A CLASSICAL risk-off move emerged throughout the week with equities, the British pound (GBP) and products selling-off; while the US dollar and other safe house currencies, gold and volatility rebounded due to the complexity and global unpredictability.
Sterling touched the brand-new low of 1.2798 versus the United States dollar as 3 of the UK’s biggest property funds have frozen nearly US$ 12bil of possessions as they don’t have sufficient money to instantly repay investors. In its bi-annual monetary stability report, the Bank of England (BoE) alerted that the existing outlook for UK monetary stability is grim due to Brexit. BoE governor Carney hinted that the central bank would release more stimulus later on in the summertime.
As a result of the safe house flights and in reaction to much better United States information, the US dollar enhanced versus broad currencies, despite Fed’s mention of issue about the labor market. The non-manufacturing ISM surprised to the benefit at 56.5 points with encouraging underlying information revealed.
Trade deficit for the month of May which can be found in wider than expected due to the increase in imports likewise recommended that the domestic need in US continued to firm and aid to support the US dollar. Good numbers in both ADP work report and initial jobless insurance claims likewise sustained purchasing interest in US dollar.
The euro followed the path of sterling to end lower against the United States dollar as market players are still digesting the impact of Brexit on the currency bloc. The European Central Bank’s (ECB) minutes for June conference which held before Brexit said that if UK voted Leave, there might be significant, although difficult to expect, negative spillovers to the currency bloc via a variety of channels, consisting of trade and the financial markets.
Softer information flows also added to the selloff of euro versus United States dollar. Both German factory orders and industrial production can be found in softer than market expectations, while the EurozoneSentix financier self-confidence saw a sharp drop to 1.7 level in July compared with 9.9 in June.
Japanese yen increased on the risk-off belief and continued to head to the 100 pivot level in spite of the remark from Satoshi Fujii, a consultant to Japanese Prime Minister Shinzo Abe, that the government should include 20 trillion yen in fiscal stimulus this year to achieve the 2% inflation target in fiscal 2017.
Fujii’s comments indicated that after this Sunday’s upper-house election, the federal government wants to increase spending, in spite of Japan bring the world’s biggest financial obligation concern.
Asian currencies primarily traded on a bearish tone versus US dollar in risk-off belief. Leading the pack were Korean won, ringgit and yuan. Selling in regional equities has actually contributed to the weakening of Korean won against the US dollar.
It is rumored that China’s central bank is more likely to fine-tune monetary policy in the second half of the year with targeted reserve ratio requirement cuts or perhaps across-the-board cuts if required resulting in the weakening of the yuan.
The ringgit diminished against the United States dollar as petroleum rates was up to near two-month low as EIA inventories declined lower than anticipated. Tight liquidity environment and lower trading days in combination with Hari Raya AidilFitri vacations likewise caused the weakening of the currency.
US Treasuries yield edged lower on the long-end of the curve in the danger off trading. UK remained in quagmire following the Brexit. On Friday s 11 am rates, the 2-, 5- and 10-year UST traded at 0.59%, 0.96% and 1.38%.
Trading activities in local govvies were lighter compared to recently as we are entering into a celebration mood of Hari Raya Aidilfitri which marks completion of the fasting month. On the other hand, most regional govvies rally tracing the motion in US Treasuries.
Regional govvies saw RM4.7 bil trading volume, equating into day-to-day average of RM2.3 bil. This was lower compared to preceding week day-to-day average of RM8bil. On Friday’s 11:00 am prices, the 3-, 5-, 7-, 10-, 15-, 20- and 30-year standard MGS yields settled at a respective 3.00%, 3.25%, 3.53%, 3.69%, 4.05%, 4.25% and 4.58%.
In the secondary PDS market, we saw a lower volume in trading activities this week compared with recently. Overall trading volume for the week stood at RM857mil, averaging RM429mil everyday compared with recently s average of RM1bil. About 71% of the trading volume was contributed by the GG/AAA section and 8% by the AA segment with the staying 21% in the A sector.
Trading activities in the GG/AAA section showed lower trading volume compared with last week. Significant trade included 2018-2020 tranches of Cagamas bonds which saw yields traded lower to close at the range of 3.65%-3.84% with a collective trading volume of RM240mil tape-recorded. Other notable trades also included Aquasar Capital 07/20 and 07/21 which tape-recorded a total trading volume of RM50mil with yields likewise traded lower to settle at 4.23% and 4.32% respectively.
We likewise saw some trading activities concentrating on DanaInfra Nasional 04/21 which likewise saw yield traded lower to close at 3.87% with a cumulative trading volume of RM150mil.
Trading volume showed a decreased in the AA sector compared with previous week. We saw bonds within the energy and infrastructure sector are actively traded during the evaluation period. Significant sell the energy sector included Malakoff Power 12/31 which saw yield traded lower to close at 5.13% with RM10mil altered hands.
We also saw, Jimah East Power 12/32 which yield also traded lower to settle at 5.24% with a total trading volume of RM2mil. While in the infrastructure sector, we saw notable trade Anih 11/26 which saw yield traded lower to close 4.74% with RM10mil altered hands.As at Friday’s 11:00 am rates, IRS curve stayed relative stable, while 3-month Klibor stayed at 3.65%.