Global Forex Market

THE US dollar weakened by 0.24% to 96.810 as risk-on sentiment was spurred early in the week following the US-China trade truce.

Despite both parties agreeing to negotiate over a 90-day window to address the trade imbalance, the 10% import tariffs on US$200bil Chinese goods will kick off starting January 2019.

Anyhow, risk appetite halted due to the inversion on the front-end of the Treasury curve with 5/2 and 5/3 Treasury yield inverting, spooking fears on a possible recession.

Besides, the arrest of Huawei chief financial officer complicated the prospect of positive trade deal, pushing the market back into the sea of red.

As such, the 10-year Treasury was seen falling below the 2.90% handle from 2.97% early in the week.

Meanwhile, on the data front, November manufacturing activities improved to 59.3 points from 57.7 points in October while the market prediction was 57.6.

But jobless claims added 231,000 (consensus: 225,000) and ADP employment change was disappointing as the hiring pace in the private sector slowed down to 179,000 workers in November from 225,000 in October.

In the commodity space, crude oil price surged on expectations of the best positive outcome from G20 summit but the gain diminished on a supply glut concern.

At the same time, the American Petroleum Institute reported an increase in crude inventories by 5.36 million barrels during the last week of November.

Besides, pressure is building up on Opec+ when they delayed the production cut to 2019 while Qatar, the largest natural gas producer, decided to leave the cartel starting from 2019. By the end of the week, Brent had fallen by 2.64% to US$60.1 per barrel.

The euro strengthened by 0.18% to 1.137 largely on the back of weaker dollar. Besides, the currency was seen higher after the EU Commission sought to use the euro in international payments and as a reserve currency.

On the data front, economic releases were rather mixed with the Producer Price Index (PPI) and retail sales month-on-month (m-o-m) beating the consensus reading in October but manufacturing activities were lacklustre in November due to increased concerns of trade future and regional political worries.

The Brexit headline has been running the show lately, with almost each good indicator of progress being upset by another bad news. With the deadline approaching, noise to undo Brexit has started to grow when British Prime Minister Theresa May refused to release the full legal advice on Brexit.

On the other hand, the UK registered a slight uptick in housing prices which grew 1.9% year-on-year (y-o-y) (consensus: 1.7%) and 0.3% m-o-m (consensus: 0.1%) in November.

But ultimately, the market will have a better perspective in Brexit once the House of Commons voted on Dec 11. The sterling edged 0.44% higher against the US dollar by the end of the week.

The safe-haven yen surged by 0.86% to 112.7 as investors flocked to safe-haven assets on the back of fears on an inverted yield curve and the deterioration of the global stock market.

However, economic releases were showing signs of weakness. The global trade war has lowered capital spending in the third quarter (actual: 4.5% y-o-y, consensus: 8.6% y-o-y).

Investment in manufacturing, information and communication and chemical-related products continued to expand in a normalised rate from a spike in the second quarter. Declining investment was seen in the electrical and electronic (E&E) and iron industries.

Trade tension took a toll on manufacturing activities in November (actual: 52.2, previous: 52.9). Making it worse, household spending was still in a declining trend although shrinking in a slower pace during October (actual: -0.3% y-o-y, consensus: 1.4% y-o-y).

Although the inverted yield pulled back some of the gains from the weakening dollar, the majority of Asian ex-Japan currencies cheered along lower crude prices.

The currencies of current account deficit countries such as the Indonesian rupiah and Philippine peso were up 1.94% and 0.95%, respectively.

The Indian rupee gained 0.63% to 70.9; the South Korean won appreciated 0.93% to 1118; while the Singapore dollar and Thai baht rose 0.15% and 0.16% to 1.369 and 32.9, respectively, against the US dollar.

On the other hand, the ringgit gained, hauled by low commodities prices. Despite optimism seen early in the week on expectation of Opec cutting production, ringgit was pushed to the 4.15 level but gains were erased mid-week as the crude oil prices eased following the rout in risk assets.

Meanwhile, the FBM KLCI slipped 0.96% to 1,683.3 but posted a net inflow of RM2.9mil.

Nevertheless, Malaysian exports rose 17.7% y-o-y to a record high RM96.4bil in October, driven by increased shipment in E&E products, refined petroleum goods, natural gas and timber products to Asia trade partners.