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Global Forex Market

The dollar started the week and the final quarter of 2020 on softer footing.

It weakened by 0.98% to 93.71 following fresh hopes of US fiscal stimulus as well as healthy economic data release – reinforcing sequential economic recovery – which fuelled investor’s risk appetite to flock into risk assets.

However, the Covid-19 relief agreement still lacked progress in several key areas with Democrats proposing a US$2.2 trillion package, while Republicans suggested a US$1.6 trillion response.

Nevertheless, the risk-on sentiment helped investors to look pass through the first presidential debate between President Trump and Joe Biden which was deemed chaotic as the candidates battled over the president’s leadership on the coronavirus pandemic, the economy and taxes.

Meanwhile, data this week includes:

>September ADP Employment adding 749,000 jobs from 481,000 jobs in August (cons: 650,000)

>September Chicago PMI expanding to 62.4 from 51.2 in August (cons: 52)

>ISM Manufacturing PMI rising slower at 55.4 in September as compared to 56 in the previous month (cons: 56.4); and

>initial jobless claims with a smaller increase at 837,000 for the week ending Sept 26, versus 873,000 in the previous week (cons: 850,000).

Brent crude price shaved off 2.36% to US$40.93 per barrel over worries about the outlook for fuel demand as a surge in new coronavirus infections permeates major economies.

A rise in Opec’s September output, up 160,000 barrels per day from August, also pressured prices.

The euro appreciated by 1.01% to 1.175 – marking a one-week high following the weaker dollar, added with healthy economic release which includes manufacturing PMI at 53.7 in September, up from 51.7 in August (cons: 53.7) – the strongest growth in over two years.

However in mid-week, the euro witnessed some pullback after the ECB president Christine Lagarde delivered a dovish comment citing “low inflation poses fundamental challenges” – signalling the central bank may tap further monetary easing.

The pound rallied by 1.14% to 1.289, supported by positive Brexit headlines after reports surfaced that negotiators were happy enough with the progress made in the final round of negotiations to enter a “tunnel period”, which is a final push conducted in secret where the outstanding details are overcome and a draft for leaders to assess is produced.

This helped offset dovish comments from the Bank of England governor Andrew Bailey when he mentioned that the MPC has an open mind about whether and when to cut the basic bank rate to zero or below.

The yen rose marginally by 0.05% to 105.5 owing to a broad weakening of the dollar.

Nevertheless, data release was positively tilted with:

>Jibun Bank Manufacturing PMI rising to 47.7 in September from 47.2 in August (cons: 47.3) as the manufacturing sector moved another step closer to stabilisation; and

>Tankan Large Manufacturers Index improving to -27 in 3Q from -34 (cons: -23) at the peak of the pandemic.

Asia ex-Japan currencies strengthened across the board against the weaker dollar.

The outperformer for the week was the Singapore dollar, up 1.02% to 1.364, followed by the Korean won (+0.90% to 1162), the Taiwanese dollar (0.64% to 29.02), and the rupee (0.64% to 73.14).

The peso rose 0.05% to 48.45 amidst the Philippines’ central bank keeping its benchmark interest rate at a record low of 2.25%.

Policy makers are assessing future moves after some aggressive policy easing this year to support the pandemic-ravaged economy.

The ringgit climbed 0.47% to 4.151, recovering from last week’s losses, garnering support from the weak dollar narrative as well as some positive impetus after the Finance Ministry reiterated its fiscal prudence stance to maintain a narrower budget outlook for 2021 while maintaining its 2020’s fiscal target of -5.8% to -6.0% of GDP.

US Treasuries (UST) Market

The UST segment steepened with the curve adding 0.2–4 basis points (bps) following the fresh hopes of additional fiscal stimulus.

The risk tone is constructive, although whether hopes of progress on US fiscal relief are warranted remained to be seen.

Treasury Secretary Steve Mnuchin and House Speaker Nancy Pelosi are set to continue talks on an 11th hour deal on Friday.

Besides, the upside pressure in yields came after robust economic data which broadly helped investors to look pass the first presidential debate between President Donald Trump and Joe Biden.

