Treasyry Pulse – Forex, treasury market, ringgit, equity market
Global Forex Market
While the Dollar Index (DXY) was muted at the start of the week, firmer offers were seen towards the end of the week, closing at a two-week high of 90.51 or up 0.53 % on weekdays (wow). The dollar’s overall strength was boosted by the release of inflation-related economic data and the well-received Beige Book report.
Rapid vaccination rates and relaxed social distancing measures began to show their effect as consumer spending accelerated, especially in the leisure travel and restaurant categories, as noted in the Beige Book. On the supply side, in general, companies see a “moderate” increase in economic activity.
Manufacturers have noted an increase in production over the past two months due to a lack of labor and raw materials, delaying the delivery of their products to customers. The same problem also arose in the construction sector.
In addition, strong economic data for May released yesterday added further to the strengthening of the dollar. Most indicators showed stronger real data than expected, for example, the ISM Manufacturing PMI for May was 61.2 vs. 60.9 (consensus of 60.7 for the previous period), ADP Employment shows that US workers have hired about 978,000 workers against a forecast of 600,000 workers (654,000 consensus) and jobless claims have fallen quite significantly to 385,000 from a forecast of 400,000 (405,000 consensus). While Markit Services PMI posted an actual of 70.4 versus a forecast of 70.1 (consensus 64.7).
The euro, which represents 57.6% of the dollar index, depreciated 0.53% to 1.213, marking the weakest in 11 days. Despite better publication of economic data in the Eurozone, it was overshadowed by robust economic data from the United States.
Investors partially took over before the European Central Bank (ECB) on June 10. Data released during the week includes the EU’s Markit manufacturing PMI for May, up 63.1 from 62.9 in April (consensus 62.8), EU flash inflation in May has increased by 2.0% year-on-year (year-on-year vs. 1.6% year-on-year in April (consensus: 1.9%), the highest since October 2018; the EU unemployment rate in April increased slightly down to 8.0% from 8.1% in March (consensus: 8.1%); and in May EU Markit Services PMI, up 55.2 from 50.5 in April.
The pound has been volatile, hitting a three-year high at 1.42 before relinquishing gains to 1.41 as dollar strength resurfaces. On the weekend, the pound lost 0.58% to 1.41. On a positive note, Prime Minister Johnson said the economy was on track to end restrictions on June 21.
Meanwhile, the final reading of the UK Manufacturing PMI publication was still decent. It was revised slightly down to 65.6 in May from a preliminary level of 66.1, but still indicated record growth in factory activity as production growth strengthened and new orders increased. at the fastest pace in survey history for nearly three decades. The UK’s Markit Services PMI for May, meanwhile, jumped to 62.9 from 61.0 in April (consensus: 61.8). The yen weakened 0.40% to 110.29, the weakest in eight weeks on the rise in US Treasury yields amid the extension of the state of emergency until the end of May which affected the prefectures of Aichi, Fukuoka, Tokyo, Osaka, Hyogo and Kyoto.
Jibun Bank’s final manufacturing PMI fell to 53.0 in May 2021 from 53.6 in April, while the services PMI also shows the same pattern where the final figure for May contracted deeper to 46. , 5 against 49.5 in April.
The majority of the currencies of Asia excluding Japan (AxJ) weakened against the dollar, with the rupee being the region’s underperformance. It fell 0.66% 72.91 due to soaring crude oil prices.
The yuan depreciated 0.55% to 6.40, the weakest since May 25 as Chinese policymakers announced an increase in foreign exchange reserve requirements, from 5% to 7%, as of June 15 . This will make it more costly for banks to hold foreign currency and the move signals the reluctance of the PBoC to have a strong appreciation of the CNY.
The ringgit led the performance of the AxJ space, appreciating 0.21% to 4.124, marking the strongest in three weeks. Firmer ringgit offerings were supported by higher crude oil prices coupled with the presence of foreign purchases in the local financial market, which helped allay concerns over the two-week nationwide lockdown since June 1. .
