THE dollar depreciated 1.26% to 99.11 largely due to the month-end rebalancing added with the dovish Federal Open Market Committee (FOMC) meeting after the Federal Reserve (Fed) opened the door for more monetary easing and dampened expectations for a quick economic recovery from the coronavirus crisis.
Nevertheless, the Fed kept its policy rate unchanged between 0% and 0.25% and maintained its open-ended quantitative easing (QE) programme. Meanwhile, data released this week continues to disappoint, which includes the first-quarter 2020 (1Q20) gross domestic product (GDP) contracting larger than expected by -4.8% quarter-on-quarter (q/q) annualised from 2.1% q/q annualised in 4Q19 (cons: -4% q/q).
Brent price surged 27.01% to US$25.98 per barrel following a smaller-than-expected build in crude oil inventories that was registered at nine million barrels for the week ending April 24 compared to 15 million in the previous week (cons: 10.6 million); and optimism that the demand-supply gap may narrow soon. The euro appreciated 1.13% at 1.10 largely due to a weaker dollar. However, the gains were capped as the European Central Bank (ECB) disappointed some investors who had expected that it would expand bond purchases to junk bonds as part of its QE programme.
Nevertheless, the ECB kept its key interest rates on the main refinancing operations, marginal lending facility, and the deposit facility unchanged at 0.00%, 0.25% and -0.50%, respectively, which also fell in line with expectations.
Meanwhile, economic release continues to disappoint, with the April Economic Sentiment dropping to 67 from 94.2 in March (cons: 74.7); the April Consumer Confidence coming in as expected at -22.7 from -11.6 in March; and Germany’s Ifo Business Climate sliding to 74.3 in April from 85.9 in March (cons: 80).
Amidst a quiet calendar week, the pound rose 1.57% to 1.26 largely due to the weaker dollar. On the data front, key economic release showed the April CBI Distributive trade index falling to -55 from -3 in March (cons: -40); and March car production declining by 37.6% y/y from -0.8% y/y in February.
The yen strengthened 0.37% to 107.1 mainly due to the Bank of Japan (BoJ) pledging to expand its monetary policy and buying unlimited amount of bonds (prev: capped at 80 trillion yen per annum) to keep borrowing costs low.
The central bank also increased its scope for buying corporate bonds and commercial paper by raising its ceiling on holdings to 20 trillion yen. The BoJ, however, kept its interest rate unchanged at -0.10% while keeping the 10-year government bond yield at around 0.0% in April.
Meanwhile, the BoJ has forecast the GDP to shrink by -5% for FY21 and inflation to fall short of its 2% target for the next three years with core inflation excluding fresh food between -0.8% and -0.4%.
Besides, the Japanese government plans to extend a nationwide state of emergency beyond its current May 6 deadline, as the local coronavirus outbreak has yet to subside.
The Asia ex-Japan (AxJ) currency strengthened across the board against the weaker dollar. The Indonesian rupiah appreciated the most, up 3.37% to 14,882 following the governor of Bank Indonesia remaining upbeat, as the central bank continues to believe the rupiah is heading towards 15,000 a dollar by year-end.
Meanwhile, the Indian rupee and South Korean won rose 1.77% to 75.10 and 1.33% to 1,219, respectively.
Wrapping up the short work week, the ringgit appreciated 1.39% to 4.30, tracking the stronger oil price as well as slower new coronavirus cases.
Meanwhile, the FBM KLCI gained 0.76% to 1,380.3 but recorded a net foreign outflow of RM0.2bil. On the data front, March’s factory inflation dipped into the deflationary zone at -1.9% y/y from +0.9% y/y in February (1Q20 PPI average: 0.6% y/y).
US Treasuries (UST) market
The UST curve fell three to five basis points or bps across the board save the 30-year tenure which rose three bps. Meanwhile, the closely watched 10-year yield fell three bps to 0.64%.
The Fed painted an overall dovish outlook. The Fed would keep interest rates at current levels unchanged until both the employment and inflation (2%) targets are met.
At the same time, the Fed is of the view that the 2Q20 GDP could contract between -30% and -40% annualised. Meanwhile, the initial jobless claims as at April 25 rose to 3.8 million from 4.4 million in the week prior (cons: 3.5 million). As at Thursday, the 2-, 5-, 10- and 30-year benchmark UST yields stood at 0.20%, 0.36%, 0.62% and 1.24%, respectively.
Malaysian bond market
The MGS curve steepened with the drop by one to five bps from the front to the belly part (three -year (3Y), 5Y, 7Y, and 10Y) of the curve, while the back-end (15Y, 20Y, and 30Y) rose 2.5bps. Buying flow was supported by expectations of Bank Negara cutting its policy rates in its upcoming monetary meeting on May 5; and the strengthening ringgit.
Nevertheless, the focus of the local market was on the reissuance of the 7Y MGS ‘05/27 with an issuance size of RM4.0bil and no private placement with a book-to-cover (BTC) of 2.24 times.
The auction closed with a high/low of 2.69% and 2.67% while averaging at 2.68%. As at end-Thursday, the 3-, 5-, 7-, 10-, 15-, 20- and 30-year benchmark MGS yields settled at 2.41%, 2.52%, 2.68%, 2.86%, 3.11%, 3.38% and 3.72%, respectively.
Transaction activities in the secondary local govvies segment fell 37% week-on-week (w/w) to RM13.2bil from last week’s RM21.0bil. The MGS segment slid 25% w/w to RM7.7bil from RM10.3bil in the previous week, while the GII declined 47% to RM5.5bil from RM10.3bil.
In the GG/AAA segment, DanaInfra Nasional Bhd 2026–2044 IMTNs dominated the list with a total of RM320mil, trading between 2.95% and 3.83%. These were followed by Perbadanan Tabung Pendidikan Tinggi Nasional (PTPTN) 2022–2039 tranches which accumulated RM235mil at 2.71%–3.68%.
Meanwhile, in the AA segment, Batu Kawan Bhd ‘06/23 papers gathered RM190mil, trading at 3.37% and 3.45%, respectively. Next were BGSM Management Sdn Bhd 2023–2027 IMTNs that gobbled up RM125mil, changing hands at between 3.41% and 3.79%.
The ringgit interest rate swap (IRS) market
The IRS was seen rising one to seven bps across the curve save for the one- and three-year that remained unchanged. The three-month Klibor stood at 2.79%. Elsewhere, the five-year CDS fell 5.4% to 112.7bps.
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