Treasury Pulse

The Dow Jones fell 2.13% week-on-week (w/w) to 27,535 while the S&P 500 dropped by 2.56% w/w to 3,339.

Global Forex Market

AMID a short working week due to Labour Day holiday, the US dollar appreciated by 0.67% to 93.34, supported by safe-haven flows following sell-offs in the equity markets amid rising concerns on Brexit and coronavirus cases.

The Dow Jones fell 2.13% week-on-week (w/w) to 27,535 while the S&P 500 dropped by 2.56% w/w to 3,339. Separately, US-China tensions re-emerge after President Donald Trump again raised the idea of separating the world’s two largest economies, claiming the US would not lose out financially if the country stopped doing business with China.

The crude oil market witnessed a strong sell-off with the Brent crude price nosediving 6.1% to US$40.06 per barrel, a level last seen in June, dragged by growing demand concerns following the end of US summer holiday driving season and a report that Saudi Arabia plans to cut its oil prices in October.

Investors’ focus during the week under review was on the European Central Bank (ECB) monetary policy meeting. As expected, the ECB maintained its monetary policy with the deposit rate remaining at -0.5% and the coronavirus stimulus unchanged at €1.35 trillion. The overall tone was slightly upbeat with some optimism over the incoming data showing strong signs of rebound.

In this context, the ECB revised up its growth forecast slightly for 2020 with the GDP now projected at -8% (June estimate: -8.7%). For 2021, the ECB expects GDP to grow by 5% and by 3.2% in 2022.

At the same time, ECB president Christine Lagarde sounded less worried on the recent rally in the euro albeit offering her view that the central bank will “carefully monitor” the exchange rate going forward.

Post-ECB meeting, the euro received a modest catalyst but on a week-on-week basis, the euro-dollar pair slid by 0.19% to 1.182 due to the strong gains in dollar early part of the week.

The pound plunged 3.57% to 1.281 – the lowest since late July – as fears over a no-deal Brexit grew following the shock departure of the government’s legal head. It came after Sir Jonathan Jones, the head of the Government Legal Department, resigned amid reported anger over suggestions that Prime Minister Boris Johnson is planning to override elements of the Brexit withdrawal agreement.

The yen was seen gyrating in a tight range, strengthening 0.10% w/w to 106.1 reflecting the risk averse environment. Data release for the week was rather muted with the final 2Q20 GDP estimate showing the economy shrank the most since 1980 by 7.8% quarter-on-quarter (q/q) in the 2Q20 versus -0.6% q/q in 1Q20 (cons: -8.1% q/q).

Asian ex-Japan currencies witnessed a mixed performance against the dollar. Outperformers for the week include the Korean won, up 0.42% to 1,185, followed by the baht that rose 0.25% to 31.32. Meanwhile, the underperformer for the week was the rupiah, depreciating 0.71% to 14,855. In the local space, the ringgit fell 0.39% to 4.164 due to the nosedive in crude oil prices amid Bank Negara’s decision to maintain the OPR at 1.75%. The FBM KLCI lost 1.7% to 1,490.1 despite foreign flow recording a net foreign inflow for the week at about RM100mil (YTD FBM KLCI foreign flow: -RM20.9bil).

US Treasuries (UST) Market

The US Treasury curve bull flattened this week, with the longer end falling 4.1–5.3bps while the shorter tenures eased 0.4–3.2bps on the back of risk-off momentum, reflecting the rising concerns on: (1) Brexit uncertainties; (2) US-China tensions; and (3) ongoing spikes in coronavirus cases.

Meanwhile, the 10- and 30-year bond auctions drew high yields of 1.473% and 0.704% and bid-to-cover ratios of 2.31x and 2.30x, respectively. As at noon Friday, the 2-, 5-, 10- and 30-year benchmark UST yields stood at 0.14%, 0.27%, 0.68% and 1.42% respectively.

