Snapshot Summary…

Global FX: DXY Fell Amidst Improved Risk Sentiment as the EUR and GBP Rose

Global Rates: UST was supported across the curve by news of more property-related stimulus measures in China and release of weak sentiment surveys from Germany and the eurozone

MYR Bonds: While short-ends fell, yields at long ends edged higher following the announcement of 10Y MGS reopening auction

USD/MYR: Malaysian Ringgit on Front Footing, in Tandem With Most Regional Currencies’ Performance

Macro News

United Kingdom: The unemployment rate in the United Kingdom rose to 4.0% in May 2023 (April 2023: 3.8%), the highest level since the Bank of England (BOE) began its monetary policy tightening. The number of unemployed increased by 77K to 1.37 million, driven by people unemployed for up to 12 months, while employment levels rose by 102K to 33.05 million, mainly attributed to part-time employees.

China: China's banks issued CNY 3.05 trillion in new yuan loans in June 2023 (May 2023: CNY 1.36 trillion), marking the highest amount of new bank loans for a June month since 2004. The surge in loan issuance was driven by increased credit demand following the People's Bank of China's (PBOC) decision to lower key lending rates on 20 June.

Malaysia: The Domestic Trade and Cost of Living Minister stated that controlled items like sugar and non-controlled items such as bottled cooking oil are closely monitored by the ministry to ensure price stability. Meanwhile, the Employees Provident Fund (EPF) stated that there are no changes to the current lump sum withdrawal options at age 55 and 60 for existing members. The current monthly withdrawal option is only applicable to members who choose to opt in voluntarily.

Fixed Income

US Treasuries: US Treasuries mainly posted mild gains except on the 2Y which weakened as its yield rose 2 bps to 4.87%. The 10Y UST yield fell 2 bps to 3.97%. UST was supported across the curve by news of more property-related stimulus measures in China and release of weak sentiment surveys from Germany and the eurozone.

Other Major Bonds: Germany’s bonds closed modestly firmer. Germany's July ZEW Economic Sentiment reading fell to -14.7 from -8.5 prior month (cons.: -10.5) and July ZEW Current Conditions index fell to -59.5 from -56.5. The June CPI was up 0.3% m/m for final reading, as expected (May: -0.1%). Eurozone's July ZEW Economic Sentiment fell to -12.2 from -10.0. UK bonds closed a tad weaker as the 10Y rose 2 bps overnight. The UK unemployment rate surprised markets, rising to 4%.

MYR Government Bonds: Government yield curve on the short end skewed slightly towards reflecting current OPR of 3.00%, though from historical spread perspective current levels of bond prices is still pricing in likelihood of a rate hike. While short-ends fell, yields at long ends edged higher following the announcement of 10Y MGS reopening auction with a slightly larger-than-expected size of RM5.5 billion. WI was last traded 3.90%

MYR Corporate Bonds: Corporate bonds closed stronger, but volume traded was slightly lighter at RM332 million yesterday. Notable trades include AA1 Maybank at 4.16% on RM20 million trades and AAA PLUS 01/30 at 4.09% also on RM20 million volume.

Forex

DXY Index: The dollar index was on the downside for the fourth consecutive session, falling 0.2% to close at 101.73, amidst general risk-on mode and taking cue from several US Fed officials hints that the central bank’s rate hike cycle is nearing its end. Those officials include San Francisco President Mary Daly (non-voting) and Fed Vice Chair Michael Barr (voting). By the end of the session, the DXY also fell against most of emerging market currencies.

EUR: The euro gained 0.1% to 1.101 by the end of the day after trimming some gains following the worsened ZEW Economic Sentiment reading for both Germany and Eurozone. It showed further deterioration of economic condition due to tight monetary policy and perceived weak export markets such as China.

GBP: The pound climbed 0.6% to 1.293 following mixed labour market data. Although unemployment rate spiked to 4.0%, the highest level since 2021, compared to market expectation of 3.8%, the average weekly earnings have grown 6.9% y/y during the three months to May compared to forecast of 6.8% y/y, underpinning the wage-driven inflation and putting pressure on BoE to take further steps in tightening its policy.

JPY: The Japanese yen continued to benefit from the weaker dollar, strengthening by 0.7% to 140.36. The currency is also being supported by the prospect of intervention by authorities due to its recent slide towards the 145-level.

CNY: The Chinese yuan firmed 0.2% to 7.210. China’s outstanding yuan loans grew 11.3% y/y in June 2023, slower than 11.4% y/y in the prior month which reflects slow economic activities and cautious sentiment despite the recent policy easing measures done by authorities.

AUD: The Aussie dollar rose 0.2% to 0.669 as improved sentiments were seen among both consumers and businesses. Report by Westpac showed Consumer Confidence Index grew to 81.3 from 79.2 while National Australia’s Bank (NAB) Business Confidence Index increased to 0 from -3.

KRW: The Korean won strengthened 1.0% to 1,294. South Korea’s unemployment rate inched higher to 2.6% in June 2023 from 2.5% estimate and prior month reading.

MYR: USD/MYR strengthened 0.2% to close near its intraday low at 4.659. Focus today will be on May’s retail sales and industrial production (IP) which may provide clearer picture on where Malaysia’s economy is currently standing amidst slowing global trade. Consensus is looking for the IP to marginally grow at 0.3% against April’s reading of 3.3% contraction.

Other Markets

Gold: Gold Prices Rose 0.4% to USD1,932/oz Due to Weaker Dollar and Recessionary Prospect.

Crude Oil: Oil prices surged as Brent jumped 2.2% to USD79 per barrel while WTI surged 2.5% to USD74 per barrel as falling dollar and improved risk sentiment helped support the price.

FBM KLCI: The FBM KLCI climbed 0.6% to 1,391. Detailed transactions showed that local institutions were the net buyers with RM60.1 million flow, while being offset by the net selling flow from foreign investors and local retailers with RM40.9 million and RM19.2 million, respectively.

US Equities: Wall Street closed higher with. Dow Jones rising 0.9% to 34,261, S&P500 gaining 0.7% to 4,439 and Nasdaq rising 0.5% to 13,761.

Source: AmInvest Research - 12 Jul 2023