Amid a short working week in conjunction with President’s Day, the dollar climbed 0.75% to 99.865, marking a near three-year high. The broad strength in the dollar was supported by demand for safe-haven assets in view of the coronavirus conundrum. At the time of writing, China had reported a total of 75,765 confirmed cases and 2,236 deaths, while South Korea had become one of the worst affected places outside China, reporting more than 150 cases.
Besides, the dollar received additional impetus following the release of the Federal Open Market Committee or FOMC meeting minutes. The minutes highlighted that the Federal Reserve (Fed) members delivered an upbeat assessment on the economy, expecting consumer spending to remain on a firm footing and job gains to expand at a healthy rate. However, the Fed members expressed their concerns about the threat of the coronavirus outbreak, and also tensions in the Middle East.
Oil prices soared 3.47% to US$59.31 per barrel due to supply threats, as the US moved to cut more Venezuelan crude from the market.
On Tuesday, the Trump administration blacklisted the trading brokerage owned by Russia’s Rosneft that the US accuses of helping the regime of Venezuelan President Nicolás Maduro. Meanwhile, the Energy Information Administration’s crude inventories came in at a smaller-than-expected 0.41 million barrels for the week ending Feb 14 (cons: 2.49 million).
The euro declined by 0.42% to 1.079, below its psychological level of 1.08 while marking a fresh 34-month low, primarily due to the broad strengthening dollar amidst risk-off sentiment permeating global markets. In addition, the euro was battered further following poor economic release which include February’s Germany ZEW Economic Sentiment index slowing down to 8.7 from 26.7 in January (cons: 21.5); and March Germany GfK Consumer Confidence easing to 9.8 from 9.9 in February (cons: 9.8).
The pound plunged by 1.26% to 1.288 following pessimistic Brexit free trade deal talks with the European Union (EU). In the latest Brexit-related development, ambassadors of the European Union failed to agree on the definition of a level playing field – the degree of alignment that Brussels requires for easy market access – and fuelled concerns that Britain might crash out of the bloc at the end of the transition period later this year.
Meanwhile, data release during the week was broadly healthy, ie, the January inflation rate shot up more than expected at 1.8% year-on-year (y-o-y) from 1.3% y-o-y in December (cons: 1.6%); core inflation grew 1.6% y-o-y as compared to 1.4% y-o-y in December (cons: 1.5%); and January’s retail sales slowed down 0.8% y-o-y from 0.9% y-o-y in December (cons: 0.7%).
The Japanese yen plunged 2.11% to the weakest level since April 2019 at 112.1 due to its vanishing safe-haven appeal, with investors fretting about dire economic news. The fourth-quarter 2019 (4Q19) preliminary gross domestic product (GDP) growth showed that the economy contracted by 1.6% quarter-on-quarter (q-o-q) from 0.1% q-o-q in 3Q19, impacted by the government’s decision to increase consumption tax to 10% from 8%. Investors’ concerns grew further as the widening fallout from the epidemic, which is damaging output and tourism, could undermine growth in 1Q20 and push Japan into recession.
Asia ex-Japan currencies were mostly down against the dollar. The worst performer - the South Korean won – shaved off 1.29% to 1,198 as investors dumped riskier assets amid growing concerns about the coronavirus spread. The Taiwan dollar also tumbled 0.80% to 30.26. Meanwhile, the rupiah weakened by 0.42% to 13,730 as the central bank lowered its policy rate by 25bps to 4.75% and revised its GDP forecast for 2020 downward to 5.0%–5.4% from 5.1%–5.5%.
The ringgit depreciated 1.06% to 4.182, hitting a two-month high. The FBM KLCI dipped 0.61% to 1,535, with foreigners remaining net sellers with a total outflow of RM211mil. January’s inflation rate rose to 1.6% y-o-y as compared to 1% y-o-y in December (cons: 1.6% y-o-y) due to the low base impact. Locally, no new Covid-19 cases were reported as of Thursday, and thus the confirmed cases remain at 22. A total of 17 patients have fully recovered and discharged while another five cases are still receiving medical treatment.
US Treasuries market
Amid a short working week in conjunction with the President’s Day holiday, the US Treasury yields rallied across the curve by four to eight bps, with the long end of the curve outperforming the short end. The buying was supported by rising fears about the potential negative spillover impact from the deadly coronavirus.
The risk-off sentiment was fuelled further after Apple warned that it would miss its quarterly targets due to supply disruptions and lower Chinese demand as a result of the coronavirus outbreak.
Meanwhile, the yields were seen rising slightly higher post-release of the FOMC meeting minutes. The minutes highlighted the Fed’s upbeat assessment of the economy, although it acknowledged the downside risk to the economy due to the coronavirus conundrum. As at Friday, the two-, five-, 10- and 30-year benchmark UST yields stood at 1.37%, 1.34%, 1.49% and 1.93%, respectively.
Malaysian bond market
The MGS curve steepened, with the short-end tenure rising five to six bps, while the longer end added two to 11bps. Likewise, the GII curve shifted upwards about six bps on average due to solid selling activities by investors. The selling activities were sparked by a weakening ringgit, crossing the 4.19 levels as well as the hefty supply of GG papers onshore during this period.
Towards the end of the week, the focus shifted to the reopening of the five-year GII benchmark maturing in October 2024. The reissuance garnered a strong BTC of 2.776 times on the back of an issuance size amounting to RM4.0bil with no private placement.
The auction closed with a high/low of 2.852% and 2.817% while averaging at 2.845%. At the point of writing, the three-, five-, seven-, 10-, 15-, 20- and 30-year benchmark MGS yields settled at 2.70%, 2.76%, 2.86%, 2.91%, 3.16%, 3.35% and 3.65%, respectively.The trading volume in the secondary local govvies segment contracted 49% week-on-week (w-o-w) to RM15.7bil from last week’s RM31.1bil.
Matching the pace, the MGS papers shrank by 48% w-o-w to RM9.0bil from RM17.4bil, contributing 57% of the total volume. Also, interest in the GII was 52% lower w-o-w to RM6.5bil from RM13.6bil, occupying 42% of the week’s flows. MTB/MITB trading activities surged 161% to RM157mil from RM60mil of the total trade in the prior week.
Sukuk Perumahan Kerajaan’s (SPK) total trade dropped to RM10mil this week from RM50mil. The GG/AAA segment contributed 68% of the flow, while the AA segment constituted 27% and the A papers made up less than 6%.
In the GG/AAA segment, DanaInfra Nasional Bhd 2024–2049 IMTNs dominated the list with RM655mil of total volume, trading between 2.889% and 3.760%. These were followed by GovCo Holdings Bhd 2023 tranches which accumulated RM200mil at 3.178%–3.201%.
Besides this, Prasarana Malaysia Bhd 2025–2047 tranches gathered RM171mil, with yields closing between 2.969% and 3.701%.
Meanwhile in the AA segment, WCT Holdings Bhd 2023–2026 papers gobbled up RM110mil, changing hands at 4.083% and 4.321%.
Next, Edra Energy Sdn Bhd 2029–2038 IMTNs gathered RM110mil, trading between 3.739% and 4.353%.
Last but not least were Tanjung Bin O&M Bhd ‘07/21 and ‘07/22 issuances, which traded at 3.349% and 3.409%, respectively amounting to RM50mil.
Ringgit interest rate swap (IRS) market
The IRS was seen rising 0.8bps averagely across the curve.
The three-month Klibor stood at 3.09%. Elsewhere, the five-year CDS fell 1.3% to 35.19bps.
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