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THE dollar continued to decline for the second consecutive week, down 0.25% w/w to 93.61, underpinned by persistent upbeat sentiment in global markets, supporting investors’ risk appetite as investors continue to bet on some form of fiscal aid emerging ahead of the US elections.

Besides, the risk sentiment received a slight dose of impetus after:

> US President Donald Trump returned to the White House amid improving medical condition;

> Stronger-than-expected ISM non-manufacturing purchasing managers index (PMI), expanding to 57.8 in September from 59.6 in August (cons: 56.3) – marking the fourth consecutive month of expansion in the non-manufacturing sector.

At the same time, the vice- presidential debate this week did not appear to move the election needle significantly albeit national polls showed some incremental increase in Joe Biden’s chance to win.

Brent crude oil prices experienced a phenomenal jump under the week in review.

It was up 10.33% w/w to US$43.34 per barrel and hit a one-month high.

Brent oil prices garnered support from the broad global risk-on sentiment; news on of Saudi Arabia raising its selling price and Opec delivering an optimistic outlook, citing that the “worst is over” for the oil market.

The euro appreciated by 0.37% w/w to 1.176.

This was largely due to the subdued dollar amidst the rising coronavirus cases in Europe.

The upside momentum in the euro was curtailed after ECB President Christine Lagarde’s dovish stance.

This came as she mentioned that the European central bank was prepared to inject fresh monetary stimulus to support the eurozone.

This includes cutting the policy rate further down in the negative region.

Besides, ECB President Lagarde expressed her views that the central bank needs to maintain ample stimulus to reach goal and should guard against premature withdrawal of stimulus.

The pound was seen volatile under the week in review, albeit closing slightly stronger up 0.02% w/w to 1.294 against the US dollar due to the early week Brexit uncertainty.

However, the pound manage to stage a quick recovery after growing signs of potential Brexit talks breakthrough following reports indicating both EU and UK making progress on Brexit trade deal.

The yen weakened by 0.70% w/w to 106.0 – marking a two-week low, due to the weaker demand for safe haven assets.

Meanwhile, the Bank of Japan offered a slight upbeat outlook this week, raising its economic assessment for its regional economy which underscores the central bank’s growing conviction that the economy is emerging from the worst hit of the pandemic.

The majority of the Asia ex-Japan currencies appreciated against the dollar save for the rupee.

The rupee weakened by 0.14% to 73.3 amidst the jump in crude oil price.

Nevertheless, the outperformer of the week was baht, up 1.15% to 31.20.

This was followed by the Korean won, up 1.14% to 1,153; rupiah (+1.04% to 14,710), Taiwanese dollar (+0.65% to 28.83), and Singapore dollar (+0.41% to 1.358).

Meanwhile, the yuan market was closed for the week due to the Golden Week holiday.

The MYR strengthened by 0.24% to 4.153 as it benefited from the weaker dollar.

Separately, Prime Minister Tan Sri Muhyiddin Yassin assured the public that the government will not impose another total lockdown but instead will impose targeted enhanced movement control order (TEMCO) in high-risk areas.

The government then announced the implementation of conditional movement control order (CMCO) in four districts that have classified as red zones with more than 40 active Covid-19 cases each.

The districts that were targeted are Klang, Sandakan, Papar and Tuaran, starting on Oct 9.

US Treasuries (UST) Market

The US Treasury curve bear steepens, with the short-end rising two to five basis points (bps) while the long-end climbed 8-10bps.

Both UST10- and 30-year yields jumped back to a four-month high to 0.785% and 1.587%, respectively.

The upwards pressure at the back-end largely came after the minutes of the Federal Reserve’s September policy meeting showed the Fed would not tweak its asset purchases to buy more longer-dated debt.

Besides, the general spike in yields was partly driven by the revived possibility of some form of fiscal aid emerging ahead of the US elections.

As at noon on Friday, the 2-, 5-, 10- and 30-year benchmark UST yields stood at 0.15%, 0.33%, 0.77% and 1.57%, respectively.

Malaysian Bond Market

Much of the focus in the local bond market was on the three-year RM4.5bil GII auction, (no private placement) which garnered a strong reception – recording a BTC of 3.093x, marking the highest in six months.

Post-auction, notable buying flows was seen across the curve amidst some market players were pricing in a potential OPR cut during the final Bank Negara’s meeting in November in view of rising domestic Covid-19 infections and subsequently on the implementation of TEMCO and CMCO in the four districts.

However, selling pressure emerged towards the end of the week as the political uncertainties remerged.

By end of the week, the MGS curve steepened with the short-end of the curve fell 3-9bps while the back end rose about 1bps.

As at noon yesterday, the 3-, 5-, 7-, 10-, 15-, 20- and 30-year benchmark MGS yields settled at 1.86%, 2.18%, 2.38%, 2.66%, 3.04%, 3.31% and 3.79%, respectively.

Trading activities in the secondary govvies segment tapered slightly, down 17.8% w/w to RM17.1bil.

Bulk of the interest was on MGS segment, accounting for 47.2% of the trades while the GII segment accounted for 42.8% of the trades.

Meanwhile, activities in the PDS segment was rather muted this week.

MYR Interest Rate Swap (IRS) Market

The IRS fell across the curve, down 2-4bps.

The 3-month KLIBOR was muted at 1.97%.

Elsewhere, the five-year CDS slipped 9.8% w/w to 48.5bps.

Malaysia Equity Market

During the week (Oct 2-Oct 8), the FBM KLCI rebounded 22.66 points or 1.51% to 1,519.43 points.

This was in tandem with the rally in both the Dow Jones Industrial Average (+2.19%) and MSCI Emerging Markets Index (+3.01%).

The markets went on a roller-coaster ride as US President Donald Trump was tested positive for Covid-19 infection, and was admitted to a military hospital.

However, he was discharged within a few days.

Also, he pulled the plug on stimulus talks and reversed course within 24 hours to propose a stand-alone deal for the airlines (which was nonetheless rejected by House Speaker Pelosi).

Foreign investors remained net sellers in the local market.

For the week, foreign investors sold a total of RM97.6mil worth of Malaysian equities, bringing the year to date net outflow to RM22.5bil.

The foreign selling was well absorbed by local institutional and retail investors, with a participation rate in October of 47.1% (vs. 46.7% in September) and 39.5% (vs. 38.1% in September) respectively.

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).

Year to date, 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 RM3.7bil in October (vs. RM4.7bil in September) while turnover velocity decreased to 55.2% in October (vs 70.8% in September).

During the week, nine sectors in Bursa Malaysia ended in the positive territory, the best performing sector was healthcare (+3.6%).

This was on expectations of strong demand for personal protective equipment including gloves for longer amidst a resurgence of Covid-19 infections globally, including Malaysia.

The worst performing sector was energy (-2.2%).

This was due to concerns over another free-fall in oil demand and prices in the event of a return to lockdowns globally.

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

> Malaysia IPI (August) on Oct 12

> Malaysia retail trade (August) on Oct 12

> German economic sentiment Oct 13

> US core CPI (September) on Oct 13

> US PPI (Sept) on Oct 14

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