Global Forex Market
THE US dollar was traded broadly weaker during the week reviewed, down 0.50% to 92.29 – touching the lowest level since end-August. Investors’ risk appetite improved following vaccine progress that could help reignite global growth and briefly overshadowed the rising global coronavirus cases. Besides, the drag also came from poor economic release which includes:
(1) October retail sales data coming in weaker than expected at 0.2% month-on-month (m-o-m) from 0.6% m-o-m in September (consensus: 0.3%) – the slowest growth since May 2020; and
(2) initial jobless claims unexpectedly rising to 742,000 as of Nov 14 from 711,000 in the week prior (consensus: 707,000).
However, towards the end of the week, the vaccine optimism was seen receding as investors eyed how government officials and policymakers are implementing new restrictions on social and business activities to curb the spread of Covid-19.
Separately, Moderna’s preliminary data showed its vaccine’s 94.5% effectiveness, while Pfizer claimed that the final results from the late-stage trial of its Covid-19 vaccine showed it was 95% effective.
Brent gained 3.32% weak-on-weak (w-o-w) to US$44.20 per barrel, the strongest level since Sept 2 boosted by:
(1) Covid-19 vaccine progress – Moderna Inc and Pfizer both claimed their experimental vaccine was at 94.5% and 95% effectiveness, respectively; and
(2) expectation that the Opec+ would maintain lower output in 2021 to support prices.
The euro appreciated by 0.35% to 1.19 – marking its highest point since Sept 1 largely benefiting from the weaker dollar. The upside was curtailed by news of Poland and Hungary blocking the 1.8 trillion euro financial package to revive the depressed economy. At the same time, the Society for Worldwide Interbank Financial Telecommunications (Swift) reported that the US dollar has lost to the euro as the No. 1 currency used for global payments for the first time since February 2013.
The early-week vaccine optimism helped pushed the pound higher, strengthening 0.55% to 1.33 under the week review. In addition, the pound has also received some support following a report that the UK PM was told by British negotiators to expect a Brussels trade deal early next week, with “a possible landing zone” as soon as next Tuesday.
The yen received strong interest, breaking pass through the psychological level of below 104 levels for the second time in November. It appreciated by 0.85% to 103.7 while tracking the higher demand for safe-haven assets. Economic release for the week includes:
(1) Third quarter (Q3) GDP preliminary estimation which expanded by 5% quarterq/q versus 8.2% q/q of contraction in the 2Q (cons: 4.4% quarter-on-quarter or q-o-q); and (2) September’s industrial production which climbed 3.9% m-o-m from 1% m-o-m in August (cons: 4% year-on-year or y-o-y).
The majority of Asian ex-Japan currencies strengthened against the dollar. The best performer was the Indian rupee which rebounded sharply by 0.44% to 74.27. This was followed by the Chinese yuan, rising 0.34% to 6.584, hovering at the strongest level in two years. In contrast, the Thai baht depreciated the most among Asean peers, losing 0.64% to 30.37. Meanwhile, the ringgit appreciated 0.60% to 4.098, hitting the highest point in 10 months.
Meanwhile, domestic economic growth for Q3 improved with a slower contraction of 2.7% y-o-y versus a 17.1% y-o-y contraction in Q2. In addition, PM Tan Sri Muhyiddin Yassin signed the Regional Comprehensive Economic Partnership (RCEP) agreement, creating the world’s largest trading bloc that promises to help speed up the members’ post-pandemic growth. The countries include 10 members of Asean, China, Japan, South Korea, Australia, and New Zealand which account for around 30% of the world’s GDP and population.
US Treasuries (UST) Market
The UST yields were broadly range-bound at the start of the week due to the ongoing conundrum between the rising global coronavirus cases and the latest vaccine development that shows the efficacy of more than 90%. However, strong bids came towards the end of the week with some states imposing higher restrictions overshadowing the vaccine news that propped up risk sentiment earlier in the week.
Nevertheless, the treasury curve bull flattened by 1.6-11.8 basis points (bps) in the week under review. As at noon yesterday, the 2-, 5-, 10- and 30-year benchmark UST yields stood at 0.16%, 0.37%, 0.82% and 1.53%, respectively.
