Global Forex Market
The dollar erased its weekly gains, closing marginally lower by 0.02% to 96.8 after the US Federal Reserve’s Williams commented on the need for the central bank to “act quickly” as economic growth slows, fuelling market players to add bets on a 50-basis point (bps) cut in July’s FOMC meeting.
Also, the dollar was weighed down after the IMF said the dollar is overvalued by 6% to 12%, based on near-term economic fundamentals. Economic releases for the week included:
> the New York Empire State Manufacturing Index climbing to +4.3 in July from -8.6 in June (market expectations was +2);
> retail sales data beating market’s expectations of 0.1% m/m to record a 0.4% m/m growth in June, unchanged from the month prior; and
> June housing starts unexpectedly declining further by 0.9% m/m from -0.4% m/m (cons: 1.9%).
On a separate note, US Treasury Secretary Steven Mnuchin said there have been no changes to policies on the Treasury’s US$94.5bil Exchange Stabilisation Fund despite US President Donald Trump’s desire for a weaker dollar.
In the commodity front, Brent crude oil price witnessed a strong sell-off, down 7.18% to US$61.9/barrel following expectations that crude output would rise as the Gulf of Mexico platforms returned to service after a hurricane passed through the region last week.
Besides, Brent was partly weighed down by easing geopolitical tensions after the US reported that Iran has agreed to negotiate on its missile programme which may ease the tensions in the Middle East.
However, the sustained crude oil inventory drawdown did little to support prices – the EIA crude oil stocks fell 3.116mil as of 12 July from -9.499mil in the week prior
Amidst a relatively quiet week in the euro economy, the euro rose 0.06% to 1.128 after the dollar witnessed a pullback towards the end of the week. Economic releases for the week included:
> the July ZEW Economic Sentiment Index deteriorating further to -20.3 points from -20.2 in June;
> headline inflation rate rising faster than expected to 1.3% y/y in June from 1.2% y-o-y in May while core inflation climbed in line with expectations at 1.1% y-o-y in June compared with 0.8% y-o-y in May; and (3) May construction output slowing down to 2.0% y/y from 3.1% y/y in AprilThe pound experienced a volatile week due to rising prospects of a “no-deal” Brexit after the front-runners for the next Britain’s prime minister, Boris Johnson and Jeremy Hunt, both declared that the Northern Ireland backstop is “dead”. However, the pound sterling managed to recover some of its losses after retail sales data came in better than expected from 2.2% y-o-y in May to 3.8% y-o-y in June (cons: 2.6%).
Nevertheless, economic release for the week was largely positive with unemployment posting the lowest level since 1974 at 3.8% y-o-y in May for the third consecutive month, coupled with the rising real wage growth at the fastest rate for more than a decade. By end of the week, the pound weakened by 0.18% to 1.255.
Amidst a short working week, the Japanese yen appreciated by 0.57% to 107.3 as demand increased amid a sell-off in its equity market – with the Nikkei 225 index down 2.9% to 21,395. Besides, demand for the yen continued after trade data deteriorated more than expected, signalling that global growth is slowing. June exports contracted by -6.7% y/y from -7.8% y/y in May (consensus: 5.6%) while imports declined by 5.2% y/y in June from -1.5% y/y in May.
The majority of Asian ex-Japan currencies strengthened against the dollar save for the Philippine peso and Indian rupee. The rupee shed 0.4% to 69.0 due to sustained foreign fund outflow in the equities market, down US$105mil. The Indonesian rupiah came in as the region’s best performer, recording at gain of 0.34% to 13,960 as the central bank slashed its benchmark interest rates by 25 bps to 5.75%.The South Korean won strengthened by 0.03% to 1,179 after Bank of Korea unexpectedly cut its policy rate by 25bps to 1.5%.
The Malaysian ringgit weakened marginally by 0.02% to 4.114 partly due to weaker Brent crude oil prices. Besides, the KLCI slid 1.2% to 1,649 while recording a net foreign outflow of RM24mil.
Nevertheless, Fitch Ratings has affirmed Malaysia’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at A- with a stable outlook.
Although the credit rating agency compliments Malaysia’s strong and broad-based medium-term growth with a diversified export base, it highlighted that risk remained on the high public debt and some lagging structural issues like weak governance relative to its peers.
US Treasuries (UST) Market
The UST curve fell averagely 6.6bps across the curve, driving bond prices higher over the week after numerous Fed members’, including Powell, cemented expectations a for rate cut during the FOMC meeting later this month.
During Powell’s speech, he continued to reiterate the rising uncertainties around trade and the US debt ceiling. As at Friday noon, the 2-, 5-, 10- and 30-year UST benchmark yields stood at 1.78%, 1.79%, 2.04% and 2.56%, respectively.
Malaysian Bond Market
The local market started the week on a rather quiet note due to lack of fresh catalysts in the domestic market amidst mostly cautious market participants after the recent rise in global bond yields.
Nevertheless, bond prices firmed up slightly towards the end of the week, tracking the downshift in global bond yields. By the end of the week, the curve eased 0.1 – 0.8 bps save for 30-year MSG. As at Friday noon, the 3-, 5-, 7-, 10-, 15-, 20- and 30-year benchmark MGS yields settled at 3.29%, 3.43%, 3.53%, 3.61%, 3.81%, 4.00% and 4.25%, respectively.
The Markit iBoxx ABF Malaysia Bond Index, an index comprising the MGS, GII and GG, returned 0.076% in the week from 12 July to 18 July 2019 as the index yield was unchanged at 3.56%. In the same period, the ABF MALAYSIA BOND INDEX FUND, an ETF which tracks the index, returned 0.076% as the fund yield was unchanged at 3.62%. Month to date, the fund returned 0.482% versus the index’s return of 0.505%.
Flows for local govvies reduced by 37% to RM10.8bil from last week’s RM17.0bil. Activities in the MGS slumped 47% w/w to RM6.1bil from RM11.5bil, accumulating 56% from the total volume traded.
Meanwhile, interest in the GII was down 17% to RM4.2bil from RM5.1bil, contributing 39% to the week’s flows. These were followed by the PDS’ performance that showed a 17% drop to RM3.3bil from last week’s RM3.9bil with the GG/AAA segment occupying 76%; AA 18% and others 6%. Flows were focused on the GG/AAA segment that saw Khazanah Nasional Bhd’s 2019–2024 tranches topping the list with RM570mil traded between 3.054% and 3.489%.
Next were Pengurusan Air SPV Bhd 2020–2025 papers which gathered RM435mil with yields closing at 3.247%–3.571%.
Meanwhile, Lembaga Pembiayaan Perumahan Sektor Awam (LPPSA) 2024–2049 tranches traded between 3.509% and 4.3498% on the back of RM370mil.
In the AA segment, Lebuhraya Duke Fasa 3 Sdn Bhd 2035–2038 tranches accumulated RM100mil, changing hands at 4.739%–4.969%. Besides, Sarawak Energy Bhd 2025–2036 papers traded between 3.919% and 4.469% amounting to RM80mil. Konsortium Lebuhraya Utara-Timur (KL) Sdn Bhd 2028–2032 tranches gathered RM60mil between 4.344% and 4.509%.
MYR Interest Rate Swap (IRS) Market
The IRS curve was seen easing this week with the 10-year IRS falling five bps to 3.59%.
Elsewhere, the 5-year CDS rose 2.3% to 52.18bps while the three-month KLIBOR rate remained unchanged at 3.46%.