Saturday February 11, 2012

Global foreign exchange market

MARKETS focus turned back to the situation in Greece and several major central bank decisions including European Central Bank, Bank of England (BoE) and Royal Bank of Australia (RBA). Global market sentiments were weighed down by worries that Greece might not be able to secure the 130 billion euros bailout package from European Union/International Monetary Fund and would face disorderly default in March.

The euro was soft in general on Greece uncertainties but was lifted after Greece's political leaders finally agreed on a package of austerity measures to propose to its creditors in order to avoid defaulting on its debt next month. The euro made a fresh two month high at 1.3322, supported by the positive developments in Greece.

The US dollar index ended the week 0.52% lower at 78.635. It was a fairly light economic data week for the United States. US jobless claims fell by 15k to 358k last week while IBD/TIPP economic index rose more than expected from 47.5 in January to 49.4 in February. Federal Reserve chairman Bernanke, in his testimony to the Senate Budget Committee, stated that the US economy still had a long way to go before the labour market could be said to be operating normally and particularly troubling is the unusually high level of long-term unemployment. Despite the drop in unemployment rate in January, it remained high and probably will take a few years to reach the 7% level.

BoE announced a further £50bil of asset purchases, taking its quantitative programme to £325bil. The Monetary Policy Committee judged that the weak near-term growth outlook and associated downward pressure from economic slack meant that, without further monetary stimulus, inflation would likely undershoot the 2% target in the medium term. The pound ended not much changed against the greenback during the week. As of writing, the pound/US dollar pair traded 0.07% lower at 1.5810 levels.

The Australian dollar jumped sharply after the RBA unexpected left rates unchanged at 4.25%, in contrast with consensus of a rate cut by 25bps. The decision, in spite of growing uncertainty in the sovereign debt crisis in the eurozone, indicated policymakers' confidence in China's demand and US' economic recovery. Australian dollar/US dollar reached high of 1.0845 this week but settled at 1.0752, 0.21% lower for the week. Safe-haven yen continued to depreciate against the greenback during the week, declining by 1.32% to trade at 77.60 levels.

The US dollar/Asians currencies were mixed for the week as worries about Greece not reaching a deal dominated. The Bloomberg-JPMorgan Asia Dollar index declined 0.19% to 117.57. The ringgit was 0.42% lower to trade at 3.0215 levels.

Two central banks in the region met during the week. Bank Indonesia unexpectedly cut 25bps to 5.75% amid fear over deteriorating global economic prospects and to give support towards domestic growth. The Bank of Korea, meanwhile, decided to keep the key interest rate unchanged at 3.25% for an eight straight month as economic growth slowed.

Malaysia's December exports grew 6.1% year-on-year (y-o-y) to RM60.74bil while imports increased 10.4% (y-o-y) to RM52.43bil, resulted in a surplus trade balance of RM8.31bil. China's inflation rebounded strongly to 4.5% (y-o-y) in January, compared with 4.1% previously. China's PPI inflation declined further to 0.7% (y-o-y) in January, down from 1.7% in December.

Sentiment was moderately higher after Greek leaders agreed on an austerity package ahead of a meeting between EU finance ministers. We expect the Greek debt deal will to continue to dominate the headlines and the market's appetite for the euro. Better economic data out of US could support the Asian currencies somewhat, but with the Greek parliamentary vote set to begin this weekend on the austerity measures, markets are likely to stay cautious and trading could be thin. As such, we expect the US dollar/ringgit to trade within the range of 2.9950 to 3.0450.

US Treasuries (UST) market

At time of writing, UST yields for two-, five-, 10-year traded 2bps to 10bps higher on weekly basis, to close at 0.258%, 0.841% and 2.022% respectively.

Malaysian bond market

On the macro front, Malaysia's industrial production number came in above market expectations with a 3% increase (y-o-y) in December after rising by 2.4% in the prior month as manufacturing and electricity output increased further. December exports printed a 6.1% (y-o-y) gain, coming in slightly higher above market consensus, which expected a 6% growth.

Generally, shorter-tenured local govvies traded largely unchanged from last week's close while those at the longer end were trading noticeably higher in price terms. The three-, seven- and 10-year benchmark Malaysian Government (MGS) securities yields were relatively unchanged at 2.91%, 3.32% and 3.46% respectively at Thursday. The five-, 15- and 20-year yields ended 7 to 10 bps lower at a respective 3.12%, 3.71% and 3.89%. Overall, the MGS/GII secondary market registered a total of RM13.1bil in trades with daily average trading volume doubling to RM6.5bil in the holiday-shortened week to Thursday's close. Meanwhile, issue size for the new 10.5-year MGS was announced at RM4bil worth, with tenders scheduled on Feb 13.

Trading activities in the private debt securities (PDS) space gathered momentum, recording RM955mil in trades. Daily average trading volume was higher at RM477mil compared with RM245mil in the prior week. The AA segment contributed the lion's share of trades for a change with a respectable 69%, leading the 28% contribution seen from the GG/AAA segment. The balance came from the single-A segment.

In the GG/AAA segment, AAA-rated PLUS bonds maturing in 2020-2028 traded in the range of 3.89%-4.48%, generated a combined RM85mil in trades. Buying activity in the AA segment was skewed towards financial institution names which accounted for about 63% of AA-rated PDS trades. Notable trades were seen on Public Bank 08/17, which was dealt 4 bps lower to reach 4.12% with trading volume of RM157mil. CIMB Bank was also actively traded with RM130mil of the 08/16s done at an unchanged 4.05%.

Ringgit interest rate swap (IRS) market

Higher regional rates lifted the ringgit IRS higher in this short week. Daily average volumes have increased substantially with market players mostly back to their desks. The rates ended the week around 3~7 bps higher.

● For enquiries, contact: fx-research@ambankgroup.com or bond-research@ambankgroup.com

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Saturday February 11, 2012

Global foreign exchange market