Global Forex Market
The US dollar traded sideways for the week albeit closing marginally higher by 0.02% to 98.272.
The US dollar started the week on a strong note due to safe-haven play following drone attacks in Saudi Arabia. However, the dollar pared gains after Saudi calmed the situation, citing it is manageable and informing other Opec members not to respond with extra output.Nevertheless, the dollar’s strength re-emerged mid-week due to lack of dovishness in the FOMC meeting despite the Fed slashing its interest rate by 25bps to 1.75%–2%, in line with expectations. The Federal Reserve jumped into financial markets this week for the first time since 2008, injecting a total of US$203bil as of Thursday into the repo markets in an attempt to ease funding pressure in the money market.
In the commodity space, Brent crude surged 6.9% to US$64.40/bbl as a result of the coordinated drone attacks on Saudi Aramco’s oil refinery facilities late last week. The attacks caused the crude oil supply to diminish by 50% or 5.7 million barrels of daily production and limiting the country’s spare capacity, a cushion for oil markets in any abrupt outage. The crude oil received additional impetus as geopolitical tensions escalated after Iran Foreign Minister Mohammad Javad Zarif fired back on Thursday, warning that any attack on Iran would lead to an “all-out war.”The euro weakened by 0.29% to 1.104 largely driven by a stronger dollar but managed to cushion some losses owing to Brexit optimism.
Meanwhile, economic release for the week showed the Eurozone economic condition remaining depressed: (1) ZEW economic sentiment index coming at -22.4 in September vs -43.6 in August (cons: -32.2); (2) August’s headline inflation still muted at 1% y/y, unchanged from July; and (3) core inflation rising 0.9% y/y, the same pace as July’s.
The pound was the outperformer for the week among its G7 peers, gaining 0.2% to 1.253, the highest level since July as ECB’s Juncker said a Brexit deal can be reached.The pound was also partly supported by Bank of England’s (BoE) decision to stay put on its monetary policy, keeping rates unchanged at 0.75% despite its peers signalling an easing bias. The Japanese yen was up by 0.06% to 108.0 as Bank of Japan (BoJ) also kept its policy rate unchanged at -0.10%, in contrast to the US Fed and ECB’s easing actions. However, BoJ hinted that it may loosen its monetary policy at its October’s meeting, citing the risk of losing momentum on inflation.
The majority of Asian ex-Japan currencies depreciated against the stronger dollar. The South Korean won was the worst performer, seeing its biggest drop by 1.4% at 1,194 despite the equity market recording a net inflow of 1.5% to close at 2,080.4.The rupiah came second, easing 0.7% to 14,060 even after its central bank cut the policy rate by 25bps for the third time this year. Resultantly, Bank of Indonesia took the policy rate to 5.25%.The ringgit weakened 0.6% to 4.191. The FBM KLCI lost 0.3% to 1,596.3 while foreigners remained net seller, recording a net outflow of RM134mil. Rather a quiet week with no major economic events, concern shifted to the environment since haze has started to affect productivity, especially in “brick-and-mortar” businesses.
US Treasuries (UST) Market
The UST curve eased 5.5bps on average with the 30-year falling the most by 9.1bps following: (1) safe-haven play as a result of rising geopolitical tensions; and (2) the US Federal Reserve delivering a 25bps rate cut during its FOMC meeting, as expected. Although, the US Treasury saw knee-jerk spikes after the “dot-plot” revealed that the Fed voters were split over the need for further easing as the decision was deemed to have adopt a slightly hawkish theme, market players felt the Fed could resume easing again this year. This is due to general geopolitical tensions amidst OECD downgrading global growth forecast to 2.9% in 2019, the weakest since the 2008 financial crisis. Also, the money market witnessed a funding stress this week as overnight rates reached as high as 10% on Tuesday.However, the funding pressure was short-lived after the Fed injected US$203bil into the repo markets. As at Friday noon, the 2-, 5-, 10-, and 30-year benchmark yields settled at 1.73%, 1.65%, 1.77% and 2.21%, respectively.
Malaysian Bond Market
After a long weekend in the local market, the MGS curve steepened, seeing the curve adding 8.5–15.5bps across from the belly to the long-end tenure. Likewise, the GII curve went higher with yields picking up between 2bps and 10bps across all tenors.
The sell-off in the local market was driven by a risk-off environment early of the week following the attack on Saudi Arabia’s oil facility, added with the lack of dovishness from the FOMC meeting.
The week’s limelight was the reopening auction of the 7Y MGS maturing on July 2026 which garnered a weak BTC of 1.260x on the back of issuance size amounting RM3.0bil. The auction closed with a high/low of 3.433% and 3.350% while averaging at 3.392%.
Investors shied away from the auction due to a lack of direction and the bond was sold further post-auction. As at Friday noon, the 3-, 5-, 7-, 10-, 15-, 20- and 30-year benchmark MGS yields settled at 3.11%, 3.29%, 3.45%, 3.43%, 3.67%, 3.78% and 3.93%, respectively.
The Markit iBoxx ABF Malaysia Bond Index, an index comprising the MGS, GII and GG, returned -2.97% in the week Sept 13-19,2019 as the index yield rose from 3.39% to 3.44%.
In the same period, the ABF MALAYSIA BOND INDEX FUND, an ETF which tracks the index, returned -2.96% as the fund yield rose from 3.38% to 3.42%. Month to date, the index returned - 0.314% while the fund posted a - 0.304% gain.
Activities in govvies slowed down by 38% w/w to RM9.6bil this week compared with last week’s RM15.5bil due to a lower volume in both MGS and GII space.
Conventional govvies trading activities dropped 43% to RM6.5bil from RM11.5bil, contributing 68% of the total volume trade while the GII constituted 24% of the flows at RM2.3bil from RM3.5bil in the prior week. The PDS space shrank 56% to RM1.1bil from RM2.7bil. The GG/AAA segment contributed 63% of the trading space while the AA segment accounted for 28% and the remaining 9% was from the others segment.
Projek Lebuhraya Usahasama Bhd (PLUS) IMTN 2027–2030 tranches dominated the GG/AAA list with RM120mil traded between 3.458% and 3.569%. These were followed by Lembaga Pembiayaan Perumahan Sektor Awam (LPPSA) IMTN 2025–2046 papers which gobbled up RM120mil with yields firming at 3.374%–3.949%.
Meanwhile in the AA segment, UEM Sunrise Sdn Bhd IMTN 2021–2025 tranches traded between 3.518% and 3.881% on the back of RM175.1mil.
Also, WCT Holdings Bhd IMTN 2023–2026 papers settled at 4.4068%–5.159% on top of RM141mil.
MYR Interest Rate Swap (IRS) Market
The IRS curve eased on average 0.6bps across the curve while the 3-year remained unchanged. As at Friday’s noon pricing, the 3-month KLIBOR stood firm at 3.39%.
Elsewhere, the 5-year CDS dropped 1.4% to 42.2bps.
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