Global Forex Market

AMID a short working week as the US market celebrated Labour Day Holiday early of the week, the dollar fell by 0.13% to 95.021.

The dollar lost its momentum as market’s focus switched to Europe following growing optimism over the Brexit’s development while the sanguinity on the North American Free Trade Agreement was fading.

Besides, the drag also came from the weaker-than-expected ADP Employment Change, which added 163,000 in August versus 217,000 in July (consensus: 214,000).

However, the dollar managed to cap some losses on the back of August ISM Manufacturing PMI expanding firmly to 61.3 from 58.1 in July, reinforcing the strength of the US economy.

In the commodity space, Brent crude drops 1% to close at US$76.50 per barrel as concerns on trade frictions is spooking fears on global growth outlook, while overshadowing American Petroleum Institute’s announced an estimated decline of 1.2 million barrels in the US inventories, and was later supported by the Energy Information Administration, which reported a decline in 4.302 million barrels in the inventories.

Besides, the risk-off environment in the emerging market (EM) space has partly weighed on crude oil price.

Euro erased loses, up marginally by 0.03% to 1.162 following US dollars’ retreat added with the improving relationship with UK, averting concerns on “hard Brexit”.

However, economic release in the bloc were disappointing following an unexpected fall in Germany’s Factory Order, down by -0.9% month-onmonth (m-o-m) in July from -3.9% m-o-m in June due to subdued foreign demand partly due to trade war impact.

Besides, the EU Markit Manufacturing PMI eased slightly to 54.6 in August from 55.1 in July, sparking concern on growth momentum in the bloc.

The pound experienced a see-saw ride but managed to end on a stronger note following growing optimism over Brexit’s development as Germany is prepared to “accept a less detailed agreement on UK’s economic and trade outlook ties with the EU in a bid to get a Brexit deal done”.

At the end of the week, the pound gained 0.47% to 1.293.

The demand for safe haven returns as the yen appreciated by 0.29% following the rout in emerging market. However, the yen’s gain was capped as Bank of Japan indicated its satisfaction with the current yield range.

Data release were rather unexciting, with July household spending declined by 1.1% m-o-m from a gain of 2.9% m-o-m in June and July’s average cash earnings came in lower than expected to 1.5% year-on-year (y-o-y) compared to 3.3% y-o-y in June (consensus: 2.4%).

Asia ex-Japan currencies depreciated against the US dollar due to spillover effect from the tanking Argentinian peso and Turkish Lira.

The risk-averse environment triggered a sell-off indiscriminately in the EM space, as investors are forced to cut losses. Leading the pack, came from South Korean won, down 1.2% to close at 1124 amid the monetary policy committee kept interest rate unchanged at 1.5%.

Besides, the Indian rupee lost 1.1% to record at an all-time low at 72 due to its twin-deficit environment and high inflationary pressure.

The ringgit weakened by 0.38% to 4.145 partly due to the comments by S&P, weaker sentiment in the EM space, and a “fairly cautious” tone by Bank Negara in the latest monetary policy committee (MPC) meeting although it left the policy rate unchanged at 3.25%, which fell within expectation.

Meanwhile, foreign selling pressure intensified in the local bourse, amounting RM209.7mil, while the FBM KLCI edged lower by 0.83% to 1,799 points.

However, economic release were rather positive, which includes August Manufacturing PMI walked into the expansionary region at 51.2 from July’s 49.0 (threshold: 50); July Balance of Trade stood at RM8.3bil from RM6bil; export accelerated to 9.4% y-o-y in July from 7.6% y-o-y; and international reserves rose slightly higher to US$104.4bil as of Aug 30 from US$104.2bil as of Aug 15.

US Treasuries (UST) Market

The UST was seen rising after August ISM Manufacturing PMI expanding firmly to 61.3 from 58.1 in July as the survey result reinforced the strength of the US economy while fuelling expectations of two more rate hikes in 2018; 25 basis points (bps) each in September and December.

However, the yields were seen tapering off after weaker-than-expected ADP Employment Change, which added 163,000 in August versus 217,000 in July (consensus: 214,000).

As at yesterday, the 2-, 5-, and 10-year benchmark UST yields stood at 2.64%, 2.74% and 2.87%, respectively.

Malaysian Bond Market

The local bond market kicked off the new month with a bloodbath due to the rout in the EM space. The sell- off was triggered after Argentina’s currency tanked, which led to its central bank to raise policy rate to 60% and fuelled concerns for its government to default on its debt.

At the same time, Bank Negara, as expected, kept interest rate unchanged at 3.25% but was seen very cautious on its MPC speech.

At yesterday’s noon pricing, the 3-, 5-, 7-, 10-, 15-, 20- and 30-year benchmark Malaysian Government Securities (MGS) yields settled at 3.62%, 3.85%, 4.08%, 4.02%, 4.47%, 4.72% and 4.92%, respectively.

Flows for local govvies improved significantly to RM15.9bil compared to last week’s RM10.1bil.

Meanwhile, trading activities at the corporate bond space tapered; with RM1.8bil traded versus last week’s RM2.7bil.

Some 44% of the trading volume was from the GG/AAA segment, with 55% from the AA segment and the remaining 2% from the A segment.

In the GG/AAA segment, strong interest were garnerned in Cagamas’ 2018-2020, which saw yields easing 14 bps to 30 bps to 3.47%-4.06% on the back of RM145mil changing hands.

Also, 2020–2033 Danga Capital Bhd tranche recorded a trade amounting RM123mil, with yields easing 1-11 bps.

Some interest was seen in 20242037 anaInfra Nasional Bhd, which recorded a trading volume of RM83mil. Lastly ‘12/20 and ‘03/29 Rantau Abang Capital Bhd saw better prices on the back of RM55mil traded, with yields easing to 4.05-4.56% levels.

Meanwhile, in the AA segment, we noticed interest in energy sector, with Sarawak Energy Sdn Bhd’s 2029-2036 leading the pack, posted a trade volume of RM125mil, with yields fell 10-32 bps.

Also interest was seen in ‘06/26 and ‘12/31 Jimah East Power Sdn Bhd papers on the back of RM80mil traded. ‘08/19 and ‘08/20 Tanjung Bin Power Sdn Bhd saw firm prices on the back of RM40mil changing hands.

Lastly, some interest was garnered from the banking sector, with ‘12/18 AmBank (M) Bhd recording RM60mil with yields easing by 12 bps to 4.35%.

Ringgit Interest Rate Swap Market

As at yesterday’s noon pricing, the 3-month Klibor stood at 3.69%. Elsewhere, the 5-year credit default swap was higher over the week by 11.6% at 102.5.