Malaysian Bond Market

Liquidity was paper thin at the start of the week where investors were split ahead of Bank Negara’s MPC meeting. However, bond sell-offs, particularly on the front end, was trigged post-Bank Negara’s decision to maintain its OPR at a record-low of 1.75% as Bank Negara’s statement was deemed less dovish. Both the MGS and GII curve rose 7.5bps and 10.7bps on average this week. As at noon Friday, the 3-, 5-, 7-, 10-, 15-, 20- and 30-year benchmark MGS yields settled at 1.91%, 2.12%, 2.41%, 2.61%, 3.10%, 3.46% and 3.76%, respectively.

Activities in the govvies segment contracted by 11% w/w to RM12.8bil from last week’s RM14.3bil. The MGS segment shrank 18% w/w to RM8.6bil from RM10.4bil in the previous week. Similarly, the GII shaved off 27% to RM2.5bil from RM3.5bil. Meanwhile, the short-term bill (MTB/MITB) trading jumped 264% w/w to RM1.7bil from RM0.5bil.

In the GG/AAA segment, Perbadanan Tabung Pendidikan Tinggi Nasional (PTPTN) 2021–2031 IMTNs dominated the list with a total of RM210mil, trading between 1.77% and 2.96%. Meanwhile in the AA segment, Lebuhraya DUKE Fasa 3 Sdn Bhd 2029–2039 tranches gathered RM280mil at 4.24%–5.12%.

MYR Interest Rate Swap (IRS) Market

The IRS was seen easing 5–9.3bps across the curve. The three-month Klibor stood at 1.98%. Elsewhere, the five-year CDS climbed 3.9% w/w to 45.47bps.

Malaysia Equity Market

During the week (Sept 4–10), the FBM KLCI slipped 25.28 points or 1.67% to 1,490.12 points, tracking the risk-off sentiment in both the Dow Jones Industrial Average (-2.68%) and MSCI Emerging Markets Index (-2.16%). Investors took profits as valuations became lofty after the strong run-up in prices in recent weeks, particularly tech stocks in the US and international markets and glove stocks in the local stock exchange.

Also, there was a return of concerns over a weak recovery in the US labour market (with the latest initial jobless claims exceeding expectations), coupled with the continued stalemate in the negotiation of the second Covid-19 relief plan in the United States.

Bank Negara’s decision to hold the OPR unchanged at 1.75% fell short of providing fresh impetus to the market.

For the week, while foreign investors bought a total of RM38.3mil worth of Malaysian equities, which did little to change the YTD net outflow of RM20.9bil.

The market continued to be dominated by local institutional investors with a participation rate of 46.3% in September (vs 44.2% in August), while retail investors cooled off with their participation rate falling to 38.6% in September (vs 43.6% in August).

Foreign investors were slightly more active compared to the month before, with a participation rate of 15.1% in September (vs 12.3% in August).

Meanwhile, foreign investors piled into Malaysia Government Securities (MGS) for a fourth straight month with a net inflow of RM3.2bil in August 2020 (vs RM7.7bil in July). YTD, foreign investors have been net buyers of MGS with a total net inflow of RM3.9bil.

Equity trading activities cooled off with the average daily value traded falling to RM4.8bil in September (vs RM7.1bil in August) while turnover velocity decreased to 71.1% in September (vs 104.3% in August).

Over the week, only 1 out of 13 sectors in Bursa Malaysia ended in the positive territory.

The only performing sector was Financial Services (+0.2%) as the sell-off that had lasted for weeks finally eased.

The worst performing sector was Healthcare (-18.7%) as investors dumped glove stocks in view of dented prospects of the sector amidst the significant progress made in the development of Covid-19 vaccines as well as treatment methodology.

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

> China’s retail sales (August) on Sept 14;

> US retail sales (August) on Sept 16;

> US Fed interest rate decision on Sept 16;

> Japan’s interest rate decision on Sept 16;

> Britain’s interest rate decision on Sept 17.

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