Snapshot Summary…

Global FX: Dollar Index Retreated From Recent Highs

Global Rates: Global Bonds Rallied With Gilt and Bund 10Y Yield Falling 2 and 4 Bps, Respectively

MYR Bonds: Mixed Sentiment Was Seen in the Local Bond Space

USD/MYR: Ringgit Appreciated, Bucking the Regional Currencies Trend

Macro News

Euro Area: Germany's Ifo Business Climate indicator fell for the second consecutive month in June 2023 to 88.5, the lowest level since December. This decline indicates persistent uncertainty in Europe's largest economy. Manufacturers reported a drop in new orders due to global interest rate hikes affecting demand. Expectations for the future and assessments of the current situation have become more negative. Sentiment worsened across various industries, including manufacturing, services, trade, and construction.

United States: In June 2023, the manufacturing business activity in Texas, measured by the Federal Reserve Bank of Dallas' index, improved to -23.2, the highest in three months, surpassing expectations. However, overall business conditions continued to worsen, with contractions in production, new orders, shipments, and capacity utilization. From the survey, the labour market in the sector indicated weaker employment growth and reduced work hours. Future expectations for manufacturing activity were mixed, with an increase in the future production index but a negative outlook in the future general business activity index.

Fixed Income

US Treasuries: Continued strength in Treasuries seen overnight due to safe haven demand on the back of hawkish central bank narrative recently. News of attempted coup in Russia also aided haven demand. The 10Y UST fell 1 bps to close at 3.72%. Treasury kicked off this week's note auctions with a firm USD42 billion 2Y note auction with 2.86x BTC ahead of today’s USD43 billion 5Y sale.

Other Major Bonds: German 10Y Bund yield fell 4 bps to 2.31% after last Friday’s decline as safe haven demand remained in play while Germany's June Ifo Business Climate Index fell. UK bond 10Y yield fell 2 bps to 4.30%.

MYR Government Bonds: The MGS market saw level remain elevated in the morning as market players were seen cautious with stronger call that BNM may hike by another 25 bps in the upcoming July MPC meeting. However, market direction reversed in the evening and was aligned with the lower UST level ahead of the upcoming U.S economic reports and Fed policymakers’ comments. The BNM announced the reopening of GII 07/38 at RM5.5 billion size. Initial WI was seen wide at 3.59/3.54% but was then taken at 3.54%. The 10Y MGS closed 1 bps down to 3.83%.

MYR Corporate Bonds: Corporate bonds closed mixed to align with mixed sentiment in the govvies market and spate of new PDS offerings. Total volume traded was heavy at RM615 million. Notable trades include PASB 04/38 (AAA) at 4.50% and RM40 million flows, and PLUS 01/37 (AAA) at 4.46% and RM30 million traded.

Forex

DXY Index: The DXY retreated from a recent two-week high, falling 0.2% to 102.69. The Dallas Fed Manufacturing Index improved to -23.2 during June 2023 from -29.1 though level remained near the lowest level since Covid times, signalling challenging business environment as a result of tight monetary policy. This week, the focus will be on US Fed speeches and PCE price index data.

EUR: The euro rose 0.1% to 1.091 as investors continued to assess the economic prospects in the region. Data showed that the Business Climate indicator for Germany by Ifo fell to 88.5 in June 2023 (cons.: 90.7), indicating the effects of high interest rate condition.

GBP: The pound was down slightly by 0.01% to 1.271 and traded within the range of 1.269 and 1.275. Following the surprise half-point hike by the BoE, the average 2-year fixed residential mortgage rate rose to 6.23% from 6.19%, the highest level since November 2022 during the aftermath of mini-budget tabling. This will possibly pressure households further amidst high living costs.

JPY: The Japanese yen gained 0.1% to close at 143.51 following warnings from top currency diplomat Masato Kanda against yen’s “rapid and one-sided” weakening, noting that authorities have all options available to intervene in the market to support the currency. Also, the summary of BoJ opinions for the recent June meeting showed that one of the policymakers is calling for early revision to its yield curve control (YCC), the first time such tone was explicitly mentioned in the summary. Talks on further tweaks on YCC have been gaining traction since early this year.

CNY: The Chinese yuan fell further by 0.8% to 7.240 despite PBoC move in fixing its yuan reference rate at 7.2056, 77 pips stronger than median Bloomberg estimates, reflecting the central bank being not too comfortable in yuan’s slide. To note, the spot rate is allowed to trade with a range 2% above or below the official fixing on any day.

AUD: the Aussie dollar shed 0.1% to 0.668. Market players is focusing on Australia’s monthly CPI data which will be released on Wednesday morning to gauge interest rate outlook for RBA.

KRW: The Korean won weakened 0.1% to 1,306. South Korea is mulling to lower its 2023 economic growth forecast, reflecting the subdued performance in semiconductor industry, according to one of finance ministry officials. Currently, the ministry is projecting a 1.6% growth while the Bank of Korea forecast had already downgraded its forecast to 1.4% in May from 1.6% in February 2023.

MYR: Malaysian ringgit strengthened 0.1% to 4.676 consolidating some losses after five back-to-back weakening sessions. Nonetheless, the local currency remained pressured as long as the global narrative remained in focus on the US Fed’s interest rate outlook.

Other Markets

Gold: Gold price climbed 0.1% to USD1,923/oz as the dollar fell and increased growth risk.

Crude Oil: Oil prices traded in green as Brent rose 0.4% to USD74 per barrel and WTI gained 0.7% to USD69 per barrel, prompted by tight supply concerns and the attempted mutiny by mercenary against Russia.

FBM KLCI: The FBM KLCI was down by 0.1% to 1,390. Detailed transactions showed that foreign investors were the net sellers with RM28.8 million flow, while being offset by the net buying flow from local institutions and retailers with RM33.1 million and RM4.4 million flow, respectively.

US Equities: Wall Street closed in the red with Dow Jones falling 0.04% to 33,715, S&P500 dipping 0.4% to 4,329, and Nasdaq tumbling 1.2% to 13,336.

Source: AmInvest Research - 27 Jun 2023