Macroeconomics

• US stocks fell and investors flocked to Treasuries as Germany’s plan to impose tighter regulations on the financial market sent the euro even lower. Commodities continued to fall.
• Mixed data raised uncertainties on the property sector recovery in US. Housing starts climbed to the highest level since Oct 2008, but building permit fell by the most since Dec 2008. With the expiry of first-time homebuyer credit in end Apr, the sustainability of demand for property will depend on the recovery strength.
• Over in Europe, ZEW economic sentiment fell at the biggest pace since Lehman’s collapse as debt and currency concerns spooked investors. On a positive note, trade balance showed larger surplus in Mar on higher demand for exports as the weakening euro made its exports cheaper. Inflation in Britain rose by 0.6% and inflation minus food and fuel also inched higher in Apr. However, central bank governor believes that inflation will probably slow to the 2% target within a year given the persistent slack in the economy.
• In Japan, improvement in consumer confidence have yet to be translated into higher spending as dept sales indicator fell last month. Industrial performance is also picking up with machine tool orders gaining 221% YOY. Japan and Singapore are expected to reveal stronger 1Q GDP numbers tomorrow.

Forex

• USD consolidated versus majors yesterday as players took profit from recent rally. However, it climbed higher against majors today as tumbling stocks and sluggish EUR boosted investors demand for US Treasuries. Overnight upbeat US housing starts data also supported USD. Expect USD to extend gains today versus majors following news on Germany’s ban on short-selling for European govvies.
• EUR rebounded against USD yesterday, after reports revealed European inflation accelerated and exports jumped. However, the EUR retreated this morning due to bans by Germany on short-selling for European govvies, signaling concerns that Europe’s debt crisis may become more sporadic. Expect EUR to stay bearish versus USD until clarity sets in.
• GBP retraced higher against USD after reports revealed UK’s inflation accelerated in April. However BOE Governor assured that the surge in prices is deemed temporary, masking slack in the British economy. GBP resumed its trend today, declining against USD as players stay cautious over Britain’s fiscal issues.
• JPY gained against majors including USD supported by safe haven demand this morning. Reports on improved Japanese consumer confidence also added support for JPY. Expect JPY to trail higher against EUR and GBP as both currencies are in bearish mode.
• AUD eased against USD as yesterday’s RBA minutes hinted a potential pause in Aussie rate hike as current level is deemed appropriate. With risk aversion in dominance, expect demand for commodity currencies to ease. Expect AUD to stay soft after it opened lower against USD today.
• MYR rebounded against USD yesterday as players took profit in USD after earlier gains. However, the local unit retreated lower today as news on Germany’s ban on short-selling for European govvies reignited fear again. Expect MYR to consolidate today versus USD.

Fixed Income

• UST advanced, rebounding from Monday’s loss as the euro declined on concerns about slowing economic growth in Europe, bolstering demand for the safety of US government debt. Expect UST to remain well contained with risk aversion bid likely to continue for a longer time due to sovereign debt crises and now regulatory tightening in Europe.
• Back home, MGS held firm with 5-yr note gained for a second day as stock losses prompt investors to favor the relative safety of government debt. Expect MGS to remain steady on strong demand for local govvies with lingering concerns in Europe.
  

Macroeconomics

• An eventful Friday and weekend. Looking at the diverse newsflow, though none so new strictly speaking, can we smell something out of it?
• Though fear was somewhat alleviated, the Greek problems have not been resolved, and sovereign risks were once again heightened with Moody's saying the US and UK have moved "substantially" closer to losing their AAA credit rating as cost of debt service rose.
• At the other end, in the press conference concluding the China National People's Congress, Chinese Premier Wen Jiabao shrugged of calls by the US and other trading partners for a stronger CNY, saying that they "oppose all countries engaging in mutual finger-pointing or taking strong measures to force other nations to appreciate their currencies", a very strong statement we opine. Now, it is up to everyone's interpretation if our Asian brother is giving our western brother a smack on the face; and does this offer more signs of a shift from the "west" to the "east"? Premier Wen further commented that they will "continue to reform the renminbi exchange rate regime and keep the renminbi basically stable at appropriate and balanced level", meaning any revaluation in the CNY will likely be small.
• Back to data, surprised strength in retail sales including ex-auto sales which suggest a sustained consumer sector, shall give the US economy a further lift, and this actually overshadowed the unexpected drop in consumer confidence, where sluggish job market was to be blamed.

