Treasury Pulse and the Global Forex Market

Treasury Pulse : Global Forex Market

Global Forex Market

DESPITE the Fed chair’s speech on Wednesday stating that the robust US economy could lead to faster rate hikes this year, the Dollar Index barely moved, closing at 101.15. The S&P 500 index fell 0.5% led by declines in financials, banks and healthcare sectors. It was a favourable week for US data as consumer prices and producer prices both inched up to 0.3% m/m in December while retail sales improved to 0.6% m/m. Industrial production had also expanded to 0.8% m/m supported by all major industry groups. Brent oil price fell by 2.3%, closing at US$54.16 on Friday following American Petroleum Institute (API) report showing huge gasoline build and US shale oil.

Euro rose against the dollar to close at 1.066 amid the weaker dollar causing the Euro Stoxx 50 to fall by -1.0%. On the macro front, annual inflation rate in the eurozone rose to 1.1%, its fastest pace since September 2013. At the latest monetary policy meeting, ECB had decided to continue with its current monetary policy with Draghi citing still subdued inflation environment.

UK Prime Minister Theresa May delivered her speech on Tuesday confirming a hard Brexit away from the European Union and strengthening of the euro following Draghi’s press conference had led to pound sterling to appreciate against US dollar by 1.2% to 1.233. Due to the stronger pound, the FTSE 100 dropped by 1.8%. Total unemployment fell by 52,000 in the September-November period while the unemployment rate was steady at its 11-year low at 4.8% for the third consecutive month in December. Inflation jumped to its highest in 2½ years to 1.6% y/y in December.

Nikkei 225 dropped by -1.1% following the weaker yen at 114.9. Industrial production rose 1.5% m/m in November, suggesting Japan’s economy is slowly improving. All Asia ex-Japan currencies appreciated against the US dollar except Hong Kong dollar, Philippine peso, and the rupiah. The baht gained +0.34% as global investors bought 17.2 billion baht in local bonds, the biggest since November 2016.

Meanwhile, the Singapore dollar gained +0.41% this week on the back of a widening trade surplus in December, ending its 2-month streak of narrowing trade surplus. The Monetary Authority of Singapore believes that trade should benefit from mild electronics upturn. Yuan rose by +0.45% as its one-week money market rate eased due to persistent central bank cash injections. Besides that, Indonesia maintained its 7-day reverse repo rate at 4.75% and sees continuing growth recovery. Global funds were net buyers of 3.1 trillion rupiah in Indonesia bonds.

Ringgit rose +0.46% during the week and reached a high of 4.4443 on Wednesday. Bank Negara left the overnight policy rate unchanged at 3.00%. Financial Markets Committee said exchange rate volatility declined thus reducing forex transaction costs and increasing exports proceeds conversion. The economy continues to be supported by domestic demand, with exports complementing.

US Treasuries (UST) Market

Longer-dated treasury yields increased to higher levels this week since Jan 3 due to Fed chair Yellen comments on expecting a few rate hikes per year up to end-2019. On Friday’s 11:00am pricing, the 2-, 5- and 10-year UST traded at 1.21%, 1.94% and 2.46%.

Malaysian Bond Market

Trading fell by almost half in volume compared to previous week as the market awaited May’s speech about Brexit on Tuesday. However, trading interest improved towards end of the week. Benchmark local govvies registered a much lighter trading volume of RM7.2bil compared to preceding week’s trading volume of RM13.2bil which was significantly lower. On Friday’s 11:00am pricing, the 3-, 5-, 7-, 10-, 15-, 20- and 30-year benchmark MGS yields settled at a respective 3.34%, 3.72%, 4.00%, 4.26%, 4.63%, 4.77% and 4.81%.

The secondary corporate bonds market also recorded a slightly higher volume in trading activities compared to last week. Week-to-date, total trading volume stood at RM2.24bil compared to last week’s total of RM2.23bil. About 57% of the trading volume was contributed by the GG/AAA, 42% by the AA segment and the remaining 1% by the A segment. In the GG/AAA segment, notable trades included tranches of DanaInfra Nasional 2022-2029 which recorded a trading volume of RM295mil. Investors also showed much buying interest on Telekom tranches of 2024 where yields closed mixed between 4.43%-4.48 with RM100mil changed hands. Prasarana Malaysia maturing ‘02/23 and ‘08/23 saw yields traded lower to close at the range of 4.20%-4.21%with RM90 million changed hands. Elsewhere in the AA segment, trading was relatively light. Notable trades included tranches Hong Leong bank maturing in ’06/2019 saw yields closing mixed between 4.62%-4.72% with a collective trading volume of RM201mil. Tranches of Jimah Energy Ventures 2020-2021 saw yields closing mixed between 4.61%-4.77% with RM76mil traded.

Ringgit IRS Market

As at Friday’s 11:00am pricing, interest rate swap curve fell slightly due to lower level of 1-month US dollar/ringgit volatility. Elsewhere, the 3-month Klibor increased slightly to 3.42%.

Source: The Star