AMID a short working week due to Memorial Day, the US dollar witnessed a sell-off, losing 1.48% to 98.38, underpinned by global risk-on sentiment – which led to robust buying in the equity space with the Dow Jones rising 3.8% week-on-week (w/w) to 25,401 while the S&P 500 climbing 2.5% w/w to 3,030. The growing optimism among investors was supported by the reopening of the world economy added with expectations that authorities may offer more stimulus to bolster the recovery. These have superseded the tension between the US and China.
Nevertheless, economic release during the week was rather mixed: (1) 1Q20 GDP second estimation dipped further into the contraction region at -5% quarter-on-quarter (q/q) from 2.1% q/q in 4Q19 (cons: -4.8% q/q); (2) April’s durable goods orders fell further to -17.2% month-on-month (m/m) from -16.6% m/m in March (cons: -19% m/m); (3) jobless claims registered at 2.1mil for the week ending 23 May from 2.4mil in the previous week (cons: 2.1mil); and (4) April new home sales rose 0.6% m/m from -13.7% m/m in March (cons: -21.9%).
Brent crude prices rose 0.46% to US$35.29 per barrel as market participants believed that improving demand and more supply coming off would ease the glut faster than expected. However, Brent pared some gains after both the American Petroleum Institute and Energy Information Administration recorded massive inventories build-up of crude oil at 8.7 million and 7.9 million barrels for week ending May 22 from supply cuts of 4.8 million and 5.0 million respectively in the previous week.
The euro climbed back to a two-month high, appreciating by 1.61% to 1.108 after the European Commission unveiled a €750bil recovery package (€500bil in grants and €250bil in loans) to prop up economies hammered by the coronavirus crisis. Separately, the focus of the week in the EU space was on ECB president Christine Lagarde’s speech, in which she said that the eurozone economy is faring worse than she expected and the GDP in 2020 is likely to contract between 8% and 12%.
The pound strengthened by 1.22% to 1.232 largely underpinned by global risk-on sentiment. However, the gains were capped due to: (1) sentiments surrounding trade talks with the EU turning sour as UK chief negotiator David Frost stated that the EU would need to change its negotiating position in order to secure an agreement and he was doubtful whether a deal on fishing was achievable by the end of June; and (2) rising speculation that the Bank of England could lower its interest rate to below zero.
The yen witnessed a see-saw session during the week before closing marginally weaker by 0.01% to 107.7. Despite the yen benefiting from the broad weakening of the dollar, it pared gains due to dismal economic release i.e. (1) March leading index falling to 84.7 from 91.9 in February; (2) April unemployment rate edging higher to 2.6% from 2.5% in March (cons: 2.7%); and (3) April retail sales dropping 13.7% year-on-year (y/y) from -4.7% y/y in March (cons: -11.5%).
Asia ex-Japan currencies traded mixed against the dollar. The Singapore dollar was the outperformer of the week, up 0.51% to 1.418 benefiting from global risk-on sentiment. Meanwhile, the yuan came in as the underperformer for the week, down 0.23% to 7.146 following the heightened tension over the situation in Hong Kong amid speculation the government would be willing to permit a weaker currency in response to fresh punitive measures from the United States. The Korean won weakened by 0.21% to 1,239 after the Bank of Korea slashed its policy rate by 25bps to a record low of 0.50%.
The ringgit appreciated 0.21% to 4.354 on the back of a shortened work week. The FBM KLCI closed higher by 1.44% to 1,458, tracking the regional stock markets albeit continuing to record a net foreign outflow of RM0.6bil for the week (YTD KLCI foreign outflow RM13.2bil). On the data front, the Producer Price Index for April was registered at -5.1% y/y from -1.9% y/y in March.
US Treasuries (UST) Market
The US Treasury curve bear steepened with the short to the belly end (two-year to five-year) rising about 0.5bps while the back end of the curve (10-year to 30-year) edged up 3-8bps. The upward pressure on the back-end of the curve reflects investors’ optimism over resumed economic activities around the world. However, the upside in the yields was capped as President Donald Trump said he would hold a press conference on China, hours after Chinese lawmakers passed a National Security Law for Hong Kong. At the same time, some mild buying was seen mid-week after the New York Fed president John William talked up the possibility of implementing yield-curve control measures in the United States. As at noon Friday, the 2-, 5-, 10- and 30-year benchmark UST yields stood at 0.16%, 0.32%, 0.66% and 1.43%, respectively.
Malaysian Bond Market
Trading in the local bond market was rather quiet after a long weekend of Hari Raya holiday with many market participants taking extra time off. Some flows were seen albeit with thin liquidity. By the end of the week, the MGS curve has fallen 1–2bps across the curve while the GII curve fell 1–4bps. As at noon Friday, the 3-, 5-, 7-, 10-, 15-, 20- and 30-year benchmark MGS yields settled at 2.27%, 2.47%, 2.62%, 2.80%, 3.18%, 3.42% and 3.81% respectively.
Activities in the govvies segment declined 69% w/w to RM7.3bil from last week’s RM23.6bil reflecting the short working week. The MGS segment shrank 60% w/w to RM5.1bil from RM12.9bil in the previous week. Meanwhile, the GII contracted 84% to RM1.4bil from RM8.6bil. The short-term bill (MTB/MITB) trading activities slipped 63% w/w to RM750mil from RM2bil.
In the GG/AAA segment, DanaInfra Nasional Bhd 2023–2039 IMTNs dominated the list with a total of RM720mil, trading between 2.56% and 3.61%. These were followed by Lembaga Pembiayaan Perumahan Sektor Awam (LPPSA) 2023–2036 IMTNs which accumulated RM270mil at 2.50%–3.46%. Next were Prasarana Malaysia Bhd 2022–2050 tranches that totalled up to RM205mil, closing between 2.45% and 4.04%. On a different note, Sarawak Energy Bhd’s 2024–2036 IMTNs collected RM156mil in total, trading at 2.85%–3.60%.
Meanwhile in the AA segment, interest was seen among some energy names such as: (1) YTL Power International Bhd 2023–2028 tranches that gathered RM370mil at 3.22%–3.63%; and (2) Edra Energy Sdn Bhd 2023–2038 IMTNs that amounted to RM64mil, changing hands between 3.46% and 4.90%; and (3) Jimah East Power Sdn Bhd 2023–2031 tranches that accumulated RM80mil in total, trading at 3.34%–3.96%. Last but not least, RHB Islamic Bank Bhd ‘04/27 issuance was traded at 3.38%, gathering RM40mil in the week.
MYR Interest Rate Swap (IRS) Market
The IRS was seen rising 1.5–4bps across the curve. The three-month Klibor stood at 2.29%. Elsewhere, the five-year CDS fell 10.5% w/w to 87.52bps.
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