Malaysian Bond Market
Rapid selling flow was present across the board with the Malaysian Government Securities (MGS) curve steepening during the week. The segment rose 3–5.5bps from the short towards the long end, except for the 10-year yield that eased 1bps to close the week at 2.655%, the lowest since Nov 1. Bond selling was boosted by:
(1) the improvement in Q3 GDP with a slower contraction of 2.7% y-o-y versus a 17.1% y-o-y contraction in Q2 – which fuelled expectations that Bank Negara may not cut rates in 2021; and
(2) positive prospect in trade relations as Muhyiddin signed the RCEP agreement.
Nevertheless, the focus was mainly on the reopening auction of the 7-year Government Investment Issue (GII) ‘09/27 mid-week. The auction garnered a soft bid-to-cover (BTC) of 1.616 times, hovering at a three-month low on the back of a total size amounting to RM4bil with no private placement.
The auction closed with a high/low of 2.541% and 2.490% while averaging at 2.521%. As at noon yesterday, the 3-, 5-, 7-, 10-, 15-, 20- and 30-year benchmark MGS yields settled at 1.83%, 2.12%, 2.44%, 2.66%, 3.16%, 3.46% and 4.04%, respectively.
Activities in the govvies segment slowed down 22% w-o-w to RM14.6bil from last week’s RM18.8bil. The MGS segment shrank by 24% to RM10.7bil from the previous week. The GII slipped 9% to RM3.3bil from RM3.6bil. Meanwhile, the short-term bill’s (MTB/MITB) trading fell 44% w-o-w to RM700mil from RM1.3bil.
In the GG/AAA segment, Cagamas Bhd 2021-2025 Islamic Medium-Term Notes (IMTNs) dominated the list with a total of RM130mil, trading between 2.04% and 2.49%. Meanwhile, in the AA segment, Edra Energy Sdn Bhd 2024-2026 tranches gathered RM138mil at 3.22%-4.38%.
Ringgit Interest Rate Swap (IRS) Market
The IRS was seen rising 1-4.5bps across the curve. The 3-month Klibor stood at 1.94%. Elsewhere, the 5-year credit default swap (CDS) rose 2.8% w-o-w to 38.49bps.
Malaysian Equity Market
During the week (Nov 13–19), the FBM KLCI eased 7.10 points (pts) or 0.45% to 1,583.68 pts, bucking the uptrend in the Dow Jones Industrial Average (+1.39%) and MSCI Emerging Markets Index (+1.55%).
Globally, investors cheered positive trial results from the experimental Covid-19 vaccine of Moderna, following similar good news from the one jointly developed by Pfizer and BioNTech a week ago. Also helping was the news on the resumption of stimulus talks in Washington, which partially offset the still elevated weekly initial jobless claims in the US and a spike in Covid-19 infections globally.
Locally, the market was weighed down by continued profit-taking on glove stocks on dented prospects for glove selling prices on expectations that the pandemic would finally come under control with the availability of effective vaccines.
Foreign investors remained net sellers in the local market, unloading RM267.6mil worth of Malaysian equities which brought the year-to-date (YTD) net outflow to RM23.4bil. Local institutional and retail investors continued to dominate the market with a participation rate of 45.6% and 39.4% in November respectively (comparable to 45.7% and 39.9% in October). As foreign investors stayed passive, their participation rate remained low at 15% in November (relatively unchanged compared with 14.4% in October).
Meanwhile, foreign investors piled into MGS for a sixth straight month with a net inflow of RM3.9bil in October 2020 (versus RM1.4bil in September). YTD, foreign investors have been net buyers of MGS with a total net inflow of RM9.3bil.
Equity trading activities improved with the average daily value traded (ADVT) rising to RM5.2bil in November (versus RM4.3bil in October), while turnover velocity increased to 74.6% in November (versus 64.6% in October).
During the week, 10 out of 13 sectors in Bursa Malaysia ended in the positive territory. The best performing sector was Financial Services (+3.1%) as investors chased up banking stocks on improved prospects of recovery from the pandemic. The worst performing sector was healthcare (-2.2%) as investors lightened their positions on glove stocks.
In the coming week, investors will keep a close eye on:
> US manufacturing Purchasing Managers’ Index (November) on Nov 23;
> Malaysia consumer price index (October) on Nov 25;
> US GDP (Q3) on Nov 25;
> US Federal Open Market Committee meeting on Nov 25–26;
> Malaysia external trade (October) on Nov 27.
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