Global Forex Market

THE US dollar eased 0.08% to 96.978, largely underpinned by improved risk sentiment following US-China trade optimism, added with a sharp contraction in December’s retail sales, recording a decline by 1.2% month-on-month (m-o-m) from +0.2% m-o-m in November (consensus: 0.2% m-o-m).

Sales fell across the board except motor vehicles NS part dealers (+1% m-o-m from 0.7% m-o-m) and building material (+0.3% m-o-m from -1.5% m-o-m) in December. However, the dollar was seen paring some losses after US core inflation grew 2.2% year-on-year (y-o-y), same as in the month prior, signalling a tightening stance from the Fed. Meanwhile, headline inflation eased to 1.6% y-o-y from 1.9% y-o-y in December due to the decline in fuel prices.

On a separate note, US lawmakers reached a tentative deal in an effort to avoid another partial government shutdown. President Trump promised to sign the spending bill to avoid another potential shutdown but he also vowed to utilise the defence budget to build his wall by declaring national emergency.

Brent rallied 4.97% to US$64.57, driven by Opec-led supply cuts added with US sanctions on Iran and Venezuela. According to Opec’s latest report, Venezuela’s production in January fell to 1.1 million barrels per day. Meanwhile, the Energy Information Administration reported an increase of 3.633 million barrels in crude inventories by the end of Feb 8.

The euro gained 0.17% to 1.130 as the greenback’s momentum slowed down. However, economic releases for the week were rather disappointing starting with:

(1) industrial production figure for December, reading at -4.2% y-o-y which is the steepest decline since November 2009 (-7% y-o-y) as output fell in all categories;

(2) Germany avoiding recession only by a tiny margin. Its economy expanded 0.02% quarter-on-quarter (q-o-q), or 0.6% y-o-y in the last quarter of 2018 from -0.2% q-o-q or 1.1% y-o-y in the July-September period; and

(3) the second estimation of eurozone GDP posted a 0.2% q-o-q growth in the final quarter of 2018 from 0.2% q-o-q expansion in the third quarter.

The pound was dragged by a slew of negative headlines, falling 1.09% to 1.280 starting with slower-than-expected GDP growth. The economy slowed down to 1.3% y-o-y in the final quarter of 2018 from 1.6% y-o-y in third-quarter 2019.

Besides, Brexit optimism was shortlived after British Prime Minister Theresa May suffered another terrible blow as her strategy against the EU has been rejected the second time by the Commons. At the same time, economic release for the week includes January’s inflation data which fell below the central bank’s target of 2%.

The consumer price index (CPI) rose at a slower pace at 1.8% y-o-y in January from 2.1% y-o-y in December while core CPI remained unchanged at 1.9%.

The yen weakened by 0.09% to 110.5, largely due to rising risk-on sentiment earlier in the week. But the Japanese currency was paring some losses by the end of the week as the dollar’s momentum ebbed. Nonetheless, the economic releases for the week were rather mixed:

(1) January machine tool orders declined a further 18.8% y-o-y from -18.3% y-o-y in December;

(2) January producer price index (PPI) eased to 0.6% y-o-y compared with 1.5% y-o-y in December; and

(3) preliminary GDP estimate rebounded to a 1.4% y-o-y gain in fourth-quarter 2018 from a decline of 2.6% y-o-y in fourth-quarter 2018.

Asia ex-Japan currencies saw mixed performance with the majority depreciating against the greenback save for the Chinese yuan, Indian rupee, Singapore dollar and Thai baht.

The Thai baht came in as the best performer for the week, appreciating 0.36% to 31.3 after the Bank of Thailand governor commented that the strength of the currency was supported by a weaker dollar and a strong current account surplus.

The Chinese yuan strengthened by 0.30% due to trade optimism. Meanwhile, the Philippine peso came was the worst performer, depreciating 0.55% to 52.4 after the dollar regained momentum. The ringgit weakened by 0.05% to 4.075 against the greenback as risk-off sentiment emerged mid-week.

