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Global Forex MarketTHE dollar closed the week softer, down 0.25% to 90.13 but managed to recover some of its early week losses following Fed chair Powell’s upbeat speech during his two-day Congressional testimony as well as a slew of strong data release, which triggered a selling wave in the US Treasury market.

In summary, Powell said that the central bank was still far away from deciding when to taper its asset purchases and expected economic activity to improve later this year.

Key data release for the week includes initial jobless claims slowing down to 730,000 in the week ending Feb 20 from 841,000 in the week prior (consensus: 838,000), January durable goods order jumping 3.4% month-on-month (m-o-m) from 1.2% m-o-m in December (consensus: 1.1%); and February CB consumer confidence jumping higher to 91.3 from 88.9 in January (consensus: 90).

The crude oil market witnessed a continuous bull momentum with Brent surging 6.31% week-on-week to US$66.88 per barrel, hovering at the highest level since January 2020.

Higher prices were due to reports that the US shale producers are still not rushing to accelerate output at US$60 per barrel and estimation of oil prices likely to advance around US$70 per barrel in the coming months.

Additionally, the Opec+ is due to meet on March 4, scheduled to discuss a modest easing of oil supply curbs from April given a recovery in prices.

The euro appreciated by 0.46% to 1.22, the highest since Jan 12 garnering support from the early week dollar weakness as well as healthy economic data release. Data released during the week includes: EU February economic sentiment rising to 93.4 from 91.5 in January (consensus: 92), the highest reading since March 2020, and EU February consumer inflation expectations climbing to 15.7 from 15.4 in January.

The pound started the week on a strong footing as investors continue to price in a faster reopening of the UK economy following the rapid rollout of the Covid-19 vaccines as well as firmer oil prices.

However, the gains were quickly reversed, down 0.01% w-o-w to 1.40 after the selling in the US Treasury market intensified.

Nevertheless, jobs data were mixed with: January claimant count continuing to decline by 20,000 and December unemployment rate edging up to 5.1% from 5.0% in November.

Amid a short working week, the Japanese yen weakened by 0.72% to 106.2, the highest in four months due to the widening UST-JBG interest rate differential.

Meanwhile, economic data release for the week includes: January retail sales declining 0.5% m-o-m from -0.7% m-o-m in December; and January preliminary industrial production increasing 4.2% m-o-m from -1.0% m-o-m in December.

Asian ex-Japan currencies’ performance was rather mixed against the dollar.

The Taiwanese dollar came in the outperformer, appreciating 0.44% to 27.82, followed by the rupee (0.31% to 72.4), and the yuan (0.04% to 6.46). Meanwhile, the baht came in as the underperformer under the week in review, down 1.06% to 30.30. The ringgit strengthened 0.05% to 4.04, supported by the rising crude oil prices as well as optimism over nationwide vaccine inoculation beginning Feb 24,2021.

Economic data release for the week includes January inflation recording a smaller decline of 0.2% year-on-year (y-o-y) from -1.4% y-o-y in December, exports maintained its positive growth for the fifth month at 6.6% y-o-y in January from 10.8% y-o-y in December while imports expanded for the second month at 1.3% y-o-y in January from 1.6% y/y in December.

US Treasuries (UST) Market

The US Treasury market witnessed a bloodbath with the curve rising 6 bps to 24bps.

The closely watched 10-year UST yield shot up around 18.4 bps to 1.52%, marking its highest in one year. The selling pressure came after a slew of economic data release reinforced US economic recovery acceleration compounded by tepid demand in a seven-year Treasury auction, which overshadowed Powell’s efforts to soothe the market’s concerns over the recent run-up in inflation expectations.

The seven-year note US$62bil auction results were poor after it tailed by 4.2 bps, the most in the auction’s history. The 10-year/two-year spread widened to 135bps – the highest since April 2017 – while the 30Y/5Y spread expanded to 145bps.

