating agency commented that the government’s financial aid of RM6.2bil to Felda is credit negative. Meanwhile, the local bourse shed 0.7% to 1,625 over the week while recording a net foreign outflow of RM374mil.

US Treasuries (UST) Market

Amid a short working week as markets were closed on Friday due to Good Friday holiday, the yield curve eased on the back of weak manufacturing across the globe.

Strong buying flows were seen across the US Treasuries after reports of weak manufacturing PMI from France, Germany and Japan. These pressured the yields, especially the ones on the shorter end, and also tempered the earlier selling pressure.

The weak manufacturing PMI indicated the second quarter could start on a softer tone. As at Friday, the 2-, 5-, and 10-year benchmark UST yields stands at 2.38%, 2.37%, and 2.56% respectively.

Malaysian Bond Market

A slew of negative news put pressure on Malaysian govvies in which we saw yields adding 8.1–15.8bps across all tenors with the five-year MGS climbing the most.

It started with the risk of Malaysian bonds being excluded from the FTSE World Government Bond Index. The selling pressure then continued after Moody’s credit negative comment with regards to the government’s aid to Felda. At Friday’s noon pricing, the 3-, 5-, 7-, 10-, 15-, 20- and 30-year benchmark MGS yields settled at 3.49%, 3.69%, 3.87%, 3.89%, 4.26%, 4.44% and 4.69% respectively.

The Markit iBoxx ABF Malaysia Bond Index, an index comprising the MGS, GII and GG, returned -0.449% in the week from April 11 to April 18 as the index yield went up to 3.86% from 3.78%.

In the same period, the ABF Malaysia Bond Index Fund, an ETF which tracks the index, posted a return of -0.516% in the NAV as the fund yield jumped from 3.82% to 3.89%. Month to date, the fund returned -0.305% versus -0.183% return posted by the index.

Flows for local govvies spiked 23.8% to RM920.84bil compared with last week’s RM16.83bil.

The MGS space which consisted of 53% of the total activities increased 12.2% to RM11.03bil from RM9.83 in the previous week while flows for GII surged 40.0% to RM9.56bil. Meanwhile, we noticed the activity level in short-term bills jumping 51.2% to RM254mil in this week.

On the contrary, trading activities at the corporate bond space slowed to RM1.89bil versus last week’s RM5.04bil. Some 75% of the trading volume was from the GG/AAA segment which saw a decrease to RM1.41bil from RM3.63bil. Besides, 18% were from the AA segment and the remaining 7% from the A segment.

Amid a relatively quiet week in the PDS market, strong interest in the GG/AAA segment was garnered in 2022-2049 DanaInfra Nasional Bhd tranches which saw yields closing between 3.701% and 4.659% with RM465mil traded.

Some interest was also seen in Prasarana Malaysia Bhd 2020-2042 tranches which saw yields settling at the range of 3.554%-4.499% on the back of RM250mil traded. Lastly, ‘20-29 tranches from Pengurus Air SPV Bhd saw yields traded between 3.580% and 4.063% with RM170mil traded.

In the AA segment, interest was seen in the energy sector with Edra Energy Sdn Bhd’s 2025–2038 tranches posting a volume of RM104mil with yields falling 0.3-30bps to 5.209%–6.139%.

Besides, Fortune Premiere Sdn Bhd 2023-2025 tranches yields closed 0.1 – 12bps lower at 4.366%-4.517% on the back of RM42mil traded. Also from the property sector, ‘03/23 Gamuda Bhd Islamic bonds saw RM40mil traded with yields 1bps lower at 4.459%.

Ringgit Interest Rate Swap (IRS) Market

The IRS curve was seen steepening from across the curve by 5.5–9.0bps. As at Friday’s noon pricing, the 3-month KLIBOR stood at 3.69%. Elsewhere, the 5-year CDS was lower by 1.7% to 52.7.

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