THE US dollar weakened 0.19% to 98.163 due to mixed trade headlines as President Donald Trump said over the weekend that trade talks with China were moving along “very nicely” but that Washington would only make a deal with Beijing if it was right for the US.
In the equities market, the Dow gained 0.4% to 27,782 while the S&P500 closed higher by 0.1% to 3,097 a record high.
Brent crude price dropped 0.37% to US$62.28 per barrel following the build-up in Energy Information Administration crude inventories at 2.2 million barrels for week ending Nov 8 (consensus: 1.6 million). Nevertheless, Opec foresaw no signs of global recession and rival shale oil production could be less than expected in 2020.
The euro rose a marginal 0.04% to 1.102, propelled by several factors.
The pound appreciated 0.85% to 1.288 following stronger convictions for the Conservatives to win after Brexit Party’s Nigel Farage said he will not be running for the upcoming election. However, on the data front, third quarter 2019 GDP slowed down to 1.0% y-o-y from 1.3% y-o-y in second quarter 2019 (consensus: 1.1%), marking the weakest growth since first quarter 2010 while October’s consumer inflation eased a little at +1.5% y-o-y from September’s +1.7% y-o-y (consensus: +1.6%).
Riding on the back of the weaker dollar, the Japanese yen gained 0.77% at 108.4. Several favourable economic indicators that were released during the week include:
(1) September household spending accelerating by 5.5% m-o-m from 2.4% m-o-m (consensus: 3.8%) as consumers rushed to complete purchases ahead of a sales tax hike in October;
(2) September wage growth rebounding by 0.8% y-o-y from -0.1% y-o-y in August (consensus: 0.4%);
(3) October’s Eco Watchers survey outlook jumping to 43.7 from 36.9 in September (consensus: 41.3); and
(4) higher factory inflation in October at 0.1% m-o-m from 0% in September (consensus: 1.2%).
The majority of Asian ex-Japan currencies depreciated against the dollar owing to uncertainties in trade negotiations.
The South Korean won was the biggest loser as the currency plunged 1.08% to 1,170 followed by the Indian rupee that slid 0.96% at 71.97.
The yuan lost 0.40% to 7.021, back to breaching the psychological level of 7.00. Bangko Sentral ng Pilipinas decided to hold the interest rate at 4% in the recent Monetary Policy Commitee (MPC) meeting, resulting in the peso falling 0.42% to 50.752. On the contrary, the Thai baht continued its rise to 30.202, up 0.55% against the dollar.
The ringgit wrapped up the week lower by 0.51% at 4.157. After leaving the overnight policy rate at 3% during the MPC meeting last week, Bank Negara unexpectedly cut 50 basis points (bps) in the statutory reserve requirement (SRR). It aims to provide some relief to banks in terms of better liquidity management, which is positive for loan growth and economic activities.
The FBM KLCI shaved off 1% to 1,594 with net foreign outflow at RM545mil. US Treasuries (UST) Market
Despite a short working week for the US bond market in celebration of Veteran’s Day, the UST papers experienced demand pressure across the spectrum – easing 11.2 bps on average amid worries about a US-China trade resolution.
Market players shifted their focus after reports suggested that there is an impasse over issues such as agricultural products and intellectual property. Trump announced in October that both countries reached an agreement and that they were close to signing a phase one trade deal.
The latest factory inflation rose 0.4% m-o-m in October from -0.3% m-o-m in September (consensus: +0.3%). As at yesterday, the 2-, 5-, 10- and 30- year benchmark UST yields stood at 1.60%, 1.65%, 1.84% and 2.32%, respectively.
Malaysian Bond Market
Selling pressure was felt when the Malaysian Government Securities (MGS) segment rose 1.5–4.5 bps, save for the 5Y yield that eased 2 bps during the week. The Government Investment Issue (GII) curve added 1.3 bps on average.
Bank Negara unexpectedly reduced 50 bps in the SRR. The cut is expected to provide some relief to banks in terms of better liquidity management and positive for loan growth and economic activities.
However, the positive impact on the overall economic activities will depend much on the demand for credit. Additionally, the new issuance of the 3Y GII maturing on May 2023 garnered a strong bid-to-cover of 2.38 times on the back of an issuance size amounting to RM4bil. The auction closed with a high/low of 3.158% and 3.143% while averaging at 3.151%.
At the point of writing, the 3-, 5-, 7-, 10-, 15-, 20- and 30-year benchmark MGS yields settled at 3.04%, 3.20%, 3.37%, 3.44%, 3.67%, 3.80% and 4.03% respectively.
Local govvies activities shrank 45% to RM11.5bil from last week’s RM20.7bil. Matching the pace, the GII papers traded lower by 41% week-on-week (w-o-w) to RM3.9bil from RM6.6bil, recording 34% of the total volume. Interest in the MGS fell 47% to RM7.3bil from RM13.8bil, occupying 64% of the week’s flows.
MTB/MITB trading activities slipped 31% to RM212mil from RM308mil in the prior week. Sukuk Perumahan Kerajaan (SPK) climbed 400% to RM50mil from RM10mil. On another note, the secondary market dropped 16% w-o-w to RM1.9bil from RM2.3bil. The GG/AAA segment contributed 64% of the flows, the AA-segment made up 32% and the A papers 4%.
In the GG/AAA segment, DanaInfra Nasional Bhd 2023–2047 tranches dominated the list with RM565mil, trading 3.422%–3.269%. Besides, Turus Pesawat Sdn Bhd 2027–2028 Islamic medium-term notes (IMTNs) gathered RM220mil with yields closing between 3.690% and 3.726%.
These were followed by Lembaga Pembiayaan Perumahan Sektor Awam 2025–2028 IMTNs accumulating RM130mil at 3.510%–3.657%
In the AA-segment, IJM Corp Bhd 2020–2029 tranches gobbled up RM192mil, changing hands between 3.509% and 4.329%. Next, Imtiaz Sukuk II Bhd ‘11/21 and ‘05/22 IMTNs gathered RM120mil trading at 3.568% and 3.661%, respectively.
Lastly, 2023–2025 UEM SUNRISE BHD tranches traded between 3.666% and 3.928% amounting to RM54.5mil.
Ringgit Interest Rate Swap (IRS) Market
The IRS was seen adding 0.4 bp on average across the curve. The 3-month Klibor eased 1 bp to 3.37%. Elsewhere, the 5-year credit default swap rose 9.6% to 42.7 bps.
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