Treasury Pulse – Forex, Treasuries, Malaysian Bonds, Ringgit, Stocks
Global forex market
The dollar weakened 0.27% to 90.61, marking the fourth consecutive week of decline. As a result, the dollar’s year-to-date gains have narrowed to just 0.8% as of April 29, from its peak of 93.30 or 3.2% a month ago. Nonetheless, dollar trade remained volatile during the week, albeit at a modest level.
All eyes were on the FOMC meeting as well as US corporate earnings, with many companies producing stronger-than-expected results. The FOMC meeting ended broadly in line with expectations, with the Fed voting unanimously to keep rates unchanged at a record low 0.00% to 0.25%, while maintaining the current pace and composition bond purchases.
While the Fed acknowledged recent gains in growth and jobs, the central bank maintained a broadly accommodating tone which in turn crippled the dollar’s bullish momentum. During the press conference, Fed Chairman Powell reiterated that the recovery “remains uneven and far from complete” and that “the economy is far from our targets and will likely take time to make progress. substantial ”.
At this point, the Fed’s forecasts suggest that a rate hike in the United States will be visible if: the labor market reaches the maximum number of jobs; inflation reaches 2%; and inflation is on track to moderately exceed 2% for some time.
Apart from that, President Biden proposed a larger government investment, including US $ 1.8 trillion for additional spending on child care, education and paid time off, partly offset by taxes. higher for the rich.
Meanwhile, the release of US economic data showed first quarter GDP growing 6.4% year-over-year (previous: 4.3%; consensus: 6.1%) supported by Covid vaccines and fiscal stimulus. He showed that a “virtuous cycle has clearly germinated, with plenty of room for growth in the quarters to come. Consumers are bursting with cash and Covid fatigue has put them in the mood to spend. In addition, first-time unemployment claims fell to 553,000 as of April 24 from 566,000 a week earlier (consensus: 549,000). This is the lowest level of claims since the pandemic last year.
The euro continued to benefit from the weak dollar, falling 0.20% to 1.21, hovering around its two-month high. Positively, the German Minister of the Economy revised his GDP forecast upwards to 3.5% in 2021 (previously: 3.0%) following expectations of a busy industrial economy and demand for products Germans abroad. Expectations are also based on the belief that the virus-induced lockdown will be eased in the second quarter as Germany’s vaccination schedule accelerates. As of April 28, the number of people vaccinated per capita stood at 22.9%.
The pound emerged as the outperformer in the G4 space, appreciating 0.49% to 1.39, the highest in a week, benefiting from the well-managed battle of Covid-19. The yen came under strong selling pressure, depreciating 0.97% to 108.9, the weakest in nearly two weeks. Nonetheless, the Bank of Japan (BoJ) monetary meeting, as expected, was a non-event, with policymakers keeping interest rates unchanged at -0.10% while the target of controlling the curve 10-year JGB rates were stable at around 0%.
Although the BoJ has raised its GDP forecast to 4.0% in 2021 (previous: 3.9%) and 2.4% in 2022 (previous: 1.8%), policymakers have revised the forecast downwards. inflation at 0.0% -0.2% in 2021 (previous: 0.3% -0.5%). While GDP expectations are higher, the BoJ has warned that the outlook is “very unclear” and the very slow rollout of the vaccine could mean that Japan is significantly behind in the race to reopen. Note that Japan began its Golden Week vacation on April 29.
Asia ex-Japan currencies strengthened against the dollar with the exception of the Hong Kong dollar, which fell 0.05% to 7.76. Despite the ongoing health crisis in India, the rupee became the outperforming rupee, appreciating 1.30% to 74.0 as the seven-day average daily vaccination rate rose to 2.5 million doses on the 28th. April versus 2.0 million on April 24. also seen in the Taiwan dollar (0.92% at 27.84), the South Korean won (0.84% at 1,108), the baht (0.67% at 31.19) and the rupee (0.57 % to 14,450).
In the middle of a short work week, the ringgit posted a decent 0.11% gain to 4.10, briefly touching its two-month high at 4.097. Firming commodity prices, improving global trade and a weak dollar kept the offers for the ringgit alive.
