Snapshot Summary…

Global FX: The dollar fell with the DXY down by 0.2% to 103.7. Pressure on the dollar was yesterday’s ADP jobs data and lower jobless claims

Global Rates: Gilts and Bunds post large losses with sentiment still reeling from hawkish tone in the Fed meeting minutes

MYR Bonds: MGS/GII recovered the morning losses and gained, especially on the front ends. BNM maintained the OPR at 3.00%. Overall, the tone from the latest monetary policy statement was neutral

USD/MYR: Malaysian Ringgit Weakened as Investors Remained Cautious

Macro News

United States: The labour market continues to remain tight. Based on ADP, private businesses in the US created 497K jobs, the highest since February 2022, surpassing the forecasted 228K. The services sector added 373K jobs, led by leisure and hospitality (232K); trade/transportation/utilities (90K); and education/health (74K). However, job losses were observed in information (-30K); financial activities (-16K); and professional/business (-5K). On the wage front, pay increases slowed for both job changers (11.2%, the slowest since October 2021) and job stayers (6.4% vs 6.6%).

Malaysia: In line with our expectation, Bank Negara Malaysia (BNM) maintains the Overnight Policy Rate (OPR) at 3.00%. Overall, the tone from the latest monetary policy statement was neutral and similar to the previous one back in May 2023. Maintaining the OPR at the current rate is important to support the domestic economy, as the outlook from the external factors is still dimmed. Point to be noted, latest trade growth numbers for Malaysia remained in the negative territory, and the manufacturing PMI continue its downward trend.

Fixed Income

US Treasuries: US Treasuries posted more losses overnight with the 2Y up another 4 bps to 4.98% but touched 5.01% intraday or past the highs of the previous quarter. UST losses upon ADP jobs release where private sector hiring rose by 497K in June following 267K in May. Then the market saw initial jobless claims for the week ended 1 July up by 12K to 248K. Better ISM Non-Manufacturing Index for June which up to 53.9% from 50.3% in May added to UST losses.

Other Major Bonds: European bond markets were still reeling from the Fed’s minutes. Eurozone's May Retail Sales were unchanged m/m (prior month at 0%). Germany's May Factory Orders rose 6.4% m/m (month before at 0.2%). Bund yield on the 10Y rose to 2.63% or the highest in the last two weeks. UK 10Y rose to around 4.66% or up by 17 bps for the day.

MYR Government Bonds: Ringgit bonds were traded cautiously ahead of BNM MPC meeting with the yields edging higher by 2-3bps tracking higher UST overnight on hawkish signals from the US Fed’s latest meeting minutes. Post BNM OPR decision, MGS/GII recovered the morning losses and gained, especially on the front ends. The 3Y MGS was seen quoted below 3.50%.

MYR Corporate Bonds: PDS space also strengthened with volume traded at a heavy RM393 million. Notable trades in the corporate bond space were a couple of AAA rated PLUS papers. PLUS 01/32 was dealt at 4.20% on RM40 million volume and PLUS 01/33 at 4.24% on RM40 million also.

Forex

DXY Index: The dollar fell with the DXY down by 0.2% to103.7. Pressure on the dollar was yesterday’s ADP jobs data and lower jobless claims would support Fed’s hawkish stance and raise worries the US economic growth is at risk.

EUR: The euro gained on the weaker US dollar amid the release of firm US labour data ahead of NFP this week. EUR/USD rose 0.3% to 1.089.

GBP: The pound also gained versus the dollar. GBP continued to gain after last month’s larger than expected BOE hike and expectations of more hikes into next year.

JPY: The Japanese yen rose by 0.4% against the US dollar as the greenback fell post release of better ADP jobs data. The USD/JPY pair ended at 144.07. JPY was aided by comments from BOJ Deputy Governor Sinichi Uchida who signaled preference to alter BOJ’s yield curve control policy to rise 50 bps to the 10Y JGB limit.

CNY: China’s currency posted strength after the central bank added reassurances it will stabilise it, saying it has abundant tools to ensure smooth operations of the FX market. PBOC then set the midpoint of CNY fixing at 7.2098 which was firmer than expectations.

AUD: Australia's May trade surplus reached AUD11.791 billion (April at AUD10.454 billion) as imports grew 2.5% m/m (1.7%) and exports rose 4.4% m/m ( -6.4%). AUD closed at 0.663.

KRW: The Korean won fell to backtrack prior day’s gain; USD/KRW touching 1,301 from 1,299 prior session. 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 ringgit closed weaker against the US dollar yesterday amid the hold in the OPR and after the dollar strengthened as the latest meeting minutes of the Fed indicated more interest rate hikes in the US. USD/MYR closed yesterday at 4.66 or up by 0.2%.

Other Markets

Gold: Gold prices were rangebound as the USD fell. Its price fell 0.5% to USD1,915/oz as yields rose.

Crude Oil: Brent fell 0.2% to USD76.5 per barrel while WTI was little changed at USD71.80 per barrel. EIA said crude inventories declined 1.5 million barrels from the previous week.

FBM KLCI: The FBM KLCI fell 0.3% to 1,386. Detailed transactions showed that foreign investors were the net sellers with RM92.0 million flow, while being offset by the net buying flow from local institutions and retailers with RM40.6 million and RM51.5 million, respectively.

US Equities: Wall Street closed broadly lower after print of strong economic data. Dow Jones dropped 1.1% to 33,922, S&P500 fell 0.8% to 4,412.

Source: AmInvest Research - 7 Jul 2023