Snapshot Summary…

Global FX: The DXY Saw Gains Overnight But Opened Lower in Tokyo Session Following US Rating Downgrade by Fitch

Global Rates: Bund and Gilt Closed Weaker, in Tandem With UST Bearish Day

MYR Bonds: MGS Market Posted Marginal Losses With PDS Market Saw Mixed Sentiment

USD/MYR: Ringgit on Back Footing in Tandem With Weak CNY

Macro News

United States: Fitch Ratings downgraded the sovereign rating of the US from AAA to AA+ with stable outlook. The downward rating migration is premised on the agency’s view of further fiscal deterioration where the General Government deficit is expected to widen to 6.3% of GDP in 2023 (2022:3.7%) which is above peers in the rating continuum. The move which came after the recent debt ceiling fiasco is reminiscent of that 2011’s experience when S&P then also lowered its rating to AA+.

Australia: The Reserve Bank of Australia (RBA) decided to keep the cash rate unchanged at 4.1%, defying market expectations of a rate hike. While acknowledging easing cost pressures, the bank deemed inflation of 6% to be still too high. The board expressed the possibility of future monetary tightening to achieve the 2-3% inflation target.

Japan: In June 2023, Japan's unemployment rate declined to 2.5%, the lowest since January 2023, with the number of unemployed decreasing by 40K to 1.73 million. Employment increased by 190K to 67.55 million, and the labour force grew by 140K to 69.27 million. The non-seasonally adjusted labor force participation rate rose to 63.1%. However, the jobs-to-applications ratio slightly decreased to 1.30, indicating the lowest level since July 2022.

Malaysia: Malaysia's manufacturing PMI increased slightly to 47.8 for July 2023 (June 2023: 47.7), marking the 11th consecutive month of contraction. New orders moderated, and export orders fell sharply. Manufacturers reduced their workforce, and input cost inflation rose to the highest since February. Business sentiment remained positive but relatively muted, reaching the weakest level in the current sequence of optimism.

Fixed Income

US Treasuries: The UST market posted another day of losses following relatively strong US data with job openings remained elevated compared to pre-pandemic level and lower layoffs in June compared to May. The 10Y UST rose 6 bps to settle at 4.02% while 2Y added 3 bps to 4.90%.

Other Major Bonds: In tandem with the weaker UST, both the German Bund and UK Gilt market saw bearish sentiment as well as the Bund 10Y yield climbed 6 bps to 2.56% while Gilt 10Y added 9 bps to 4.40%.

MYR Government Bonds: The MGS market turned slightly bullish on the 10Y part of the MGS curve. The 10 year benchmark MGS 11/33 was sought after from the foreign index players as this stock was recently included in the JP Morgan benchmark index. The foreign fast money players were also seen to purchase short date bond particularly MGS 09/24, MGS 07/24 and MGS 06/24 given that the level was seen attractive circa 3.20% - 3.30% while they add an outright USDMYR position.

MYR Corporate Bonds: Mixed sentiments were seen in the PDS market with gainers occupied mostly in the GG/AAA rated space, but losers were mainly in the lower rated papers. The trading volume improved to RM801 million compared to RM539 during previous session. Among notable trades were RM100 million 04/33 LPPSA and RM150 million on 01/28 Cagamas Berhad paper.

Forex

DXY Index: Fitch downgraded the US. foreign currency rating to 'AA+' from 'AAA' to reflect growing debt burden and after recent debt ceiling problems. The USD opened at 101.96 during Tokyo session, significantly lower than US session close of 102.30.

EUR: Euro moved lower by 0.1% to 1.098. Eurozone's Manufacturing PMI fell to 42.7 in July from 43.4 in June. Germany's July Manufacturing PMI fell to 38.8 from 40.6.

GBP: The British pound fell 0.5% to settle at 1.278. On the data front, UK's July Manufacturing PMI fell to 45.3 from 46.5.

JPY: JPY fell further, down by 0.7%. The US dollar was boosted by rise in UST yields and after BOJ limited the upside to JGB yields early this week via bond purchases.

CNY: CNY depreciated as USD/CNY rose 0.5% to 7.178, Weak CNY occurred after the Caixin manufacturing PMI showed a decline to 49.2 in July, down from 50.5 in June and against consensus of about 50.3. Reuters reported that regulators privately requested commercial banks to reduce or postpone purchases of USD to support the yuan.

AUD: AUD slid after the RBA left its cash rate unchanged at 4.1%. RBA said past rate hikes are slowing down domestic demand, but more rate hikes are in order to arrest inflation. AUD/USD fell 1.5% yesterday.

KRW: KRW weakened alongside dip in Asian currencies as risk appetite fell after China's Caixin data release. Meanwhile, South Korea's exports fell in July, by 16.5% y/y vs 6.0% decline in June. The trade minister said that the decline owed to the weak semiconductor sector, lower oil prices, and a high base effect.

MYR: The ringgit weakened against the dollar on Tuesday, after the rally recorded the day before. MYR sentiment was pressured as risk appetite fell after print of China's Caixin manufacturing PMI and subsequent decline in CNY. The USD/MYR pair weakened 0.3% to 4.519.

Other Markets

Gold: Gold Fell 1.1%, to Go Along With the Surge in UST Yields

Crude Oil: Oil prices fell with the WTI down 0.5% overnight as reports showed US stock fell by 1.3 million barrels in the week ended 28 July.

FBM KLCI: Start of August saw KLCI posting losses, the index was down 0.6% to 1.451. Detailed transactions showed that the local institutions were the net buyers with RM63.2 million, offset by the net selling flow from local retailers and foreign investors at RM7.5 million and RM55.7 million.

US Equities: US stocks rally paused on Tuesday. The S&P 500 fell 0.3% and the Nasdaq by 0.4% but the Dow Jones rose 0.2%.

Source: AmInvest Research - 2 Aug 2023