Snapshot Summary…

Global FX: Currencies closed mixed with DXY and EUR on the upside while GBP fell

Global Rates: UST continued to weaken as we stepped into July, still affected by hawkish Fed tone before the month end FOMC meeting

MYR Bonds: Ringgit bond market was mixed as market players remained cautious ahead of this week’s Bank Negara Malaysia MPC meeting

USD/MYR: Malaysian ringgit was relatively unchanged bucking the regional trend

Macro News

United States: The US manufacturing sector experienced a decline, with the S&P Global US Manufacturing PMI reaching a six-month low of 46.3 in June 2023. This was due to reduced output, fewer new orders, and weakened demand caused by inflation and higher interest rates. However, despite the decline, employment in the sector continued to grow as manufacturers hired to replace leavers and fill vacancies.

Japan: In June 2023, the Jibun Bank Japan Manufacturing PMI remained at 49.8, matching initial estimates. This indicates that factory activity contracted for the fifth time this year, with both output and new orders decreasing. New export orders declined sharply, and buying activity decreased for the eleventh consecutive month, although the reduction was the smallest this year.

Malaysia: The S&P Global Malaysia Manufacturing PMI dropped to 47.7 in June 2023 (May 2023: 47.8), indicating the 10th consecutive contraction and the sharpest decline since January 2023. Output decreased significantly, and new orders saw the strongest moderation since January. Purchasing activity continued to decline moderately, reaching its fastest pace since January. Employment also decreased for the second month in a row.

Fixed Income

US Treasuries: UST continued to weaken as we stepped into July, still affected by hawkish Fed tone before the month end FOMC meeting. Losses came despite weak data where the June ISM Manufacturing Index fell to 46.0 from 46.9% in May. The 10Y UST rose 2 bps to 3.85%.

Other Major Bonds: Germany’s 10Y government bond yield rose 4 bps to 2.44%. Sentiment remained guarded in the bond market despite the Eurozone PMI number edging lower. UK 10Y yield also rose, up 5 bps to 4.44%. BOE governor Andrew Bailey had reiterated the central bank’s hawkish stance late last week citing ‘persistence of inflation’.

MYR Government Bonds: Ringgit bond market was mixed as market players remained cautious ahead of this week’s Bank Negara Malaysia MPC meeting despite majority of economists surveyed by Bloomberg expecting the OPR to be left unchanged at 3.00%. There was a boost from June Caixin manufacturing PMI data showing expansion at 50.5 though at a slower pace than 50.9 in May. The 10Y MGS added 1 bps to 3.86%.

MYR Corporate Bonds: Ringgit corporate bond trading was decent at RM342 million volume yesterday with yield levels traded mixed. Notable trades include PLUS 01/25 (AAA) at 3.89% on RM30 million flows and PLUS 12/38 (GG) at 4.21% on RM90 million volume.

Forex

DXY Index: The dollar index rose 0.1% to 102.99. The ISM Manufacturing PMI reading fell further to 46 in June, its worst level since the onset of pandemic in 2020 as companies continue to see weak demand, slow productions, easing input price pressure, and decrease in employment.

EUR: The euro was little changed as it rose by a slight 0.03% to close at 1.091. One of the ECB’s policymakers Joachim Nagel pointed out that current rate hike cycle still has “some way to go” as inflation risk remain tilted towards the upside against the backdrop of strong labour market and resilient economy.

GBP: The pound fell 0.1% to 1.269 despite the prospect of further rate hike by BoE to tame down inflation, as per communicated by its governor Andrew Bailey last week.

JPY: The Japanese yen weakened 0.3% to 144.68 but losses were capped following positive economic data. The sentiment among big manufacturers in Japan improved as BoJ’s Tankan Index rose to +5 during 2Q2023 from +1 in the prior quarter. Firms reported the high input costs and supply chain disruptions have eased and provided some boosts for the sentiments.

CNY: The Chinese yuan strengthened 0.1% to 7.247 after five consecutive losing sessions, taking cue from better manufacturing sector data. The Manufacturing PMI by Caixin fell to 50.5 in June from 50.9 in the prior month but better than market expectation of marginal growth of 50.2.

AUD: The Aussie dollar gained 0.1% to 0.667. The value of new home loans in Australia grew 4.0% m/m to AUD16.4 billion during May, reversing the 3.8% decline in the prior month. Nonetheless, in terms of nominal value, the level is still far below 2021’s average level of around AUD20 billion, repressed by the rate hike cycle commenced by the RBA.

KRW: The Korean won appreciated 0.7% to 1,308. South Korea’s manufacturing industry remained in contractionary environment as the S&P Manufacturing PMI reading fell to 47.8 in June 2023 from 48.4. It marked the 12th back-to-back month the headline figure has stayed below 50 growth level.

MYR: In tandem with stronger yuan, Malaysian ringgit pared its early losses and closed at Friday’s level at 4.667 after reaching high of 4.676. Malaysia’s manufacturing PMI by S&P edged lower to 47.7 in June 2023 from 47.8, indicating subdued productions in the sector amidst global slowdown.

Other Markets

Gold: Gold price rose 0.1% to USD1,922/oz as weak economic data in US fuel recession worries.

Crude Oil: Oil prices closed lower with Brent fell 0.3% to USD75 per barrel as market players remained concerned about global growth.

FBM KLCI: The FBM KLCI was up by 1.4% to 1,396. Detailed transactions showed that foreign investors were the net buyers with RM83.0 million flow, while being offset by the net selling flow from local institutions and retailers with RM45.7 million and RM37.3 million flow, respectively.

US Equities: Wall Street advanced with Dow Jones climbing 0.03% to 34,418, S&P500 gaining 0.1% to 4,456, and Nasdaq rising 0.2% to 13,817.

Source: AmInvest Research - 4 Jul 2023