Snapshot Summary…

Global FX: DXY Was Supported by Hawkish Fed Meeting Minutes, Pushing EUR and GBP Lower

Global Rates: US Treasuries closed with losses as the 10Y yield climbed 8 bps, alongside with weaker performances on Gilt and Bund

MYR Bonds: Another Weak Day for Malaysia’s Government Bonds Market Ahead of the BNM MPC Meeting

USD/MYR: Malaysian Ringgit Weakened as Investors Remained Cautious

Macro News

United States: Minutes released on Wednesday from the Federal Reserve's June meeting indicate that nearly all officials expect further tightening of monetary policy, albeit at a slower pace than the rapid rate increases observed since last year. While most members anticipate future rate hikes, they decided against raising rates in June due to concerns about economic growth.

Euro Area: In May 2023, producer prices in the Euro Area declined by 1.5% y/y, the first decline since December 2020. This drop was driven by a significant 13.3% decrease in energy costs and a 1.5% decline in the cost of intermediate goods. Inflation also slowed for capital goods, durable goods, and non-durable consumer goods. Excluding energy, producer price inflation decelerated to 3.4% y/y.

United Kingdom: The S&P Global/CIPS UK Composite PMI dropped to 52.8 in June 2023 (May 2023: 54.0), indicating a slower rate of private sector output expansion compared to the previous month. Service sector activity increased, but manufacturing production continued to decline. New orders in the private sector experienced only slight growth, while employment rose, and backlogs of work decreased significantly. Input cost inflation was the lowest since February 2021, and prices charged increased at the slowest pace in 26 months.

China: The Caixin China General Composite PMI declined to 52.5 in June 2023 (May 2023: 55.6), signalling slower growth compared to previous months. The service sector grew at its weakest pace in six months, while manufacturing showed modest growth for the second consecutive month. New orders and export sales increased at a slower rate, while employment improved mainly due to job creation in the service sector. Input costs fell for the first time in over three years, leading to a decrease in output charges.

Fixed Income

US Treasuries: US Treasuries closed with losses as the 10Y yield ended 8 bps higher at 3.93%. Early gains in UST were noted, on the back of weak global PMI numbers, including weak services PMIs in Germany, were reversed with release of the latest FOMC meeting minutes. The minutes show most policymakers think more rate hikes will be appropriate before the year ends.

Other Major Bonds: Europe saw weak data releases including Eurozone's May PPI was down by 1.9% m/m versus last -3.2% and Germany's June Services PMI fell to 54.1 from 57.2 previously. Meanwhile, the June Services PMI in the UK fell to 53.7 from 55.2. However, Germany’s 10Y yields rose a modest 3 bps to 3.48% and the UK was up 9 bps to 4.50% as hawkish signs in the FOMC minutes drove sentiment.

MYR Government Bonds: Another weak day for Malaysia’s government bonds market as participants continued to cut holdings ahead of the BNM MPC meeting. MGS and GII yields inched higher by another 1-2 bps, but the curve was supported by local players who emerged to buy on dips. By the close, the 3Y MGS was at 3.51% or 51 bps over the OPR and fully pricing in a BNM hike today.

MYR Corporate Bonds: Corporate bonds continued to close mixed amid generally cautious sentiment before MPC. However, total volume traded was decent at RM406 million. Notable trades included Digi 05/30 (AAA) on RM70 million volume and last done at 4.12%. Another notable trade was AAA rated Public Islamic Bank 12/27 at 4.12% on RM50 million volume.

Forex

DXY Index: The dollar index gained 0.3% to 103.37 due to dollar demand after hawkish June’s FOMC meeting minutes. Almost all policymakers, during the meeting, expected more rate hikes this year, citing the still resilient labour market and minimal signs that inflation is heading towards the 2.0% Fed target. As of writing, traders are pricing in 88.7% probability for the Fed to raise Fed Funds Rate (FFR) by 25 bps.

EUR: The euro fell 0.2% to 1.085 alongside a stronger dollar and slower Eurozone’s PPI. Data showed producer inflation dropped 1.9% m/m, worse than the market estimate of a 1.8% drop.

GBP: The pound shed 0.1% to 1.270 after the lower S&P Services PMI reading signalled growth in the services sector is slowing and increasing the recession risks amidst high interest rate levels.

JPY: The Japanese yen depreciated 0.1% to 144.66, weighed by the prospect of higher US interest rate. On the macro front, Japan Services PMI saw lower reading as well at 54.0 from record high of 55.9 in the previous month.

CNY: The Chinese yuan was closed weaker at 7.251 or 0.5% lower after data showed services PMI fell to 53.9 in June from 57.1, the lowest level since January 2023 as recovery in China post-Covid remained questionable.

AUD: The Aussie dollar dipped 0.6% to 0.666 as investors focus turned towards Fed’s July meeting rate hike prospect and Services PMI data which indicated marginal growth. The headline reading fell to 50.3 from 52.1 as new businesses growth softened.

KRW: The Korean won appreciated 0.2% to close the session at 1,299. With recent high inflation rate in South Korea appears to be easing, it put less pressure on BoK to raise its interest rate further.

MYR: The Malaysian ringgit weakened marginally by 0.04% to 4.652 and traded within the range of 4.655 and 4.639 as market player remained cautious ahead of MPC meeting

Other Markets

Gold: Gold Prices Were on Back-footing, Falling 0.5% to USD1,915/oz as Yields Rose.

Crude Oil: Brent jumped 0.5% to USD77 per barrel while WTI rose 1.6% to USD72 per barrel, still benefitting from the supply cut announcement from Saudi Arabia and Russia.

FBM KLCI: The FBM KLCI fell 0.2% to 1,390. Detailed transactions showed that foreign investors were the net sellers with RM23.2 million flow, while being offset by the net buying flow from local institutions and retailers with RM19.4 million and RM3.8 million flow, respectively.

US Equities: Wall Street closed lower, taking cue from the hawkish Fed meeting minutes. Dow Jones dropped 0.4% to 34,289, S&P500 fell 0.2% to 4,447 and Dow Jones fell 0.2% to 13,792.

Source: AmInvest Research - 6 Jul 2023