The dollar appreciated by 0.39% to 99.067, supported by stronger-than-expected economic data which include: NFP data, adding 225 thousand jobs in January compared to December’s 147 thousand (cons: 160 thousand); unemployment rate at 3.6% in January from 3.5% in December (cons: 3.5%); wages, rising 3.1% y-o-y from 3.0% y-o-y in December (cons: 3.0%); labour force participation rate was 63.4% from 63.2% in December; NFIB January business optimism index, up at 104.3 from 102.7 in December (cons: 103.4); and January’s inflation at 2.5% y-o-y from 2.3% y-o-y in December (cons: 2.4% y-o-y).
Separately, the Fed’s Powell in his testimony acknowledged the rising risk of coronavirus (Covid-19) while viewing the underlying strength of the US economy, added with a series of rate cuts last year, is appropriate to withstand the rising challenges on the external front.
In the commodities market, Brent crude oil recovered by 3.43% to US$56.34/bbl as investors hope the Opec+ would cut oil output deeper.
At the same time, they are trying to shake off the dim outlook of crude oil due to the coronavirus outbreak.
Nonetheless, the EIA reported higher-than-expected crude inventories at 7.5 million barrels for the week ending Feb 3 (cons: three million).The euro depreciated 0.96% to 1.084 due to poor economic data such as: the Italian industrial production that declined by 2.7% m-o-m in December from 0% in November (cons: -0.5% y-o-y); and poor EU December’s industrial production figure which fell by 4.1% y-o-y from -1.7% y-o-y in November (cons: -2.3% y-o-y). The pound jumped 1.19% to 1.305 following speculation for a larger-than-expected fiscal spending after the reshuffle of PM Boris Johnson’s cabinet threw some surprising developments. On the data front, economic release includes: the 4Q2019 GDP preliminary estimation slowing down to 1.1% y-o-y from 1.2% y-o-y in the 3Q2019 (cons: 0.8% y-o-y); and December industrial production shrank by 1.8% y-o-y from -2.5% y-o-y in November (cons: -0.8% y-o-y).The Japanese yen slid 0.06% to 109.8 following dwindling demand for safe haven assets. Besides, the yen was partly driven by weaker economic release, ie deteriorating January’s eco watchers survey outlook at 41.8 from 45.5 in December (cons: 47.1); and a weaker December household spending data which fell 4.8% y-o-y from -2% y-o-y in November (cons: -1.7% y-o-y).
The majority of Asia ex-Japan currencies appreciated against the dollar during the week. The best performer Thai baht rebounded 0.63% to 31.138 alongside the Philippine peso that shot up 0.58% to 50.485.
Meanwhile, the Indonesian rupiah slid 0.14% to 13,694.
The Singapore dollar rose 0.01% to 1.389 despite its response to the Covid-19 spread upgraded to Code Orange due to “heightened risk”.
The ringgit fell marginally by 0.04% to 4.141. Although the FBM KLCI lost 0.99% to 1,539, foreigners turned net buyers with a total inflow of RM81mil.
Malaysia’s 4Q2019 real GDP registered at 3.6% – the slowest since 3Q2009 (full-year: 4.3%).
However, the nominal GDP grew faster by 4.4% y-o-y from 3.9% y-o-y in 3Q2019 (full-year: 4.4%). Looking at Covid-19 updates, 19 cases were recorded locally whereby 13 were China nationals and six Malaysians.
US Treasuries (UST) Market
The US Treasury curve was bear-flattened with the front end rising five bps while the belly to back end of the curve rose 3–4 bps.
The cheapening of treasury papers was due to: early reports stating the spread of Covid-19 may be slowing down; upbeat economic assessment during the Fed’s Powell semi-annual testimony as he viewed the underlying strength of the US economy is able to withstand the ongoing Covid-19 challenges; and a sustained upside surprise on earnings and economic data release.
However, demand for Treasury papers reemerged towards the end of the week after China reported a sharp jump in the confirmed cases of Covid-19 and deaths from the viral outbreak. As at Friday, the 2-, 5-, 10- and 30-year benchmark UST yields stood at 1.44%, 1.43%, 1.61% and 2.06%, respectively.
Malaysian Bond Market
The local bond market rallied across the curve following Bank Negara’s dovish statement after announcing 4Q2019 GDP.
The GDP print came in a decade-low of 3.6% y-o-y in 4Q2019, which brings the full-year 2019 GDP to 4.3% falling at the lower end of Bank Negara’s target.
The dovish statement from Bank Negara citing “going forward, monetary policy consideration will continue to be guided by the risks to the outlook for domestic growth and inflation” hinted there is room for a potential rate cut, pending the severity of the epidemic outbreak.
This sparked strong buying interest across the curve with MGS/GII yields falling by 12–15 bps.
Mid-week, markets focused on the reissuance of the 10Y MGS ‘08/29 benchmark which garnered a strong BTC of 2.036x on the back of a total size amounting to RM4bil with no private placement.
At the point of writing, the 3-, 5-, 7-, 10-, 15-, 20- and 30-year benchmark MGS yields settled at 2.66%, 2.72%, 2.84%, 2.88%, 3.10%, 3.23% and 3.60%, respectively.
The Markit iBoxx ABF Malaysia Bond Index, an index comprising MGS, GII and GG, returned 1.554% in the week from Feb 6 to 13 as the index yield fell to 2.95% from 3.18%.
In the same period, the ABF MALAYSIA BOND INDEX FUND, an ETF which tracks the index, returned 1.580% as the fund yield also dipped to 2.94% from 3.17%. Month to date, the index returned 1.691% while the fund returned 10.67%.
In the local govvies segment, trading volume declined 15% w/w to RM27.2bil from last week’s RM31.8bil. The MGS segment slipped 17% w/w to RM14.9bil from RM17.9bil, recording 55% of the total volume. Matching the pace, interest in the GII papers also shrank 7% w/w to RM12.2bil from RM13.2bil occupying 45% of the week’s flows.
Meanwhile, MTB/MITB trading activities tumbled 89% to RM60mil from RM565mil in the prior week. In the PDS market, the segment slid 13% w/w to RM3.4bil from RM3.9bil a week earlier.
Sarawak Energy Bhd’s 2021–2036 IMTNs dominated the list with RM530mil, trading between 3.126% and 3.611%. These were followed by 2022–2049 DanaInfra Nasional Bhd tranches accumulating RM379.7mil at 2.787%–3.820%. Besides, Cagamas Bhd 2020–2024 IMTNs gathered RM185.5mil with yields closing between 2.806% and 3.120%.
Meanwhile in the AA segment, Lebuhraya Duke Fasa 3 Sdn Bhd 2033–2039 issuances gobbled up RM300mil, changing hands between 4.460% and 4.810%. Next, 2023–2026 WCT Holdings Bhd gathered RM127mil, trading at 4.145%–4.586%. Last but not least were BGSM Management Sdn Bhd 2021–2026 IMTNs which traded between 3.375% and 3.568% amounting to RM70mil.
MYR Interest Rate Swap (IRS) Market
The IRS was seen falling 5–12ps across the curve. The 3-month KLIBOR stood at 3.09%. Elsewhere, the five-year CDS dropped 5.6% to 35.81 bps.
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