Global Forex Market

Global Forex Market

THE US dollar depreciated during the week in review owing to:

(1) improving risk appetite following higher optimism on President Joe Biden’s government to push through Congress a nearly US$2 trillion stimulus package to bolster economic recovery; and

(2) better-than-expected economic data which includes:

(i) December Housing Starts growing 5.8% month-on-month (m-o-m) from 3.1% m-o-m in November;

(ii) initial jobless claims easing to 900,000 as of Jan 16 from 926,000 in the week prior (consensus: 910,000); and

(iii) Philadelphia Fed Manufacturing Index accelerating to 26.5 from 9.1 in December (consensus: 12.0).

President Joe Biden was sworn in as the 46th US President on Wednesday and is expected to take measures to curb the country’s oil industry, including re-entering the Paris climate accord, cancelling a permit for the Keystone XL crude oil pipeline and pausing arctic drilling.

By the end of the week, the US dollar closed lower by 0.71% week-on-week (w-o-w) to 90.13. Crude oil posted gains with Brent rising by 1.81% w-o-w to US$56.10 per barrel, still hovering at the highest level since February 2020. The gains were boosted by:

(1) optimism over the US government stimulus likely to lift global economic growth;

(2) the upbeat sentiment on demand in China, the world’s top crude oil importer; and

(3) expectations that the Biden administration will deliver massive stimulus spending that will lift fuel demand and enact policies that will tighten crude supply.

The euro strengthened by 0.68% to 1.216 – the strongest in 10 days as the European Central Bank (ECB) surprised the market with a slight upbeat tone.

The ECB judged that the downside risks to the economic outlook are less severe. Also, the ECB acknowledged it may not have to spend the entire Pandemic Emergency Purchase Programme (which it topped up by €500bil last month). Nevertheless, the ECB held its deposit facility at -0.50%.

Separately, the European countries struggled to contain the contagion of the coronavirus amid worries that a new variant could lead to more stringent lockdowns and more economic pain.

The pound appreciated 1.05% to 1.373, also the strongest in over one week. The gains were primarily supported by the weaker US dollar as well as healthy global risk appetite.

However, the gains were capped due to heightened concerns about the slower pace of the rollout of vaccines in the UK, which may hobble economic recovery.

Meanwhile, key data release for the week includes December’s inflation rate which came in higher than expected at 0.6% y-o-y versus 0.3% y-o-y in November (consensus: 0.5% y-o-y).

The safe-haven yen rose 0.34% to 103.5 after the Bank of Japan (BoJ) left its main policy unchanged at -0.10%. The BoJ also left its yield curve control programme and the quantitative easing programme intact.

While the BoJ took a gloomier view of the current state of the economy as record cases of Covid-19 kept a state of emergency in place, it concluded that weaker growth at the end of the current fiscal year and a government stimulus package announced last month will result in a stronger rebound in the year starting April.

The majority of Asia ex-Japan currencies appreciated during the week, led by the Singapore dollar, up by 0.52% to 1.323, followed by the Thai baht gaining 0.46% to 29.93. On the local scene, the ringgit closed higher by 0.20% to 4.029 after:

(1) Prime Minister Tan Sri Muhyiddin Yassin announced the Permai assistance package worth of RM15bil, adding that the government will realign some of the existing allocations to fund this package while practising prudent spending; and

(2) the first Bank Negara monetary policy committee (MPC) meeting for this year, where the central bank left the overnight policy rate (OPR) unchanged at 1.75%; while extending the 2% statutory reserve requirement (SRR) flexibility, which was due to end on May 31,2021, to Dec 31,2022.

US Treasuries (UST) Market

Amid a short working week, the US Treasury curve steepened, cheering President Biden’s inauguration. The UST curve eased 0.5–1.4 basis points (bps) on the front end of the curve but rose 2.2–3.6bps on the back end of the curve.

Treasury Secretary-designate Janet Yellen was reported to be considering funding debt with longer-term issuance, and pushing the need for Biden’s US$1.9 trillion stimulus plan to pass.

The closely watched 10-year UST added 2.2bps to 1.11% under the week in review. As at noon yesterday, the 2-, 5-, 10- and 30-year benchmark UST yields stood at 0.13%, 0.45%, 1.11% and 1.88%, respectively.

