Treasury Pulse - Forex, US market, Malaysian bonds, Ringgit rates, markets

THE US dollar extended its broad-based decline during the week in review, down 0.71% to 89.68 – hitting a fresh 32-month low with the low-volume market trading with a slight dose of risk-on sentiment.

Global Forex Market

THE dollar extended its broad-based decline during the week in review, down 0.71% to 89.68 – hitting a fresh 32-month low with the low-volume market trading with a slight dose of risk-on sentiment.

The upbeat sentiment was propelled following: President Trump’s signing into law a US$2.3 trillion pandemic aid and spending package, restoring unemployment benefits to millions of Americans and averting a federal government shutdown; and ongoing optimism over vaccine rollouts.

Towards the end of the week, some near-term optimism dimmed in the US market after Senate Majority Leader Mitch McConnell blocked a quick vote to back Trump’s call to increase Covid-19 relief cheques to US$2,000 from US$600 that was already signed into law.

Crude oil posted gains with Brent gaining marginally by 0.10% week-on-week to US$51.34 per barrel.

The gains were contributed by: a US coronavirus fiscal aid package; a decline in crude oil inventories by 6.1 mbpd for the week ending Dec 25 compared with a smaller supply cut at 0.6 mbpd in the previous week, as reported by the EIA; and news that Britain and the European Union had signed a post-Brexit trade deal, as well as a draw in crude inventory sparked optimism.

The euro appreciated by 0.91% to 1.230 – hitting the highest level since April 2018, garnering support from the weaker dollar, which helped offset concerns over the climbing death toll of Covid-19 in the bloc.

Germany recorded its highest daily death count on Dec 29 with 1,122 deaths. With current lockdown measures set to expire on Jan 10 Jan, there were growing speculation that Chancellor Merkel will likely soon announce an extension of harsh virus curbs.

The pound strengthened to its highest level since May 2018 after: the UK-EU trade agreement was signed in Brussels and Westminster preparing to ratify it; and the UK government approved the emergency use of AstraZeneca and Oxford University’s Covid-19 vaccine, which will be administered starting Monday.

Amid a light calendar week, the yen rose 0.44% to 103.2 – the highest in a week following the dollar’s weakness.

Separately, the latest Bank of Japan’s (BoJ) summary of opinions showed that policymakers were divided on how far to go in tweaking its stimulus programme, with some calling for an overhaul of its strategy for achieving 2% inflation.

The policy examination will focus on tweaking the BoJ’s purchases of exchange-traded funds (ETF) and operations for controlling the yield curve.

The majority of Asia ex-Japan currencies strengthened against the dollar. The outperformer was the South Korean won, appreciating by 1.44% to 1,086 followed by the Indonesian rupiah, up by 1.06% to 14,050. The Philippine peso was the outlier, sliding by 0.06% to 48.05. Meanwhile, the ringgit closed higher by the end of the week, up 0.06% to 4.037 – hovering at a two-year high, due to stronger crude oil prices. On the data front: Exports came in better than expected – expanding 4.3% year-on-year (y-o-y) in November versus October’s 0.2% y-o-y (consensus: 3.9% y-o-y); imports contracted for the ninth consecutive month at -9% y-o-y from -6% y-o-y in October (consensus: -4.8% y-o-y); while the still weak Producer Price Index in November contracted for the ninth month at -3% y-o-y from -3.6% y-o-y in October.

US Treasuries (UST) Market Amid a short working week and nearing the year end, the US Treasury yield flattened, with the front end rising 0.2–0.5bps while the 30-year UST eased 0.5bps. Meanwhile, the closely watched UST10Y was muted at 0.923%. The flattening came after Trump signed into law the a US$2.3 trillion pandemic aid and spending package which will restore unemployment benefits to millions of Americans and avert a federal government shutdown. As at noon Friday, the 2-, 5-, 10- and 30-year benchmark UST yields stood at 0.12%, 0.37%, 0.92% and 1.66%, respectively.

Malaysian Bond Market

The local bond market was quiet as volume was tepid ahead of the New Year holidays. Meanwhile, the Malaysian government announced a further extension of the CMCO in selected states and areas until 14 January.

By end of the week, the MGS curve bull flattened, easing around 1–9bps while the front end remained unchanged. As at noon Friday, the 3-, 5-, 7-, 10-, 15-, 20- and 30-year benchmark MGS yields settled at 1.89%, 2.12%, 2.37%, 2.68%, 3.22%, 3.39% and 3.85%, respectively.Activities in the govvies segment climbed 13% w/w to RM7.5bil from last week’s RM6.6bil. The MGS segment rose slightly by 1% to RM4.0bil, similar to the previous week.

The GII increased 36% to RM3.2bil from RM2.4bil. Meanwhile, the short-term bill’s (MTB/MITB) trading was unchanged at RM0.3bil.

Secondary trade volume surged during the week, advancing 55% to RM1.2bil from RM0.8bil. The credit spread narrowed by 15.7bps on average across the curve.

The shorter end rose 20.4bps on average while both the belly and longer ends of the curve eased averagely by 46.5bps and 16.6bps, respectively.

Ringgit Interest Rate

Swap (IRS) MarketThe IRS was seen averaging at -0.3bps from the front until the back end of the curve. The 3-month Klibor stood at 1.94%. Elsewhere, the five-year CDS fell 11.2% w/w to 37.53bps.

Malaysian Equity MarketDuring the week (Dec 24–30), the FBM KLCI inched up 3.24 pts or 0.20% to 1,644.41 pts, underperforming the MSCI Emerging Markets Index and the Dow Jones Industrial Average that rose +2.83% and +0.69% respectively. The prospects of recovery were boosted while a shutdown of the US government was averted after Trump signed the second stimulus package which he had opposed previously.

Investors’ sentiment was also lifted by news that the EU and UK have reached a post-Brexit trade deal and the good progress of the Covid-19 vaccination programmes globally.

Foreign investors turned net buyers in the local market, nibbling RM85.0mil worth of Malaysian equities but this was insignificant compared to the year-to-date net outflow of RM24.5bil.

Local institutional and retail investors continued to dominate the market with a participation rate of 45.0% and 40.4% in December respectively (comparable to 45.2% and 38.4% in November).

As foreign investors stayed passive, their participation rate remained low at 14.6% in December (compared with 16.4% in November).

Meanwhile, foreign investors piled into Malaysia Government Securities (MGS) for the seventh straight month with a net inflow of RM1.8bil in November 2020 (vs. RM3.9bil in October). Year-to-date foreign investors have been net buyers of MGS with a total net inflow of RM11.1bil.

Equity trading activities eased slightly with the average daily value traded (ADVT) moderating to RM5.1bil in December (vs RM5.2bil in November), with turnover velocity decreasing to 69.4% in December (vs 74.0% in November).

During the week, 10 out of 13 sectors in Bursa Malaysia ended in the positive territory. The best performing sector was transportation and logistics (+4.6%) buoyed by recovery optimism.

The worst performing sector was healthcare (-1.8%) as investors continued to lighten their positions in glove stocks on expectations that the pandemic shall gradually come under control with the availability of effective vaccines.

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

> China Caixin manufacturing PMI (December) on Jan 3;

> Malaysia external trade indices (November) on Jan 4;

> US ISM manufacturing PMI (December) on Jan 5;

> Eurozone Markit composite PMI (December) on Jan 6;

> Eurozone CPI (December) on Jan 7.

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