Global Forex Market
The US dollar weakened this week, down by 0.9% to 97.410.
The main contributors of the drag are: (1) weak ISM November Manufacturing PMI, which read at 48.1 from 48.3 in October (cons: 49.2) due to poor new orders and employment; (2) trade tension with US President Donald Trump having reimposed tariffs on steel and aluminum from Brazil and Argentina due to their weak currencies against the US dollar; (3) renewal of tariffs hike threats on China with the willingness to increase tariffs by additional 15% on around US$156bil worth of Chinese goods on Dec 15 if there was no deal reached; (4) Trump jawboning the Fed again to cut interest rates further to weaken the dollar; (5) prospect of a trade deal with China might not be accomplished until after the 2020 presidential election; (6) weaker-than-expected November ISM non-manufacturing PMI which came in at 53.9 from 54.7 in October (cons: 54.5); and (7) reversal in risk sentiment following a report that a phase-one US-China trade deal remains at work.
Investors also remained optimistic about prospects for a US-China trade deal despite a looming deadline for the imposition of fresh import tariffs by Trump.
Brent crude price gained 1.5% to US$63.39/bbl fuelled by: (1) lower-than-expected crude inventories for the week ending Nov 29 at 4.9 million barrels (cons: -1.7 million) as reported by the EIA; and (2) hints of deeper production cuts from Opec in 2020. Traders are awaiting Opec’s decision on its production policy at least for the 1Q2020. The anticipated decision will be announced during the ongoing meeting in Vienna which will wrap up on Dec 6.
The euro rose 0.8% to 1.110 due to the better-than-expected Markit EU Manufacturing PMI data which came in at 46.9 in November from 45.9 in October (cons: 46.6) while shrugging off Trump’s fresh tariffs threats on France – threatening to slap tariffs on US$2.4bil worth of wine, cheese, handbags, cosmetics, and other French exports.
The pound surged 1.8% at 1.316 on increasing expectations that the Conservatives will achieve a majority in the upcoming elections while offsetting the falling November Markit Manufacturing PMI at 48.9 from 49.6 in October (cons: 48.3).
Key data released during the week includes the Markit/CIPS November services PMI at 49.3 from October’s 50 (cons: 48.6).
With just one week until the UK’s general election, Britons are biting their nails as the possible Brexit’s impact could either make or break the economy.
The yen strengthened 0.7% to 108.8 on the back of a rise in safe-haven assets and a stronger-than-expected November Jibun Bank Manufacturing PMI coming in at 48.9 from 48.4 in October (cons: 48.6) and a weaker dollar.
The majority of Asian ex-Japan currencies appreciate on the weaker dollar and optimistic US-China trade narratives. The Indian rupee was the outperformer during the week, gaining 0.6% to 71.29, followed by the Singapore dollar that rose 0.5% to 1.361. The South Korean won fell 0.7% to 1,190.
The MYR ended the week higher 0.2% at 4.169 partly boosted by better November Markit Manufacturing PMI at 49.5 – a 14-month high – from 49.3 in October though the reading remains in the contraction region where it has been since October 2018. The KLCI gained 0.1% to 1,564 with a net foreign outflow at RM754mil. Other economic releases during the week include: (1) exports reading that fell by 6.7% y-o-y, matching the previous month – the third consecutive month reporting a decline; (2) imports contracted by 8.7% y-o-y (Sep: +2.4%); and (3) a wider trade surplus in October at RM17.3bil (September: RM8.4bil).
US Treasuries (UST) Market
The US Treasuries experienced some buying pressure across the spectrum – rising 1.9 basis points (bps) on average save for the UST2Y owing to: (1) trade tension with Trump having reimposed tariffs on steel and aluminum on Brazil and Argentina due to their weak currencies against the USD; and (2) the renewal of tariff hike threats on China with the willingness to increase tariffs by additional 15% on around US$156bil worth of Chinese goods on Dec 15 if there was no deal reached. Aside from that, the US president has jawboned the Fed again to cut interest rates further to weaken the dollar.
As at Friday, the 2-, 5-, 10- and 30- year benchmark UST yields stood at 1.59%, 1.62%, 1.80% and 2.25%, respectively.
Malaysian Bond Market
Selling pressure was felt when the MGS segment rose 0.5–3bps, save for the 7Y yield that eased 2bps during the week.
The GII curve added 0.8bps on average. Besides, the final auction of the year, the 15Y MGS ‘07/34, was held with RM3.0bil being issued. This brings the total local govvies issuance to RM115.7bil excluding the Samurai bond issuance earlier this year. The auction saw a mild BTC of 1.610x and averaged 3.679%. At the point of writing, the 3-, 5-, 7-, 10-, 15-, 20- and 30-year benchmark MGS yields settled at 3.05%, 3.23%, 3.33%, 3.43%, 3.69%, 3.81% and 4.03% respectively.
Local govvies activities shrank 22% to RM10.8bil from last week’s RM13.9bil. Matching the pace, the GII papers traded lower by 15% w/w to RM4.1bil from RM4.8bil, recording 38% of the total volume.
Interest in the MGS fell 20% to RM6.4bil from RM8.0bil, occupying 59% of the week’s flows. MTB/MITB trading activities slipped 66% to RM350mil from RM1.0bil in the prior week. On another note, the secondary market dropped slightly by 1% w/w to RM2.3bil from RM2.4bil. The GG/AAA segment contributed 72% of the flows, the AA-segment made up 19% and the A papers 9%.
In the GG/AAA segment, Prasarana Malaysia Bhd 2023–2042 tranches dominated the list with RM315mil being traded between 3.292% and 4.139%. Besides, Perbadanan Tabung Pendidikan Tinggi Nasional 2024–2041 IMTNs gathered RM300mil with yields closing at 3.419%–4.088%. These were followed by Turus Pesawat Sdn Bhd ‘05/25 and ‘11/27 issuances accumulating RM170mil at 3.500% and 3.649%, respectively.
In the AA segment, Jimah East Power Sdn Bhd 2031–2032 tranches gobbled up RM231mil, changing hands between 4.209% and 4.369%. Next, Southern Power Generation Sdn Bhd ‘10/35 IMTNs gathered RM80mil trading at 4.472%.
Lastly, AmBank Islamic Bhd ‘10/28 papers traded between 3.807% and 3.843% amounting to RM50mil.
MYR Interest Rate Swap (IRS) Market
The IRS curve was seen largely higher save for the one-year tenure, easing 0.5bps to 3.250%.
The three-month KLIBOR stood at 3.35%. Elsewhere, the five-year CDS added 1.8% to 42.1bps.
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