Snapshot Summary…

Global FX: The dollar index fell after the US PCE Price Index data continued to show improvements. The EUR and GBP rose on the other hand

Global Rates: UST Markets Rallied While German Bund Closed Mixed on Friday

MYR Bonds: MGS/GII Curve Bear-flattened on Friday While PDS Market Saw Rally Sentiment

USD/MYR: Ringgit Weakened on Friday in Line With Mostly Weaker Regional Currency Performances

Macro News

United States: Inflation, measured by the PCE Price Index, dropped to 3.0% in June 2023 (May 2023: 3.8%). The core PCE Price Index, the Federal Reserve's preferred inflation gauge, also declined to 4.1% (May 2023: 4.6%). On a monthly basis, both the PCE Price Index and Core PCE Price Index rose by 0.2%. Additionally, Personal Income and Personal Spending increased by 0.3% and 0.5%, respectively.

Japan: The Bank of Japan (BoJ) maintained its key short-term interest rate at -0.1% and the 10-year bond yields at around 0%. However, it decided to make its yield curve control policy more flexible, considering the 0.5% yield ceiling as a reference point rather than a strict limit. The BoJ expects the economy to recover moderately, supported by pent-up demand. Inflation is projected to decelerate due to the waning effects of past import price increases, but it is expected to accelerate again as the output gap improves and inflation expectations and wage growth rise.

Fixed Income

US Treasuries: The UST market rallied as the 10Y yield fell 5 bps to 3.95% while the 2Y yield dropped 5 bps as well to settle at 4.87% following the US PCE Price index which showed continued easing of US inflation.

Other Major Bonds: German Bund yields closed mixed after preliminary GDP data showed Germany’s economy contracted again in 2Q2023 by -0.2% y/y, the same pace as its’ first quarter contraction. 10Y Bund yield rose 2 bps to 2.49% while 2Y fell 4 bps to 3.05%. At the same time, 10Y JGB yield shot up to 0.57% from 0.45% in the previous session following BOJ’s move altering the yield curve control (YCC) cap of 0.5% to be “reference point” rather than “rigid”.

MYR Government Bonds: MGS/GII curve bear-flattened on Friday reacting to the selloff in the US Treasuries market the previous night. The 3Y MGS reopening tender garnered decent reception after the yields adjusted higher by 6 bps. The tender average was at 3.483% while recording BTC of 1.908 times. MGS/GII yield edged higher by 2 - 9bps and Ringgit closed weaker against USD at 4.555 pre-US PCE Price Index data.

MYR Corporate Bonds: Trading volume in the PDS market on Friday was subdued after the strong US GDP on Thursday night. It fell to RM414 million from RM874 million. Nonetheless, gainers were seen outpacing losers indicating still healthy demand towards credit papers. Among notable trades were RM40million on triple-A Infracap Resources 04/36 paper with yield done at 4.33% and RM70 million on A3 ‘06/31 Bank Muamalat paper.

Forex

DXY Index: The US dollar depreciated from over its 2 weeks high. The index had earlier been supported by the strong 2Q2023 GDP on Thursday, but Friday saw the dollar fall after the PCE inflation releases. PCE price index rose 3.0% y/y, or the smallest gain since March 2021 and versus 3.8% in May. The core PCE index was 4.1% y/y or the smallest since September 2021 and 4.6% in May.

EUR: The Euro rose alongside a weaker USD upon the release of weak US PCE inflation data. Euro also received a flip higher as it gained against the JPY.

GBP: GBP/USD surged to 1.2888 on Friday, from its weekly low of 1.2767 as UST yields fell and traders prepared for the BOE meeting this week expecting a 25bp hike.

JPY: The yen initially was strong post BOJ meeting and shifting of the YCC policy. The new target for BOJ intervention on the 10Y JGB at 1.00% from 0.5% only saw the 10Y trading to a 0.57% close. This left JPY stronger with USD/JPY closing the week at 141.16, or 0.4% w/w.

CNY: The Yuan firmed against the dollar on Friday, as the central bank continued to set a higher-than-expected guidance. PBOC set its official midpoint rate at 7.1338 prior to market open, weaker than the previous fix at 7.1265, but Reuters indicated >300 pips firmer than the market expectations.

AUD: AUD Dipped 0.9% to Close at 0.665 as Traders Became Cautious Following the Strong US GDP Data.

KRW: Korean rallied slightly ahead of trade numbers where consensus is looking at trade surplus to widen to USD2.6 billion in July, according to the Bloomberg consensus.

MYR: Ringgit fell Friday as the dollar received boost from the US GDP release. However, this was before the US PCE data. If DXY shifts to a relatively weaker <101.5 level, then USD/MYR could move towards 4.530 in our opinion.

Other Markets

Gold: Gold prices was steady despite the US PCE data. Prices remain supported by expected firm demand on the back of strong US GDP data last week.

Crude Oil: Crude oil futures maintained strength amid USD weakness. However, gains were pared due to mixed economic data including US inflation data, Germany's GDP. Brent was up 0.9% to around USD85 per barrel and WTI was up 0.4% to USD80 per barrel.

FBM KLCI: Malaysia's stock market index fell 0.1% to 1,450. Detailed transactions showed that foreign investors were the net buyers with RM181.4 million flow, offset by the net selling flow from local institutions and retailers with RM154.5 million and RM24.0 million, respectively.

US Equities: US stocks rebounded to complete a week of gains. Weak inflation data boosted sentiment and aided by price gains of large tech companies. The S&P 500 rose 1.0%, the Dow rose 0.5%, while Nasdaq added 1.9%.

Source: AmInvest Research - 31 Jul 2023