Snapshot Summary…

Global FX: The DXY Posted Decent Gains While EUR and GDP Fell Amidst General Market Risk

Global Rates: UST Market Saw Bearish Sentiment While Bund and UK Market Was Closed Mixed

MYR Bonds: Foreign Demands Towards Malaysia’s Bond Papers Remained Healthy

USD/MYR: Ringgit on Front Footing in Tandem With Most of Regional Currencies’ Performance

Macro News

Euro Area: The annual inflation rate in the Euro Area decreased for the third consecutive month to 5.3% in June 2023 (May 2023: 5.5%), marking the lowest reading since January 2022, primarily due to a further drop in energy prices and a slowdown in the cost of food, alcohol, tobacco, and non-energy industrial goods. However, services inflation continued to rise. The Core inflation rate, which excludes energy and food prices, remained unchanged at 5.5%, higher than the headline rate for the first time since 2021.

Japan: In June 2023, Japan's industrial production increased by 2.0% m/m (May 2023: -2.2% m/m). It marked the fourth gain in industrial output this year and the strongest growth since February. Annual industrial output however declined by 0.4%, contrasting with a 4.2% rise in May 2023. The increase was primarily driven by motor vehicles, electronic parts and devices, and general-purpose and business-oriented machinery.

Fixed Income

US Treasuries: The UST market closed weaker overnight. Investors will be looking out for labour market data this week including Friday’s non-farm payroll figure which may influence the US Fed’s assessment on monetary policy decision on top of inflation assessment. The 10Y UST rose 1 bps to 3.96%.

Other Major Bonds: Despite the healthier-than-expected preliminary 2Q2023 Euro area’s GDP (0.3% q/q vs. consensus 0.2% q/q) and higher core inflation rate (5.5% y/y vs. consensus 5.4% y/y) data, the 10Y Bund yield was unchanged at 2.495 Th 10Y UK Gilt, however, saw its yield fell 2 bps to 4.31% ahead of Thursday’s BOE meeting.

MYR Government Bonds: The MGS market saw a large amount RM4.1 billion of MGS 07/24 done in the secondary market while USDMYR dropped lower below the 4.500 level indicating foreign investors remain on course in taking an outright USDMYR positions. The front end of the MGS curve dropped 1–2 bps but market sellers remained persistent to offer on the rest part of the curve as players remain cautious on the inflation and election risk.

MYR Corporate Bonds: Trading volume in the PDS market on Monday improved to RM539 million from RM414 million last week benefitted from the general risk on mode. Among notable trades were RM40 million on GG Prasarana 11/28 as its paper was done at 3.782% and RM20 million on 03/43 Pengurusan Air Selangor (AAA).

Forex

DXY Index: The US dollar was supported, rising 0.2% overnight in the DXY index measure. A support for the dollar overnight was in the form of the Fed quarterly Senior Loan Officer Opinion Survey which suggested the higher interest rate has slowed down loan demand in the US economy.

EUR: The EUR edged lower overnight even as the market digested the Eurozone Core CPI which was at 5.5%. Meanwhile, the Eurozone GDP grew 0.3% in 2Q2023, limiting the EUR’s losses.

GBP: The British pound fell 0.1% to 1.284, ahead of anticipated BOE rate hike this week. Markets expect a 25 bps hike despite the slowing CPI print over a week ago and after the suddenly less hawkish ECB at its meeting last week.

JPY: The yen remained weak and hovered near its 3-week low against the dollar even as the dollar trading was sluggish and the dollar index failing to sustain above 102. Contributing to the JPY weakness was BOJ stepping in to purchase JGBs after bonds’ 20 bps jump since last week post BOJ meeting. Near the 0.65% level for the 10Y JGB is almost 40 bps lower than BOJ’s pledge made last week to support JGBs at 1.00%.

CNY: China’s yuan appreciated 0.1% yesterday, aided by the official manufacturing PMI at 49.3 in July compared with 49.0 in June. The PBOC had set the mid-point CNY fixing at 7.1305 versus 7.1338 the day before.

AUD: The Australian dollar rose and went above 0.665, rising from 3-week lows, before RBA’s policy rate meeting today. The central bank had paused in July to assess the impact of previous hikes on the economy.

KRW: The Korean won firmed 0.2% yesterday, and together with the ringgit led Asia’s currency appreciation after last Friday’s USD weakness post US PCE data release.

MYR: The ringgit rallied at the start of the week with the USD/MYR pair tumbling 1.1% to 4.507 yesterday as the dollar was sent lower late last Friday following the soft US PCE prices data.

Other Markets

Gold: Gold prices rallied by 0.3% on Monday and ended July at its highest since May. Post US PCE release and fresh hopes for a Fed pause, plus with a weak USD, aided the strong July end to gold prices.

Crude Oil: Oil rallied amid concerns over tight supply and firm demand expectations after print of Eurozone GDP and China’s better PMI data yesterday. Brent rose 0.7% to USD85 per barrel while WTI gained 1.7% to USD81 per barrel.

FBM KLCI: Malaysia’s KLCI rallied yesterday in parallel with the better risk appetite in the region. The index rose 0.6% from last Friday to 1,459 with foreign investors providing support with net buy of RM281 million.

US Equities: US stocks closed higher overnight as investors prepared to receive major corporate earnings numbers in the coming week, including those of Apple and Amazon. Sentiment was also firmer ahead of NFP later this week. The S&P 500 rose 0.1%, the Dow rose 0.3%, while Nasdaq climbed 0.2%.

Source: AmInvest Research - 1 Aug 2023