Treasury Pulse - Forex, Treasuries, Bonds, ringgit


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THE dollar started the year on a softer footing, continuing its depreciation trend from 2020 and briefly touching a 32-month low.

Investors took to the sidelines ahead of a mid-week Georgia’s Senate runoff elections amid signs of improving economic activities in the Asia pacific region.

The outcome showed Democrat Jan Ossoff won his Senate runoff election, giving Democrats control of the Senate and House for the opening of Joe Biden’s presidency.

The dollar, as a result, received renewed interest mid-week as the Democrat sweep outcome increased the bets for a larger stimulus package that could fuel economic growth and inflation.

Separately, the dollar as well as its counterparts, were largely unaffected during the brief chaos in Washington DC as President Trump’s supporters stormed the Capitol in an attempt to reverse his election defeat.

However, with Congress reconvening nearly six hours later after leaving the floor, vice-president Mike Pence announced that President-elect Joe Biden had won the presidency after Congress completed the counting of the Electoral College votes. Biden will be sworn in on Jan 20. By the end of the week, the dollar closed lower by 0.12% w/w to 89.83.

Crude oil posted gains with Brent gaining by 4.98% week on week to US$54.38 per barrel (CY2020: -21.80%) – the highest since February 2020.

The gains were contributed by: (1) Saudi Arabia’s announcement of a big voluntary production cut of 1mbpd in February and March after a meeting with Opec+; as well as (2) crude inventories declining in the week ending Jan 1, as much as 8.01mbpd versus 6.07mbpd supply cuts in the previous week, as reported by the EIA.

The euro appreciated by 0.47% to 1.23 – touching briefly its highest level since April 2018 – largely due to softer dollar with limited domestic news commanding the direction for the euro.

Calendar release during the week includes: (1) December’s EU Markit Manufacturing PMI expanding to 55.2 versus 53.8 in November.

This marked the strongest reading since May 2018, as new orders rose for the sixth month in a row and new export orders increased markedly to a greater extent than in November; and (2) improving December EU Markit Services PMI, up 46.4 from 41.7 in November (consensus: 47.3).

The pound underperformed under the week in review, weakening by 0.76% to 1.36 as the UK witnessed a surge in infections of a new coronavirus variant, as well as the government reimposing new restrictions in an effort to curb the spread.

On Monday, the UK began its Oxford-AstraZeneca vaccine programme after deploying the Pfizer-BioNTech shots in December.

Taking cues from the improving global risk appetite, the safe-haven yen depreciated by 0.59% to 103.8 – a level last seen on Dec 28 2020.

Economic data release for the week includes: (1) December’s Japan Markit manufacturing PMI rising 50.0 from 49.0 in November – the highest since April 2019; (2) December’s Japan Markit services PMI slipping to 47.7 from 47.8 in November; and (3) December Consumer Confidence down to 31.8 vs. 33.7 in November.

The majority of Asia ex-Japan currencies weakened against the dollar, led by the Thai baht which slid 0.33% to 30.08.

This was followed by the Indian rupee, slipping 0.28% to 73.32. In contrast, the Indonesian rupiah strengthened 1% during the week to close at 13,910.

Meanwhile, the ringgit closed lower, down 0.43% to 4.04 (CY2020: +2.0%) following fears of rising domestic Covid-19 infections that could mean a potential reimposition of the movement control order (MCO) that could be targeted as opposed to nationwide.

Nevertheless, the manufacturing Purchasing Managers’ Index (PMI) rose to a four-month high at 49.1 in December from 48.4 in November, suggesting an improvement in the manufacturing sector.

US Treasuries (UST) Market

The US Treasury curve steepen with the front end rising 2bps to 11bps while the back end climbed higher by 16bps to 19bps. The closely watched UST10-year added 17bps to 1.08% – hitting the highest level since March 2020 as the Democrats took control of both the Senate and House for the opening of Joe Biden presidency.

The Democratic sweep has cleared the path for an additional stimulus package that has fuelled expectations of potentially stronger growth and inflation. As at noon Friday, the 2-, 5-, 10- and 30-year benchmark UST yields stood at 0.14%, 0.47%, 1.10% and 1.88%, respectively.

