Snapshot Summary…

Global FX: Dollar index rose on risk-off mode on signals for further rate hike

Global Rates: US Treasuries weakened sending shorter tenor yields higher while Gilt market was weaker due to half-point rate hike by BoE

MYR Bonds: Local government papers saw bearishness as yields tracked global levels higher by 1~3 bps across the board

USD/MYR: Ringgit depreciated further against USD ahead of Malaysia CPI

Macro News

Euro Area: Preliminary estimates reveal that consumer confidence in the Euro Area increased to -16.1 in June 2023, surpassing market expectations of -17. The European Union also saw a rise in consumer sentiment to -17.2. However, confidence levels remained below their long-term average in both regions.

The UK: The Bank of England (BoE) surprised markets by raising interest rates to 5.00%, the 13th consecutive hike. This move aims to tackle persistent inflation, with further rate increases planned if inflation remains high. British inflation held steady at 8.7% in May 2023, surpassing the central bank's 2% target, while core inflation reached a 31-year high. The BoE's rate hikes have been the fastest in over 30 years.

Fixed Income

US Treasuries: US Treasuries weakened sending shorter tenor yields to monthly highs. Meanwhile, the 10Y paper closed 8 bps higher and reaching 3.80%. Fed’s Jerome Powell testified to the Senate Banking Committee and reiterating that the FOMC does not expect to cut rates any time soon.

Other Major Bonds: UK government bond yields fell after the surprise large hike by the BOE as bond players took caution that an excess tightening could lead to UK growth risk. UK 10Y Gilt shed 4 bps to 4.37% while Germany’s 10Y Bund rose 6 bps to 2.49%.

MYR Government Bonds: On local bond space, bearishness continued as yields tracked global levels higher by 1~3 bps across the board with foreign investors suspected net sellers, after supported the long ends part of the yield curve for most part of this month.

MYR Corporate Bonds: Malaysian corporate bonds closed mixed. Total volume was RM448 million. Notable trades include Plus 01/33 (AAA) at 4.20% on RM70 million flows and Digi 05/30 (AAA) at 4.04% on RM50 million.

Forex

DXY Index: The DXY rose 0.3% to 102.39 due to risk aversion as markets were mixed after US Fed Chair Jerome Powell’s second day testimony. Investors digested his “two more” 25 bps rate hike guidance if current inflation situation continues threading on existing trajectory. A similar tone was echoed by Fed Governor Michelle Bowman (voting member), reiterating additional policy increase is needed to bring down inflation to the 2.0% target.

EUR: The euro dipped 0.3% to close near its intraday low at 1.096. The improvement in Eurozone’s consumer confidence indicator to -16.1 in May 2023 from -17.4 could not provide some support for the currency.

GBP: Despite the bigger-than-expected rate hike taken by BoE (5.00% vs. 4.75% expected), the British pound closed at 1.275 or 0.2% lower compared to the previous day. As inflation proved stickier and more persistent, the central bank decided to take action sooner rather than later. That said, we now anticipate for the bank rate to hover around 5.50% - 5.75% by end of this year and around 5.00% - 5.25% by end 2024.

JPY: The Japanese yen weakened 0.9% to 143.11 as Fed-BoJ policy stance divergence continue to be the key drivers for yen. BoJ’s board member Asahi Noguchi noted that the central bank must maintain its ultra-accommodative policy to help wages trend upward sustainably which in turn, boost inflation to 2.0% target.

CNY: The Chinese yuan was unchanged at 7.180 as China’s market was closed due to Dragon Boat Festival.

AUD: The Aussie dollar dipped 0.6% to 0.675 as market players became risk averse and repricing their interest rate outlook.

KRW: The Korean won weakened 0.2% to 1,295. With investors reassess their global rate outlook combined with weak recovery in China’s economy, the currency is vulnerable towards the downside.

MYR: Malaysian ringgit depreciated 0.2% to its intraday high of 4.655. Focus today will be on Malaysia’s May inflation rate where market is expecting for it to slow further to 3.0% y/y, compared to April’s reading of 3.3% y/y.

Other Markets

Gold: Gold fell 1.0% to USD1,914/oz, outweighed by the higher interest rate prospect.

Crude Oil: Oil prices traded in red as the surprise half-point rate hike by the BoE and higher interest rate anticipation prompted by US Fed Chair Powell’s testimony caused traders to offload positions in risky assets. Brent tumbled 3.9% to USD74 per barrel while WTI tumbled 4.2% to USD69 per barrel.

FBM KLCI: The FBM KLCI was up by 0.1% to 1,395. Detailed transactions showed that foreign investors and local retailers were the net sellers with RM15.2 million and RM7.8 million flow, respectively, while being offset by the net buying flow from local institutions with RM23.1 million.

US Equities: Wall Street closed mixed with Dow Jones falling 0.01% to 33,947, S&P500 dipping 0.4% to 4,382, and Nasdaq tumbling 1.0% to 13,631.

Source: AmInvest Research - 23 Jun 2023