As of noon Friday, the 2-, 5-, 10- and 30-year benchmark UST yields stood at 0.15%, 0.78%, 1.48% and 2.25%, respectively.

Malaysian Bond Market

The MGS curve was under selling pressure on Friday – taking the brunt from the selling wave in the US Treasury market on Thursday mid-night.

As at Friday noon, the curve rose 4 bps–11bps while the closely watched 10-year MGS yields jumped 11.6bps to 3.054%, the highest level since April 2020.

Nevertheless, much of the focus this week was on the 7-year GII ‘09/27 reopening auction mid-week.

The auction garnered a strong BTC of 2.196x on the back of a total size amounting to RM3.5bil. It closed with a high/low of 2.824% and 2.792% while averaging at 2.806%.

As at noon Friday, the 3-, 5-, 7-, 10-, 15-, 20- and 30-year benchmark MGS yields settled at 1.93%, 2.31%, 2.80%, 3.05%, 3.79%, 3.99% and 4.27%, respectively.

The govvies segment’s activities declined by 29% w-o-w to RM14.6bil from last week’s RM20.7bil.

The MGS segment fell by 32% to RM8.4bil from RM12.3bil in the previous week. The GII was seen decelerating around 37% to RM5.2bil from RM8.2bil.

Meanwhile, the short-term bill’s (MTB/MITB) trading surged to RM992mil from RM170mil.

Secondary trade volume rose 10% to RM2.1bil from RM1.9bil. The credit spread narrowed by 13bps on average across the curve.

The shorter end rose 13.6bps on average while both the belly and longer end of the curve eased averagely by 44.7bps and 2.6bps, respectively.

Ringgit Interest Rate Swap Market

The IRS was flat on average. The 3-month Klibor stood at 1.94%. Elsewhere, the 5-year CDS rose 1.9% w/w to 38.02bps.

Malaysian Equity Market

During the week (Feb 19–25 2021), the FBM KLCI climbed 5.7 points or 0.36% to 1,581.54 pts, bucking the downtrend in both the MSCI Emerging Markets Index (-2.90%) and the Dow Jones Industrial Average (-0.29%).

Globally, investors took comfort in Powell’s statement during the Senate Banking Committee hearing that price pressures were not a threat and easy monetary policy was likely to stay.

They continued to rotate out of technology names on concerns over their high valuations being untenable amidst a rapid rise in US Treasury yields.

This was cushioned by their increased bets on cyclical sectors, particularly energy and financial, on reflation trade underpinned by the vaccine rollout and fiscal stimulus.

Locally, investors piled into banking stocks while lightening their positions in glove counters for the same reason.

Foreign investors unloaded RM475.4mil worth of Malaysian equities during the week, pushing the year-to-date cumulative net outflow to RM1.6bil.

Local institutional and retail investors continued to dominate the market with a participation rate of 44.8% and 39.6% in February respectively (comparable with 44.9% and 38.1% in January respectively).

Meanwhile, foreign investors piled into Malaysia Government Securities (MGS) for a ninth straight month with a net inflow of RM2.3bil in January 2021 (vs. RM2.4bil in December 2020). This was on the heels of a RM13.4bil net inflow in 2020.

Equity trading activities improved marginally with an average daily value traded (ADVT) of RM5.1bil in February, (vs. RM5.0bil in January). Similarly, turnover velocity rose slightly to 70.5% in February (vs. 70.0% in January).

During the week, nine out of 13 sectors in Bursa Malaysia ended in the positive territory.

The best performing sector was Industrial Products and Services Index (+3.6%), riding on recovery optimism.

The worst performing sector was Healthcare (-7.0%) as investors lightened their positions in glove stocks.

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

> US ISM manufacturing PMI (Feb) on March 1;

> Eurozone CPI (Feb) on March 2;

> Malaysia interest rate decision on March 4;

> Opec+ 14th meeting on March 4;

> US unemployment rate (Feb) on Mar 5.

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