Snapshot Summary…

Global FX: Dollar Firms on Risk-off Mode Following China’s Weak Data and Moody’s Downgrade

Global Rates: Yields on UST, German Bund, and UK Gilt Fell

MYR Bonds: The MGS/GII Market Closed Mixed While PDS Closed Firmer

USD/MYR: MYR Weakened in Tandem With Regional and Emerging Currencies

Macro News

United States: The US trade deficit narrowed to USD65.5 billion in June 2023, the lowest in three months, with imports declining to USD313 billion and exports edging down to USD247.5 billion. Imports decreased in various categories, while exports were lower for some goods but higher for others. The deficit with China decreased, but the balance with the UK shifted to a deficit.

China: China's exports dropped 14.5% y/y to a five-month low of USD281.76 billion in July 2023, the steepest decline since February 2020, after a 12.4% drop in June. Among major trade partners, exports to the US slumped by 23.1% from a year earlier, while those to the ASEAN countries, China's largest trade partner, and the EU plunged by 21.4% and 20.6%, respectively.

Malaysia: Malaysia's industrial production (IP) for June 2023 declined by 2.2% y/y (May 2023: 4.8% y/y) although the index increased by 2.2% (May 2023: 7.3%) from monthly perspective. The manufacturing sector saw a contraction of 1.6% y/y (May 2023: 5.1% y/y), and the mining sector also fell by 6.4% y/y (May 2023: 2.9% y/y). The electricity sector, on the other hand, experienced growth of 2.8% y/y (May 2023: 5.9% y/y).

Fixed Income

Global bonds: US Treasuries market rallied where the 10Y UST shed 7 bps to 4.02% and the 2Y fell 1 bp to 4.75%. German Bund and UK Gilt bond yields also fell overnight. In the UST market, safe haven interest was the order of the day after release of weak China trade data and Moody's downgraded the credit ratings of 10 small and mid-sized US banks. Moody's also placed US Bancorp (USB), Bank of New York Mellon, State Street, and Truist (TFC) on credit watch, and cut the outlook for 11 banks. The rating agency warned that large banks could also face ratings action soon. In Fed-speak, Philadelphia Fed President Patrick Harker (voter) said rates can be held steady to allow past rate hikes to take full effect. In Europe, the ECB consumer expectations survey showed that one-year inflation expectations slowed to 3.4% from 3.9%. BOE Chief Economist Huw Pill said expected food price inflation is expected to decrease 10% in 2023, though it'll take "a little while" for retail inflation to fall.

MYR Government Bonds: MYR government bonds closed mixed with benchmark papers closing in a tight range. Traded volume was healthy where profit takers were matched with net buying flows. The curve was supported after the European market open amid risk aversion after print of weaker-than-expected China trade international trade numbers. Total volume traded was RM3.45 billion yesterday. The 10Y MGS ended unchanged at 3.85%.

MYR Corporate Bonds: MYR corporate bonds closed firm yesterday despite a general lack of direction in the MGS space. Total traded volume was heavier at RM514 million flows yesterday, compared with RM307 million the day before. Notable trades yesterday include short-dated UEM Sunrise 04/24 (AA-) at 4.65% on RM30 million volume, and AA1 YTL Power Int at 4.43% also on RM30 million traded. In the GG space, there was heavy volume of RM120 million on Prasarana 08/28 at 3.74%.

Forex

US: The DXY posted gains against other currencies on safe haven demand following Moody’s credit ratings cut on several small-sized U.S. banks and potentially big lenders as well, alongside with China’s weak external trade data. The dollar index opened at 102.07 and closed at 102.53 after reaching as high as 102.80. But the gains were capped as one of the Fed voting members Patrick Harker suggested that the central bank may be at the end of rate hike cycle.

Europe: European currencies were on back footing against the firmer USD. The euro fell 0.4% while the British pound shed 0.3%. On the data front, Germany’s final figure for headline inflation was confirmed at 6.2% y/y in July, easing from 6.4% y/y in June, which signals cooling off price pressure. Asia-Pacific: Softer-than-expected China’s external trade figures sent emerging currencies lower. CNY weakened 0.4%, JPY eased 0.6% and KRW weakened 0.8%. In addition, the Australian dollar fell 0.4% as well. The Japanese yen was also weighed by the disappointing wage growth reading at 2.3% y/y in June 2023, lower than 2.9% y/y in the prior month which clouded the prospect for the Bank of Japan (BoJ) to exit its easy monetary policy soon.

MYR: The ringgit depreciated 0.5% to settle at 4.583, its three-weeks low. The deeper contraction of IP data (-2.2% y/y vs. consensus -1.0% y/y) could only provide negative sentiment to the currency amidst risk-off mode following weak Chinese economic data.

Other Markets

Gold: Gold Price Eased 0.6% to USD1,925/oz, Near Its One-month Low as the Dollar Rose.

Crude Oil: Oil prices closed higher following the rosier outlook US economy whereby the US Energy Information Administration (EIA) revised its 2023 US GDP forecast to 1.9% compared to the previous 1.5%. Brent climbed 1.0% to USD86 per barrel while WTI added 1.2% to USD82 per barrel.

FBM KLCI: Local bourse’s rose 0.4% to 1,451. Detailed transactions showed that foreign investors were the net buyers of Malaysian stocks with RM84.5 million flow.

US Equities: US Equities Fell as the S&P 500 Dipped 0.4%, Dow Fell 0.4% and Nasdaq by 0.8%.

Source: AmInvest Research - 9 Aug 2023