Snapshot Summary…

Global FX: DXY Fell After Mixed Labour Market Data

Global Rates: US Treasuries, Alongside Germany’s and UK Government Bonds Closed Weaker Last Friday

MYR Bonds: MGS Market Posted Losses Last Friday Which Reversed Prior Day Gains Post MPC Meeting

USD/MYR: Malaysian ringgit ended the week on weaker note. Investors will be looking at a set of economic data due to be released this week.

Macro News

United States: The unemployment rate in the US declined slightly to 3.6% in June 2023 (May 2023: 3.7%), marking a decrease from May's seven-month high of 3.7%. This aligns with market expectations and indicates a consistently tight labour market. The Federal Open Market Committee (FOMC) is likely to continue raising interest rates to combat inflation due to this stable jobless rate. The number of unemployed individuals decreased by 140K to 5.96 million, while employment levels increased by 273K to 160.99 million.

Japan: In May 2023, average cash earnings in Japan saw a significant increase of 2.5% y/y. This growth surpassed expectations of a slower 0.7% gain and marked an acceleration from the 0.8% growth observed in April. Major companies responded to increased worker demands during the spring labour negotiations by raising pay at the fastest rate in three decades. However, despite the improvement in nominal wages for the seventeenth consecutive month, Japan's nominal wage growth still fell behind the 3.2% consumer inflation rate in May.

Fixed Income

US Treasuries: US Treasuries closed mixed last Friday. Short tenor notes posted gains where the 2Y fell 3 bps to 4.95% but the 10Y weakened as it edged 3 bps higher to 4.06%. However, the entire UST closed weaker during the week. Friday’s shorter tenor gain was after the NFP report of 209K jobs increase but short of consensus and also much lower than the nearly 500K jobs increase in the ADP report on Thursday.

Other Major Bonds: Germany’s and UK government bonds closed Friday within a tight range from their prior day’s close, though both ended weaker for the week. ECB policymaker Luis de Guindos said policymakers are not yet done with rate hikes while President Lagarde said that there is to be done to lower inflation.

MYR Government Bonds: MGS market posted losses last Friday which reversed prior day gains post MPC meeting. Sentiment in bond markets continued to weaken alongside hawkish tone of global central banks, and as the ringgit continued to weaken in the face of strong dollar amid global risk aversion. Week-on-week, the three-year MGS closed 6 bps higher to 3.55%.

MYR Corporate Bonds: Malaysia’s corporate bonds closed mixed on Friday, on relatively lighter RM247 million volumes. Notable trades include AA3 rated BGSM 06/24 at 3.92% on RM30 million traded and AA1 KLK 03/32 at 4.27% on RM30 million volume.

Forex

DXY Index: The dollar index fell 0.9% to 102.27 following mixed US labour market data released. Private businesses added only 209k jobs, falling short from market forecast while wage growth was at 4.4% y/y, faster than consensus of 4.2% y/y. Focus this week will be on US June’s inflation rate where the market is expecting for it to ease further to 5.0% y/y from 5.3% y/y in the previous day.

EUR: Alongside weaker dollar, the euro climbed 0.7% to 1.097. Despite the hawkish sentiment surrounding the ECB, Luis de Guindos, stated that there are signs that price pressure in the region is starting to ease. Although he noted that policymakers’ job is still not done yet with wage inflation pressures are rising.

GBP: The pound gained 0.8% to 1.284, being supported by prospect of higher interest rate due to more stubborn inflation compared to other developed countries. On the data front, the UK’s house price contracted by 2.6% y/y, the fastest decrease since June 2011, pressured by elevated interest rate and high living costs.

JPY: The Japanese yen strengthened to close at 142.21, or an 1.3% increase compared to the previous session. Nominal wages in Japan grew 2.5% y/y in May, beating market expectation of 0.7% gains, and putting pressure on the BoJ to change its policy stance sooner. Market players also will be looking out the intervention by authorities amidst yen slide against the dollar, which last happened when the USD/JPY pair hit 145-level.

CNY: The Chinese yuan appreciated by 0.3% to close at 7.225 after the PBoC fixed its yuan’s reference rate stronger than expected (7.2054 vs. cons. 7.2098) amidst increasing signs of authorities’ uneasiness on yuan’s weakness.

AUD: The Aussie dollar rose 1.0% to 0.669, in tandem with stronger yuan. This week, focus will turn towards consumers’ and business’ confidence indicator to gauge the recession risk in the economy amidst high inflation and tight monetary policy.

KRW: The Korean won weakened 0.3% to 1,305. South Korea’s central bank will meet up this week on 12th July for its policy decision. The consensus is looking for the Bank of Korea (BoK) to hold its interest rate unchanged at 3.50% for the fourth straight times as inflation pressure is seen alleviating in the country. Nonetheless, policymakers remained wary if the pressure resurface amidst high commodity prices.

MYR: The Malaysian ringgit depreciated 0.1% to 4.667 and traded within the range of 4.662 and 4.674 despite the stronger yuan. Among data that will be released this week is May’s unemployment rate, industrial production, and retail sales.

Other Markets

Gold: Gold prices rose 0.7% to USD1,925/oz as mixed job data may suggests increasing recessionary risks.

Crude Oil: Brent surged 2.5% to USD78 per barrel while WTI climbed 2.9% to USD73 per barrel as tight supply worries overwhelmed the market.

FBM KLCI: The FBM KLCI fell 0.6% to 1,378. Detailed transactions showed that foreign investors were the net sellers with RM187.1 million flow, while being offset by the net buying flow from local institutions and retailers with RM160.6 million and RM26.6 million flow, respectively.

US Equities: Wall Street in the red, taking cue from the mixed labour market data. Dow Jones dropped 0.6% to 33,735, S&P500 fell 0.3% to 4,399 and Dow Jones fell 0.1% to 13,661.

Source: AmInvest Research - 10 Jul 2023