Snapshot Summary…

Global FX: The USD took the backseat following the US Fed to hold whilst pointing to two more rate hikes this year as per FOMC’s dot plot

Global Rates: UST Closed Mixed With Short Tenors Showing Weakness Post FOMC

MYR Bonds: There were some net buying actions on select MGS benchmarks but trading volume in PDS market remained relative healthy

USD/MYR: The Ringgit Depreciated Amidst Mixed Regional Currencies Performance

Macro News

The US: The Federal Open Market Committee (FOMC) kept the target range for the Federal Funds Rate unchanged at 5.00%-5.25%. However, based on the latest projections, the FOMC’s median estimate was revised higher to 5.6% (previously was 5.1%) by the end of the year in line with an upward revision of core PCE forecast to 3.9% (previous estimate was 3.6%). This decision marks the first pause in a series of 10 consecutive rate hikes that had raised borrowing costs to their highest level since September 2007. The Fed stated that maintaining the current target range allows them to assess additional information and its implications for monetary policy.

The UK: The British economy grew by 0.2% m/m in April 2023 after a 0.3% m/m decline in March 2023 due to bad weather and strikes affecting consumer spending. The services sector was the main driver of growth, with a 0.3% m/m increase, led by wholesale and retail trade, vehicle repair, and information and communication. However, production output decreased by 0.3% m/m, mainly in manufacturing of pharmaceuticals and computer products. The construction sector also shrank by 0.6% m/m after a slight increase earlier. Overall, considering the three months leading up to April 2023, the GDP only showed a slight 0.1% increase.

Euro Area: Industrial production in the Euro Area grew by 1.0% m/m in April 2023, recovering from a 3.8% m/m contraction in March 2023. The production of capital goods saw a significant rise of 14.7% m/m after a steep decline in March 2023. Energy production also rebounded by 1.0% m/m following a 1.4% m/m decline. However, there were decreases in output for non-durable consumer goods (-3.0% m/m), durable consumer goods (-2.6% m/m), and intermediate goods (-1.0% m/m).

Fixed Income

US Treasuries: UST closed mixed with short tenors showing weakness post FOMC. The 2Y UST edged up 2 bps to 4.69%. There were early gains boosted on the long tenors after the US PPI for May was softer than expected at -0.3% m/m versus consensus of -0.1%. On a year-over-year basis, the index for final demand was up 1.1% y/y, versus 2.3% in April.

Other Major Bonds: Bunds weakened further ahead of anticipated ECB hike this week. 10Y bunds up about 3 bps to 2.45%. UK Gilts closed firmer with the 10Y down 4bps to 4.39%. Players picked up value after yields rose above 4.30% this week despite BOE hike expectations. BOE policy committee meets 22 June. Sentiment for Gilts also took in the firm UK GDP number but noted drops in production output GDP.

MYR Government Bonds: Quiet session yesterday in the onshore govvies market, ahead of FOMC. There was some net buying action on select benchmarks with the 10Y MGS edged lower 1bp to 3.73% but volume was very scarce at less than RM50 million. Despite FOMC, regional bonds received some support from China’s move this week to cut its 7-day Reverse Repo Rate.

MYR Corporate Bonds: Although there was lack of interest in the MGS space, PDS market remained relatively active with volume traded at RM527 million. Yield declines continued to outpace rises. Notable trades include RM80 million on Danga Capital 02/26 (AAA) done at 3.83% and PLUS 01/29 (AAA) at 4.05% on RM20 million.

Forex

DXY Index: The dollar index slid lower by 0.4% to close the session at 102.95 after it swung to a high of 103.40 and low of 102.66 following the US Fed’s hawkish pause as Fed Chair Jerome Powell noted that majority of the FOMC is still expecting additional tightening in the future to cool price pressure. Now, traders are pricing in 64.5% probability for 25 bps rate hike in July 2023, according to the CME FedWatch tool.

EUR: The Euro climbed 0.3% to 1.083. Investors now are turning towards ECB’s meeting later during the day.

GBP: The pound gained 0.4% to 1.266. As UK’s monthly GDP data is pointing towards an expansion during April 2023 (+0.2% m/m vs. March -0.3% m/m), consensus is showing unanimous expectation that the BoE will raise its interest rate by 25 bps to 4.75% during 22nd June meeting, as reported by Reuters poll.

JPY: The yen strengthened 0.1% to 140.09. With the US Fed is now expected to further raise interest rate, the policy gap (BoJ vs. Fed) could widen if the former maintains its ultra-accommodative policy throughout the remaining month of the year.

CNY: The Chinese yuan appreciated slightly by 0.04% to 7.162. Focus today will be on the publication of real economic data including industrial production (cons.: 3.5% y/y), retail sales (cons.: 13.7% y/y) and unemployment rate (cons.: 5.2%).

AUD: The Aussie dollar rose 0.4% and closed near its intraday high at 0.680. Today’s labour market data could potentially provide clearer picture on where the economy and inflation situation currently stand after the business and consumer sentiment data showed an increasing risk of weakening economy. Unemployment rate is expected to stay robust at 3.7%.

KRW: Won weakened 0.5% to 1,278. The country’s external trade performance remained sluggish as its export and import prices declined by 11.2% y/y and 12% y/y, respectively, amidst slowing global trade.

MYR: MYR depreciated as well by 0.1% to 4.622 after reaching the session’s high of 4.623. The Minister of Investment, Trade, and Industry (MITI) said that Malaysia and Singapore agreed on having a regular platform, namely Annual Ministerial Dialogue (AMD) to boost bilateral trade and investment agreement between the two countries.

Other Markets

Gold: Gold fell 0.1% to USD1,943/oz alongside the increasing expectation of higher terminal Fed Funds rate.

Crude Oil: Concerns on oil demand following hawkish Fed tone have pushed oil lower with Brent fell 1.5% to USD73 per barrel while WTI shed 1.7% to USD68 per barrel.

FBM KLCI: The FBM KLCI gained 0.3% to 1,385. Detailed transactions showed that foreign investors were the net sellers with RM44.5 million flow, respectively, while being offset by the net buying flow from local institutions and retailers with RM39.3 million and RM5.2 million flow.

US Equities: Wall Street closed mixed as the Dow Jones fell 0.7% to 33,979, but S&P500 rose 0.1% to 4,373, and Nasdaq gained 0.4% to 13,626.

Source: AmInvest Research - 15 Jun 2023