Treasury Pulse

  • Business
  • Saturday, 25 May 2019

Global Forex Market

THE dollar’s momentum halted, depreciating by 0.08% to 97.9 over the week largely underpinned by disappointing data release, which includes May preliminary Markit Manufacturing PMI that unexpectedly slowed down to 50.6 from 52.6 in April (consensus: 52.5) while the May preliminary Markit Services PMI decelerated to 50.9 from 53.0 in April (consensus: 53.2).

These high frequency data indicates the economy is peaking.

Besides, Federal Open Market Committee (FOMC) minutes highlighted that the Federal Reserve emphasised there will be no rate moves coming anytime soon even if the economy improves which partly dragged the dollar lower.

Also during the week, while trade tensions escalated after Google suspended some business activities with Huawei amidst a number of US chipmakers cutting off supplies, tension between the US and Iran re-emerged, raising the question as to whether the US will go to war with Iran.

Brent crude oil hit the year’s biggest drop by falling 5.85% at US$67.80 per barrel. Oil spiralled to its worst daily performance of the year as investors fled from risky assets inflicted by the US-China trade war.

On Wednesday, the Energy Information Administration (EIA) released its crude oil inventories for week ending May 17, which saw +4.74 million barrels from 5.43 million in the prior week. Additionally, Opec will continue to withhold supply into the second half of 2019 to prop up the market.

The euro appreciated by 0.13% to 1.118 largely on the back of a weaker dollar amid the bloc heading to polls which began 23 May through 26 May. Nonetheless, economic release for the week was rather disappointing which includes:

(1) EU manufacturing PMI contracting further to 47.7 in May from 47.9 in April (consensus: 48.1);

(2) Germany manufacturing PMI flash shrinking to 44.3 in May from 44.4 in April (consensus: 44.8); and

(3) May’s Germany Ifo Business Climate falling further to 97.9 in May compared with 99.2 in April (consensus: 99.1).

The pound continued to remain under pressure during the week, suffering 13 successive days of losses against the dollar. For the week, the pound weakened by 0.54% to 1.266 following speculation that Prime Minister Theresa May’s premiership was coming to an end owing to her failure to win support for her Brexit deal amid the ongoing EU elections.

The Japanese yen rose 0.41% to 109.6 due to rising demand for safe haven assets benefiting from the US-China trade war escalation. The damaging sentiment in global market overshadows news on May’s preliminary Nikkei Manufacturing PMI falling back into the contractionary region to 49.6 from 50.2 in April (consensus: 50.5).

Nevertheless, other economic release includes first quarter 2019 expanding to 2.1% year-on-year (y-o-y) from 1.6% y-o-y in fouth quarter 2018 while core inflation in April rose in line with expectations to 0.9% y-o-y compared with 0.8% y-o-y in March.

The majority of Asia ex-Japan currencies depreciated against the dollar owing to spillover impact from the negative trade war sentiment save for the Korean won, Philippine peso, and the yuan. The won came in as the best performer, up 0.41% to 1189.3 due to renewed interest in its stock market as Samsung welcomes the US ban of Huawei.

Meanwhile, the Indian rupee slid 0.39% to 70.02 as the election euphoria fades. Preliminary results suggest Prime Minister Narendra Modi has secured another five-year term after winning a landslide general election victory.

Amid a short working week, the ringgit slipped 0.40% at 4.193 largely due to spillover impact from the escalating US-China trade war, added with weaker crude oil prices. The benchmark FBM KLCI continued its downtrend, shedding 0.2% to 1,604 while recording a net foreign outflow of RM253mil.

Adding on, there are no major economic release except April’s consumer price index that recorded 0.2% y-o-y, matching the pace in March but missed the market expectation (consensus: 0.4% y-o-y).

US Treasuries (UST) Market

Markets flocked to the Treasury papers on a slew of negative sentiment in the market, starting off with the escalation of the US-China trade tensions amid a re-emergence of geopolitical tensions between the US and Iran.

This is then followed by disappointing economic release which sent yields across the curve lower by 5–7 basis points (bps) overnight. The disappointing PMI data release signals that the US economy is moderating.

Apart from that, FOMC minutes highlighted that the Federal Reserve emphasised there will be no rate moves coming anytime soon even if the economy improves.

At yesterday’s noon pricing, the 2-, 5-, and 10-year benchmark UST yields settled at 2.15%, 2.11% and 2.32%, respectively.

Malaysian Bond Market

The local market was muted at the start of the week due to a 2-day public holiday. Nonetheless, the focus of the week was on the reopening of the Malaysian Government Securities (MGS) 10-year maturing on August 2029.

The auction garnered a decent bid-to-cover (BTC) of 1.840 times on top of its RM4bil issuance size. It closed with a high/low spread of 4.2 bps between 3.852% and 3.810% while averaging at 3.836% on Thursday.

As at yesterday noon, the 3-, 5-, 7-, 10-, 15-, 20- and 30-year benchmark MGS yields settled at 3.42%, 3.58%, 3.73%, 3.81%, 4.11%, 4.33% and 4.57%, respectively.

The Markit iBoxx ABF Malaysia Bond Index, an index comprising the MGS, Government Investment Issue (GII) and Government Guaranteed, returned 0.108% in the week May 17-23, 2019 as the index yield remained at 3.81%.

In the same period, the ABF Malaysia Bond Index Fund, an exchange-traded fund which tracks the index, returned 0.093% as the fund yield rose to 3.83% from 3.82%. Month to date, the fund returned 0.355% versus 0.352% return posted by the index.

Flows for local govvies fell further by 81.7% to RM2.6bil from last week’s RM14.4bil. Activities in the MGS skidded 75.6% week-on-week (w-o-w) to RM2.2bil from RM9.0bil, gobbling up 83% from the total volume traded.

Meanwhile interests in the GII dropped as much as 93% from RM5.4bil to RM0.4bil, contributing 15% of the week flows. It is then followed by the PDS performance that saw bearish flows, down by 88% to RM300mil from last week’s RM2.8bil; the GG/AAA segment occupied 57%; AA 40% while others took up 3%.

The GG/AAA segment saw Lembaga Pembiayaan Perumahan Sektor Awam (LPPSA) 2026-2038 tranches topping the list with RM125mil traded between 3.931% and 4.429%. Next, Manjung Island Energy Bhd 2019–2031 tranches gathered RM105mil with yields closing between 3.789% and 4.251%.

These were followed by Perbadanan Tabung Pendidikan Tinggi Nasional (PTPTN) 2026-2029 tranches which traded between 3.954% and 4.051% with a volume of RM65mil.

In the AA segment, Konsortium Lebuhraya Utara-Timur (KL) Sdn Bhd 2023-2030 tranches accumulated RM70mil, changing hands at 4.507%-4.670%. Besides, Southern Power Generation Bhd 2027-2031 tranches gathered RM60bil between 4.199% and 4.409%. In addition, MMC Corp Bhd 2023-2028 tranches traded at 5.125%-5.456% amounting to RM60mil.

Ringgit Interest Rate Swap (IRS) Market

The IRS curve continued to ease at the front end of the curve. The 3-month Klibor remained unchanged at 3.46%, a level it has maintained since early May. Elsewhere, the five-year CDS added 5.8% to 67.89 bps.

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