THE US dollar weakened by 0.25% to 98.864, owing to a slew of disappointing economic release, which subsequently fuelled bets on an October Fed rate cut.
Data release for the week includes:
(1) September’s ISM Manufacturing PMI falling deeper into the contraction region to 47.8, the lowest since June 2009 from 49.1 (consensus: 50.1) in August partly due to the global headwinds. The drag came from poor new export orders as well as new orders;
(2) September’s ISM Non-Manufacturing PMI – a gauge for services sectors in the economy – unexpectedly slowing down to 52.6 from August’s 56.4 (consensus: 55). It is the lowest in three years, indicating a slowdown in the largest sector in the US economy; and
(3) September’s private payrolls revealing the pace of hiring eased due to a tighter labour market. The ADP reported an additional 135,000 workers in September from 157,000 in August after being revised lower from the previous estimates of 195,000.
Brent plunged 6.78% to US$57.71 per barrel as Saudi’s crude oil output recovered from the coordinated drone attacks in mid-September amidst a larger-than-expected build-up in inventories for the week ending Sept 27 as much as 3.1 million barrel (consensus: 1.6 million), reported by the US Energy Information Administration.
The euro rose 0.23% to 1.097 due to a weaker dollar. However, economic release during the week showed the economic momentum remained soft. Economic release for the week includes:
(1) EU September preliminary headline inflation rate slowing down to 0.9% year-on-year (y-o-y) from 1.0% y-o-y in August (consensus: 1.0%);
(2) EU September Markit Manufacturing PMI falling deeper into the contraction region to 45.7 from 47.0 in August (consensus: 45.6); and
(3) EU September Markit Services PMI slowing down to 51.6 versus 53.5 in August (consensus: 52.0).
The British pound appreciated by 0.33% to 1.233 due to a weaker dollar amidst a relatively positive Brexit headline. This week’s Brexit development highlighted that the key opponents to former premier Theresa May’s Brexit deal appeared ready to back the new deal being sought by Prime Minister Boris Johnson, and markets were betting that this markedly raised the prospect of a Brexit deal being struck.
Meanwhile, economic release for the week was rather mixed with September’s Markit/CIPS manufacturing PMI rising to 48.3 from 47.4 in August (consensus: 47.0) while Markit/CIPS services PMI fell into the contraction region to 49.5 in September from 50.6 in August (consensus: 50.3).
The safe-haven Japanese yen appreciated by 0.93% to 106.9 due to risk-off sentiment in the global markets. This week, Japan increased its consumption tax for the first time in five years, bringing the long-delayed policy into effect despite concerns it may knock the economy. It raised the sales tax rate from 8% to 10%. The new rate applies to nearly all goods and services, though most food will be exempted.
Asian ex-Japan currencies witnessed a mixed session against the US dollar. The biggest gain was seen in the baht, up 0.32% to 30.54, followed by the peso and Singapore dollar, appreciating by 0.20% to 51.80 and 0.12% to 1.380, respectively.
Meanwhile, the Indian rupee recorded the biggest loss for the week, down 0.47% to 70.90 partly due to calls for a 25 basis point (bps) rate cut in its benchmark policy rate this week.
Besides, the South Korean won declined by 0.43% to 1,205 amidst the economy hitting deflation for the first time on record, with the September inflation falling to minus 0.4% y-o-y from 0.0% y-o-y in August.
The ringgit depreciated slightly by 0.02% at 4.187 against the US dollar albeit a higher Markit’s manufacturing PMI in September at 47.9 from August’s 47.4. The FBM KLCI closed lower by 1.30% at 1,564 while foreigners remained net sellers, recording a bigger net outflow of RM581mil.
On a side note, Malaysians are anticipating the Budget 2020 speech, which will be tabled in Parliament on Oct 11 with the theme “Shared Prosperity: Engendering High-Quality Inclusive Growth Towards High-Income Economy.”
US Treasuries (UST) Market
The US Treasury yield curve bull steepened with the 2-year yield falling the most by 23.2 bps to 1.390% – the lowest since September 2017 – due to a slew of economic release signalling that the strength of the US economy is fading. Data includes:
(1) the ISM non-manufacturing PMI – a proxy for the health of the US services sector – slowing down markedly to a 3-year low to 52.6 in September from August’s 56.4 (consensus: 55.0); and
(2) the health of manufacturing sector deteriorating further with the September ISM Manufacturing PMI sinking deeper into the contraction region to 47.8, the lowest since June 2009 from 49.1 (consensus: 50.1) in August.
The disappointing data release fuelled concerns that there could be cracks forming in the US economy’s underlying growth, and October Fed rate cut bets jumped higher as a result.
As at yesterday, the 2-, 5-, 10- and 30- year benchmark UST yields stood at 1.39%, 1.35%, 1.53% and 2.03%, respectively.
Malaysian Bond Market
Due to the risk-off sentiment amidst China starting its week-long holiday to celebrate the country’s 70th anniversary, the local bond market saw tepid buying flows with bond prices being quoted wide.
The Malaysian Government Securities (MGS) curve fell averagely 0.4 bps and the closely watched 10-year MGS dropped 4.8 bps to 3.280%, while the Government Investment Issue (GII) yields eased 1–3 bps.
On a side note, market players are anticipating the Budget 2020 speech, which will be tabled in Parliament on Oct 11.
At point of writing, the 3-, 5-, 7-, 10-, 15-, 20- and 30-year benchmark MGS yields settled at 3.10%, 3.21%, 3.31%, 3.28%, 3.55%, 3.61% and 3.91%, respectively.
Local govvies’ activities slipped 41% to RM14.5bil from last week’s RM24.7bil. Matching the pace, the MGS papers were traded lower by 51% weak-on-weak (w-o-w) to RM9.2bil from RM18.6bil, recording 63% of the total volume.
Interest in the GII also tumbled 19% to RM4.6bil from RM5.7bil, occupying 32% of the week’s flows. MTB/MITB rose 107% to RM748mil from RM362mil in the prior week.
On another note, the secondary market declined 43% w-o-w to RM2bil from RM3.5bil a week earlier. The GG/AAA segment contributed 53% of the flows while the AA-segment constituted 41% and the A-paper 7%.
DanaInfra Nasional Bhd 2025–2049 Islamic medium-term notes (IMTN) tranches gobbled up RM200mil, trading between 3.430% and 4.030%. Pengurusan Air SPV Bhd 2020–2026 papers gathered RM120mil with yields closing 3.137%–3.520%.
These were followed by Bakun Hydro Power Generation Sdn Bhd 2020–2030 tranches, which traded between 3.212% and 3.689%, on the back of RM100mil.
Meanwhile, in the AA-segment, WCT Holdings Bhd 2020–2026 tranches dominated the list with RM1.4bil changing hands between 3.802% and 4.647%.
Next, ‘06/22 Sunway Treasury Sukuk Sdn Bhd papers gathered RM200mil, trading at 3.936%. Last but not least were 2019–2022 BGSM Management Sdn Bhd tranches, which were traded at 3.448%–3.770%, amounting to RM84mil.
Ringgit Interest Rate Swap (IRS) Market
The IRS was seen adding 1 bps on average across the curve. The 3-month Klibor stood firm at 3.38%. Elsewhere, the 5-year credit default swap rose 3.3% to 53.3 bps.
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