Global Forex Market

  • Forex
  • Saturday, 02 Nov 2019

THE US dollar weakened by 0.49% to 97.352 after a report that Chinese officials were unsure if a longer-term trade deal with the US can be reached, one day after Fed chairman Jerome Powell hinted a pause in its rate cut cycle. The switch in trade narrative and better economic release elsewhere triggered the selling in dollar.

Nevertheless, this Federal Open Market Committee (FOMC) meeting ended broadly in line with expectations with the Fed slashing its benchmark interest rates for the third time this year by 25 basis points (bps) to 1.50%–1.75%.

Meanwhile, economic release release includes:

(1) September personal consumption expenditure (PCE) easing to 1.3% year-on-year (y-o-y) from 1.4% y-o-y in August;

(2) September core PCE slowing down to 1.7% y-o-y from 1.8% y-o-y in August;

(3) Third quarter 2019 GDP advance estimation slowing down to 1.9% quarter-on-quarter (q-o-q) compared to 2.0% q-o-q in second quarter 2019 (consensus: 1.6%); and

(4) Chicago Manufacturing PMI deteriorating to 43.2 in October from 47.1 in September.

Brent crude oil price plunged by 2.89% to US$60.23 per barrel especially after the Energy Information Adminstration reported the larger-than-expected inventories build-up for the week ending Oct 25 by 5.7 million barrels (consensus: 500,000).

Plus, worries about the US-China trade talk progress overshadowed hopes of a higher oil demand should the negotiation conclude in good terms.

The euro appreciated by 0.65% to 1.115, underpinned by Brexit optimism, added with better-than-expected economic release i.e.

(1) Third-quarter 2019 GDP advance estimate expanded by 0.2% q-o-q from 0.1% q-o-q in first-quarter 2019 (consensus: 0.1%);

(2) core inflation estimate rose to 1.1% y-o-y in October from 1.0% y-o-y in September (consensus: 1.0%); and

(3) October inflation estimate in line with the consensus at 0.7% y-o-y compared to 0.8% y-o-y in September.

The better-than-expected eurozone growth suggests the bloc remains resilient despite the industrial slump that has battered Germany, its largest member.

The pound strengthened by 0.90% to 1.294, supported by a slew of events that minimises the likelihood of a no-deal Brexit. Early this week, the UK House of Lords has approved the first hurdle for PM Boris Johnson’s early election bill for Dec 12.

Subsequently, the pound continued to receive further impetus as markets were gradually pricing in for the Conservatives to win at the general election. Markets are aware that a Conservative victory on Dec 12 will reignite the confidence of a Brexit deal.

The Japanese yen rose 0.59% to 108.0 due to safe-haven play while overshadowing Bank of Japan’s (BoJ) dovish tone during its Monetary Policy Committee meeting. In line with the market’s and our expectations, the BoJ held its policy rate unchanged at -0.10% while maintaining the 10-year government bond yield at around 0%.

However, it opened the door for potential interest rate cuts, slightly tweaking its forward guidance. The BoJ said it expects the borrowing cost “to remain at their present level or lower levels”.

The majority of the Asia ex-Japan currencies appreciated against the weaker dollar save for the rupee, rupiah and baht. Despite the rupee falling 0.06% to 0.929, it recorded a net foreign inflow of US$2.3bil into its equities market. Meanwhile, the peso came in as the best performer, strengthening 0.96% to 50.735 and followed by South Korean won, up 0.79% to 1,164.

Amidst a short trading week as market players were celebrating the Festival of Lights, the ringgit appreciated by 0.15% to 4.178 while tracking the stronger Chinese yuan. The FBM KLCI rose 1.8% to 1,598 while recording a net foreign inflow of RM3mil this week.

Meanwhile, economic release for the week includes:

(1) September producer price index declining further to 2.4% y-o-y from -1.9% y-o-y in August;

(2) September M3 money supply slowing down to 3.9% y-o-y from 4.2% y-o-y in August; and

(3) October’s Markit Manufacturing PMI jumping higher to 49.3 from 47.9 in September – the demarcation between expansionary and contraction is 50.

