Global forex market

  • Forex
  • Saturday, 20 Jun 2020

THE dollar appreciated by 0.10% to 97.40, benefiting from safe-haven flows following rising concerns about a rise in new coronavirus cases; and geopolitical risks – clashes along the India-China border, as well as fresh provocations by North Korea – blowing up a liaison office building it operates with South Korea.

Besides, the dollar received some impetus from retail sales data that came in better than expected at 17.7% m/m in May from -14.7% m/m in April (cons: 8.0% m/m); and the Trump’s administration plan to prepare a US$1 trillion infrastructure stimulus proposal to spur the economy.

Separately, Fed chairman Powell told lawmakers in his testimony that a full US economic recovery is still out of reach until the coronavirus pandemic is contained. With such economic uncertainty, Powell reiterated that the central bank will use its “full range of tools” and also called for more support from Congress to support businesses and households that were still affected by the pandemic.

Brent crude price rebounded by 7.18% to US$41.51 per barrel following the International Energy Agency increasing its oil demand forecast for 2020 by 500K bpd to 91.7 million bpd. The Opec and Opec+ ministerial panel also reviewed record oil supply cuts by countries such as Iraq and Kazakhstan to improve compliance with quotas amidst rising coronavirus cases in some parts of the US and China.

The euro weakened by 0.45% to 1.12 against the stronger dollar as investors questioned whether the European Union would be able to pass an ambitious stimulus plan proposed by the European Commission, given that some countries are opposed to handing out aid as grants.

Amidst the risk-averse environment, the pound depreciated by 0.93% to 1.24 after Bank of England (BoE) voted 8–1 to increase the size of its bond-buying programme by £100bil, which it said would run through the turn of the year. Nevertheless, the BoE committee members kept its policy rate unchanged at 0.10%.

The yen strengthened by 0.38% to 107.0 supported by higher demand for safe-haven assets. Nonetheless, the Bank of Japan maintained its policy rate at -0.10% during its monetary meeting, as expected and expanded the size of the coronavirus lending programme to 110 trillion yen from 75 trillion yen in an attempt to support businesses affected by the pandemic.

The majority of the Asia ex-Japan (AxJ) currencies weakened with the Indian rupee coming as the worst performer, falling 0.40% to 76.15 against the dollar.

It was followed by the South Korean won that slid by 0.34% to 1,208.

In contrast, the Indonesian rupiah rebounded 0.39% to 14,078 following Bank Indonesia’s decision to slash its benchmark interest rates as expected by 25bps to 4.25%.

In the local space, the ringgit weakened by 0.34% to 4.278 against the stronger dollar amidst April’s unemployment rate climbing to 5% – the highest since 1990 – from 3.9% in March.

US Treasuries market

The US Treasury curve steepened with the 30-year tenure rising 2.1 bps while the closely watched 10-year yield fell 1.3 bps. The demand for safe-haven papers came towards the end of the week as investors grappled with signs of a resurgence of new coronavirus cases as well as geopolitical risk.

Nevertheless, the first 20-year reopening bond auction garnered a strong BTC ratio of 2.63 times with yields priced at 1.314%. Besides, the Fed tweaked its Secondary Market Corporate Credit Facility, saying its will now buy individual corporate bonds on top of the exchange-traded funds it already is purchasing.

As at noon Friday, the 2-, 5-, 10- and 30-year benchmark UST yields stood at 0.19%, 0.33%, 0.70% and 1.47%, respectively.

Malaysian bond market

The local bond space was rather muted throughout the week albeit some interest in benchmark stocks. Liquidity was broadly thin due to the absence of fresh flows.

The MGS curve eased about 1.0 bps across the curve. Meanwhile, the 10-year GII yield fell 10 bps to 2.920%. As at noon Friday, the 3-, 5-, 7-, 10-, 15-, 20- and 30-year benchmark MGS yields settled at 2.29%, 2.54%, 2.72%, 2.89%, 3.31%, 3.59% and 4.01%, respectively.

Trades in the govvies segment shrank 39% w/w to RM12.9bil from last week’s RM21.1bil. The MGS segment declined 36% w/w to RM7.4bil from RM11.6bil in the previous week. Similarly, the GII also contracted by 5% to RM4.5bil from RM4.7bil.

Meanwhile, the short-term bill (MTB/MITB) trading shaved off 80% w/w to RM959mil from RM4.8bil.

In the GG/AAA segment, DanaInfra Nasional Bhd 2024–2038 tranches dominated the list with a total of RM226.6mil, trading between 2.66% and 3.68%.

Meanwhile in the AA segment, some interest was seen in YTL Power International Bhd 2023–2028 tranches which gathered RM145mil at 3.22%–3.69%.

Ringgit interest rate swap (IRS) market

The IRS eased 1–3.5bps on the front end while the back end rose 0.5–4.6bps. The three-month Klibor stood at 2.28%. Elsewhere, the five-year CDS slipped 7.4% w/w to 71.13bps.Malaysia equity market

During the week (June 15-18), the FBM KLCI retraced 41.11 points or 2.66% to 1,504.91 points, weighed down by concerns over a resurgence of Covid-19 infections globally (that would derail the reopening of the economy) and geopolitical tensions (between China and India, as well as between the two Koreas).

However, this was partially cushioned by the announcement by the US Federal Reserve to begin corporate bond buying, as well as its pledge during the congressional testimony that it would use its “full range of tools” to help the economy to recover.

Also helping, was news reports on a US$1 trillion infrastructure plan by US President Trump.

Foreign investors remained net sellers in the local market.

Thus far in June 2020 (up to 18 June), they have sold a total of RM2.1bil worth of Malaysian equities, bringing the YTD net outflow to RM15.4bil.

However, the selling was well absorbed by local institutional and retail investors, with the participation rates of 48.2% (vs 45.8% in May) and 38% (vs 36.8% in May) respectively. As foreign investors pared down their exposure, their participation rate fell to 13.8% (vs 17.5% in May).

Meanwhile, foreign investors turned net buyers of Malaysia Government Securities (MGS) with a net inflow of RM1.9bil in May 2020, reversing from a RM0.4bil net outflow in Apr 2020. Nonetheless, YTD, foreign investors remained net sellers of MGS with a net outflow of RM14.8bil.

On the back of strong trading interest, Bursa Malaysia’s average daily value traded (ADVT) rose to RM5.5bil in June (vs. RM4.3bil in May) while turnover velocity surged to 86.0% (vs. 70.0% in May).

During the week, only one out of 13 sectors on Bursa Malaysia ended on a positive note.

The top performing sector was technology (+0.8%) thanks to accelerated digitalisation on the back of new norms such as social distancing, work from home and online shopping.

The worst performing sector was healthcare (-7.8%) as investors took the money off the table after the sector’s strong outperformance in the recent weeks.

In the coming week, investors will keep a close eye on:

>People’s Bank of China’s interest rate decision on June 22;

>Eurozone’s Markit PMI Composite on June 23;

> Malaysia’s Consumer Price Index on June 24;

> US GDP (1Q) on June 25; and

> Malaysia’s Producer Price Index on June 30.

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