Snapshot Summary…

Global FX: Dollar index declined following US Fed Chair testimony

Global Rates: Treasuries ended the day relatively flat while Bunds and Gilts market saw weaknesses following UK inflation numbers

MYR Bonds: Local government papers saw higher yields following the release of strong UK inflation

USD/MYR: Ringgit depreciated against USD for the third consecutive sessions

Macro News

Japan: In June 2023, the Reuters Tankan sentiment index for manufacturers in Japan increased to +8 from +6 in May 2023. This marks the second positive reading this year, reflecting a recovery in the economy after the pandemic, despite slower global growth. The index indicates that more companies consider business conditions to be good rather than poor. Specifically, sentiment improved in the textiles/papers, oil refinery/ceramics, food processing, and auto industry sectors.

The UK: In May 2023, consumer price inflation in the United Kingdom remained steady at 8.7%. The increase in prices for air travel, recreational and cultural goods and services, and second-hand cars offset the decrease in fuel costs and the slowdown in food inflation. The core inflation rate on the other hand reached 7.1%, the highest since March 1992. This unexpected increase translates into a potentially steeper rate hike path by the Bank of England in the coming months compared to our previous estimate of 4.75%, which means there could be further upside to our current baseline view.

Fixed Income

US Treasuries: UST market ended flat after paring early weakness. Those early losses were brought on after the report of strong UK inflation figures. Meanwhile. Fed chief Jerome Powell, on his first day of a two-day semi-annual testimony on monetary policy to Congress said there is a long way to go for the Fed in its fight against inflation. Bargain hunting brought UST yields down thereafter. The 10Y closed 0.2 bp down to 3.72%.

Other Major Bonds: Strong UK inflation data sent UK yields higher on Wednesday with the 10Y testing 4.48% from under 4.35% levels a day prior. However, yields fell late in the day, potentially due to safe haven demand ahead of BOE policy meeting today. The 10Y closed at 4.41%. Meanwhile, 10Y Bunds rose 3 bps to 2.44%, due to cautious mood before BOE meets.

MYR Government Bonds: Release of strong UK inflation early yesterday and caution before Fed’s Powell testifies to Congress pressured MGS. The 10Y rose 2 bp to 3.79%. Local bond space had another slow grinding day as the reopening auction of MGS 10/42 attracted modest demand with bid cover of 1.877x and weighted average yield of 4.195%. Post auction stock was traded around auction average level as well.

MYR Corporate Bonds: Malaysian corporate bonds ended modestly firmer amid the weak close in the govvies space yesterday. Trading volume was decent at RM211 million. Notable trades include Infracap Resources 04/28 (AAA) at 4.08% on RM40 million flows, and MAHB 11/27 (AAA) at 4.00% on RM32 million volume.

Forex

DXY Index: The DXY fell 0.5% to 102.07 following US Fed Chair Jerome Powell’s congressional testimony, which skews towards hawkish bias. Nonetheless, while he emphasized that the inflation fights still “has a long way to go”, he also noted that Fed’s policy decision will change accordingly as inflation approaches the 2.0% target.

EUR: The euro rose 0.6% to 1.099 as ECB officials Isabel Schnabel Joachim Nagel continued to paint higher interest rates outlook for the market with their hawkish remark.

GBP: The British pound had a seesaw session, swinging from high of 1.280 and low of 1.269 after the surprisingly high inflation data and closed 0.04% higher at 1.277 as market players reprice their BoE rate outlook. UK’s inflation rate was unchanged at 8.7% y/y, worse than market forecast of 8.4%.

JPY: The Japanese yen weakened 0.3% to 141.88 as market players continue to put dovish bet on Japan’s central bank. The BoJ Governor Kazuo Ueda reiterated the bank’s current monetary policy stance is likely to stay to achieve the 2.0% inflation target sustainably alongside with wage growth.

CNY: The Chinese yuan appreciated for the first time in four sessions, gaining a slight 0.02% to 7.180. However, the currency remained pressured amidst widening interest rate differential with the US counterpart.

AUD: The Aussie dollar rose 0.2% to 0.680. The Westpac-Melbourne Institute Leading Economic Index growth rate fell to -1.09% from -0.78%, marking the tenth consecutive negative reading amidst weakness in the domestic economy due to high interest rates and slowing global economy.

KRW: The Korean won weakened 0.9% to close at 1,292. South Korea exports for the first 20-days this month grew 5.3% y/y, the first positive gains since August last year. The increase was largely driven by automotive and shipping-related exports, but semiconductor exports continued its decline.

MYR: Malaysian ringgit depreciated for third consecutive days, losing 0.1% to 4.645 after reaching as weak as 4.652 during the session. Malaysia has improved its position in the IMD World Competitiveness Ranking (WCR) from 32nd to 27th in 2023 report, with strength areas coming from low prices, the availability of basic infrastructure, and tax policies.

Other Markets

Gold: Gold Fell 0.2% to USD1,932/oz Due to Mixed Sentiment in the Market.

Crude Oil: Oil prices traded in green following mixed remarks by the US Fed Chair Jerome Powell during his testimony. Brent rose 1.6% to USD77 per barrel while WTI gained 2.5% to USD72 per barrel.

FBM KLCI: The FBM KLCI was up by 0.4% to 1,393. Detailed transactions showed that foreign investors and local retailers were the net sellers with RM17.7 million and RM16.7 million flow, respectively, while being offset by the net buying flow from local institutions with RM34.4 million.

US Equities: Wall Street closed lower with Dow Jones falling 0.3% to 33,952, S&P500 dipping 0.5% to 4,366, and Nasdaq tumbling 1.2% to 13,502.

Source: AmInvest Research - 22 Jun 2023