Forex

• USD was weaker Friday as investors' worries about Greece's debt crisis eased. Expect USD to start to shed its funding currency status.
• EUR reached its strongest in more than 5 weeks against JPY as speculation of an EU bailout for Greece boosted demand for the single currency. However, we maintain our near term bearish stance on the EUR.
• GBP climbed vs USD on speculation this year's drop was excessive as a report showed house prices rose at the fastest pace in 7 years, mitigating concern about the economy. However, GBP is likely to retain its downward tendencies but BOE minutes may give the currency a temporary lift.
• JPY softened vs its major counterparts as concern Greece would default eased and European and US reports signaled the economic recovery is accelerating. Expect Yen to weaken as appetite for higher yielding assets increases.
• AUD rose to 7-week high as concerns that Greece might default eased, boosting demand for riskier assets. Expect AUD to stay bid.
• MYR to rose to 19-month high on speculation the central bank will normalize interest rates further this year in response to faster economic growth. However, technical pull-back has set in and further consolidation is expected in the near term before any push lower.

Fixed Income

• UST traded flat on Friday as investors were mainly on a wait-and-see strategy. Last Fridy's reports which showed mixed data about the US economy, including unexpected drop in consumer confidence and better than expected retail sales were hardly movers for the UST market. We opined investors were mainly awaiting next week's key event i.e. FOMC rate decision and inflation date, which is expected to have more influence in dictating yield movements. Meanwhile longer dated 30s were seen gaining higher on Friday, carrying over from a successful $13bn 30-year notes auction sale on Thursday. Its yields dipped 4bps lower, settling at 4.627% level.
• Back home, MGS traded firm with yields relatively unchanged, with only the 10s shedding 2bps to reach 4.22% level. Investors were mainly preparing for the influx of RM3.5bn 7.5-year MGS which was auctioned on Friday, serving as the new 7-year benchmark. Demand came in strong, reporting a bid-to cover of 2.24x with an average yield of 4.012%. Trading volume for the other benchmarks came in at RM133m, RM481m and RM125m for the 3s, 5s and 10s respectively.

Macroeconomics

• It was another boring day with most markets moving sideways in the absence of fresh leads. Nonetheless, there were some noises over China's policy tightening, triggered by the faster than expected surge in February CPI, which again was distorted by seasonal factors.
• US initial jobless claims fell slower than expected while trade deficit surprisingly narrowed on the back of slower imports. Imports fell for the first time in 5 months while exports posted its first decline in 9 months on fewer exports of aircraft and autos, giving a dent to the otherwise improving trend.
• Back home, industrial production posted a larger than expected gain of 12.7%YOY in January, spurred by higher output gains across the board in manufacturing, mining and electricity. Monthly momentum also appeared positive, with overall IPI rising for the 2nd month in a row, by 2.9%. This, coupled with rising exports, laid the grounds for substainable rebound in the Malaysian economy in 1Q.
• In a separate release, current account surplus rose 7.9% QOQ to RM27.3bn in 4Q, as higher surplus in the goods account offset shortfall in the services and income account. However, investment inflows remained a concern as evidenced ny the larger outflow of RM17.9bn in the financial account, as a result of larger outflow of FDI aggravated by a smaller inflow of foreign portfolio funds.

