Saturday June 30, 2012

Treasury Pulse

Global foreign exchange market

THIS week the global FX market was calm in contrast to last week. It mainly range bound as most players stayed sidelined for the European Council meeting to bring forth a comprehensive solution to the European crisis.

The only upbeat of this monotonous week came from the US housing data, which beat expectations.

New US home sales rose at an annual rate of 369,000 in May, +7.6%, month-on-month and a two-year high.

US durables goods orders that merely met expectations also provided some impetus for risk-taking nibbling. In Europe, earlier in the week, the focus was on the German IFO economic institute's closely watched business climate index, which fell to 105.3 points in June from 106.9 points in May.

In line with the sentiment, German inflation eased to 2% in June from 2.2% in May, the lowest since January 2011. Adding to the gloom of the eurozone,

Chancellor Angela Merkel hardened her resistance to euro-area debt sharing to resolve the region's financial crisis. Separately, Cyprus became the fifth euro area country to request bailout funds overnight.

In Asia, China's June flash business sentiment survey index eased to 51.9 from 54.4 in May but the Conference Board leading index rose in May by 1.1% m/m from 0.9% in April.

Closer to home, Singapore's industrial production rebounded to 6.6% y/y in May boosted by pharmaceuticals output. Also following global inflation trend, Singapore's May CPI inflation eased to 5.0% y/y from 5.4% in April. Housing inflation slowed 2.9ppts to 8.2%, while transport inflation rose 1.7ppt to 9.2%. Prices rose 0.2% in the month. Hong Kong's May trade growth surprised on the upside with exports rising 5.2% y/y, lower than April's 5.6% but beating the market consensus of 0.5%.

Shipments to China and Japan increased 9.5% and 18.2%, respectively.

Imports increased by 4.6%. The trade deficit narrowed to HK$35.6bil.

At this stage of the market, the US data appears to have some room to go before bottoming out.

The European gloominess has become the norm and Asia's positive outlook moderating.

Expect Europe's political landscape to continue driving the FX market and the EU summit to spring a surprise.

The euro was at the point of writing, US$1.26 to the euro, up 0.77% for the week.

The ringgit also firmed in tandem by 0.14% to 3.1860 to the US dollar.

US Treasuries (UST) Market

At time of writing, US Treasuries yields remain on biddish tone with 2-, 5- and 10-year levels at 0.30%, 0.69% and 1.57% respectively.

Malaysian bond market

With the absence of macro data on the local front, focus was seen towards further developments in the eurozone.

Meanwhile reopening of the seven-year GII garnered strong demand with a bid-to-cover of 2.68 times at an average yield of 3.498%. For next week, we expect all eyes to be focusing at local trade data scheduled for release next Wednesday followed by MPC meeting on Thursday.

We expect Bank Negara to maintain the current OPR level unchanged at 3.00% when policymakers meet next week on the view current interest rates remain supportive of domestic growth.

In the MGS/GII market, RM12.6bil trades were transacted with a daily average trading volume of RM3.1bil versus last week's average of RM2.3bil.

During the week, most of the MGS benchmarks across maturity spectrum were traded between 1-5bps lower than previous week.

As of Thursday's close, the three-year, five-year, 10-year, 15-year and 20-year benchmark ended the day 3.05%, 3.20%, 3.46%, 3.77% and 3.99% respectively.

Meanwhile, the seven-year benchmark yields closed unchanged from the previous week at 3.37%.

In the PDS market, a total of RM2.1bil worth of trades done with 60% coming from the GG/AAA segment, 37% from the AA segment and remaining balance from the single-A segment.

For the week, daily average trade volume was RM529mil, easing from the RM771mil average seen in the previous week.

In the GG/AAA segment, active trading interest was seen in PASB bonds maturing 2014-2019 with RM153mil worth of trades done.

Trading interest was also seen in the PLUS bonds maturing 2017-2028 with a total of RM150mil worth of trades transacted. Meanwhile, Aman Sukuk bonds maturing 2018-2022 garnered RM140mil of trading volume. In the AA-segment, a slew of Hong Leong Bank bonds maturing 2014-2019 reported a collective RM85mil trades changing hands.

This was followed by Tanjung Bin Energy bonds that garnered RM70mil trades and Sarawak Energy bond with RM65mil trades done.

Within the single-A segment, trading interest was focused on the banking sector bonds. Bank Muamalat bonds garnered RM58mil in trading volume with yields easing 2 bps to 4.23%.

MYR interest rate swap (IRS) market

MYR IRS rates fell toward the end of the week as sentiment turned bearish after Spain bond yields climbed significantly with no clear resolution in sight from European leaders.

Volume remains to be below average as market await announcement from EU summit. MYR IRS rates ended the week five ~ eight bps lower.

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

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Saturday June 30, 2012

Treasury Pulse