The Global Forex Market
The dollar appreciated 0.63% to 97.45 largely driven by resilient economic data which includes December’s The Institute of Supply Management (ISM) non-manufacturing purchasing managers’ index (PMI) coming in better than expected, accelerating to a four-month high of 55.0 from 53.9 in November (cons: 54.5) supported by higher production and inventories, and rising optimism over a potential trade resolution.
Further to this is stronger-than-expected private ADP employment, adding 202,000 jobs in December from 124,000 in November (cons: 160,000), and initial jobless claims continuing to trend downwards to 214,000 as of Jan 4,2020 from 223,000 in the week prior (cons: 220,000). Besides, the dollar received further impetus following positive trade developments between the US and China, with the latter confirming plans to sign a preliminary deal by early next week. Nevertheless, the concerns over further geopolitical escalation between the US and Iran were short-lived after President Donald Trump said Iran appeared to be “standing down” following Teheran’s attack on the Ain al-Asad airbase. However, he added that the US would immediately impose additional economic sanctions on the Iranian regime.
In the commodities market, the Brent crude price shaved off 4.71% to US$65.37 per barrel of oil owing to the easing fears on the imminent US-Iran tension and a surprising crude build-up by 1.2 million barrels (cons: -3.6 million barrels) for the week ending Jan 3 as reported by the Energy Information Administration.
The euro depreciated 0.49% to 1.111 due to a stronger dollar. Nevertheless, economic release during the week was rather mixed, which includes December’s European Union (EU) Markit Services PMI coming in at 52.8 compared to 51.9 (cons: 52.4); December’s EU flash inflation being in line with expectations at 1.3% year-over-year (y/y) from 1.0% y/y in November, while core inflation remained unchanged at 1.3% y/y; December’s business confidence coming in at -0.25 from -0.21 in November (cons: -0.16); December’s consumer confidence coming in at -8.1 versus -7.2 in November (cons: -8.1); and November’s EU unemployment rate, which came in at 7.5%, remaining unchanged from the month prior.
The pound slid 0.12% to 1.307, especially after Bank of England governor Mark Carney delivered a dovish tilt speech, hinting that a potential rate cut could materialise in 2020. With the clock ticking towards Brexit on Jan 31, the Commons finally passed British Prime Minister Boris Johnson’s Brexit bill. The country is now expected to leave the block with a deal. Also, December’s Markit/CIPS Services PMI was up at 50.0 versus 49.3 in November (cons: 49.2).
As demand for safe-haven currencies falters, the Japanese yen depreciated 1.32% to 109.5. The impact of poor Jibun Bank’s December composite PMI - which fell further to 48.6 from November’s 49.8 (cons: 49.8) - overshadowed the improving consumer confidence index that rose to 39.1 in December from November’s 38.7 (cons: 38.0).
The majority of Asia ex-Japan currencies appreciated against the dollar, save for the baht and Singapore dollar which fell 0.38% to 30.288 and 0.18% to 1.352, respectively. The outperformer for the week was the Indian rupee that rose 0.83% to 71.215 as concerns of higher crude oil prices dwindled, followed by the Philippine peso which was up 0.75% at 50.693.
The ringgit ended the week stronger by 0.28% to 4.091, tracking the strengthening yuan. November’s industrial production came at 2% y/y from 0.3% y/y in November with market expectations at 1% y/y. The FBM KLCI, however, lost 1% to 1,596 as the local equities market took a beating from the escalating Middle East tension. Besides, foreigners turned net sellers albeit at a smaller net outflow of RM28mil.
The US Treasuries (UST) market
US treasury yields rose across the board by 3.5 to 4.5 basis points (bps), following the de-escalation in geopolitical tensions between the US and Iran. Investors’ concerns eased after Trump said Iran appeared to be “standing down” following Teheran’s attack on the Ain al-Asad airbase. Besides, the selling pressure was further driven following reports that China has confirmed plans to sign a preliminary trade deal with the US early next week. Mild buying momentum was present at the end of the week due to strong demand for government bonds at a 30-year debt auction. As at Friday, the two-, five-, 10- and 30-year benchmark UST yields stood at 1.58%, 1.66%, 1.86% and 2.33%, respectively.
The Malaysian bond market
The Malaysian Government Securities (MGS) curve flattened over the week, with the yields on the long-end of the curve easing four to nine bps while the three-year and five-year tenures rose 3.1bps and 0.6bps, respectively. Some off-the-runs also picked up strong demand due to the premium yield spread to benchmarks. Strong demand was initially noted following the falling global yields. However, the gains were capped towards the end of the week as a risk-on sentiment permeated the global market following the de-escalation in geopolitical tensions. Nevertheless, the focus was also on the first govvies auction of the year - the seven-year MGS 05/27 reopening auction which garnered a strong bid-to-cover (BTC) of 2.498 times on the back of an issuance size amounting to RM3.5bil with no private placement. The auction closed with a high/low of 3.288% and 3.259% while averaging 3.281%. At the point of writing, the three-year, five-year, seven-year, 10-year, 15-year, 20-year and 30-year benchmark MGS yields settled at 3.01%, 3.16%, 3.26%, 3.27%, 3.49%, 3.59% and 3.95%, respectively.
Trading volume in the secondary local govvies segment rose further by 70% week-over-week (w/w) to RM19.6bil from last week’s RM11.5bil. Matching the pace, the MGS papers traded higher by 74% w/w to RM9.5bil from RM5.5bil, contributing to 49% of the total volume. Also, interest in the Global Innovation Index paper picked up 61% w/w to RM9.7bil from RM6.0bil, occupying 49% of the week’s flows. MTB/MITB trading activities surged 400% to RM400mil from RM80mil of the total trade in the prior week. The GG/AAA segment contributed 81% of the flows while the AA-segment constituted 16% and the A-papers made up less than 3%.
In the GG/AAA segment, DanaInfra Nasional Bhd 2026–2047 Islamic medium-term notes (IMTN) dominated the list with RM680mil of total volume, trading between 3.399% and 4.209%. These were followed by 2027-2033 Prasarana Malaysia Bhd tranches which accumulated RM155mil at 3.438%-3.719%. Besides, Projek Lebuhraya Usahasama Bhd (PLUS) 2025–2038 IMTNs gathered RM100mil, with yields closing between 3.587% and 3.849%.
Meanwhile in the AA segment, UEM SUNRISE BHD 2020–2024 tranches gobbled up RM60mil, changing hands at 3.307%–3.668%. Next, MALAYAN BANKING BHD 01/31 papers gathered RM50mil, trading at 3.765%. Last but not least were Bumitama Agri Ltd 07/24 and 07/26 issuances which traded at 3.775% and 3.889%, respectively, amounting to RM45mil.
Ringgit interest rate swap (IRS) market
The IRS was seen easing one to two bps at the shorter-end while adding one to three bps at the longer end of the curve. The three-month Klibor fell two bps to 3.33%. Elsewhere, the five-year CDS eased 2.3% to 35.76bps.
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