Snapshot Summary…

Global FX: Dollar index was on the downside following softer PCE data

Global Rates: Treasuries posted gains on Friday but only pared the week’s losses. Bund 10Y yield fell but Gilt’s rose.

MYR Bonds: Malaysian government bonds closed weaker Friday where the 10Y rose 3 bps to 3.85%

USD/MYR: Malaysian ringgit strengthened amidst mixed regional performances

Macro News

United States: In May 2023, the personal consumption expenditure price index (PCE) in the United States increased by 3.8% y/y (April 2023: 4.3% y/y), the lowest rate since April 2021. The core PCE, which is the Federal Reserve's preferred measure of inflation, increased by 4.6% y/y (April 2023: 4.7% y/y).

Japan: Japan's unemployment rate remained at 2.6% in May 2023. The number of unemployed individuals decreased by 30,000 to 1.77 million, while employment fell by 80,000 to 67.36 million. The non-seasonally adjusted labour force participation rate increased to 62.9% in April compared to the same month the previous year when it was 62.7%. The jobs-to-applications ratio declined slightly to 1.31 in May from 1.32 in April, the lowest level since July 2022.

United Kingdom: The UK's economy grew by 0.1% m/m in the 1Q2023 (final estimate) which was the same as the 4Q2023. Growth was driven by increased business investment, leading to higher gross fixed capital formation. However, household consumption remained stagnant due to limited income caused by high inflation. Some sectors, such as recreation, culture, clothing, footwear, communications, and housing, experienced increased spending, but there were declines in transport, alcohol, and tobacco.

Fixed Income

US Treasuries: Treasuries posted gains on Friday but only pared the week’s losses. The 10Y fell 0.2 bps to 3.84% but 8 bps higher for the week. Data on Friday saw the US PCE down to 3.8% y/y in May versus 4.3% April. Core PCE, the Fed's preferred gauge of inflation, edged to 4.6% from 4.7% the same period. In the week ahead, we have on tap the June non-farm payrolls. Consensus is for 225k increase versus 339k in May.

Other Major Bonds: Germany’s 10Y bonds yields fell slightly by 2 bps and is up a modest 5 bps w/w to 2.39% as investors digested the latest Eurozone inflation data. The Eurozone's June CPI was up 0.3% m/m vs 0.0% in May. Core CPI was 0.3% m/m versus the prior month at 0.2%. Gilt yields edged higher by 1 bp to 4.39%. UK 1Q23 GDP grew 0.1% q/q (prior quarter 0.1%), and 0.2% y/y (0.6% previously).

MYR Government Bonds: Malaysian government bonds closed weaker Friday where the 10Y rose 3 bps to 3.85%. Last week saw the reopening of 5Y MGII 07/28. BTC was decent at 1.81x for a large RM5.5 billion size without PP. Average yield was 3.677%, vs. WI 3.64/3.65% a day prior to closing. Aside, the 3Y MGS hovering around 3.50% (50 bps over OPR) means the market is pricing in a 25 bps hike ahead of BNM policy meeting this week. Our longer-term view of stronger MGS holds considering the hike is already priced in.

MYR Corporate Bonds: Corporate bonds posted gains last Friday though not on heavy volume at RM141 million. Notable trades including AAA rated PASB 04/33 at 4.18% on RM30 million volume and AAA Digi 04/24 at 3.69% on RM20 million traded.

Forex

DXY Index: The DXY eased 0.4% to 102.91 following softer data and in turn, toning down the further rate hike expectations. The PCE Price index grew slower by 3.8% y/y in May 2023 compared to 4.3% y/y in the prior month, and personal spending advanced only by 0.1% m/m compared to prior reading of 0.6% m/m.

EUR: The euro gained 0.4% to 1.091, alongside weaker dollar as Eurozone’s inflation data showed mixed development as headline inflation rate fell to 5.5% y/y in June 2023 from 6.1% but at the same time, core inflation rose to 5.4% y/y from 5.3%, boosting the bet for a more rate hike by the ECB.

GBP: The pound rose 0.7% to 1.270, benefitting from the hawkish stance reiterated by BoE Governor Andrew Bailey. He noted that the recent half-point surprise hike highlights the resilient economy and unexpectedly stubborn inflation.

JPY: The Japanese yen appreciated 0.3% to 144.31 bouncing off from the recent seven months low. Investors are looking to see if the authorities will step in to support the yen which last happened at 145-level.

CNY: The Chinese yuan weakened 0.1% to 7.254 as data showed manufacturing PMI is still in contractionary zone for third straight months at 49 for June 2023 while services PMI dropped to the lowest level since January 2023 at 53.2.

AUD: The Aussie dollar rose 0.7% to 0.666. According to Treasurer Jim Chalmers, the country is looking at a bigger budget surplus for 2022/23 compared to AUD4.2 billion projected back in May Budget. However, cautious remained as challenges of high inflation and slowing global trade will “significantly” affect the domestic economy.

KRW: The Korean won weakened slightly by 0.02% to 1,318. On the macro front, South Korea’s industrial production unexpectedly grew by 3.2% m/m in May 2023, compared to market forecast of -0.8% m/m. Still, this translated to annual changes of 7.3% contraction, a sign of challenging economic environment amidst tight monetary policy, high living costs, and sluggish global trade.

MYR: Malaysian ringgit strengthened 0.1% to 4.667 and traded within the range of 4.657 and 4.689. Focus this week will be on the BNM’s policy meeting which will be due on Thursday.

Other Markets

Gold: Gold price rose 0.6% to USD1,919/oz as soft inflation print on Friday provided some support.

Crude Oil: Oil prices also settled higher as supply concerns remained with Brent climbed 0.8% to USD74 per barrel while WTI rose 1.1% to USD70 per barrel.

FBM KLCI: The FBM KLCI was down by 0.8% to 1,377. Detailed transactions showed that foreign investors were the net sellers with RM197.4 million flow, while being offset by the net buying flow from local institutions and retailers with RM147.8 million and RM49.6 million flow, respectively.

US Equities: Wall Street closed higher with Dow Jones climbing 0.8% to 34,408, S&P500 gaining 1.2% to 4,450, and Nasdaq rising 1.4% to 13,788.

Source: AmInvest Research - 3 Jul 2023