The US dollar continued to trend higher, posting a weekly gain of 0.55% to 97.9 amid the deepening US-China trade rift. China announced it will impose new tariffs on US$60bil of US imports, from June 1. But trade concerns eased slightly following President Donald Trump’s remark mid-week suggesting the door remained open on a potential US-China trade deal.
Nonetheless, the US dollar was largely buoyed by solid earnings, which led to both the Dow Jones and S&P500 to close higher by 2.1% to 25,863 and 2.3% to 2,876, respectively. Besides, the dollar was partially induced by firmer data release by the end of the week, which includes:
(1) housing starts jumping to 1.235 million in April from 1.139 million in March; and
(2) initially jobless claims falling to 212,000 in the week ending May 11 from 228,000 in the week prior.
However, the dollar’s gain for the week was partially capped by an unexpected decline in April retail sales, down 0.2% month-on-month (m-o-m) from a gain of 1.7% m-o-m in March (consensus: 0.2%) and a fall in April’s industrial production to 0.9% year-on-year (y-o-y) compared with 2.3% y-o-y in March.
Brent crude oil prices surged 3.4% to US$72.6 per barrel as tensions in the Middle East grew, with a Saudi-led coalition launching air strikes in retaliation for recent attacks on its oil infrastructure.
The rising tensions in the Middle East shrugs off gains in US crude oil inventories as the API Crude Oil Stock Change added 8.6 million barrel as of May 10 from 2.8 million barrels in the week prior while the Energy Information Administration’s crude oil inventories recorded a gain of 5.4 million barrels as of May 10 from a decline of 3.9 million in the week prior.
The euro weakened by 0.43% to 1.117 largely due to the stronger US dollar as well as concerns about next week’s European parliamentary elections. However, the downside pressure on the euro was partially mitigated following news on Trump administration’s plan to delay auto tariffs by up to six months.
Meanwhile, economic release for the week includes:
(1) First-quarter 2019 GDP second estimate, which came in line with expectations at 1.2% y-o-y;
(2) March industrial production declining by 0.6% y-o-y from 0% y-o-y in February; and
(3) May ZEW Economic Sentiment Index contracting by 1.6% compared with 4.5% in April.
The pound plunged by 1.23% to 1.280, marking a three-month low on the back of growing fears of Prime Minister Theresa May’s withdrawal agreement being shot down again when it is presented to the Commons in June. In addition, growing speculations that May will soon be ousted is partially weighing on the pound.
Nonetheless, during the week, the economy presented healthy labour data where the March unemployment rate edged slightly lower to 3.8% from 3.9% in February, marking a low since 1975 though wages measured by average earnings, excluding bonus, eased slightly to 3.3% y-o-y in March from 3.4% y-o-y in April.
The Japanese yen weakened by 0.50% to 109.9 over the week after Trump suggested there is still a likelihood for a trade deal with China to materialise, added with delaying auto tariffs against the EU by six months. Apart from that, the yen was partially weighed down by weak economic release i.e. machine tools orders declining further to 33.4% y-o-y in April compared with minus 28.5% y-o-y in March.
The majority of Asia ex-Japan currencies depreciated against the stronger dollar save for the Indian rupee, which rose 0.69% to 70.0 amid growing consensus that Prime Minister Modi is set to score a win on the May 23 election. Meanwhile, the Indonesia rupiah slid by 0.2% to 14,452 amid Bank Indonesia keeping its benchmark interest rate unchanged at 6.00%.
The ringgit recovered losses over the week, closing back to 4.165, the same as at the start of the week. The recovery came shortly after:
(1) Bank Negara announced initiatives to boost market efficiency, liquidity and accessibility in the bond as well as foreign exchange market; and
(2) First-quarter 2019 GDP came in better than expected at 4.5% y-o-y from 4.7% y-o-y in fourth-quarter 2018 (consensus: 4.3%) led by government spending as well as a recovery in the agriculture sector.