Malaysian Bond Market

The local bond market started the year with a rollercoaster ride as the early week gains were erased after daily confirmed Covid-19 cases topped 3,000 on Thursday – further stoking fears of a fresh round of the MCO.

The Malaysia Government Securities (MGS) curve shifted higher by 2bps to 11bps while the 10-year MGS added 6.0bps to 2.640%. Mid-week, focus shifted to the strong receptions of the first tender of the year, the 7Y MGS ‘06/28 worth RM3.5bil.

The auction garnered decent demands with a BTC of 2.02x averaging at 2.449%. As at noon Friday, the 3-, 5-, 7-, 10-, 15-, 20- and 30-year benchmark MGS yields settled at 1.87%, 2.13%, 2.47%, 2.65%, 3.32%, 3.50% and 3.89%, respectively.

The govvies segment activities surged 186% w/w to RM22.5bil from last week’s RM7.9bil. The MGS segment accelerated by 197% to RM12.9bil from RM4.3bil in the previous week. The GII was seen jumping by 180% to RM9.2bil from RM3.3bil. Meanwhile, the short-term bill’s (MTB/MITB) trading expanded 80% to RM450mil from RM250mil.

Secondary trade volume advanced around 117% to RM2.7bil from RM1.2bil. The credit spread narrowed by 21bps on average across the curve.

The shorter end rose 17.7bps on average while both the belly and longer ends of the curve eased averagely by 51.4bps and 23.7bps, respectively.

Ringgit Interest Rate Swap (IRS) Market

The IRS was seen rising 0.3–2.8bps from the front until the back end of the curve. The three-month KLIBOR stood at 1.94%. Elsewhere, the 5-year CDS fell 14.8% w/w to 36.80bps.

Malaysian Equity Market

During the week (Dec 31 2020 - Jan 7 2021), the FBM KLCI dropped 24.26 pts or 1.49% to 1,602.95 pts, bucking the uptrend in both the MSCI Emerging Markets Index (+2.40%) and the Dow Jones Industrial Average (+1.42%). Global markets were fuelled by stimulus optimism in the US.

This followed the Democrats’ victories in the Georgia Senate runoff elections, enabling the party to take control of both the Senate and House of Representatives in the Congress.

Specifically, financial stocks were boosted by the steepening of the yield curve. Investors also took comfort in the certification of Biden’s presidential election victory by the Congress (overshadowed by a breach on the Capitol by Trump’s supporters).

On the other hand, the local market was weighed down by selling pressure following the lifting of the regulated short selling ban and lingering political concerns.

Foreign investors remained net sellers in the local market, unloading RM848.6mil worth of Malaysian equities, while YTD (2021) net outflow stood at RM772.5mil.

Local institutional and retail investors continued to dominate the market with a participation rate of 44.9% and 36.5% in January 2021 respectively (comparable to 44.8% and 40.5% in December 2020). As foreign investors stayed passive, their participation rate remained low at 18.6% in January 2021 (compared with 14.7% in December 2020).Meanwhile, foreign investors piled into MGS for a seventh straight month with a net inflow of RM1.8bil in November 2020 (vs. RM3.9bil in October). During the first 11 months of 2020, foreign investors were net buyers of MGS with a total net inflow of RM11.1bil.

Equity trading activities eased slightly with the average daily value traded (ADVT) falling to RM4.8bil in January 2021 (vs. RM5.0bil in December 2020), while turnover velocity decreasing to 67.0% in January 2021 (vs. 68.1% in December 2020).

During the week, only one out of 13 sectors in Bursa Malaysia ended in the positive territory. The best performing sector was Plantation (+1.6%) driven by buoyant CPO prices. The worst performing sector was Construction (-6.9%) as the sector’s outlook dimmed following the termination of the Kuala Lumpur–Singapore high-speed rail project.

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

> China CPI (Dec 20) on Jan 10;

> Malaysia IPI (Nov 20) on Jan 11;

> Malaysia manufacturing statistics (Nov 20) on Jan 11;

> US CPI (Dec 20) on Jan 13;

> China trade balance (Dec 20) on Jan 13;

> Eurozone monetary policy statement on Jan 14.

For enquiries, contact: ambank-fx-research@ambankgroup.com, or bond-research@ambankgroup.com

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