Global Forex Mar­ket

The Star Malaysia - StarBiz - - Treasury Pulse -

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.

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