US Treasuries Market
Markets flocked to Treasury papers after China announced it will impose new tariffs on US$60bil of US imports, from June 1. But the buying momentum eased as investors took comfort following a slew of positive headlines:
(1) Trump suggested that there is still a likelihood for a trade deal with China to materialise, added with delaying auto tariffs against the EU by six months;
(2) Upbeat earnings; and
(3) Firmer economic release by end of the week.
At yesterday’s noon pricing, the 2-, 5-, and 10-year benchmark UST yields settled at 2.18%, 2.15%, and 2.38%,.
Malaysian Bond Market
The local govvies market experienced some selling pressure at the start of the week due to concerns over the escalation in the trade war but was short-lived after positive sentiment was seen brewing in the US markets. Nevertheless, buying momentum was seen by the end of the week after Bank Negara announced further liberalisation for offshore markets in its dynamic hedging policy.
On top of that, first-quarter 2019 GDP print came in better than expected at 4.5% y-o-y from 4.7% y-o-y in fourth-quarter 2018. Markets took this positively as bond prices firmed up across the curve.
Also, the focus of the week was the 30-year Government Investment Issue (GII) 11/49, which gathered a strong bid-to-cover (BTC) of 3.298 times on the back of a total issuance amount of RM4bil including RM2bil privately placed. The auction closed with a high/low spread of 3.8 basis points (bps) between 4.663% and 4.625% while averaging at 4.638% on Tuesday.
As at yesterday morning, the 3-, 5-, 7-, 10-, 15-, 20- and 30-year benchmark Malaysian Government Securities (MGS) yields settled at 3.41%, 3.59%, 3.76%, 3.81%, 4.10%, 4.34% and 4.58%, respectively.
The Markit iBoxx ABF Malaysia Bond Index, an index comprising the MGS, GII and Government Guaranteed (GG), returned 0.022% in the week from May 9, 2019 to May 16, 2019 as the index yield went up from to 3.81% 3.80%.
In the same period, the ABF Malaysia Bond Index Fund, an exchange-traded fund which tracks the index, posted no change in the net asset value as the fund yield rose to 3.82% from 3.81%. Month-to-date, the fund returned 0.262% versus 0.244% return posted by the index.
Flows for local govvies dropped 57.3% to RM11.4bil from last week’s RM26.67bil. Activities in the MGS fell 58.3% week-on-week (w-o-w) to RM6.94bil from RM16.65bil, recording 61% from the total volume traded.
Meanwhile, interest in the GII dropped more than double to RM4.2bil from RM9.0bil, occupying 37% of the week flows. Nonetheless, private debt securities saw a more bullish flow, up by 1.5% to RM2.45bil from last week’s RM2.42bil; the GG/AAA segment contributed 65%; the AA (32%) and the A (2%).
The GG/AAA-rated papers saw Projek Lebuhraya Usahasama Bhd (PLUS) 2020-2038 tranches gobbled up RM453mil and traded between 3.768% and 4.434%. Besides, DanaInfra Islamic medium-term notes (IMTN) 2022-2049 tranches gathered RM345mil and yields closing between 3.740% and 5.060%.
These were followed by Perbadanan Tabung Pendidikan Tinggi Nasional IMTN 2027-2032 tranches, which traded 3.990%-4.240% with a volume of RM120mil.
Meanwhile on the AA-segment, Sarawak Energy Bhd 2024-2035 tranches topped the list with RM137.4mil changing hands at 4.118%-4.571%. Next, MMC Corp Bhd 2023-2028 tranches gathered RM101.15bil and traded between 5.003% and 5.369%. Lastly, WCT Holdings Bhd 2020 tranches traded at 4.622%-4.720% amounting to RM90mil.
Ringgit Interest Rate Swap (IRS) Market
The IRS was seen easing across the curve with the 10-year gaining the most (minus 2.0 bps) while the 3-month Klibor remained unchanged at 3.46%. Elsewhere, the 5-year CDS fell 3.1% to 62.22 bps.
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