Snapshot Summary…

Global FX: Dollar index posted modest gains ahead of US Fed’s Jerome Powell congressional testimony

Global Rates: Treasuries began the holiday-shortened week with gains

MYR Bonds: Local government saw higher yields amidst healthy trading volume in the PDS market

USD/MYR: Ringgit depreciated against USD, tracking weakness in yuan

Macro News

Japan: Industrial production in Japan increased by 0.7% m/m in April 2023 (March 2023: 0.3% m/m). Growth was supported by sectors such as general-purpose and business-oriented machinery, electronic parts and devices, transport equipment, and chemicals.

China: The People's Bank of China has lowered two important lending rates to boost economic growth, where the 1-year Loan Prime Rate was reduced by 10 bps to 3.55%, and the 5-year Loan Prime Rate also by 10 bps to 4.20%.

Malaysia: Malaysia's total trade declined by 2.0% y/y (April 2023: 14.5% y/y) to RM223.8 billion, with exports falling by 0.7% y/y (April 2023: -17.6%) to RM119.6 billion and imports declined by 3.3% y/y (April 2023: 11.1% y/y) to RM104.2 billion. The trade surplus widened to RM15.4 billion (April 2023: RM12.8 billion). For the first five months of 2023, exports now declined by 1.7% on average, and imports declined by 0.3% on average.

Fixed Income

US Treasuries: Treasuries began the holiday-shortened week with gains where the 2Y fell 1 bps to 4.70% and the 10Y slid 4 bps to 3.73% amid growth concerns and last week’s rise in yields. News of PBOC monetary loosening via a cut in the prime lending rate aided UST even though US housing starts in May exceeded expectations (1.63 million actual vs 1.4 million consensus).

Other Major Bonds: Bunds yields edged lower amid hints of bargain hunting after last week’s ECB action as well as German PPI down 1.4% in May versus a 0.3% increase in April. Yet, ECB policymaker Boris Vujčić said core inflation pressures remain high in the Eurozone. Gilt yields slid on Tuesday with the 10Y down 16 bps to 4.34% but after testing 4.50% level as we await BOE policy meeting this week.

MYR Government Bonds: Yesterday, ringgit bonds tracked UST yields higher as the weeks-long persistent support especially at the long ends were seemingly overpowered by pockets of net selling flows. Ahead of today’s 20Y MGS reopening auction WI trade was between 4.19% and 4.22%. For this week, onshore catalysts include the May CPI (consensus: 3.0% y/y, April: 3.3%).

MYR Corporate Bonds: Malaysian corporate bonds continued to see relatively active flows, but yields moved mixed yesterday. Total PDS volume was RM509 million. Notable trades include Fortune Premier 09/25 (AA flat) at 4.20% and Sime Darby Plantations perp (AA flat) at 4.19% both at RM60 million flows each.

Forex

DXY Index: The dollar index recovered early losses and posted modest gains of 0.02% and closed at 102.54 ahead of US Fed’s Jerome Powell congressional testimony which will due later tonight. The US housing data added some uncertainties on rate outlook as housing starts unexpectedly jumped 21.7% m/m in May 2023, the fastest pace since 2016 compared to 2.9% fall in the prior reading.

EUR: The euro shed slightly by 0.03% to 1.092 as German PPI declined further to 1.0% y/y in May 2023 from 4.1% y/y in April, a signal of easing price pressure in the region.

GBP: The British pound dipped 0.2% to 1.277 as market players also turning towards UK’s inflation data before the BoE’s MPC meeting. Inflation in the UK is the stickiest among developed countries so far, putting the central bank in a tough spot amidst weak economic prospects.

JPY: The Japanese yen strengthened 0.4% to 141.47, bouncing off from the recent seven-months low. The Finance Minister Shunichi Suzuki warned that authorities are closely monitoring the FX market to ensure the currency remains stable and continue to reflect economic fundamentals.

CNY: The Chinese yuan weakened 0.2% to 7.181 after PBoC cut China key interest rates, namely the one-year loan prime rate (LPR) and five-year LPR. Both were trimmed by 10 bps to 3.55% and 4.20%, respectively, after the central bank cut seven days reverse-repo rate and one-year medium-term lending facility rate (MLF) last week and putting yuan vulnerable against high US interest rate.

AUD: The Aussie dollar fell 1.0% to 0.679 following RBA’s latest meeting minutes. Despite the latest rate hike move caught the market by surprise, the minutes showed both arguments of rate unchanged vs. hike was “finely balanced”. The central bank also noted that further increase would depend on domestic and overseas developments which could affect the inflation outlook. This has eased more rate hikes expectations in coming months.

KRW: The Korean won appreciated 0.1% to close at 1,280. Price pressures in South Korea are seen to be dissipating as producer inflation fell to 0.6% y/y in May 2023, the lowest figure since December 2020, with costs for manufacturing products continue to decline.

MYR: Malaysian ringgit depreciated 0.2% to close at its intraday high of 4.641, tracking weaker yuan. Malaysia’s exports declined 0.7% y/y in May 2023 while imports fell 3.3% y/y as global trade remained on the downside due to tighter monetary policy implemented to combat inflation.

Other Markets

Gold: Gold fell 0.7% to USD1,936/oz as strong US housing data prompted investors to look for higher interest rates.

Crude Oil: Oil prices traded in red as investors remained pessimist on China’s demand. Brent fell 0.2% to USD75 per barrel while WTI dipped 1.8% to USD70 per barrel.

FBM KLCI: The FBM KLCI was up slightly by 0.1% to 1,388. Detailed transactions showed that foreign investors were the net sellers with RM91.0 million flow, respectively, while being offset by the net buying flow from local institutions and retailers with RM67.1 million and RM23.9 million.

US Equities: Wall Street closed lower as investors wait for US Fed Chair Jerome Powell testimony. Dow Jones fell 0.7% to 34,054, S&P500 fell 0.5% to 4,389 and Nasdaq fell 0.2% to 13,667.

Source: AmInvest Research - 21 Jun 2023