Meanwhile the local bourse stayed flat for the week, closing at 1,689 while recording a net outflow of RM263mil. On the data front, economic releases include:

(1) Fourth-quarter 2018 GDP, which posted an upside surprise, coming in at 4.7% y-o-y from 4.4% y-o-y in third-quarter 2018. Hence, 2018’s full-year growth averaged at 4.7% y-o-y, slower than 2017’s 5.9% y-o-y;

(2) industrial production higher by 3.4% y-o-y in December from 2.6% y-o-y in November;

(3) unemployment rate was unchanged at 3.3% in December; and

(4) December’s retail sales up 12.4% y-o-y versus 12.6% y-o-y in November.

US Treasuries (UST) Market

Market optimism rose following a string of good news – the progress in US-China trade talks and Trump’s willingness to sign the bill in order to avert another government shutdown. It pushed yields higher in the mid-week.

However, the rally was capped due to the unexpected plunge in retail sales amid the declaration of emergency from Trump in order to fund the wall, which pressed the 10-year yield back to 2.65%.

As such, the 10/2 yield spread narrowed to 16.0 basis points (bps) from last week’s 16.9 bps. As at yesterday, the 2-, 5- and 10-year benchmark UST yields stood at 2.50%, 2.47% and 2.65%, respectively.

Malaysian Bond Market

In the local govvies space, the buying spree continued this week. Resultantly, the yield curve flattened as the longer end part of the curve eased 4–5 bps while the shorter end edged up 0.5–1 bps.

Meanwhile, an auction for the new 10-year Malaysian Government Securities (MGS) which will mature in August 2029 was announced and commenced this week. It received a strong bid-to-cover (BTC) ratio of 2.563 times and averaged at 3.885% with an issuance size of RM5bil, including a privately placed RM1bil.

In the meantime, the volume from government issues extended further from RM17.2bil last week to RM25.6bil this week. The interest in Government Investment Issue (GII) was seen higher this week as it doubled to RM10.3bil from RM4.9bil last week.

As at Friday afternoon, the 3-, 5- ,7,10- , 15-, 20- and 30-year benchmark MGS yields settled at 3.55%, 3.71%, 3.83%, 3.94%, 4.24%, 4.46% and 4.71%, respectively

The Markit iBoxx ABF Malaysia Bond Index, an index comprising MGS, GII and GG, returned 0.490% in the week Feb 7-14, 2019 as the index yield dropped from 4.01% to 3.97%.

In the same period, the ABF Malaysia Bond Index Fund, an exchange-traded fund which tracks the index, posted a return of 0.466% in net asset value (NAV) as the fund yield dropped from 4% to 3.95%. Month-to-date, the fund returned 0.719% versus 0.738% posted by the index.

In local govvies segment, the total issuance volume edged up 49.2% to RM25.6bil from RM17.2bil last week. GII surged from RM4.9bil to RM10.3bil while MGS attracted 25% to RM15.3bil from RM12.2bil.

On the other hand, the secondary corporate market rose higher as well as it increased 126.4% to RM2.6bil from RM1.1bil. The GG/AAA segment traded the most as it contributed 54.7% to this week’s sale while the AA and A segments made up 41.7% and 3.6%, respectively.

In the GG/AAA segment, flows were focused on 2024–2049 DanaInfra Nasional Bhd tranches, which saw a total of RM685mil changing hands between 4.040% and 5.050%.

Next, Perbadanan Tabung Pendidikan Tinggi Nasional’s 20232028 Islamic medium-term notes traded RM110mil traded, ranging between 3.913% and 4.220%. This was followed by Prasarana Malaysia Bhd 2023–2029 notes, which closed 3.996%-4.266% on the back of RM105mil.

On the AA-rated front, notable trades included Edra Energy Sdn Bhd’s 2024–2037 tranches, which ranged from 5.403% to 6.280% on a volume of RM430mil. Secondly, 20192022 Imtiaz Sukuk II Bhd’s tranches totalled RM120mil in trades with yields closing between 4.013% and 4.336%.

Lastly, Fortune Premiere Sdn Bhd ’23-25 papers settled at 4.615%4.784% on top of RM70mil.

Ringgit Interest Rate Swap (IRS) Market

As at yesterday’s noon pricing, the 3-month Klibor stood at 3.69%. Elsewhere, the 5-year CDS dropped 5.9% to 75.7.

For enquiries, contact ambank-fx-research@ambankgroup.com or bond-research@ambankgroup.com