Global Forex Market
THE dollar’s strength was broad-based, supported by safe-haven play after President Donald Trump tweeted about raising current tariffs from 10% to 25% on US$200bil worth of Chinese imports and accused the Chinese of backpedalling on trade talks. However, the US dollar erased its weekly gains after April core producer prices unexpectedly edged lower to 0.1% month-on-month (m-o-m) from 0.3% m-o-m in March (consensus: 0.2%).
As such, we saw the US dollar weakened 0.15% to 97.4 from 97.5 over the week. Meanwhile, the Dow Jones and S&P500 lost 2.3% and 2.1% to 25,828 and 2,871, respectively, amid the rising trade tension.
In the commodity market, the Brent plunged 1.19% to US$70.4 per barrel as the ongoing trade tension could hurt global oil demand. However, the rising tension between the US and Iran had partially cushioned the decline in oil prices with the US increasing its military involvement in Middle East and the new sanctions on metal.
Moreover, the unexpected drop in US inventories also kept the oil price from breaking below the key “70” level. It fell by 3.96 million barrels (mb) from a build-up of 9.93 mb in the previous week while the market was expecting a mere increase of 1.21 mb. The euro posted a gain of 0.14% to 1.122 against the US dollar, supported by better-than-expected German industrial production, up 0.5% m-o-m in March from 0.4% m-o-m in the previous month (consensus: -0.5%). Yet, March retail sales remained unchanged compared with a month earlier following last month’s gain of 0.5% m-o-m.
The pound fell 0.63% to 1.302 mainly due to the setbacks in the latest Brexit development. The opposition Labour have accused Prime Minister Theresa May of leaking details of the discussion and risk jeopardising it after she mentioned that she is open to a temporary stay in the custom union.
Following the huge defeats in the local election, May faced uncertainty on her premiership amid the growing impatience among her party members before the Conservative 1922 committee, the group that handles any challenge on the leadership, dismissed the rumour.
Demand for the yen surged as trade tensions between the US and China re-emerged. It rose 0.92% to 109.7 against the dollar. However, we noticed some pull-back yesterday after average cash earnings posted the sharpest dropped since June 2015.
It declined by 1.9% year-on-year (y-o-y) from -0.8% y-o-y in March (consensus: -0.5% y-o-y) while overshadowing the better-than-expected household spending, up 2.1% y-o-y from 1.7% y-o-y in March (consensus: 1.7%).
The majority of Asia ex-Japan currencies depreciated against the dollar as investors fled for safety save for the Thai baht. The Chinese yuan took the biggest hit, losing 0.91% to 6.827 due to the trade spat with the US.
The Indian rupee and South Korean won followed suit, declining by 0.78% and 0.69% to 69.95 and 1178.1, respectively. Meanwhile, the baht appreciated by 0.42% to 31.78 against the greenback as Bank of Thailand left its single-day reverse repo rate at 1.75%. The ringgit weakened 0.12% to 4.153 on the escalated trade tension amid Bank Negara slashing the overnight policy rate (OPR) by 25 basis points (bps) to 3%. The FBM KLCI moved in tandem with the regional market, diving below the 1,620 level to close 0.9% lower at 1,618.5 on a global sell-off ahead of the tariff deadline. The sell-off led to a foreign net capital outflow of RM320mil.
On to the local front, the labour market remained robust despite the unemployment rose to 3.4% in March from 3.3% a month earlier. Nevertheless, industrial production showed resilience, growing 3.1% y-o-y in March from 1.7% y-o-y.
US Treasuries (UST) Market
Investors flocked to the Treasury papers after Trump escalated the trade war with China by announcing plans to hike the tariff imposed on US$200bil of Chinese goods to 25% from 10%.
Apart from that, the focus of week was on US$27bil of a 10-year note auction which drew an average of 2.479% on the weakest bid-to-cover (BTC) of 2.17 times since 2009.
At yesterday’s noon pricing, the 2-, 5-, 10-, and 30-year benchmark UST yields settled at 2.26%, 2.25%, 2.45% and 2.87%, respectively.
Malaysian Bond Market
Bank Negara cut its benchmark interest rate for the first time since July 2016, reversing its hike on December 2017. It reduced the OPR rate by 25 bps to 3% in its latest monetary policy committee meeting and cited that the cut was intended to address some signs of tightening financial condition while the downside risk to global growth remains.
However, the buying in the bond market was halted owing to the ongoing US-China trade tension. By end of the week, we saw the yields easing 2.1 bps on the average across the board with the 10-year tenure slipping the most by 5 bps.
At yesterday’s noon pricing, the 3-, 5-, 7-, 10-, 15-, 20- and 30-year benchmark Malaysian Government Securities (MGS) yields settled at 3.40%, 3.59%, 3.77%, 3.80%, 4.13%, 4.34% and 4.61%, respectively.
The Markit iBoxx ABF Malaysia Bond Index, an index comprising the MGS, Government Investment Issue (GII) and Government Guaranteed (GG), returned 0.250% in the week May 2-9, 2019, as the index yield inched down to 3.80% from 3.83%.
In the same period, the ABF MALAYSIA BOND INDEX FUND, an exchange-traded fund which tracks the index, posted a return of 0.279% in the net asset value as the fund yield fell 3.85% to 3.81%. Month to date, the fund returned 0.222% versus 0.262% return posted by the index.
Activities in the total govvies climbed 87% to RM22.3bil in the current week compared with RM12bil last week. The MGS space saw bullish flows to RM13.5bil from RM7.2bil. Meanwhile, the GII almost doubled to RM8.4bil from RM4.5bil in the prior week, occupying 38% of the total volume traded.
In tandem with the govvies’ trading flow, activities in private debt securities (PDS) picked up by 39.5% to RM1.4bil from RM1.1bil, with the GG/AAA segment contributing 93.9% of the trading volume. Meanwhile, the AA segment accounts for about 1.4% and the remaining 4.8% from the A segment.
In the GG/AAA segment, Danum Capital Bhd Islamic medium-term notes (IMTN) ‘05/23 papers topped the list with RM620mil traded at 3.960%. Next, Projek Lebuhraya Usahama Bhd (PLUS) 2020-2031 tranches gobbled up RM543mil with yields between 3.774% and 4.329%.
These were followed by DanaInfra Nasional Bhd 2022-2041 tranches, which changed hands at 3.539%–4.480% amounting to RM495mil.
Meanwhile, in the AA segment, Edra Energy Sdn Bhd IMTN 2023-2037 tranches traded between 4.996% and 6.038% on the back of RM153.1mil volume. Also, YTL POWER INTERNATIONAL BHD 2023-2028 tranches settled at 4.378%–4.600% on top of RM70mil. Besides, Southern Power Generation Sdn Bhd 2026-2023 tranches saw RM70bil flowed through at 4.222%–4.561%.
Ringgit Interest Rate Swap (IRS) Market
In view of the 25 bps rate cut in benchmark, the IRS curve was seen easing at the front end of the curve while the 3-month Klibor eased to 3.46%. Elsewhere, the 5-year CDS rose 11.1% to 65.4 bps.