Global Forex Market
THE US dollar appreciated firmly by 0.3% to 99.132, reaching 2017 high, benefitting from safe-haven flows due to political noises re-emerging in Capitol Hill after House Speaker Nancy Pelosi announced that the House will begin a formal impeachment inquiry into President Donald Trump on allegations that he pressured Ukraine to investigate former vice-president Joe Biden and his son Hunter for Trump’s own political gain.
The president, however, denied that he had kept back funds to pressure Ukraine into investigating Biden and his son, and subsequently agreed to authorise a declassified transcript of a phone call with the Ukrainian president, seeking to defuse the ballooning controversy.
The dollar also received some impetus following:
(1) trade optimism as Trump highlighted a trade deal between the US and China could be inked sooner than expected; and
(2) better-than-expected Markit Manufacturing PMI flash reading at 51.0 in September – reversing from a decade low of 50.3 in August (consensus: 50.3) while reinforcing the strength of the US economy versus the rest of the world.
Brent crude oil fell 2.4% to US$62.74 per barrel as the market learned that Saudi Aramco has restored Saudi Arabia’s oil production capacity to 11.3 million barrels per day – the level before the drone attacks on oil facilities earlier this month.
Crude oil prices were further weighed down after the Energy Information Administration’s crude oil inventory rose to 2.412 million barrels in the week ended Sept 20 from 1.058 million barrels in the week prior.
However, Brent managed to pare some losses following Pentagon’s announcement that it would deploy equipment and personnel in support of Saudi Arabia with regards to the attacks.
The euro depreciated by 0.87% to 1.092, marking a 28-month low owing to a stronger US dollar. The euro was also dragged by deteriorating key economic data with the September Markit manufacturing PMI flash registering at 45.6 (August: 47.0, consensus: 47.3) and 41.4 (August: 43.5, consensus: 44.0) for the bloc and its largest economy propeller, German, respectively.
The latest reading is the steepest contraction since October 2012 on the back of a sharp loss of export sales, added with the weakest optimism among manufacturers since 2012.
The pound sterling yet again witnessed a volatile week. Mid-week, the pound received fresh catalyst, gaining 0.5% overnight following the unanimous Supreme Court finding that Prime Minister Boris Johnson’s advice to the Queen that parliament should be prorogued for five weeks at the height of the Brexit crisis was unlawful.
However, the gains were short-lived after the UK PM provoked his rivals to either bring down the government or make way for him to deliver Brexit. By the end of the week, the pound plunged 1.2% to 1.233.
The Japanese yen weakened by 0.25% to 107.8 on renewed trade optimism in the global market after Trump said a deal with China could be reached soon. During the week, the yen was also partly weighed down by Bank of Japan Tokako Masai’s comment suggesting that the central bank could consider further easing in monetary policy in order to meet the 2% inflation target.
Asian ex-Japan currencies depreciated against the US dollar across the board save for the rupee, which was up 0.09% to 70.88 due to strong foreign inflows into its stock market, recording US$191mil inflow for the week. The renewed interest in the Indian financial market came after policymakers delivered a surprise corporate tax cuts to 22% from 30% previously.
The South Korean won came in as the worst performer, down 0.89% to 1,199, followed by the rupiah, which edged lower by 0.78% to 14,165. Meanwhile, the baht dropped 0.51% to 30.64 amidst Bank of Thailand’s move to hold interest rate at 1.50% as expected.
The ringgit weakened by 0.62% to 4.194 owing to the stronger dollar, added with some concerns ahead of the potential downgrade from FTSE Russell’s decision on its World Government Bond Index (WGBI).
Nevertheless, early yesterday morning, FTSE Russell released its statement citing: “Malaysia will be retained on the watch list for potential downgrade from its current market accessibility level of 2.” The local bourse fell 0.3% to 1,587 while recording a net foreign outflow of RM14mil.
US Treasuries (UST) Market
The US treasury yield eased across the curve by 2–3 basis points (bps) with the most closely watched 10-year tenure ending 3.5 bps lower at 1.692%. The demand for safe papers was supported by political noises re-emerging in Capitol Hill after Pelosi’s announcement that the House will begin a formal impeachment inquiry into Trump following allegations that the president pressured a foreign power for his own political gain will.
On a separate note, the New York Fed is well into its second week of offering repo to calm short-term funding market. As at yesterday noon, the 2-, 5-, 10-, and 30-year benchmark yields settled at 1.66%, 1.59%, 1.70% and 2.15%, respectively.
Malaysian Bond Market
The local bond market gained renewed interest as market players were pricing in that Malaysia would remain in the FTSE Russell WGBI index and as expected, FTSE will continue to maintain Malaysia’s rating albeit still keeping us in its watch list for potential downgrade.
FTSE Russell suggests it will need more time to assess the initiatives announced by Bank Negara to deepen market liquidity.
Besides, there was a reopening auction of the 15-year Government Investment Issue (GII) maturing November 2034 which garnered a strong bid-to-cover of 3.195 times on the back of issuance size amounting RM2.5bil including private placement. The auction closed with a high/low of 3.643% and 3.603% while averaging at 3.632%.
By the end of the week, the Malaysian Government Securities (MGS) curve rallied 4–10 bps with strong buying seen from the belly to the back-end of the curve. As at yesterday noon, the 3-, 5-, 7-, 10-, 15-, 20- and 30-year benchmark MGS yields settled at 3.11%, 3.25%, 3.33%, 3.37%, 3.63%, 3.67% and 3.94%, respectively.
The Markit iBoxx ABF Malaysia Bond Index, an index comprising MGS, GII and Government Guaranteed (GG), returned -0.361% in the week Sept 19–26 as the index yield jumped from 3.44% to 3.50%. In the same period, the ABF Malaysia Bond Index Fund, an exchange-traded fund which tracks the index, returned -0.362% as the fund yield rose from 3.42% to 3.48%. Month to date, the index returned -0.674% while the fund posted -0.665% gain.
Trading activities improved, up 60.1% week-on-week (w-o-w) to RM15.3bil from RM9.6bil in the week prior with strong interest seen in the MGS market, accounting for 83.6% of the total traded volume, followed by the GII, constituting 29.2% while the remaining 2.2% were done by MTB.
MGS volume surged 83.6% w-o-w to RM11.9bil from RM6.5bil while the GII rose 29.2% w-o-w to RM3bil from RM2.3bil. Likewise, trading volume in the private debt securities space jumped 149.1% w-o-w to RM2.8bil from RM1.1bil in the week prior.
Notable market interest was seen in the AA segment, recording 71.6% of the traded volume while the GG/AAA contributed 24.1% and the remaining 4.3% came from other segment.
2022–2049 DanaInfra Bhd tranches dominated the GG/AAA segment, recording a volume of RM170mil with yields traded between 3.251% and 4.150%. These were followed by 2023–2024 Aman Sukuk Bhd papers, which gobbled up RM68.3mil with yield done 3.489%–3.563%.
Meanwhile, in the AA segment, strong interest was seen in the construction sector with 2020–2023 WCT Holdings Bhd tranches at 3.803%–4.647% with RM1.3bil changing hands. Also, ‘06/22 Sunway Treasury Sukuk Sdn Bhd papers posted a volume of RM200mil at 3.936%.
Ringgit Interest Rate Swap (IRS) Market
The IRS curve eased on average 1.2 bps across the curve while the 3-month Klibor edged lower by 1 bps to 3.38%. Elsewhere, the 5-year credit default swap rose 6.5% to 51 bps.
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