Global FX: DXY gained while EUR and GBP fell as the pace of inflation in Europe numbers point to potential end of tightening cycle soon

Global Rates: Major Bonds Rallied on Weaker Than Expected European Inflation

MYR Bonds: Heavy trading volume across govvies and credit with short-end and belly of the curve closed non-identical

USD/MYR: MYR Weakened Ahead of Mid-week Holiday.

Macro News

United Kingdom: Consumer price inflation in the UK dropped to 7.9% in June 2023 (May 2023: 8.7%), the lowest since March 2022 and slightly below market expectations of 8.2%. The decline was mainly due to lower fuel prices. The core inflation rate excluding volatile items, eased to 6.9% (May 2023: 7.1%). Despite the slowdown, both rates are still well above the Bank of England's 2.0% target, strengthening the case for further policy tightening.

Euro Area: The Euro Area's consumer price inflation rate was confirmed at 5.5% for June 2023, the lowest since January 2022, mainly due to lower energy prices. However, the core inflation rate, which excludes food and energy, increased to 5.5%, slightly above the preliminary estimate. Energy prices saw a significant decline, while food, alcohol & tobacco, and non-energy industrial goods rose at a softer pace. Services inflation picked up. These figures suggest that ECB policymakers are likely to continue raising rates in the coming months.

Fixed Income

US Treasuries: Treasuries rallied overnight with the 10Y UST declining 4 bps to 3.75%. Supporting the gains were the release of weaker than expected UK CPI as well as reaffirmation of the Eurozone CPI, suggesting that major central banks are at the tail-end of the current tightening cycle.

Other Major Bonds: Europe’s leading bond markets, German bunds and UK gilts were boosted on Wednesday amid release of weaker-than-expected UK inflation data. Sentiment remained aided by comments from policymaker Joachim Nagel earlier this week who warned that incoming data should dictate further tightening.

MYR Government Bonds: On Tuesday, Ringgit bond markets recorded heavy trading a day before the midweek holiday. The 3Y MGS rose 2 bps to 3.38% but the 5Y and 7Y each fell 1 bp to 3.55% and 3.70% respectively. However, the 3Y MGS remains >10 bps below a week ago levels. Meanwhile, ahead of 7Y GII reopening auction, WI was heard at 3.79/73%.

MYR Corporate Bonds: Corporate bond trading was also heavier, recorded at RM941 million. Similar to the MGS/GII market, gainers led losers. Notable trades include AA1 Maybank 08/31 at 4.10% on RM100 million volume and AAA PLUS 01/32 at 4.13% on RM45 million volume.

Forex

DXY Index: The greenback gained 0.3% to 100.28 as market players turned their attention back to the US Fed meeting next week. On Tuesday, US retail sales grew slower by 0.2% m/m, down from May’s 0.5% m/m and falling short of market expectations of 0.5% m/m. This translates into 1.5% y/y growth which hovering near its lowest level since 2020, reflecting the slowing consumer spending amidst high interest rates.

EUR: The euro fell 0.2% to 1.120, retreating from its recent high. The final June’s inflation reading for the Eurozone was affirmed at 5.5%, signalling that the ECB is getting closer to the end of tightening cycle.

GBP: The pound shed 0.7% to 1.294 following the lower-than-expected inflation rate (7.9% y/y vs. cons. 8.2% y/y). Also, PPI output inflation eased to 0.1% y/y from 2.7% in the prior month. The easing price pressure suggests that the BOE may not raise interest rates as large as initially expected where the WIRP was earlier looking at 6.15% by December 2023. The figure has now fallen to 5.77%.

JPY: The Japanese yen weakened 0.6% to 139.65. The Reuters Tankan Index fell to +3 in July from +8 in June. Concerns on slowing global trade and ongoing geopolitical conflict remain among manufacturers.

CNY: The Chinese yuan depreciated 0.5% to 7.223, attributed by the lingering grim sentiment on the currency following weaker-than-expected GDP data.

AUD: The Aussie dollar fell by 0.6% to .677 in tandem with weaker yuan. Meanwhile, the RBA’s meeting minute showed that the central bank remained open in raising interest rate further if inflation pressure remains after it held the key rate unchanged 4.10%.

KRW: The Korean won depreciated 0.4% to 4.540 amidst broad risk-off sentiment and in line with regional currencies’ performances.

MYR: On Tuesday, the ringgit was weakened 0.05% to 4.540. Focus today will be on Malaysia’s external trade data where consensus is looking for the export to decline by 14% while imports to decline by 16.5%, amidst slowing global trade. Meanwhile, trade surplus position is expected to persist at RM16.7 billion which should ease excessive concerns coming from exports contractions.

Other Markets

Gold: Gold prices lost 0.1% to settle at USD1,977/oz due to the bets on Fed nearing its rate hike cycle.

Crude Oil: Oil prices fell due to profit taking following recent rally run as Brent shed 0.2% to USD79 per barrel while WTI dipped 0.5% to USD75 per barrel.

FBM KLCI: The FBM KLCI was up down 0.2% to 1,403. Detailed transactions showed that foreign investors were the net sellers with RM10.1 million flows, while being offset by the net buying flow from local institutions and retailers with RM2.8 million and RM7.2 million, respectively.

US Equities: Wall Street closed higher with Dow Jones rising 0.3% to 35,061, S&P500 climbing 0.2% to 4,566 and Nasdaq was up 0.03% to 14,358.

Source: AmInvest Research - 20 Jul 2023