Nonetheless, investors were blown away by the March trade data. Exports and imports hit all-time highs when the series began in 1984, amounting to RM 104.9 billion (31.0% yoy) and RM 80.8 billion (19.2% yoy), respectively. in GA) in March. As a result, the trade surplus in March widened to RM24.2 billion, the highest since July 2019, recording double-digit growth of 96.1% year-on-year.
U.S. Treasury Bill Market
The US Treasury curve steepened, with the two-year note falling 0.5bp while the backside rose 3-7bp. The closely watched 10-year UST climbed 6.8 bps to 1.63%, hitting an almost three-week high, while 10-year / 2-year UST spreads widened to 147 bps. While the accommodating tone of the FOMC helped remove entry rates, the sell-back flow continued as investors acknowledged the Fed’s decision to let the economy run as hot as possible. . In addition, data on first-quarter U.S. GDP and early jobless claims have added to evidence that the United States is recovering quickly from the pandemic, prompting investors to ease exposures in longer-term papers. As of noon Friday, the benchmark UST 2, 5, 10 and 30 year yields were 0.16%, 0.85%, 1.64% and 2.31%, respectively.
Malaysian bond market
Risk appetite and liquidity were absent from the local bond market ahead of the Fed meeting as well as a local holiday where many were also scheduled to take off on Friday for an extended weekend.
In limited volume, some traders reduced their positions, which put upward pressure on the AMS curve. As at the end of Wednesday, the bear in the AMS curve has steepened, with the front-end increasing 0.2-1.5 bps while the belly at the back-end climbing 5-10 bps.
Yields on the 10-year AMS climbed 9.6 basis points to 3.177%, marking a nearly a month high. Friday noon the 3, 5, 7, 10, 15, 20 and 30-year AMS benchmark yields were 2.38%, 2.60%, 3.01%, 3.18%, 3.86 %, 4.15% and 4.34%, respectively.
Ringgit Interest Rate Swap Market
The IRS curve rose 1-5 basis points across the curve while the 3-month KLIBOR stood at 1.94%. Elsewhere, the 5-year CDS fell 2.2% p / p to 45.6 bps.
Malaysian stock market
During the week (23-29 April), the FBM KLCI index edged up 0.77 points or 0.05% to 1,608.50 points, underperforming both the MSCI Emerging Markets index ( + 1.72%) and the Dow Jones Industrial Average (+ 0.72%). Globally, investors have responded positively to bullish earnings reports from tech giants Apple, Alphabet, Amazon and Facebook and stronger than expected first-quarter U.S. GDP growth of 6.4% (per compared to the consensus forecast of 6.1%).
Investors also appreciated that the Fed kept its target interest rate at 0.25% and kept its accommodative stance, while acknowledging that the pace of the recovery in the United States had improved. At the local level, investors continued to reduce their positions in recovery-themed stocks and garnered glove names amid a resurgence of Covid-19 infections around the world.
Foreign investors offloaded RM225.9 million worth of Malaysian stocks during the week, pushing the cumulative one-year net outflow to RM2.7 billion. Local institutional and retail investors continued to dominate the market with participation rates of 44.9% and 39.8% in April respectively (comparable to 44.1% and 39.4% in March respectively). Foreign investors remained passive with a participation rate of 15.3% in April (against 16.6% in March).
Foreign investors piled on Malaysian government securities (MGS) for the 11th consecutive month with a net inflow of RM 1.5 billion in March 2021 (up from RM 3.5 billion in February 2021). Equity trading activity calmed down with an average daily traded value (ADVT) of RM4 billion in April (up from RM5 billion in March). Likewise, the rotational speed slowed to 54.0% in April (compared to 67.8% in March).
During the week, 5 of Bursa Malaysia’s 13 sectors finished in positive territory. The best performing sector was healthcare (+ 2.2%) supported by a sustained rebound in gloves stocks. The worst performing sector was telecommunications and media (-1.5%) with weak profits.
In the coming week, investors will be watching closely:> Caixin’s manufacturing PMI in China (April) on May 3;
> Decision on Malaysian interest rates on May 6;
> Malaysia IPI (March) May 6;
> Labor statistics in Malaysia (March) on May 7;
> US unemployment rate (April) May 7.