Snapshot Summary…

Global FX: The Greenback Rose After Multiple Session of Bearish Run

Global Rates: Yields on Friday Closed Higher in the UST, Bunds, and Gilts Market

MYR Bonds: Malaysian government bonds strengthened on the back of UST gains and the stronger ringgit

USD/MYR: Ringgit on Front Footing, in Tandem With Regional Performances

Macro News

United States: University of Michigan’s inflation expectations (preliminary estimates) reveal that year-ahead inflation expectations in July 2023 slightly increased to 3.4%, surpassing market expectations of 3.3%. However, it is significantly lower than the peak of 5.4% observed in April 2022.

Euro Area: In May 2023, the Eurozone's trade deficit saw a significant reduction to EUR0.3 billion, compared to EUR30.3 billion in the same period last year. The improvement was driven by a sharp decline in imports, particularly due to the lower energy prices, while exports of food and cars rebounded.

Japan: Japan's industrial production experienced a significant decline of 2.2% m/m in May 2023 (April 2023: 1.6% m/m), marking the first decrease since January. This contraction was primarily driven by a notable decrease in the output of motor vehicles, electrical machinery, electronics equipment, and inorganic and organic chemicals. However, on a yearly basis, industrial production in Japan saw a positive trend, with a growth rate of 4.2%.

Fixed Income

US Treasuries: Despite backtracking weaker on Friday, the UST market completed a stronger close last week. On Friday, the 2Y UST rose 12 bps to 4.73% but was down 21 bps for the week. The 10Y rose 6 bps to 3.82% on Friday but fell 23 bps w/w. Friday saw the release of a better than expected University of Michigan Consumer Sentiment survey at 72.6 reading against consensus of 65.6. Also on Friday, Fed Governor Christopher Waller (voter) said that he expects two more rate hikes this year.

Other Major Bonds: German and UK government bonds mirrored the general direction of the US bond market. There was firm pickup after the US CPI release last week, but Friday saw modest weakness. On Friday, Germany’s wholesale prices index fell by 2.9% y/y in June or the largest decline since June 2020.

MYR Government Bonds: Malaysian government bonds strengthened on the back of UST gains and the stronger ringgit. After BNM’s action to hold the OPR level a week ago, front end MGS yields continued to fall resulting in the 3Y against OPR spread to narrow below 40 bps as the 3Y MGS ended Friday at 3.37%. Meanwhile, the 10Y MGS fell 6 bps to close the week at 3.79%. The 3Y and 10Y movements sent the yield curve to bull steepen, as the 10Y-3Y spread widened from around 38 bps over a week ago to 45 bps last week.

MYR Corporate Bonds: MYR corporate bonds closed firmer on Friday to complete a strong weekly performance, supported by gains in the MGS segment and the ringgit. Traded volume on Friday was heavier at RM644 million compared to RM205 million in the prior session. Notable trades include PASB 04/31 (AAA) at 4.15% on RM40 million volume as well as AA-flat PTP 08/27 on RM30 million volume.

Forex

DXY Index: The dollar index took a breather from its bearish trend and gained 0.1% to end the day at 99.91. The US Fed governor Christopher Waller said that he is not ready to become comfortable with inflation as he favoured more rate hikes this year even though the market only pricing in final rate hike in July meeting.

EUR: The euro rose only by a slight 0.02% to 1.123. Minutes from June’s policy meeting showed that policymakers believe further rate hike could be “necessary” after the pre-set July 25 bps rate hike amidst too high inflation to ensure tight monetary policy is being properly communicated.

GBP: The pound fell 0.3% to 1.309. The UK’s inflation rate for June 2023 will be at the centre stage this week where the market is expecting for it to slow to 8.2% y/y from the surprise 8.7% y/y prior reading. If price pressure surprises to the upside, expectations for BoE peak rate hike cycle could be higher and may support the GBP.

JPY: The Japanese yen weakened 0.5% to 138.80 after the recent bullish run. Japan’s inflation data also will be released this Friday, which may provide clearer picture if the inflation rate have sustainably achieved the BoJ’s 2.0% target, a prelude before tweaking its policy stance.

CNY: The Chinese yuan firmed 0.1% to close Friday at 7.142 ahead of heavy economic data this week including 2Q2023 GDP growth (cons.: 7.3% y/y), June industrial production (cons.: 2.7%) and unemployment rate.

AUD: The Aussie dollar fell 0.7% to 0.684. This week, market players will be looking at RBA’s July meeting minutes to gauge rate outlook after the central bank held its interest rate unchanged at 4.10%, citing more time needed to assess the impact of rate hikes.

KRW: The Korean won appreciated slightly by 0.7% to close at 1,266. On Friday, the finance ministry stated that the downward pressure on the economy is easing due to improving exports, still healthy domestic consumption, improved sentiments and robust employments although the country is still experiencing slowdown.

MYR: The ringgit surged 1.2% to 4.527 and traded within the range of 4.514 and 4.560. Both Singapore and Malaysia will set up a task force to study setting up a special economic zone in Johor which will provide drive for sustainable growth, develop human capital and improve infrastructure and connectivity.

Other Markets

Gold: Gold prices eased 0.3% to USD1,955/oz as market players bet on Fed to pause earlier than expected.

Crude Oil: Oil prices fell due to profit taking. Brent shed 1.8% to USD79 per barrel while WTI dipped 1.9% to USD75 per barrel.

FBM KLCI: The FBM KLCI was up 1.1% to 1,412. Detailed transactions showed that foreign investors were the net buyers with RM468.9 million flows, while being offset by the net selling flow from local institutions and retailers with RM313.6 million and RM155.3 million, respectively.

US Equities: Wall Street closed mixed with Dow Jones rising 0.3% to 34,509, but S&P500 fell 0.1% to 4,505 and Nasdaq was down 0.2% to 14,114.

Source: AmInvest Research - 17 Jul 2023