Snapshot Summary…

Global FX: The Market Continued to Turn Away From USD as Signs of Easing Inflation Continued

Global Rates: UST market, alongside with Gilts and Bunds, continued to rally as each 10Y yields went down by around 9 bps

MYR Bonds: MGS market rallied yesterday to follow overnight UST post US CPI release and reflecting the MYR strength

USD/MYR: Malaysian Ringgit Remained on Bullish Trend, Helped by Weaker Dollar

Macro News

United Kingdom: The British economy contracted by 0.1% in May 2023 (April 2023: 0.2%). Factors like an extra bank holiday and strikes affected production the most, causing a 0.6% decline. However, human health and social work activities within services increased by 1.1%, offsetting some of the decline. Over the three months leading up to May, the British economy showed 0.0% growth.

South Korea: The Bank of Korea, as expected, maintained its base rate at 3.50% during the July meeting, marking the fourth consecutive meeting with no rate changes. This decision aligns with the easing inflationary pressures. Prior to this, the central bank had implemented seven consecutive rate hikes since April 2022. The board noted that the sluggishness in the domestic economy has improved to some extent, primarily due to a moderation in export declines.

China: China's exports experienced a significant decline of 12.4% in June 2023 (May 2023: -7.5%), representing the largest drop since February 2020. Notably, sales declined for unwrought aluminium and related products, steel products, and grains. However, there was an increase in exports of refined products and rare earth materials. Similarly, imports also declined by 6.8% (May 2023: -4.5%), marking the fourth consecutive month of declining imports, primarily driven by weakening domestic demand.

Fixed Income

US Treasuries: UST continued to rally. The 10Y UST fell 9 bps to 3.76%. The probability of a September Fed hike fell to 12.9% overnight from 27.5% last week. Meanwhile, PPI final demand increased by 0.1% m/m in June while the June number was downwardly revised to decline of 0.4% (from -0.3%) in May. Initial jobless claims for the week ended 8th July fell by 12k to 237k.

Other Major Bonds: Germany’s and UK’s government bonds strengthened where their 10Y papers were dealt around 9 bps lower. Nevertheless, their yields remained near the highest since March amid an outlook for continued tightening by ECB and BOE. Eurozone's May Industrial Production growth registered at 0.2% m/m but lower versus prior month’s 1.0%) while it was down 2.2% y/y. UK’s May GDP contracted 0.1% m/m or down from 0.2% growth previously.

MYR Government Bonds: MGS rallied yesterday to follow overnight UST post US CPI release and reflecting the MYR strength. The yield curve shifted 3-6bps lower on slight flattening bias following a strong 10Y MGS auction result. The RM5.5 billion reopening auction of MG 11/33 closed with at BTC of 2.64x. Post auction, the stock was traded near auction lowest yield of 3.831%.

MYR Corporate Bonds: MYR corporate bonds closed with mostly net buying activity. Volume was heavy at RM10.8 billion yesterday against RM473 million the day before. Trades were led by a couple of AAA papers. AAA Tenaga 08/33 was last traded at 4.23% on RM50 million volume while AAA PLUS 01/30 closed at 4.10% on RM40 million flows.

Forex

DXY Index: The dollar index fell 0.7% to below 100-level at 99.77 for the first time since April 2022 on the back of signs of further easing of inflation and further improvement in risk appetite. The producer price index grew only by 0.1% m/m in June (cons.: 0.2%), which translates into 0.1% annual growth. However, lower initial jobless claims underpin the still tight labour market.

EUR: The euro climbed 0.9% to 1.123 as softer US inflation prompted market players to dial down their US Fed Funds rate outlook but remain cautious on the ECB’s part. Amidst tight monetary policy and slowing global growth, the Eurozone’s industrial production contracted 2.2% y/y after a marginal growth of 0.2% y/y in the prior month. This may signal the increasing recessionary risk in the region.

GBP: The pound climbed 1.1% to 1.314 as it benefitted from the still hawkish central bank in fighting UK’s stubborn inflation. In addition, the recent monthly GDP indicated the local economy may be on stronger footing as it declined by 0.1% m/m in May compared to the forecast of 0.2% m/m decline.

JPY: The Japanese yen continued its bullish trend, firming 0.3% to close at 138.05, supported by the weakened dollar and the expectations for yield curve control (YCC) policy tweak during the upcoming 28th July policy meeting.

CNY: The Chinese yuan appreciated 0.2% to 7.149 following the weaker-thanexpected external trade data, which reflects still shaky recovery in the economy post Covid. While this could spell weakening trend for the currency, but the downside may be limited as the PBOC may continue to fix yuan at a stronger rate.

AUD: The Aussie dollar gained 1.5% to its almost one-month high at 0.689. Australia’s consumer inflation expectations were unchanged at 5.2% in July 2023 and lower than 6.0% reading back in November 2022, making the case for the RBA to pause its rate hike cycle.

KRW: The Korean won appreciated 1.1% to 1,275 as the BOK kept its interest rate unchanged at 3.50% for the fourth consecutive meeting as inflation has eased in the country.

MYR: The ringgit surged 1.5% to 4.582 as attention has turned away from the USD on recent inflation backdrop in the US which sparks risk-on mode into emerging market FX space, marking the best daily performance since December 2022. It was traded within the range of 4.582 and 4.624.

Other Markets

Gold: Gold Prices Rose 0.2% to USD1,961/oz as Rate Hike Expectations Have Eased.

Crude Oil: The same sentiment helped oil prices as Brent rose 1.6% to USD81 per barrel while WTI climbed 1.5% to USD76 per barrel.

FBM KLCI: The FBM KLCI was down 0.1% to 1,396. Detailed transactions showed that foreign investors were the net buyers with RM129.2 million flows, while being offset by the net selling flow from local institutions and retailers with RM96.8 million and RM32.5 million, respectively.

US Equities: Wall Street closed higher with Dow Jones rising 0.1% to 34,395, S&P500 gaining 0.8% to 4,510 and Nasdaq rising 1.6% to 14,139.

Source: AmInvest Research - 14 Jul 2023