US Treasuries (UST) Market

The UST yields fell across the curve as the buying intensified after a report that Chinese officials were unsure if a longer-term trade deal with the US can be reached, one day after the FOMC ended its mid-cycle adjustment.

Despite the mid hawkish cut with the Fed lowering its benchmark interest rates by 25 bps to 1.50%–1.75%, the market cast doubt on the strength of the US economy after a slew of economic release this week signalled slowing growth. Economic release includes:

(1) September personal consumption expenditure (PCE) easing to 1.3% y-o-y from 1.4% y-o-y in August;

(2) September core PCE slowing down to 1.7% y-o-y from 1.8% y-o-y in August;

(3) Third-quarter 2019 GDP advance estimation slowing down to 1.9% q-o-q compared to 2.0% q-o-q in second-quarter 2019 (consensus: 1.6%); and

(4) Chicago Manufacturing PMI deteriorating to 43.2 in October from 47.1 in September.

As at yesterday, the 2-, 5-, 10- and 30- year benchmark UST yields stood at 1.52%, 1.52%, 1.69% and 2.17%, respectively.

Malaysian Bond Market

In the local bond market, the month-end portfolio rebalancing flows dominated market flows, in line with easing global yields.

Trading activities picked up across the board, in particular, towards the end of the week with a tight two-way price action after China cast doubts about reaching a comprehensive long-term deal.

By the end of the week, the Malaysian Government Securities (MGS) yield curve eased on average 3.1 bps across the curve save for the 5-year MGS yield, which added 3 bps to 3.320%.

The selling in the 5-year MGS was due to lacklustre auction demand earlier this week with the reopening auction of 5Y MGS ‘06/24.

The auction garnered a weak bid-to-cover (BTC) of 1.433 times on the back of an issuance size amounting to RM3.5bil and closed with a high/low of 3.407% and 3.330% while averaging at 3.364%.

At the point of writing, the 3-, 5-, 7-, 10-, 15-, 20- and 30-year benchmark MGS yields settled at 3.13%, 3.31%, 3.37%, 3.42%, 3.69%, 3.83% and 4.05%, respectively.

Amidst a short working week, local govvies activities shrank 20% to RM13.2bil from last week’s RM16.5bil. Matching the pace, the Government Investment Issue (GII) papers traded lower by 50% weak-on-weak (w-o-w) to RM3.6bil from RM7.3bil, recording 28% of the total volume.

However, interest in the MGS rose 1.1% to RM8.9bil from RM8.8bil, occupying 68% of the week’s flows. MTB/MITB trading activities climbed higher by 38% to RM604mil from RM438mil in the prior week.

On another note, the secondary market plunged 67% w-o-w to RM697mil from RM2.1bil a week earlier. The GG/AAA segment contributed 46% of the flows while the AA-segment constituted 53% and the A-papers 1%.

In the GG/AAA segment, DanaInfra Nasional Bhd 2026–2032 tranches dominated the list with RM190mil, trading between 3.572% and 3.869%. Besides, Pengurusan Air SPV Bhd 2026–2029 Islamic medium-term notes (IMTNs) gathered RM80mil with yields closing between 3.570% and 3.900%.

These were followed by ‘03/20 Cagamas Bhd paper which accumulating RM15mil at 3.137% on the back of RM15mil.

Meanwhile, in the AA-segment, UEM Sunrise Bhd 2021–2025 tranches gobbled up RM201.5mil, changing hands between 3.480% and 3.928%. Next, 2028–2035 Southern Power Generation Sdn Bhd IMTNs gathered RM170mil, trading at 3.887%–4.472%.

Last but not least was the 2023–2033 Edra Energy Sdn Bhd issuance, which traded between 4.041% and 5.098% amounting to RM90.5mil.

Ringgit Interest Rate Swap (IRS) Market

The IRS was seen adding 1.9 bps on average across the curve. The 3-month Klibor stood firm at 3.38%. Elsewhere, the 5-year credit default swap eased 0.4% to 43 bps.

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