As at noon Friday, the two, five, 10- and 30-year benchmark UST yields stood at 0.12%, 0.26%, 0.66% and 1.43%, respectively.

Malaysian Bond Market

Amid a stronger ringgit, the local bond market witnessed a buying spree across the curve with prices firming in the back-end which resulted in a flatter curve.

The long end of the MGS curve fell six to eight bps while the short to the belly part eased one to six bps.

The buying was partially supported by quarter-end rebalancing flows as investors sought to lock in higher valuation and robust auction with the reissuance of the 5Y MGS ‘09/25 garnering a strong BTC of 2.803x.

The total size issued was RM5.0bil with no private placement.

The auction closed with a high/low of 2.405% and 2.360% while averaging at 2.389%.

Meanwhile, domestic risks continue to linger with no fresh developments. As at noon Friday, the 3-, 5-, 7-, 10-, 15-, 20- and 30-year benchmark MGS yields settled at 1.95%, 2.25%, 2.43%, 2.67%, 3.04%, 3.35% and 3.81%, respectively.

Activities in the govvies segment surged 80% w/w to RM20.8bil from last week’s RM11.6bil.

The MGS segment shot up 189% w/w to RM17.1bil from RM5.9bil in the previous week.

Similarly, the GII rose 10% to RM2.7bil from RM2.4bil.

Meanwhile, the short-term bill (MTB/MITB) trading shrank 68% w/w to RM1bil from RM3.2bil.

In the GG/AAA segment, Cagamas Bhd 2021–2033 IMTNs dominated the list with a total of RM320 million, trading between 2.07% and 3.40%.

Meanwhile in the AA segment, Sabah Development Bank Bhd ‘02/26 and ‘04/26 papers gathered RM120mil at 3.21% and 3.22%, respectively.

MYR Interest Rate Swap (IRS) Market

The IRS was seen rising averagely 0.3bps across the curve.

The three-month KLIBOR was muted at 1.97%.

Elsewhere, the five-year CDS slipped 6.4% w/w to 53.86bps.

Malaysia Equity Market

During the week (Sept 25 - Oct 1), the FBM KLCI eased 4.03 points or 0.27% to 1,496.77 points, sitting out the rally in both the Dow Jones Industrial Average (+3.73%) and MSCI Emerging Markets Index (+2.56%).

Locally, the resumption of debt servicing, following the expiry of the six-month loan moratorium on 30 Sept 2020, may have sapped some liquidity from the market.

In addition, investors turned cautious while waiting for the dust to settle following the Sabah state election and the announcement of the opposition leader’s bid for the premiership.

Globally, investors went on bargain hunting after the steep selloff in September, as well as on revived hopes on the second Covid-19 relief deal in the US.

Meanwhile, the highly anticipated first presidential debate in the US offered little insight into the policy stance over the next four years of both candidates.

Foreign investors remained net sellers in the local market.

For the week, foreign investors sold a total of RM729.3mil worth of Malaysian equities, bringing the YTD net outflow to RM22.4bil.

The market continued to be dominated by local institutional investors with a participation rate of 49.3% in October (vs 46.7% in September), while retail investors cooled off with their participation rate falling to 37.3% in October (vs 38.1% in September).

As foreign investors stayed passive, their participation rate in October fell to 13.4% (vs. 15.2% in September).

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 (ADVT) falling to RM2.6bil in October (vs. RM4.7bil in September) while turnover velocity decreased to 39.5% in October (vs 70.8% in September).

During the week, six sectors in Bursa Malaysia ended in the positive territory, the best performing sector was technology (+5.0%) as the sector offered earnings resilience amidst a resurgence of Covid-19 infections globally.

The worst performing sector was plantation (-2.2%) as CPO prices took a beating after the recent run-up.In the coming week, investors will keep a close eye on:

> Japan Services PMI (Sep) on Oct 4

> US Markit Composite PMI (Sep) on Oct 5

> US trade balance statistics (Aug) on Oct 6

> US FOMC statement on 7 Oct;

Japan GDP (3Q3) on Oct 8

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