Snapshot Summary…

Global FX: USD retreat from recent highs alongside firm EUR and GBP. JPY weakened, however.

Global Rates: UST strengthened overnight on the back of lower European inflation data and higher US continuing jobless claims and lower industrial production.

MYR Bonds: Ringgit bonds weakened post FOMC. Yields inched higher by 1-3 bps and trades were slanted on MGIIs.

USD/MYR: Post US Fed meeting, Ringgit was on the back foot and reached as weak as 4.637 on the expectations of more rate hikes in the US.

Macro News

Euro Area: The European Central Bank (ECB) raised interest rates by 25 bps, reaching the highest levels since the 2008 financial crisis. The main refinancing rate was increased to 4.00%. This rate hike marked the eighth consecutive increase, as inflation rates remained significantly above the ECB's target. ECB President Lagarde mentioned that the ECB still had more to accomplish and indicated a likelihood of further rate hike in July.

China: China's industrial production recorded a 3.5% y/y growth in May 2023 (April 2023: 5.6% y/y). This marked the 13th consecutive month of growth, but the slowest pace in three months. The slowdown was primarily attributed to a deceleration in manufacturing activity and a decline in mining production.

Australia: Australia's unemployment rate decreased to 3.6% in May 2023 (April 2023: 3.7%). Employment experienced a significant increase, rising by 75.9 thousand to 14.01 million, marking the largest growth since June 2022 and easily exceeding market forecasts of a 15.0 thousand rise. Full-time employment rose by 61.7 thousand to 9.83 million, while part-time employment increased by 14.3 thousand to 4.19 million.

Fixed Income

US Treasuries: UST strengthened overnight on the back of lower European inflation data and higher US continuing jobless claims (+20,000) and lower industrial production (-0.2% m/m in May). France's May CPI was down 0.1% m/m, and Swiss May PPI was down 0.3% m/m. Also aiding bonds was PBoC lowering its 1-year medium-term lending facility rate by 10 bps to 2.65%.10Y UST fell 7 bps to 3.72%.

Other Major Bonds: Bunds yields rose to a 3-month high after the ECB raised its policy rate by 25bps and revised its headline and core inflation forecasts upwards. ECB also will end repurchase of securities under its asset purchase programme (APP) but leave its long-term refinancing operations (LTRO) unchanged. UK Gilt yields were lower, with 10Y was down 1 bps to 4.38% despite expectations of BOE hike next week.

MYR Government Bonds: Ringgit bonds weakened post FOMC. Yields inched higher by 1-3 bps and trades were slanted on MGIIs. The 10Y MGS was dealt 1 bps higher to 3.74%. A heavier volume of >RM200 million was seen on the 3Y MGS and was up by 1 bps to 3.46%.

MYR Corporate Bonds: Ringgit PDS continued to firm despite weak MGS sentiment. Volume was also high at RM586 million. We noted interest on infrastructure-related papers including Malakoff Power 12/29 (AA3/AA-) at RM70 million and down 3 bps to 5.12%, and MAHB Perp down 6 bps to 4.56% (AA2/AA) on RM40 million volume.

Forex

DXY Index: The greenback closed lower by 0.8% to 102.12 alongside falling UST yields with new jobless claims numbers were unchanged at its highest level since October 2021 of 262k reading last week (cons.: 249k).

EUR: Following the ECB’s meeting and its hawkish meeting result, the Euro surged 1.13% to close the session at 1.095. The market also took note of its President Christine Lagarde’s reiteration that the central bank’s job to bring down inflation is not done yet and policymakers are not thinking about pausing anytime soon, paving the way for more rate hike during July’s meeting.

GBP: The British pound climbed further 0.9% to 1.278, hovering around its highest level since April 2022. As UK’s economy is seen on better footing than initially expected and its inflation remained stubborn, the market continues to expect the BoE to remain hawkish in its policy stance.

JPY: The Japanese yen managed to recover mild losses early in the day and closed at 140.29, a 0.1% weaker compared to prior session, mainly driven by the dovish BoJ meeting bets by the market.

CNY: But the Chinese yuan strengthened 0.6% to 7.122 despite the PBoC trimmed its key one-year medium-term lending facility (MLF) rate by 10 bps to 2.65%, not long after cutting reverse repurchase rate by 10 bps to 1.90% last week. The move was to further stimulate the economy post Covid restrictions as real economic data signalled still slow recovery.

AUD: The Aussie dollar climbed 1.3% to 0.689, a level last seen since February 2023. Better-than-expected additional employment in Australia at 75.9k compared to consensus 15.0k proved labour market remained tight amidst high inflation environments. This could further pressure the RBA to increase its cash rate further in July’s meeting.

KRW: The Korean Won appreciated 0.2% to 1,280. In spite of the elevated interest rate and softer activities in manufacturing sector, South Korea’s unemployment rate hit record low of 2.5%, supported by persistent recovery in services sector.

MYR: Post US Fed meeting, Ringgit was on the back foot and reached as weak as 4.637 on the expectations of more rate hike in the US. But the currency managed to cut some losses and ended the day at 4.626, 0.1% weaker compared to the previous session. The way it is right now, the policy gap between the BNM and its US Fed counterpart may widen moving forward with BNM is seen to hold at 3.00%.

Other Markets

Gold: Gold climbed 0.8% to USD1,958/oz as the dollar fell.

Crude Oil: Improving China’s apparent oil demand which showed volume of processed oil and net import of refined petroleum oil rose by a double-digit growth of 17.1% y/y. Together with lower dollar, these supported oil prices as Brent jumped 3.4% to USD76 per barrel while WTI surged 3.4% to USD70 per barrel.

FBM KLCI: The FBM KLCI was down 0.3% to 1,382. Detailed transactions showed that foreign investors were the net sellers with RM56.6 million flow, respectively, while being offset by the net buying flow from local institutions and retailers with RM41.2 million and RM15.4 million flow.

US Equities: Wall Street closed higher as risk mode improved. The Dow Jones rose 1.3% to 34,408, but S&P500 rose 1.2% to 4,426, and Nasdaq gained 1.1% to 13,783.

Source: AmInvest Research - 19 Jun 2023