THE dollar appreciated by 0.36% to 97.631 following a confluence of factors such as the dovish ECB meeting; higher demand for safe-haven assets as optimism in the US-China trade talks was offset by another round of Brexit saga; and better-than-expected flash PMI data with the October Markit manufacturing PMI preliminary estimate rising to 51.5 points from 51.1 points in September and beating market expectation of 50.7.
The euro depreciated by 0.56% to 1.110 after the ECB monetary meeting ended with an overall dovish tone. This was Draghi’s last meeting. As expected, the ECB kept interest rate at 0% and deposit rate at -0.50%. The meeting was short on forward guidance, but the ECB still see the need for highly accommodative policy amid weak growth, muted underlying inflation and low inflation expectations.
The pound plunged 1.02% to 1.285 as the Brexit saga continues. Although the market remained optimistic that the UK and EU could soon reach a deal early in the week, the optimism was short-lived. The mild selling pressure was prompted after the UK Parliament rejected Prime Minister Boris Johnson’s plan to fast-track his Brexit accord. But the selling was contained as the EC president has recommended to allow for an extension and suggested that the next deadline could potentially be in Jan 31,2020. However, towards the end of the week, Johnson called for the UK to hold a general election on Dec 12, after his attempts to push his Brexit bill through Parliament were rejected, triggering another round of selling pressure.
The yen weakened by 0.15% to 108.6 due to unfavourable economic data release which include September exports declining albeit at a softer pace of 5.2% year-on-year from -8.2% y-o-y in August (cons: -4.0%); imports contracting by 1.5% y-o-y from -11.9% y-o-y in August; October’s flash Jibun manufacturing PMI contracted further to 48.5 from 48.9 in September (cons: 48.8), the quickest contraction pace since June 2016.
The majority of Asian ex-Japan currencies appreciated against the dollar save for the peso, which slid 0.13% to 51.3 and the baht, down 0.05% to 30.3. The selling pressure in the peso was triggered after the central bank cut the reserve requirement ratio by 100bps to 14% to boost liquidity and support growth. The cut will take effect in December. The won was the week’s best performer, strengthening 0.71% to 1,173 due to strong foreign buying in its equity market, recording an inflow of US$326mil for the week. The rupiah rose 0.63% to 14,059 amidst Bank Indonesia cutting its policy rate by 25bps to 5%, in line with expectation.
The ringgit appreciated marginally by 0.04% to 4.185, tracking the firmer yuan. Meanwhile, the local bourse closed flat for the week at 1,571 but recorded a net foreign inflow of RM313mil during the week. Economic release for the week included September’s headline inflation, which came in below expectation at 1.1% y-o-y from 1.5% y-o-y in August (consensus: 1.3% y-o-y) as most of the components in the CPI basket grew at a slower pace.
US Treasuries (UST) Market
Buying flows reemerged in the US Treasury papers, pushing the curve 2.7–4.3bps lower across all tenures this week as investors searched for shelter. Yields plunged as Brexit optimism soured after the UK Parliament rejected Johnson’s plan to fast-track his Brexit accord. As a result, the PM made a bid for a snap election, further fuelling Brexit uncertainties. Besides, treasury yields remained largely muted despite the ECB’s meeting ending in a dovish tilt. We believe it is partly due to market participants’ reluctance to react given this is Draghi’s last meeting. Christine Lagarde will be in charge in the next meeting. Separately, the Federal Reserve is ramping up the amount of temporary liquidity injections it is providing for overnight repo operation from US$75bil to US$120bil, effective Oct 24. As at Friday, the 2-, 5-, 10- and 30- year benchmark UST yields stood at 1.57%, 1.58%, 1.76% and 2.25%, respectively.
Malaysian Bond Market
The local MGS yield curve witnessed some selling pressure across the curve with the focus at the belly to the back-end partly due to fading expectations that Bank Negara will cut the overnight policy rate (OPR) in the Nov 5 meeting. Although September’s headline inflation decelerated to 1.1% y/y from 1.5% y/y in August, signalling ample score for Bank Negara to reduce rates in November, the weaker price pressure was due to the low-base effect as consumption tax was reintroduced in September 2018. Hence, local players decided to lighten their positions. At the point of writing, the 3-, 5-, 7-, 10-, 15-, 20- and 30-year benchmark MGS yields settled at 3.13%, 3.25%, 3.43%, 3.44%, 3.74%, 3.88% and 4.11% respectively.
Local govvies activities were down by 26% to RM12.8bil from last week’s RM17.2bil. Matching the pace, the MGS papers traded lower by 27% w/w to RM7.1bil from RM12.4bil, recording 56% of the total volume. However, interest in the GII surged 27% to RM5.3bil from RM4.2bil, occupying 42% of the week’s flows. MTB/MITB rose 8% to RM358mil from RM332mil in the prior week. On another note, trades in the secondary market declined 3% w/w to RM1.76bil from RM1.82bil a week earlier. The GG/AAA segment contributed 53% of the flows while the AA-segment constituted 41% and the A-paper 6%.
Lembaga Pembiayaan Perumahan Sektor Awam (LPPSA) 2027–2046 IMTN tranches dominated the GG/AAA-segment at RM335mil, trading between 3.560% and 4.131%. Besides, DanaInfra Nasional Bhd’s 2027–2048 tranches gathered RM310mil with yields closing at 3.558%–4.131%. These were followed by Perbadanan Tabung Pendidikan Tinggi Nasional (PTPTN) 2023–2041 IMTNs which traded between 3.315% and 3.991%, on the back of RM110mil.
Meanwhile in the AA-segment, UEM Sunrise Bhd 2020–2025 tranches gobbled up RM231.1mil, trading between 3.371% and 3.928%. Next, Malayan Banking Bhd ‘10/25 and ‘01/31 issuances gathered RM135mil, traded at 3.679% and 3.948%, respectively. Last but not least was United Overseas Bank (Malaysia) Bhd ‘05/25 papers with yields closing at 3.551% amounting to RM95mil.
Ringgit Interest Rate Swap (IRS) Market
The IRS was seen rising 1.3bps on average across the curve. The 3-month KLIBOR stood firm at 3.38%. Elsewhere, the 5-year CDS fell 3.3% to 44.4bps.
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