Global Forex Market
THE week was all about US presidential election. Americans have chosen Donald Trump as their new commander-in-chief, a result which sent shockwaves around the world. Apart from Trump’s victory, the outcome in the Congress remained unchanged. The Republicans retained the majority in both chambers.
There were powerful risk-off moves across global markets as the result was announced. However, the risk-off moves were reversed as Trump’s conciliatory victory speech calmed market participants from the shocking result. While digesting the election result, investors shifted their focus to Trump’s election policies of greater fiscal expansion and less corporate regulation, which is expected to spur economic growth.
The US dollar index (DXY) swung within a wide range of 95.9 to 99.1 with an appreciation bias against major currencies. Dow Jones Industry Average climbed 5.1% to a record high of 18,807.88 and US Treasury sell-off across the curve (2Y UST +13.1bps, 10Y UST +37.4bps).
In the commodity space, copper posted its biggest back-to-back surge in three years, gaining alongside lead, zinc, tin and aluminum. Emerging market equities, debt and currencies plunged on speculation that higher US interest rates would dampen the appeal of riskier emerging-market securities.
Euro against US dollar depreciated by 2.2% as investors turned their focus to political risks with the Italian referendum and Austrian presidential election on Dec 4. Investors are concerned that the global trend of populism after Brexit and Trump’s victory would result in more uncertainties in the currency bloc over the referendum and election.
Japanese yen weakened against US dollar by 3% to close above the 200-day moving average of 106.5 for the first time this year due to the reverse in risk-off moves and the surge in the spread of US Treasury (UST) yields relative to Japanese government bond (JGB) yields.
The widening yield spread between UST and JGB (yield spread of 10-year UST over JGB at 212 basis points) helped to increase the demand of Japanese investors for dollar-denominated assets.
Asian currencies with the exception of Indian rupee closed sharply lower against US dollar in response to the election result. Prospect of rising inflation following Trump’s victory caused the sell-off in global bond markets, resulting in the bond-related outflows from the region.
China’s yuan slipped against US dollar to a six-year low of 6.814 over concerns for China’s trade relationship with a more protectionist US, and this also dampened the risk-sentiment across the region. Top losers were Indonesia rupiah which depreciated by 2.2%, followed by Singapore dollar (-1.9%) and ringgit.
Ringgit declined 1.8% to around 4.276 against US dollar due to the surge in Malaysia’s 5-year credit default swap or CDS (+12.6 points to 139.1) and the sharp increase in 1-month US dollar/ringgit volatility (+129.3 basis points to 8.99%). Sell-off in both local equity and bond markets also contributed to the weakening of ringgit against US dollar.
Week-to-date, net foreign selling in local equity amounted to RM109.5mil. Depreciation of yuan against US dollar and the weakening in offshore ringgit by 8.3% to 4.564 against US dollar also resulted in the depreciation bias of ringgit against US dollar.
US Treasury yield curve shifted higher by 13-37 basis points across the curve as investors were betting the rise in inflation rate under Trump’s expansionary fiscal policy. At yesterday’s 11:00am pricing, the 2-, 5- and 10-year UST were traded at 0.92%, 1.56% and 2.15% respectively.
M’sian Bond Market
Benchmark local govvies saw yields shifted higher by 8-37 basis points across the curve due to the sell-off in global bond markets on rising inflation expectation in US.
Benchmark local govvies registered a trading volume of RM10.5bil, which was lower compared to the preceding week’s trading volume of RM12.2bil. At yesterday’s 11:00am pricing, the 3-, 5-, 7-, 10-, 15-, 20- and 30-year benchmark MGS yields settled at a respective 3.09%, 3.40%, 3.62%, 3.79%, 4.43%, 4.44% and 4.68%.
The secondary corporate bond market also recorded a lower volume in trading activities compared to last week. Week-to-date, total trading volume stood at RM1.8bil compared to last week’s total of RM3.3bil. About 47% of the trading volume was contributed by the GG/AAA and the remaining 53% by the AA segment.
In the GG/AAA segment, notable trades included 2020-2036 tranches of Prasarana bonds, which recorded a collective trading volume of RM165mil and saw yields ended at the range of 3.76%-4.67%. Pengurusan Air SPV bonds maturing 2023-2026 saw yields closed 1-10 basis points higher at the range of 4.05%-4.16% with RM113mil changed hands. We also saw some trading interest garnered at 2017-2028 tranches of Cagamas bonds, where yields closed mixed at 3.44%-4.40% with a collective trading volume of RM90mil.
Elsewhere in the AA segment, bonds within toll-road sector were actively traded. Notable trade included Bright Focus ‘01/25 and ‘01/26 which garnered a collective trading volume of RM120mil with yields remained unchanged at 4.58% and 4.63%.
Ringgit IRS Market
As at yesterday’s 11:00am pricing, interest rate swap (IRS) curve shifted higher by 9-34 basis points across the curve in response to the sell-off in global bond markets and the surge in US dollar/ringgit volatility while the 3-month Klibor remained stable at 3.40%.
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