Snapshot Summary…

Global FX: Dollar was on firm footing due to safe-haven demand.

Global Rates: The global bond market rallied on Friday with 10Y UST yield fell 6 bps and Gilt yield was down 5 bps.

MYR Bonds: Weaker sentiment was seen in the local bond space.

USD/MYR: Ringgit depreciated in tandem with risk-off mode.

Macro News

Japan: Japan's annual inflation rate decreased to 3.2% in May 2023 (April 2023: 3.5% y/y). The slowdown was primarily due to lower prices for furniture, household utensils, fuel, light, and water charges. Prices for electricity saw a significant decrease. Core inflation also dropped to 3.2% (April 2023: 3.4%).

The UK: Retail sales in the UK increased by 0.3% m/m in May 2023 (April 2023: 0.5% m/m). Non-store retailing, particularly online sales, saw a significant rise of 2.7% m/m, driven by the warm weather in the latter part of the month, which boosted sales of outdoor-related goods and summer clothing. However, on a yearly basis, retail trade contracted by 2.1%.

Malaysia: Malaysia’s headline inflation continued its downward trend, easing to 2.8% y/y in May 2023 (April 2023: 3.3% y/y). This brings the year-to-date inflation to 3.4%. On a month-on-month basis, headline prices increased by 0.2% m/m (year-to-date average: 0.2%). Core inflation (excluding volatile items and controlled prices) also eased to 3.5% y/y in April 2023 (April 2023: 3.6% y/y). On a month-on-month basis, core inflation increased by 0.3% (April 2023: 0.0%, year-to-date average: 0.2%).

Fixed Income

US Treasuries: The market rallied on Friday which meant a rebound for UST after midweek losses. The 10Y closed at 3.74% on Friday or -6 bps from Thursday, and down 3 bps w/w. The late rally was a response from weak manufacturing PMI numbers in the Eurozone (43.6 in June from 44.8 in the prior month) and the UK (46.2 from 47.1).

Other Major Bonds: Gilt yields fell where the 10Y was down 5 bps to 4.32%. BOE had surprised the market on Thursday by raising its policy interest rate by 50 bps. UK yields fell as bond players took caution of the excess tightening and weak UK PMI data. German bond yields fell sharply last Friday, reacting to weak Eurozone manufacturing PMI numbers (Germany’s fell to 41.0 in June from 43.2 in May).

MYR Government Bonds: The benchmark 3-year MGS rose 2 bps to 3.48% while the 10-year MGS rose 4 bps to 3.83%. MGS sentiment generally followed UST movement from the previous session. Also lifting yields was the weaker ringgit. MYR Corporate Bonds: Malaysian corporate bonds closed mixed though flows were decent at RM245 million last Friday. Notable trades include Sabah Credit Corp 05/30 (AA1) at 4.34% on RM50 million volume and Infracap 04/35 (AAA) at 4.35% on RM30 million volume.

Forex

DXY Index: The DXY was higher due to safe haven demand as data from Global S&P PMI showed output by private businesses is getting sluggish with Composite PMI falling to 53 in June 2023 from 54.3 in the prior month. The manufacturing sector continued to be in the contraction zone while services sector output was slower, prompting worries on growth. By the end of Friday, the dollar index rose 0.5% to 102.90.

EUR: The euro shed 0.6% to 1.089 as investors reassess the impact of high interest rate environment on the economy. The Eurozone’s Composite PMI fell to near borderline growth level of 50.3 from 52.8, worse than market expectation of 52.5.

GBP: It was also the same with British pound as it fell 0.3% to 1.271 due to gloomier economic outlook following the surprising half-point rate hike by the BoE and recent economic data. The S&P Composite PMI fell to 52.8 from 54 as data shown.

JPY: The Japanese yen weakened further by 0.4% to a new seven months low at 143.70 following tepid inflation data released. With May inflation rate unexpectedly fell to 3.2% y/y from 3.5% y/y and much lower than market forecast of 4.1% y/y, there is more reason for the BoJ to maintain its accommodative policy in order to reach 2.0% inflation sustainably.

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

AUD: Due to the poor risk appetite, the Aussie dollar dipped 1.1% to 0.668. Judo Bank Composite Australia PMI is also showing business activity is getting slower (50.5 vs. May 51.6).

KRW: The Korean won depreciated 0.7% to 1,304 as recessionary fears set in. Both South Korea and Vietnam agreed jointly to double bilateral trade between the two countries to USD150 billion by 2030 and expand cooperation on key industry minerals and net-zero goals.

MYR: Malaysian ringgit depreciated 0.5% to 4.678 in tandem with risk-off mode and traded within the range of 4.654 and 4.679. As per our Malaysia’s inflation report. latest data showed that inflation pressure in Malaysia is not reflective of developed countries (May core inflation at 3.4% y/y vs. April 3.5% y/y). Therefore, with core inflation being modest so far, we do not see any urgency for the interest rates to be increased higher from this point forward. However, we do take note that future interest rates adjustment remains a possibility depending on how inflations play out.

Other Markets

Gold: Gold price rose 0.4% to USD1,921/oz as hawkish US Fed tone overwhelmed the market.

Crude Oil: Oil prices traded lower as investors continued to be worried on demand prospect amidst a high interest rate environment. Brent fell 0.4% to USD73 per barrel while WTI dropped 0.5% to USD68 per barrel.

FBM KLCI: The FBM KLCI was down by 0.3% to 1,391. Detailed transactions showed that foreign investors were the net sellers with RM96.2 million flow, while being offset by the net buying flow from local institutions and retailers with RM94.0 million and RM2.3 million flow, respectively.

US Equities: Wall Street closed in the red with Dow Jones falling 0.6% to 33,727, S&P500 dipping 0.8% to 4,348, and Nasdaq tumbling 1.0% to 13,493.

Source: AmInvest Research - 26 Jun 2023