Forex

• USD traded mixed against majors as risk aversion continued to dissipate. Expect USD to range trade as the economic docket for the US remains fairly light.
• EUR gained vs USD as the currency took a breather after recent losses. We maintain our near team bearish stance on the EUR.
• GBP climbed vs USD and EUR after UK inflation expectations climbed to the highest since Nov 08, fueling speculation interest rates may rise. GBP is likely to retain its downward tendencies on political and public finance concerns.
• JPY dropped against EUR on speculation BOJ to take more credit-easing steps. Expect JPY to stay bear on strong expectations that BOJ will do more easing.
• AUD was near a 7-week high vs USD and JPY as traders bet accelerating growth will prompt the central bank to increase rates. Expect AUD to stay bid.
• MYR closed higher against USD in anticipation a stronger Chinese Yuan may boost Asian currencies. Expect Ringgit to hover at 3.3000 - 3.3200 levels today.

Fixed Income

• UST traded mixed yesterday, with shorter-dated 2s paring lower while longer-dated 30s gained after demand came in strong for yesterday's $13bn 30-year note auction. Shorter-dated notes were seen trending lower following reports that revealed weekly jobless claims declined. Meanwhile bid-to-cover for the 30-year debt sale registered a sturdy 2.89x, up from 2.36x at previous auction held in February. Strong demand at this week's $74bn debt sale indicated that appetite for safe-haven assets remains strong. For next week, all eyes will be on the FOMC's rate decision meeting. Expect no surprises from the Fed, following its earlier hints and assurance on keeping interest rates low as US job markets remain sluggish.
• Back home, MGS traded sideways, with yields relatively unchanged as players stayed sideline awaiting the upcoming RM3.5bn 7.5-year MGS to be auctioned later today. Only yields of the 10s closed 1bp higher to settle at 4.24%. Trading volume for benchmark govvies came in at RM25m, RM160m, RM277m for the 3s, 5s and 10s respectively. Separately yesterday's upbeat IPI report may again pave the way for further rate normalization by the central bank. For next week, players will be tracking closely upcoming inflation data for directives.

Macroeconomics

• It's not a glamour day that one has hoped for after all. Data flow was less than encouraging accross the globe, with China being the only exception (mind you, it's strong statistics were also distorted by the exceptionally low base last year on fundamental and seasonal reasons). Newsflow was negative as well with Nobel laurete Spence saying the US recovery will take several years. Against this backdrop, equities moved sideways and dollar index lost a little, and commodities were mixed. There was even mild selling on UST.
• On the data front, global confidence slipped for the 2nd month in a row, hit by concern over Greek's deficit woes which may derail the world recovery. US wholesale inventory surprisingly fell, industrial production declined in the UK, Japan 4Q09 GDP grew a tad slower than the preliminary estimate, and the Australian added much fewer than expected jobs. All these suggest sustained recovery doesn't come easy.
• On policy front, RBNZ left its official cash rate unchanged at 2.50% as expected this morning and maintained its stance that its OCR won't be raised before mid-year. BOK also left rates unchanged at record low of 2.0% in a bid to spur investment. While BOT also stayed pat, its rhetoric is becoming more hawkish, saying high possibility of "adjusting rates to a more normal level in the period ahead".

Forex

• USD was mixed in light trading on lack of major US economic reports. Expect USD to trade sideways as investors await today's initial jobless claim report.
• EUR tipped lower against the greenback as Geman trade surplus narrowed more than expected. We maintain our near term bearish stance on the EUR.
• GBP came under further pressure following worse than expected UK industrial and manufacturing production figures. GBP is likely to retain its downward tendencies on political and public finance concerns.
• JPY advanced against EUR amid speculation that Japanese exporters bought the currency before the end of the fiscal year. Expect Yen to stay bid.
• AUD gave back its earlier gains as US stockmarket volatility sent investors out of higher risk assets and into safer plays. Expect AUD to rise against USD following its positive employment data.
• MYR closed at a new 18-month high against USD as rosy exports data from China pared demand for the greenback. Expect MYR to stay bid as the market is upbeat about the prospect of further rate increases.

