Snapshot Summary…

Global FX: The greenback closed lower after the Fed meeting as the market is doubting there will be another rate hike beyond the July meeting. EUR and GBP rose.

Global Rates: UST Yields Fell While UK’s Gilt and Germany’s Bund Yields Climbed Higher

MYR Bonds: Malaysian corporate bonds closed firmer despite the mixed sentiment seen in the MGS and GII space

USD/MYR: MYR strengthened amidst better risk appetite and in tandem with Asian currencies’ performance

Macro News

United States: The Federal Reserve (Fed) raised the Federal Funds target rate by 25 bps to 5.25%-5.50%, as expected by the market. This increase brought borrowing costs to the highest level since January 2001. The Fed stated it would continue to monitor incoming information for economic outlook implications and would adjust monetary policy as needed to achieve inflation and employment goals. The decision to resume tightening came after a pause in June, with the Fed noting the economy's moderate expansion, strong job gains, low unemployment rate, and persistent elevated inflation.

Australia: Australia's annual inflation rate decreased to 6.0% in the 2Q2023 (1Q: 7.0%). Notably, food prices rose the least in a year (+7.5%), and cost increases slowed for transport, housing, furnishings, health, and recreation. However, inflation accelerated for alcohol & tobacco and insurance & financial services.

Fixed Income

US Treasuries: The US Fed hiked as expected by 25 bps and left the door open for another hike. Policymakers said they "will continue to assess additional information and its implications for monetary policy". However, UST yields fell, suggesting bond markets were still lacking conviction that another hike is forthcoming, which we think is due to recent signs of slowing inflation and employment data. The 10Y yield fell 2 bps to 3.87%.

Other Major Bonds: German 10Y Bund yield rose 6 bps to 2.49% alongside firmer EUR post FOMC. Meanwhile, 10Y UK Gilt yield rose slightly by 1 bp, coming alongside the decline in UST yields.

MYR Government Bonds: Malaysian government bonds closed mixed yesterday. Total traded volume was decent at RM3.18 billion. The 3Y MGS rose 2 bps to 3.42% on <RM100 million volume. BNM announced details for the 3Y MGS (MGS 07/26) reopening auction at RM4.5 billion. WI quotes were at 3.44/43%.

MYR Corporate Bonds: MYR corporate bonds closed firmer again yesterday, amid steady risk appetite after the recent govvies’ gains. Total traded volume was heavy at RM597 million. Notable trades include AA3 Gamuda 11/29 at 4.18% on RM50 million volume, and AAA Sarawak Petchem on RM30 million flows done at 4.17%.

Forex

DXY Index: US dollar slightly depreciated during the Asian session yesterday as anticipated Fed hike overnight was to be the last hike in the current tightening cycle. DXY continued to decline post Fed meeting as the market is doubting there will be another rate hike beyond the July meeting. DXY index fell 0.5% to 100.89 by the end of the session.

EUR: The euro gained 0.3% to settle at 1.109 ahead of the ECB meeting which will due later today where 25 bps rate hike is already priced in, as per guided by the policymakers.

GBP: The pound posted modest gains at 0.3% to close the day at 1.294 benefitted from the weaker USD.

JPY: The yen pared gains as traders reduced expectations of hawkish tweak to BOJ’s yield curve control policy at tomorrow’s policy meeting. The currency settled at 140.24 or 0.5% stronger on daily basis.

CNY: USD/CNY pair rose slightly yesterday by 0.1% to 7.143 as there was modest dollar demand before the FOMC meeting. This is despite the PBOC had set the midpoint rate at 7.1295, firmer than the previous fixing of 7.1406 a day prior.

AUD: The Australian dollar fell 0.5% to 0.676 after release of slower-than-expected inflation data, which suggested the RBA could opt not to hike rates at its 1st Aug policy meeting.

KRW: The Korean won strengthened 0.1% to 1,274 pre-FOMC meeting. The currency may be supported by the lingering optimism surrounding recent better-than-expected GDP data, combined with South Korea’s consumer confidence data, which unexpectedly improved to 103.2 in July from 100.7 and beating market expectations of 99.2.

MYR: Generally better risk appetite led by IMF’s raising its global economic growth outlook for 2023 and prospects for China’s economic stimulus supported Asian currencies including the ringgit. However, by end of day, ringgit gains were slim, while Asian FX were mixed, as sentiment was cautious ahead of the FOMC meeting. The ringgit appreciated 0.3% to 4.549.

Other Markets

Gold: Gold Prices Rose 0.4% to USD1,972/oz Following the Weaker Dollar and Falling UST Yields.

Crude Oil: Brent fell 0.9% to USD82 per barrel while WTI shed 1.6% to USD78 per barrel. The Energy Information Administration said that the US crude inventories fell only by 600k barrels compared to estimate of 2.35 million barrel decline, reflecting slower economic activities.

FBM KLCI: The Malaysia’s FBM KLCI jumped 0.87% to close at 1,449. Foreign investors bought a net position of RM173.3 million, offset by the local institutions and retailers selling positions of RM119.0 million and RM54.3 million, respectively.

US Equities: Wall Street closed mixed as the DJIA rose 0.23% to 35,520, S&P500 fell 0.02% to 4,567 and Nasdaq dropped 0.12% to 14,127.

Source: AmInvest Research - 27 Jul 2023