Malaysian Bond Market

The local bond market experienced an eventful week as market focused on:

(1) Muhyiddin announcing the Permai’s additional assistance package worth of RM15bil; and

(2) the first Bank Negara MPC meeting for this year where it left the OPR unchanged at 1.75%; while extending the 2% SRR flexibility to Dec 31,2022.

By the end of the week, the Malaysian Government Securities (MGS) curve bear steepened 1.5–14bps from the front end to the back end the curve, except for the 20Y tenure which closed lower by 3.5bps to 3.540%. The market shifted its focus to the reopening auction of the 10Y MGS ‘04/31, which garnered a strong bid-to-cover (BTC) of 1.992 times on the back of a total size amounting to RM4bil with no private placement.

The auction closed with a high/low of 2.730% and 2.684%, while averaging at 2.714%. As at noon yesterday, the 3-, 5-, 7-, 10-, 15-, 20- and 30-year benchmark MGS yields settled at 1.85%, 2.06%, 2.46%, 2.71%, 3.32%, 3.55% and 3.94%, respectively.

The govvies segment activities rose 34% w-o-w to RM25.6bil from last week’s RM19bil. The MGS segment accelerated by 34% to RM15.2bil from RM11.3bil in the previous week. The Government Investment Issue (GII) was seen jumping by 40% to RM9.8bil from RM7bil. Meanwhile, the short-term bill’s (MTB/MITB) trading slipped 31% to RM441mil from RM640mil.

Secondary trade volume shaved off around 13% to RM1.4bil from RM1.6bil. The credit spread narrowed by 20.1bps on average across the curve. The shorter end rose 19.9bps on average while both the belly and longer ends of the curve eased averagely by 17.9bps and 40.5bps, respectively.

Ringgit Interest Rate Swap (IRS) Market

The IRS was seen rising 2.1–6.5bps from the front until the back end of the curve. The 3-month Klibor stood at 1.94%. Elsewhere, the 5-year CDS rose 3.5% w-o-w to 40.35bps.

Malaysian Equity Market

During the week (Jan 15-21,2021), the FBM KLCI gave up 40.91 points (pts) or 2.50% to 1,594.80 pts, bucking the uptrend in both the MSCI Emerging Markets Index (+2.58%) and Dow Jones Industrial Average (+0.60%).

Globally, investors rode on a strong-than-expected China’s fourth quarter 2020 GDP growth of 6.5% (versus the consensus forecast of 6.1%), a tech rally ahead of Apple’s quarterly earnings report, an incident-free inauguration of President Biden and hints of more fiscal spending from US Treasury Secretary-designate Janet Yellen.

Locally, the risk to the economic recovery posed by an extended movement control order (MCO) overshadowed the RM15bil Permai stimulus package. Also, Bank Negara held its OPR at 1.75%.

Foreign investors unloaded RM194.8mil worth of Malaysian equities during the week, pushing the year-to-date cumulative net outflow to RM209.5mil.

Local institutional and retail investors continued to dominate the market with a participation rate of 45.2% and 38.6% in January 2021 respectively (comparable to 44.8% and 40.5% in December 2020). Foreign investors remained passive with a participation rate of 16.2% in January 2021 (compared with 14.7% in December 2020).

Meanwhile, foreign investors piled into MGS for an eighth straight month with a net inflow of RM2.4bil in December 2020 (versus RM1.8bil in November). Foreign investors were net buyers of MGS with a total net inflow of RM13.4bil in 2020.

Equity trading activities held up with an average daily value traded (ADVT) of RM5bil in January 2021, unchanged from December 2020. Similarly, turnover velocity stayed relatively flat at 68.9% in January 2021 (versus 68.1% in December 2020).

During the week, three out of 13 sectors in Bursa Malaysia ended in the positive territory. The best performing sector was Technology (+4.2%) on sustained interest on stay-at-home plays following the announcement of the MCO extension. The worst performing sector was Energy (-3.7%) as investors took profits after the recent rally.

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

> US Fed interest rate decision on Jan 27;

> Malaysia PPI (December 2020) on Jan 27;

> US GDP (Q4) on Jan 28;

> Malaysia trade statistics (Dec 2020) on Jan 29;

> China manufacturing PMI (January) on Jan 30.

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