Snapshot Summary…

Global FX: Dollar Was Pressured Ahead of the July Non-farm Payrolls Release Friday.

Global Rates: Bond Yields Rose While BOE Hiked as Expected and Markets Expecting More Tightening

MYR Bonds: Bonds were affected by higher global rates with the 10 year MGS moving 3 bps higher to 3.87%

USD/MYR: The Ringgit Closed Weaker, Moving Down Against the USD Index Which Held Fast Above 102

Macro News

United Kingdom: The Bank of England raised its policy rate by 25 bps to 5.25%, the 14th consecutive increase, in response to high inflation. The central bank considers its current stance restrictive, aiming to sustainably bring inflation back to the 2% target in the medium term. The bank expects inflation to decline to around 5% by year-end, quicker than previously anticipated, and return to the 2% target by 2Q2025.

China: The Caixin China General Services PMI unexpectedly rose to 54.1 in July 2023 (June 2023: 53.9), indicating the seventh consecutive month of expansion in services activity. Faster growth in new orders led firms to increase their workforce during the summer travel season. Foreign demand expanded at a slower pace due to a sluggish global economy. Employment and backlogs of work continued to grow, while input cost inflation and business sentiment eased.

Australia: Exports of goods and services declined by 1.7% m/m to AUD55.63 billion in June, primarily due to a drop in other mineral fuels. Non-rural goods sales fell by 3.0%, driven by declines in coal, coke & briquettes, other mineral fuels, metals, and other manufactures. Sales of rural goods shrank by 1.2%, with decreases in cereal grains and cereal preparations, and other rural goods. On the positive side, nonmonetary gold exports rose by 3%. Service sales increased by 2.1%, driven by higher travel and other services revenue.

Fixed Income

US Treasuries: Treasuries recorded losses especially along longer tenors. The 10Y rose 10 bps to 4.18%. Mixed global services PMI pressured longer dated UST. The Labor Department data show US worker productivity rebounded sharply by 3.7% in 2Q2023 while labor output rose 2.4%. Initial jobless claims for the week ended 28 July rose 6K to 227K. The Treasury Department’s announcement of boosting the size of its auctions across the board starting this quarter to accommodate its growing deficit added to UST losses.

Other Major Bonds: Bund yields rose as investors looked at fresh macro data including drop in Eurozone PPI rate and July Services PMI. Gilt yields rose steady at a 3-week high as the BOE hike came with markets expecting another hike next month.

MYR Government Bonds: Bonds were affected by higher global rates. The 10 year MGS took the brunt of the net selling with its yield moving 3 bps higher to close at 3.87%. However, the short tenors with maturity 1Y–3Y anchored the market on suspected foreign net buying. BNM announced the reopening of the 30Y GII 05/52 at MYR3.0 billion size amount plus MYR2 billion in private placement. WI quotes were seen wide at 4.28/4.20% amid the weak market sentiment.

MYR Corporate Bonds: Ringgit corporate bonds closed mixed on heavy trading volume. Cautious trading pressured credit trading where AAA infra-related names PLUS, Sarawak Energy, and Pengurusan Air Selangor, weakened. PLUS 01/29 was 1 bp higher at 4.02% and SEB 07/33 rose 1 bp to 4.21%. However, SEB 08/35 strengthened (down 1 bp) at 4.30% on heavy RM100 million volume. Trading volume in the PDS market improved to a heavy RM1.07 billion compared to RM727 million in the previous session.

Forex

DXY Index: The dollar index fell from a 4-week high during intraday trading Thursday. The dollar was pressured ahead of the July non-farm payrolls release Friday. There was mixed data on Thursday including a drop in the ISM non-manufacturing index at 52.7 in July versus 53.9 in June.

EUR: The euro closed mildly firmer as it recouped intraday losses. Eurozone's June PPI fell 0.4% m/m (-1.9% the month before) and went down 3.4% y/y (last at -1.6%). July Eurozone Services PMI fell to 50.9 from 52.0 and Germany's July Services PMI fell to 52.3 from 54.1.

GBP: The pound pared losses to close little changed. BOE raised its policy interest rate by 25 bps against some expectations of a greater 50 bps hike. UK's July Services PMI fell to 51.5 from 53.7, in line with expectations.

JPY: The Japanese yen was weaker during the Asian session but weaker USD overnight sent USD/JPY down 0.5% for the day.

CNY: Firmer CNY fixing and the Caixin/S&P services PMI improving to 54.1 in July from 53.9 in June aided the yuan despite a firm USD during the Asian session yesterday. PBOC set the midpoint USDCNY rate at 7.1495 prior to the market open, weaker than 7.1368 the previous day but 400 pips stronger than consensus estimate as per Reuters.

AUD: The Australian dollar firmed but remain near its lowest since the start of June. Drop in risk appetite and pause by the RBA this week weighed down on the Australian dollar. Australia's July Services PMI fell to 47.9 from 50.3 in June.

KRW: Korean won fell slightly with sentiment being cautious before Friday’s US nonfarm payrolls as well as the firm USD. The won lost out as Korean bond yields rose, and foreigners reportedly were net sellers of equities worth KRW155 billion.

MYR: The ringgit closed weaker, moving down against a firm USD index which held fast above 102 and UST yields at their highest since February. USD/MYR was up 0.3% to 4.555.

Other Markets

Gold: Gold Prices Fell Slightly, Moving Against This Week’s Rise in UST Yields.

Crude Oil: Oil prices were sharply higher as Saudi Arabia extends it crude output cuts of 1 million bpd through September. The dollar weakness also aided oil.

FBM KLCI: KLCI closed weaker though paring earlier losses. The index ended yesterday at 1441.85 or down 0.19%. Foreign investors were net sellers of RM85.9 million Malaysian shares, while local institutions were net buyers of RM66.0 million.

US Equities: US equities fell amid decline in risk appetite as investors stood watching this week’s rise in UST yields with the 10Y UST up 20 bps this week. The S&P 500 losses for the past three days is 1.9%.

Source: AmInvest Research - 4 Aug 2023