The Star: Treasury Pulse

The Star

Global Foreign Exchange Market

THE dollar was lower by 0.49% to 96.5 over the week as volatilities in the market disrupted the supposedly-jolly season.

It started the week on the wrong foot after the market reacted badly over Treasury Secretary Steven Mnuchin’s action to reassure jittery investors on the back of a US government shutdown over the weekend on the border wall dispute. Moreover, President Trump’s constant attacks on Fed chairman Jerome Powell has worsened the situation, especially after news of discussions to remove Powell broke out. After the market reopened on Wednesday, market sentiments eased off from reports on strong holiday sales although the consumer confidence sang a different tune as it posted its lowest level in five months, down from 136.4 to 128.1 in December.

Furthermore, reports about Trump planning to ban ZTE and Huawei in 2019 has done nothing but piled pressure on the fragile US-China relationship. Due to the partial shutdown in the government, selected economics releases such as new home sales have been postponed until further notice while initial jobless claims eased to 216,000 last week from 217,000 in the previous session.

The oil market continued its journey to the south as it is poised to decline for the third consecutive week. Brent plunged 0.97% to US$53.30/bbl as fears of a supply glut and slowdown in demand growth lingered in the commodity space.

Despite the announced output cut from Opec and Russia, which would be effective January 2019, investors remained doubtful on whether the cut of 1.2 million barrels/day was enough to bring the supply and demand back to normal since US shale production continued to swell. On the data front, the API reported a surprise built-up of 6.9 million barrels while the market expected a drawdown of 2.9 million barrels.

The euro gained 0.51% to 1.15 against a weaker greenback despite a relatively quiet week since the market closed for Christmas and Boxing Day. The Netherlands posted lower GDP growth in the third quarter, easing from 3.1% in the prior quarter to 2.4% y-o-y. The ECB released its monthly economics bulletin in which it foresees the global economy slowing down in 2019 then stabilising while inflationary pressures remain globally.

Despite criticisms on its decision to end the 2.6 trillion bond-buying programme, the ECB reaffirmed its confidence that core prices would continue to rise. The pound weakened slightly by 0.01% to 1.26, weighed down by issues over the Brexit deal. As the parliament set to vote on the deals Jan 14, PM Theresa May finds herself lacked supporters on her deal since both Labour and DUP are set to go against it.

While she is working on gaining support from Northern Ireland on the issues, business leaders have expressed their intensified fears of no-deal Brexit as the Institute of Directors’ (IoD) business confidence sank to its lowest point in over 18 months. Moreover, business investment deteriorated to 1.8% y-o-y in the third quarter from a 0.2% increment in the previous quarter.

On the other hand, the yen extended its gains by 0.19% to 110.8 as demand for the safe-haven currency increased due to heightening uncertainties in the macro factors.

On the data front, there was a divergence in the leading and coincident indices as the leading index stayed flat at 99.6 in October while the coincident index for October rose to 104.9 from 104.5 in September.

Also, November’s unemployment rate edged up to 2.5% from 2.4% in the prior month with the job-to-applicant ratio inching up to 1.63 in November. Although the industrial production contracted less than expected at 1.1% y-o-y in November from a 2.9% expansion in October, November’s retail sales were slower at 1.4% y-o-y from 3.6% in the prior session.

The majority of the Asian ex-Japan currencies appreciated against the weakening greenback. The Chinese yuan rose the most among the Asian currencies that we are tracking, up 0.58% to 6.866 partly underpinned by the pledge from its central bank to keep the currency stable.

On the other hand, the Indian rupee was the worst performing currency, softening 0.26% to 70.355. Meanwhile, the Thai baht strengthened by 0.34% to 32.53 despite the widened trade deficit in November from US$0.28bil to US$1.18bil due to the contraction in exports to 0.95% y-o-y from 8.7% in the prior month. Furthermore, November’s industrial production eased to 0.98% from 4.08% while the unemployment rate was unchanged at 1%.

The ringgit gained 0.34% to 4.16 against the weaker dollar despite the plunges in oil prices. The ringgit’s strength was partly supported by positive data releases as both the leading index and coincident index in October showed improvement to 1.2% and 1.0% m/m from -0.8% and -0.7% in September, respectively. The leading index signalled that Malaysia’s economy is likely to grow in February to April 2019 while both volume index of retail trade and real contribution to EPF attributed to the turnaround of the coincident index.

US Treasuries (UST) Market

The political turmoil in the White House and dimming global outlook took a toll on the US economy, reflected in the market’s fluctuations throughout the week.

It drove investors into safer assets which lower the yields curve by an average 3bps. Resultantly, the 10-year UST eased to the 2.77% levels while the 10/2 spread widened to 21bps and the 5/2 spread turned to the positive territory of 5bps. As at Friday, the 2-, 5- and 10-year benchmark UST yields stood at 2.58%, 2.62% and 2.77% respectively.

Malaysian Bond Market

The local bonds market was rather quiet as investors were mostly away for Christmas holidays. The overall benchmark yields ended little changed on the back of thin trading. Total volume fell 75% to RM2.7bil from RM11.0bil last week with the MGS and GII segments down 78% and 65% to RM1.5bil and RM1.2bil respectively. As at Friday afternoon, the 3-, 5-, 7-, 10-, 15-, 20- and 30-year benchmark MGS yield closed at 3.63%, 3.79%, 4.00%, 4.09%, 4.48%, 4.67% and 4.90% respectively.

In tandem with the local govvies, trading activities in secondary corporate bonds slowed down 27% to RM1.4bil versus last week’s RM1.9bil. Some 43.0% of trade volume came from the GG/AAA segment while 50.6% were attributed to AA-rated papers and the remaining 6.4% from the A segment.

In the GG/AAA segment, interest was seen in DanaInfra Nasional Bhd ‘2022-2041 tranches which saw yields closing between 3.98% and 4.99% on the back of RM335mil trade volume. Meanwhile, Perbadanan Tabung Pendidikan Tinggi Nasional’s 07/26 papers saw yields easing 2.8bps to 4.38% with RM90mil changing hands. Moreover, Prasarana Malaysia Bhd’s 11/28 medium-term notes saw yields settle at 4.41% with RM30mil traded.

On the AA-rated space, flows were dominated by energy names with Sarawak Energy Bhd’s 2024-2036 notes closing firmer with yields between 4.48% and 5.02% and volume of RM200mil. Edra Energy Sdn Bhd ‘2026-2037 tranches on the other hand garnered RM117mil flows with yields ending in the range of 5.56% to 6.12%. Lastly, Celcom Networks Sdn Bhd’s 2019-2027 IMTNs closed between 4.05% and 4.72% on the back of RM70mil.

MYR Interest Rate Swap (IRS) Market

As at Friday’s noon pricing, the three-month Klibor stood at 3.69%. Elsewhere, the five-year CDS rose 1.3% to 110.0.