Snapshot Summary…

Global FX: The DXY Closed Higher After Already Rallying the Day Before to Its 1-week High

Global Rates: UST Closed Little Changed on Friday. UK and German Bonds Were Traded in Tight Range

MYR Bonds: MGS Closed Slightly Weaker on the Bellies of the Curve

USD/MYR: MYR Weakened Amidst Weak Regional Currencies’ Performances

Macro News

United Kingdom: Retail sales in the United Kingdom showed positive growth in June 2023, rising by 0.7% m/m (May 2023: 0.1% m/m). This marked the third consecutive month of growth and surpassed market expectations. The increase was attributed to summer sales and favourable weather conditions, with most sectors, including food, non-food, and non-store retailing, experiencing growth. Food trade bounced back with a 0.7% increase, while non-food trade and household goods store also saw growth. However, automotive fuel sales declined by 0.3%.

Japan: Japan's annual inflation rate rose slightly to 3.3% in June 2023 (May 2023: 3.2%), but it remained below market expectation of 3.5%. Costs increased for various items including food, housing, and medical care, while fuel, light, and water charges continued to decline. Core inflation also reached 3.3% (May 2023: 3.2%), remaining outside the Bank of Japan's 2% target for the 15th consecutive month. On a monthly basis, consumer prices rose by 0.2% after being flat in May.

Fixed Income

US Treasuries: Treasuries closed little changed on Friday but ensured the yield curve moved higher for the week, led by the front of the end. The 2Y rose 1 bp to 4.85% but up 13 bps w/w and the 10Y closed unchanged at 3.85% Friday but up 3 bp w/w. Sentiment was cautious ahead of a series of central bank meetings in the coming week; Fed on Wednesday, and ECB and BOJ the next two days.

Other Major Bonds: Modest volatility seen in 10Y German yield, fluctuating between 2.42% and 2.46%. Though yields have fallen from >2.60% level early this month, aided by drop in US and Eurozone CPI, bond trading was cautious ahead of incoming policy rate decisions. UK bonds were similarly in a tight range. After the drop in the UK CPI earlier last week, data on Friday was June retail sales, up 0.7% m/m vs 0.1% prior.

MYR Government Bonds: MGS closed slightly weaker on the bellies of the curve. There was also some pressure on the front of the curve as select investors tried to take profit on that part of the curve after signs of demand on <1 tenors earlier last week. Post the strong 7Y GII reopening auction, there were hints of demand near the prior day’s trade of 3.81%.

MYR Corporate Bonds: PDS was decent with yield generally mixed on Friday to end the week. Total volume traded was RM591 million versus RM207 million on Thursday. Amid the lack of direction, trade amongst the non-GGs were led by longer maturity AA1 KLK 03/37 at 4.38% on RM20 million flows and AAA PLUS 01/37 at 4.35% also on RM20 million.

Forex

DXY Index: The DXY gained further on Friday, after already rallying the day before to its 1-week high. Most of the DXY Friday gain owed to dollar’s gain over the yen. This week, the US Fed is expected to raise its interest rate by 25 bps during its policy meeting, in line with the pre-set “two more” rate hike hinted by the Chair Jerome Powell. The dollar index rose 0.2% to 101.07.

EUR: Euro fell against the firmer US dollar, falling 0.1% to 1.112. The ECB will also meet up this week to set its interest rates level with 25 bps rate hike expectations. As inflation in the region is still stubborn, the peak rate hike cycle remains less clear for the central bank.

GBP: The UK currency continued to fall; pressured still also by lower UK inflation data but despite Friday’s data that showed UK retail sales grew faster than anticipated. The pound fell 0.1% to 1.285.

JPY: USD/JPY pair rose by 1.2% to 141.73. Ahead of Bank of Japan meeting next week, the JPY did not get support from release of Japan CPI rising by 3.3% y/y in June, up from 3.2% in May. Core inflation rose to 3.3% from 3.2% previously. Markets are not confident that BOJ will soon announce adjustments to its yield curve control policy; seeing that authorities’ focus may remain to limit short-term JPY volatility.

CNY: Chinese yuan weakened 0.1% to 7.188 despite the support by PBOC through a stronger than expected reference rate (7.146 vs. estimated 7.196) as the central bank remains firm in managing yuan expectations.

AUD: The AUD fell 0.7% to 0.673 amidst general greenback strength and despite the stronger expectations of further rate hike by the RBA, prompted by robust labour data in the previous day.

KRW: Korean won weakened 1.1% to close near its intraday high level at 1,283. South Korea’s producer inflation dropped into contractionary region at -0.2% y/y in June 2023, down from 0.5% y/y growth in the previous month, marking the first contraction since November 2020.

MYR: The ringgit fell further against the dollar on Friday as the greenback was supported ahead of FOMC. Nevertheless, MYR movement mirrored regional currencies amid generally hints of profit taking after past week’s gains vs. the USD. By the end of the day, the ringgit weakened 0.4% to 4.563.

Other Markets

Gold: Futures fell further on Friday amid US dollar strength as the gold market tends to be cautious ahead of policy rate decisions. Gold prices fell 0.4% to USD1,96x/oz.

Crude Oil: Oil prices surged as the market is worried over tight supplies prospects. Brent jumped 1.8% to USD81 per barrel while WTI climbed 2.0% to USD77 per barrel.

FBM KLCI: The FBM KLCI rose for its second consecutive day, up 0.5% to 1,414. Detailed transactions showed that foreign investors were the net buyers of RM61.7 million flows, while being offset by the net selling flow from local institutions and retailers with RM54.9 million and RM6.8 million, respectively.

US Equities: Wall Street closed mixed as the Dow Jones rose slightly by 0.01% to 35,228 and the S&P500 inched higher by 0.03% to 4,536 but Nasdaq shed 0.2% to 14,033.

Source: AmInvest Research - 24 Jul 2023