US Treasury Bill Market
In the middle of a short week of work in the US market in conjunction with Memorial Day, the US Treasury curve has risen 1 to 4 basis points. UST’s closely watched 10-year yields rose 3.1bp to 1.625%, the highest in two weeks. The slight selling pressure came after a spate of stronger-than-expected inflation-related data releases, fueling doubts over the Fed’s transient “inflation” narrative. This week, investors continue to see growing debates about a cut with the Fed. Harker said it was time to start thinking about the schedule to reduce the bond purchase program by US $ 120 billion (RM 495 billion) per month. Friday midday, the benchmark UST yields at 2, 5, 10 and 30 years were 0.16%, 0.84%, 1.63% and 2.30% respectively.
Malaysian bond market
Activity in the local bond market resumed with tight price action amid growing calls for a further reduction in the OPR as the economy stalled. Nevertheless, the government, as planned, implemented a stimulus package (Pemerkasa Plus) worth RM 40 billion, which includes a direct tax injection of RM 5 billion.
Finance Minister Tengku Datuk Seri Zafrul Abdul Aziz subsequently stressed that the lockdown could have an impact on growth and the budget deficit target; which could be revised soon.
Separately, Moody’s reaffirmed Malaysia’s credit profile with an A3 rating level and expects GDP to rise slightly above 5% after considering nationwide foreclosure and potential expansion .
At the end of the week, the AMS curve relaxed 3 to 8 bps with the exception of the 10-year AMS which rose 2.8 bps to 3.23%. At noon on Friday, the benchmark 3, 5, 7, 10, 15, 20 and 30 year AMS returns stood at 2.25%, 2.53%, 2.96%, 3.25%, 3 , 94%, 4.14% and 4.31%, respectively.
Ringgit Interest Rate Swap Market (IRS)
The IRS curve fell 2-6 basis points across the curve while the 3-month Klibor stood at 1.94%. Elsewhere, five-year CDS rose 0.2% wow to 45.9bp.
Malaysian equity market
During the week (May 28 to June 3), the KLCI FBM fell 3.33 points or 0.21% to 1,590.57 points, following the flattening of the Dow Jones Industrial Average (+0.33 %) but underperforming the MSCI Emerging Markets index (+ 2.16%). Globally, investors have assessed the prospect of a reduction in its bond buying program by the Fed amid strong economic data and mounting inflationary pressures.
Geopolitical tensions resulting from Russia’s decision to withdraw the dollar from its National Welfare Fund and Biden’s plan to expand the US ban on investing in Chinese companies related to military and surveillance technology were also used to monitor investors.
Foreign investors bought RM210.6 million in Malaysian stocks during the week, but this failed to reverse the year-to-date net outflows which still stood at 3. 0 billion RM.
Local institutional and retail investors continued to dominate the market with participation rates of 46.5% and 40.3% respectively in June (up from 42.4% and 38.1% in May respectively). Foreign investors remained passive with a participation rate of 13.2% in June (against 19.5% in May).
Meanwhile, foreign investors invested in Malaysia Government Securities (MGS) for the 12th consecutive month with a net inflow of RM 4.7 billion in April 2021 (up from RM 1.5 billion in March 2021).
Equity trading activity improved with an average daily traded value of RM 4.3 billion in June (up from RM 3.9 billion in May). Likewise, the rotation speed increased to 59.0% in June (vs. 54.2% in May).
During the week, seven of Bursa Malaysia’s 13 sectors finished in positive territory. The best performing sector was construction (+ 2.4%) as investors were reassured that construction of critical public infrastructure projects was allowed to continue during the lockdown. The worst performing sector was energy (-2.5%), weighed down by the massive sale of a key oil and gas counter on audit issues.
Over the coming week, investors will be watching closely:> euro zone GDP (Q1) on June 8;
> Labor statistics in Malaysia (April) on June 9;
> ECB interest rate decision on June 10;
> US CPI (May) June 10;
> Malaysia IPI (April) June 11.