Snapshot Summary…

Global FX: The Dollar Index Firmed Overnight on Stronger Than Expected ADP Data

Global Rates: UST and Gilt Closed Mixed, But Germany’s Bund Rallied

MYR Bonds: Local MGS Market Was Relatively Unchanged While PDS Market Saw Gainers Overtook Losers

USD/MYR: Ringgit on Weakened Again in Tandem With Cautious Environment

Macro News

United States: Private businesses in the US added 324K workers in July 2023 (June 2023: 455K). The service-providing sector accounted for the majority of job gains, led by leisure & hospitality, information, trade, transportation & utilities, and education & health. The goods-producing sector added 21K jobs but manufacturing experienced job losses for the fifth consecutive month, shedding 36K jobs.

South Korea: South Korea's consumer price index rose by 2.3% in July 2023 (June: 2.7%), marking the sixth consecutive month of easing inflation and the lowest rate in over two years. The decline in inflation was attributed to lower energy prices and the higher comparison bases from the previous year. As a result, the Bank of Korea (BoK) has paused its tightening cycle, holding interest rates steady at 3.5%, the highest level in 14 years.

Fixed Income

US Treasuries: The UST market closed mixed with the front end of the curve rallied while longer tenors were bearish as the lingering risk-off sentiment from the US downgrade remained. The 2Y UST yield declined 2 bps to settle at 4.88% while 10Y UST added 5 bps to 4.08%.

Other Major Bonds: The same mixed movements were noted in the UK Gilt market with 2Y dropping 6 bps but 10Y added 0.4 bps. Conversely, Germany Bund market rallied with 2Y yield fell 6 bps to 3.00% while 10Y fell 2 bps to 2.54%.

MYR Government Bonds: In the morning, we saw the MGS market bid and ask spread quoted lower by 1 – 2 bps against the previous session’s level following Fitch move to downgrade US country rating to AA+. However, the MGS local players were seen to take the opportunity to bid defensively, preventing any significant downwards move within the yield curve. In the afternoon, we saw market swing back higher on price with bidder taking the market offer sending the yield back to square one to yesterday’s level.

MYR Corporate Bonds: Gainers were seen outweighing losers in the PDS market with trading volume remaining heavy at around RM727 million compared to RM801 million in the previous day. Among notable trades were RM10 million on 03/29 PTPTN with yield done at 3.84%, RM100 million on 12/32 Sarawak Energy Berhad (AAA), and RM1 million on perpetual 11/20 Dialog Group Berhad.

Forex

DXY Index: The dollar index was firm overnight though paring gains. Some signs of safe-haven demand were seen but dollar strength also came after the ADP said private payroll rose by 324K jobs last month versus 189K Reuters poll.

EUR: The EUR was sluggish and fell below 1.10. Weak print of European PMI numbers sustained pressure on the EUR as well as the cautious mood post Fitch’s US sovereign downgrade.

GBP: As traders await the already expected BOE rate hike, the British pound moved weaker amid US dollar strength after release of strong ADP jobs report in the US. The GBP was down 0.5% to 1.271.

JPY: BOJ Deputy Governor Uchida clarified that the recent YCC shift is to prolong the support to bond market in a more sustainable way, instead of signalling the start of policy normalization. By the end of the session, the JPY strengthened slightly by 0.01% to 143.32.

CNY: China’s yuan fell further amid dollar strength. The State Administration of Foreign Exchange (SAFE) said exchange rate expectations were stable and it will recommend a "risk-neutral" stance at companies and financial institutions.

AUD: The Australian dollar was down 1.1% against a firm US dollar and remained weak after RBA this week held its policy interest rate steady and that past hikes have slowed domestic demand.

KRW: Korean won fell alongside other regional currencies. The currency was down by over 1.0% yesterday. Korean CPI rose 2.3% y/y in July vs 2.7% in June and is now at its slowest pace since June 2021.

MYR: The ringgit closed weaker against the US dollar to go alongside most EM currencies as the US dollar strengthened following firm US jobs data as well as some safe-haven demand post Fitch announcement to downgrade the US credit rating. USD/MYR rose 0.5% yesterday.

Other Markets

Gold: Gold fell as the dollar rose amid the risk-off sentiment. Gold price dropped by about 0.5% overnight.

Crude Oil: Oil futures fell on risk-off sentiment. The EIA also reported US crude refinery inputs averaged 16.5 million bpd per day in the week ended 28 July or 40K bpd increase from the previous week.

FBM KLCI: Malaysian stock market index fell 0.5% yesterday amid weak risk appetite in the region. The Fitch announcement and recent weak data out of China pressured risk seeking sentiment. Detailed transactions showed that the local institutions were the net buyers with RM36.2 million, offset by the net selling flow from foreign investors and local retailers at RM51.2 million and RM15.0 million.

US Equities: US equities fell underpinning risk-off mode as the DJIA fell 1.0%, S&P500 fell 1.4% and Nasdaq dropped 2.2%.

Source: AmInvest Research - 3 Aug 2023