Fixed Income

• UST traded lower on Wednesday as stocks advanced higher. Both yields of 2s and 10s inched 3bps and 2bps respectively. Meanwhile yesterday's auction of $21bn 10-year notes attracted strong demand, registering bid-to-cover of 3.45x, up from 2.67x achieved in previous auction held in February. Strong take-up at yesterday's acution indicated that there is still demand for safe-haven UST. With 2 auctions recently completed, the US government will sell another $13bn of 30-year notes later today, ending this week's $74bn debt sale.
• On the local market, MGS yields closed unchanged as players for the sale of upcoming RM3.5bn 7.5-year MGS come Friday. When-Issued (WI) trading for the new 7.5-year MGS closed at 4.00%, up 1bp from Tuesday's level. Trading volume for the benchmark govvies came in at RM15m, RM345m and RM60m respectively for the 3s, 5s and 10s. Expect players to be tracking upcoming industrial production data out later today. Improved production data may again pave the way for further rate normalization amid signs of economic recovery, which we view as positive for the local currency. A stronger ringgit may again serve as a catalyst in attracting offshore players to accumulate on higher yielding RM-denominated assets.

Macroeconomics

• US markets ended little changed and moves were small across, stocks and treasuries gained a little, commodity down a tad and dollar index was up a small 0.2%.
• Data was light and negative once again. Both NFIB small biz optimism and IBD/TIPP economic optimism unexpectedly dwindled (the later to a 1-year low), signaling pessimism among both businesses and consumers on uncertainties over economic recovery. Fed Evans said low interest rates are likely needed "for some time" in view of high unemployment and below target inflation.
• Over in the UK, the surprised widening in trade deficit dragged by lower exports seemed to suggest that persistent GBP weakness hadn't given any boost to exports, hence further undermining recovery traction in the UK as domestic demand remained weak.
• Asian data turned out mixed and offered little cheer. With the exception of a rise in Japan leading indicator and a small uptick in Westpac consumer confidence, the rest of the indicators out of Japan and Australia appeared to suggest full swing recovery has yet to kick in.

Forex

• USD strengthened against EUR and GBP as credit ratings agencies sounded warnings on Europe. Expect USD to continue benefit from safe-haven buying.
• EUR remained the weaker currency across most majors except for the GBP, DKK, SEK and NOK, as uncertainty in the Eurozone once again weighs heavily on investors. We maintain our near term bearish stance on the EUR.
• GBP fell to near 10-month low on waning housing recovery and deficit concern voiced by Fitch. GBP is likely to retain its downward tendencies on political and public finance concerns.
• JPY appreciated against USD on speculation BOJ will ease monetary policy further. Expect JPY to stay bid as risk aversion is back on the table.
• AUD climbed just before the text of Lowe's speech commented the Australian economy is likely to expand faster. Expect AUD to gain on speculation RBA will increase interest rates further.
• MYR closed lower against USD and JPY as the market was not very active with players reluctant to take heavy position. The MYR however gained against all other G10 currencies, appreciating the most against the GBP and was mixed against its regional peers. Expect MYR to extend its gradual appreciation to trade within a range of 3.32 - 3.35 today.

Fixed Income

• UST recovered higher following strong demand registered at yesterday's $40bn 3-year auction. Bid-to-cover was at a sturdy 3.13x versus previous auction levels of 2.83x. The 3-year notes drew an average yield of 1.437% . Meanwhile UST yield curve also trended lower responding towards Fed's Evan view on low interest rates needed as high unemployment lingers. Yields for both 2s and 10s shed about 2bps each respectively.
• Back home, MGS yields were lifted higher on mid profit taking following recent gains in local govvies. Yields for 3s, 5s and 10s notched 5bps and 1bp each respectively. Trading volume was concentrated at the 5s and 10s; both reported trades of RM477m and RM311m respectively. Expect bargain hunting to emerge with the upcoming RM3.5bn 7.5-years auction on 12 March, which will serve as the 7-year benchmark. We expect the influx of new 7-year benchmark MGS to provide price guidance, helping to allign bond prices for papers within the 7-year maturity horizon.