THE dollar advanced 1.54% to 93.35, near a two-month high as the risk sentiment dents ahead of the November US elections as well as a continued increase in Covid-19 infections.
This week’s Fed speeches have also acted against the mood in markets as officials reiterated the path that US economic recovery remains uncertain, signalling a wait-and-see approach when it comes to further monetary stimulus, while pointing out that Congress needs to focus more on the fiscal policy.
Nevertheless, data release for the week was rather mixed with: September Markit Services flash PMI slowing to 54.6 from 55.0 in August (cons: 54.7); September Markit Manufacturing flash PMI expanding to 53.5 from 53.1 in August (cons: 53.1); and initial jobless claims rising to 870,000 as of Sept 19 from 866,000 in the week prior (cons: 840,000).
Brent crude declined by 2.8% to US$41.94 per barrel. The drag in price was due to the rising coronavirus cases, stoking worries about global demand; and a potential return of Libyan production which bolstered oversupply fears. Crude oil inventories for the week ended Sept 18 shrank by 1.64 million barrels, despite being relatively smaller than -4.39 million barrels in the previous week (cons: -2.33 million).The euro took a nosedive, falling 1.42% to 1.17 to a two-month low following rising concerns of coronavirus cases across the Europe.
The pound slid 1.32% to 1.275 due to a spike in new coronavirus cases in the UK which forced PM Boris Johnson to announce new restrictions that are likely to last six months.
The yen weakened by 0.80% to 105.4 due to the broad strengthening in dollar. Meanwhile, key data release this week includes Jibun Bank Manufacturing flash PMI rising to 47.3 in September from 47.2 in August; and Services PMI picking up to 45.6 versus 45.0. Asia ex-Japan currencies lost momentum against the dollar across the board. The Thai baht scored the smallest decline, weakening by 1.78% to 31.59 amid the Bank of Thailand’s (BoT) decision to keep the interest rate unchanged at 0.50% while upgrading its 2020 GDP outlook to -7.8% (previous: -8.1%).
On the local scene, the ringgit slumped 1.40% to 4.171 after hovering at a seven-month high last week against the backdrop of domestic challenges which include domestic political uncertainties. Apart from that, four major announcements were made during the week under review: the government unveiled another round of fiscal stimulus, “Kita Prihatin” worth RM10bil in a bid to help industries and citizens badly hit by the coronavirus pandemic; FTSE Russell retained our sovereign bonds under its watch list; August inflation posted a deflation of 1.4% y/y from -1.3% y/y in July; and the Leading Index grew 7.7% y/y – the fastest expansion since March 2010US Treasuries (UST) market
Bids on the UST curve were firmer with the curve easing by 1–4bps following the growing fears of a second wave of infections globally, US election developments and lacklustre economic data.
This week’s Fed speeches highlighted the importance of further fiscal stimulus from the Congress for a sustained economic recovery since the central bank is unlikely to consider rate hikes until it achieves 2% inflation over a period of time and full employment. As at noon Friday, the 2-, 5-, 10- and 30-year benchmark UST yields stood at 0.13%, 0.28%, 0.67% and 1.42%, respectively.
Malaysian bond market
The MGS curve flattened with the short to the belly part of the curve rising 2–5bps while the long end fell 3–12bps. The sell-off was triggered following the spike in domestic political noises amidst thin liquidity as the majority of the market players took the sidelines ahead of the FTSE Russell announcement.
Besides, the government’s additional RM10bil fiscal stimulus partially contributed to the selling as the move reduced the bets for additional rate cuts. Early Friday morning, FTSE Russell announced its decision to retain Malaysia under its Watch List, for possible reclassification from Market Accessibility Level 2 to 1.
Although FTSE acknowledged the additional initiatives by Bank Negara over the last 12 months to improve the liquidity and accessibility of the government bond market for foreign investors, it still wants to see the long-term impact of these meausres.
As at noon Friday, the 3-, 5-, 7-, 10-, 15-, 20- and 30-year benchmark MGS yields settled at 1.97%, 2.27%, 2.47%, 2.69%, 3.11%, 3.42% and 3.90%, respectively.
Activities in the govvies segment climbed by 12% w/w to RM16.0bil from last week’s RM14.4bil. The MGS segment picked up around 39% w/w to RM11.1bil from RM8.0bil in the previous week. In contrast, the GII shaved off 49% to RM2.2bil from RM4.3bil. Meanwhile, the short-term bill (MTB/MITB) trading surged 30% w/w to RM2.7bil from RM2.1bil. Ringgit interest rate swap (IRS) market
The IRS was seen easing averagely 2.3bps across the curve. The three-month Klibor was muted at 1.97%. Elsewhere, the five-year CDS rose 8.5% w/w to 56.6bps.
Malaysian equity market
During the week (Sept 18-24), the FBM KLCI eased 12.27 points or 0.81% to 1,500.80 points, showing much resilience against the Dow Jones Industrial Average and MSCI Emerging Markets Index that tanked 3.89% and 4.43% respectively.
Investor sentiment was weighed down by fears of fresh lockdowns (especially in the UK) amid a resurgence in new Covid-19 infections globally, the death of Supreme Court justice Ruth Bader Ginsburg six weeks ahead of a highly contentious US presidential election (that could potentially come down to a Supreme Court decision), gloomy comments on the economic outlook by various Fed officials and elevated US initial jobless claims.
Foreign investors remained net sellers in the local market. For the week, foreign investors sold a total of RM225.6mil worth of Malaysian equities, bringing the y-t-d net outflow to RM21.6bil.
The market continued to be dominated by local institutional investors with a participation rate of 47.0% in September (vs 44.2% in August), while retail investors cooled off with their participation rate falling to 38.1% in September (vs 43.6% in August). Foreign investors were more active compared with the month before, with a participation rate of 14.8% in September (vs 12.3% in August).
Meanwhile, foreign investors piled into MGS for the fourth straight month with a net inflow of RM3.2bil in August 2020 (vs RM7.7bil in July). Y-t-d, foreign investors have been net buyers of MGS with a total net inflow of RM3.9bil.
Equity trading activities slowed down with the average daily value traded falling to RM5.0bil in September (vs RM7.1bil in August) while turnover velocity decreased to 75.6% in September (vs 104.3% in August).
During the week, only one sector in Bursa Malaysia ended in the positive territory, namely, healthcare (+3.0%) on expectations of strong demand for personal protective equipment, including gloves for longer, as the pandemic escalated again. The worst performing sector was construction (-4.9%) on political uncertainty as the opposition leader made an unexpected bid for the premiership.
In the coming week, investors will keep a close eye on Malaysia’s trade balance statistics (August) on Sept 28; Japan’s core CPI on Sept 28; China’s September manufacturing PMI on Sept 29, the US’ Q2 GDP on Sept 30; and the US’ September unemployment rate on Oct 2.
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