Global Forex Market
INVESTORS’ risk appetite in global markets was mixed during the week amid month/quarter-end flows. Investors were monitoring a slew of tier-1 US data release to assess the direction of US interest rates and inflation expectations.
The dollar dominated the foreign exchange market due to benign risk sentiment as well as better-than-expected domestic data release. By the end of the week, the dollar has risen to a fresh 15-month high to 92.60 or up 0.81%.
The release of June ADP employment change showed private businesses in the US hired 692, 000 workers in June from 886, 000 in May, higher than consensus of 600, 000.
Hiring activities were concentrated in the service-providing sector as businesses begin to reopen to full capacity across the country.
Meanwhile, initial jobless claims, a measure of people seeking unemployment benefit fell to 411, 000 as of June 19 from 418, 000 in the week prior.
Separately, President Joe Biden sealed the US$580bil (RM2.3 trillion) bipartisan infrastructure deal. According to researchers at the Wharton School, they estimate that the new infrastructure spending would increase domestic output by 0.1% and reduce US debt by 0.9% by 2050.
The euro depreciated by 0.71% to 1.19, tracking the stronger dollar as well as growing concerns over rising Covid-19 cases in the bloc, fuelled by the Delta variant.
Nonetheless, data release were broadly positive but it did little to help the euro to regain momentum. The IHS Markit Eurozone Manufacturing PMI final number jumped to a record high of 63.4 in June from 63.1 in May. Besides, the Eurozone unemployment rate fell to 7.9% in May 2021, the lowest level since May last year (April: 8.1%).
The pound was unable to shake-off the dollar’s strength, weakening by 0.81% to 1.38, the weakest in 10 weeks. Besides, the pound suffered after a dovish-tilt by Bank of England governor Andrew Bailey’s comment, citing it was “important not to over-react to temporarily strong growth and inflation”, a warning that premature tightening could undermine the recovery.
The Japanese yen was unable to benefit from its safe-haven status, shedding 0.70% to 111.5, the weakest in 14 months. Data developments were still positively tilted with June’s consumer confidence expanding to 37.4 from 34.1 in May while the second quarter of 2021 Tankan Large Manufacturers Index rose to 14 points from five points previously.
The peso came in as the worst performer during the week, down 1.32% to 49.1, the weakest in 11 months.
Meanwhile, the baht hit a fresh 13-month low, down 0.82% to 32.1 while the rupiah fell to a more than two-month low, down 0.54% to 14, 503, weighed down by a surge in local coronavirus cases amid a stronger dollar.
The ringgit posted the smallest loss in the region, sliding by 0.05% to 4.16. The sentiment in the ringgit market remained cautious as the government announced the enhanced MCO (EMCO) in several parts of Selangor and KL to curb surging new infections.
US Treasuries (UST)
Market Buying in the US Treasury market sustained amid month-end and quarter-end positioning. Nonetheless, there were some concerns over the surge in the Delta Covid-19 variant despite the high vaccination rate, further stoking investors’ interest to load up on safety assets. By the end of the week, the US Treasury bull-flattened with the front end easing 1–3bps while the back end fell 6–8bps. The closely watched 10-year yield fell 6.6bps to 1.458%, the lowest in two weeks. At the time of writing, investors were awaiting US June labour market data, scheduled to be released later yesterday. As of Friday, the 2-, 5-, 10- and 30-year benchmark UST yields stood at 0.25%, 0.89%, 1.46%, and 2.06%, respectively.
Malaysian Bond Market
Buying spree was also seen in the local debt market with the MGS curve easing 1–7bps with notable interest on the front end as renewed bets of a dovish Bank Negara during its upcoming Monetary Policy Committee after the government announced the ECMO in several parts of Selangor and KL.
Nonetheless, the bulk of the focus was on the RM150bil National People’s Well-Being and Economic Recovery Package (Pemulih) stimulus.
The week saw the 20-year MGS auction with an issue size of RM4.0bil, inclusive of RM2.0bil private placement. It closed with a rather strong BTC of 2.651x and averaged 4.254% with strong demand seen from real money investors both local and foreign. As at Friday, the 3-, 5-, 7-, 10-, 15-, 20- and 30-year benchmark MGS yields settled at 2.23%, 2.53%, 2.99%, 3.27%, 3.81%, 4.18% and 4.27%, respectively
Ringgit Interest Rate Swap (IRS) Market
The IRS curve fell 3–6bps across the curve while the 3-month Klibor stood at 1.94%. Elsewhere, the 5-year CDS fell 1.0% w/w to 43.4bps.
Malaysian Equity Market
During the week (June 25–July 1), the FBM KLCI dropped 21.48 points or 1.38% to 1, 534.23 points, underperforming both the Dow Jones Industrial Average (+1.28%) and the MSCI Emerging Markets Index (+0.06%).
Globally, investors turned risk-on as they believed growth should edge out a more hawkish Fed, although they became cautious on emerging markets on a less benign US rate outlook. Meanwhile, the local market was weighed down by a sharp plunge in the June 2021 IHS Markit Malaysia Manufacturing Purchasing Managers’ Index (PMI), the EMCO in several parts of Klang Valley from today until July 16. Foreign investors unloaded RM471.3mil worth of Malaysian equities during the week, pushing the year-to-date net outflow to RM4.3bil.
Local institutional and retail investors continued to dominate the market with a participation rate of 46.3% and 38.6% in June respectively (compared to 44.2% and 38.1% in May respectively). Foreign investors remained passive with a participation rate of 15.2% in June (compared with 17.8% in May).
Meanwhile, foreign investors piled into Malaysia Government Securities (MGS) for the 13th straight month with a net inflow of RM2.4bil in May 2021 (vs. RM4.7bil in April 2021). Equity trading activities improved with an average daily value traded (ADVT) of RM3.5bil in July (vs RM3.3bil in June). Similarly, turnover velocity rose to 49.2% in July (vs 46.0% in June).
During the week, all sectors in Bursa Malaysia fell into the negative territory. The best performing sector was Industrial Products & Services (-0.3%) as the manufacturing sector had not been hit as severely as compared with other industries during the current lockdown. The worst performing sector was Construction (-3.4%) as investors weighed potential new sflow on the political front.In the coming week, investors will keep a close eye on:> Eurozone Markit PMI (June) on July 5;
> US Markit PMI (June) on July 6;
> Malaysia interest rate decision on July 8;
> Malaysia labour force statistics on July 8;
For enquiries, contact ambank-fx-research@ambankgroup.com or bond-research@ambankgroup.com