THE US dollar depreciated by 0.71% to 97.607 following a confluence of factors including: (1) global risk-on sentiment following reports that the US and China had reached a tentative agreement for the “first phase” of a trade deal, with China agreeing to buy up to US$50bil of US agriculture products, to accept more American financial services in their market while the US agreed to suspend new tariffs scheduled for Oct 15.
However, optimism was short-lived as the deal lacked clarity; (2) Brexit optimism; (3) disappointing September retail sales data – a gauge for the health of US consumers – which unexpectedly fell by 0.3% month-on-month (m/m) from a gain of 0.6% m/m in August (cons: 0.3%), marking a first decline since February 2019; and (4) reports from the Fed’s Beige Book suggesting the economy was slightly weaker than in the summer.
Brent crude dropped 0.99% at US$59.91/bbl at the end of the week, dragged by the lack of details about the first phase of the US-China trade deal that undercut optimism over trade relations. However, worries of further escalation along the Syrian and Turkish border that could affect output or exports are likely to provide more support for oil prices.
The euro gained 0.75% to 1.113 after the UK and EU claimed a Brexit breakthrough ahead of the EU summit with EU Commission President Jean-Claude Juncker saying an outline deal was in place. However, the agreement still needs to be ratified by EU leaders and Britain’s Parliament. Besides, there were speculations that the German government may introduce spending stimulus in a bid to support its economy through an ongoing soft patch.
The pound surged for the second week in a row, up 1.76% to 1.289, the highest level since May following reports that the UK and EU have managed to agree on a new Brexit deal ahead of the EU summit.
Meanwhile, economic release for the week includes: (1) August unemployment rate up at 3.9% from 3.8% in July (cons: 3.8%); (2) Wage growth eased to 3.8% year-on-year (y/y) in August from 3.9% y/y in July (cons: 4.0%); (3) September inflation rate stayed flat at 1.7% y/y and missing expectations of 1.8%; and (4) September retail sales accelerated to 3.1% y/y from 2.6% y/y in August (cons: 3.2%).
Amidst an economy that is devastated with the worst typhoon seen in decades, the yen weakened by 0.34% to 108.7. The drag was partly due to a weaker global risk-on environment. On the data front, the headline inflation eased to 0.2% y/y from 0.3% y/y in August (cons: 0.4%); while industrial production declined by 1.2% m/m from a gain of 1.3% m/m (cons: -1.2%). The majority of Asian ex-Japan currencies appreciated against the weaker dollar owing to defused trade tensions, allowing investors to increase their risk appetite. The Singapore dollar came in as the best performer, strengthening by 0.64% to 1.365 amidst the central bank of Singapore easing its monetary policy in a move to support its slowing economy. Although the yuan gained 0.16% to 7.0777 on better prospects of a trade deal, the gains were limited due to a slew of poor economic release.
The rupee came in as the worst performer, down 0.21% to 71.168 after the International Monetary Fund slashed India’s growth forecast to 6.1% from 7.0% previously.
The ringgit rose 0.17% to 4.180 against the weaker dollar. The gain in ringgit was partially supported by positive sentiments from the tabling of Budget 2020 last week. Meanwhile, the local bourse rose in line with its regional peers, up 1.1% to 1,574 while recording a net foreign inflow of RM263mil.
US Treasuries (UST) Market
The US Treasury yield curve rose 2.3bps on average with the 30-year yield adding the most by 4bps to 2.234% while the UST10Y climbed 2.3bps to 1.752%.
The selling pressure was driven by a global risk-on sentiment on the back of a reported tentative agreement between the US and China, added with Brexit optimism. However, the selling pressure tapered mid-week as market players raised their bets for an October rate cut after September retail sales data unexpectedly declined by 0.3% m/m from a gain of 0.6% m/m in August (cons: 0.3%), signalling consumption may start to slow down in the economy amid a broader global slowdown. As at Friday, the 2-, 5-, 10- and 30- year benchmark UST yields stood at 1.59%, 1.56%, 1.74% and 2.23%, respectively.
Malaysian Bond Market
The local bond market remained largely muted over the week amidst a global risk-on sentiment, added with rising US Treasury yields. The MGS curve steepened slightly with some selling pressure at the back end of the curve. Meanwhile, the most closely watched 10-year MGS remained unchanged week-on-week at 3.419%. However, focus of the week was on the 10-year GII (‘09/39) reopening auction, which closed strongly with a high BTC at 3.320x due to a small issuance of RM2.0bil with an additional RM0.5bil of private placement. At the point of writing, the 3-, 5-, 7-, 10-, 15-, 20- and 30-year benchmark MGS yields settled at 3.11%, 3.23%, 3.36%, 3.42%, 3.60%, 3.74% and 4.01% respectively.
The Markit iBoxx ABF Malaysia Bond Index, an index comprising the MGS, GII and GG, returned -0.071% in the week 11 Oct–17 Oct 2019 as the index yield remained unchanged at 3.46%. In the same period, the ABF Malaysia Bond Index Fund, an ETF which tracks the index, returned -0.049% as the fund yield was also unchanged at 3.45%. Month to date, the index has returned -0.101% while the fund posted -0.091% gain.
Local govvies activities rebounded 14% to RM12.9bil from last week’s RM11.4bil. Matching the pace, the GII papers traded higher by 65% w/w to RM3.8bil from RM2.3bil, recording 29% of the total volume. However, interest in the MGS dropped slightly by 0.2% to RM8.81bil from RM8.83bil, occupying 68% of the week’s flows. MTB/MITB leapt 210% to RM310mil from RM100mil in the prior week. On another note, the secondary market surged 20% w/w to RM1.6bil from RM1.3bil a week earlier. The GG/AAA segment contributed 55% of the flows while the AA segment constituted 38% and the A-papers 7%.In the GG/AAA segment, Perbadanan Tabung Pendidikan Tinggi Nasional (PTPTN) 2024–2026 tranches dominated the list with RM140.2mil, trading between 3.335% and 3.490%. Besides, DanaInfra Nasional Bhd 2023–2046 IMTN tranches gathered RM126.5mil with yields closing at 3.441% and 4.110%. These were followed by MKD Kencana Sdn Bhd ‘10/32 papers which gathered RM120mil, traded at 3.739%–3.800% on the back of RM120mil.
Meanwhile in the AA segment, Edra Energy Sdn Bhd 2022–2038 tranches accumulated RM210.5mil, changing hands between 4.094% and 4.699%. Next, 2024–2025 UEM Sunrise papers gathered RM151.1mil, trading at 3.778%–3.928%. Last but not least were ‘10/31 Malayan Banking Bhd issuances which traded between 3.897% and 3.951% amounting to RM80.3mil.
Interest Rate Swap Market
The IRS was seen adding 1.3bps on average across the curve. The 3-month Klibor stood firm at 3.38%. Elsewhere, the 5-year CDS eased 6.8% to 47.7bps.
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