Snapshot Summary…

Global FX: The DXY and EUR Firmed Following US CPI Data But the GBP and JPY Fell

Global Rates: UST Market Found Early Support But Closed Weak After CPI Data

MYR Bonds: Ringgit Government and Corporate Bonds Strengthened Slightly Yesterday

USD/MYR: MYR Strengthened But Traded in a Tight Range

Macro News

United States: US CPI rose 3.2% y/y in July 2023 (June 2023: 3.0%) against consensus of 3.3% y/y. Energy costs decreased by 12.5% in July, less than in June, and some prices increased faster, including apparel and transportation services. However, electricity costs went up less, and inflation slowed for food, housing, and new vehicles. Core inflation, excluding food and energy, eased to 4.7% from 4.8% in June.

Australia: Consumer inflation expectations eased to 4.9% in August 2023 from 5.2% in the previous month, aligning with the central bank's perspective that inflation has peaked following a series of rate hikes. The annual inflation rate dropped to 6.0% in 2Q2023 from 7.0% in 1Q2023, moving away from its previous high. Despite these changes, inflation remains anchored, aided by easing goods prices, while the central bank expects prices to further decrease by the end of 2024 and return to the target range of 2–3% by late 2025.

Malaysia: The unemployment rate decreased to 3.4% in June 2023 compared to 3.5% a month earlier. Unemployed individuals decreased by 7.8% to 581.7K, while employment increased by 2.3% to 16.31 million. The labour force participation rate also rose to 70% from 69.5% in the same period last year.

Fixed Income

Global bonds: UST market saw modest support in the US morning session right after the US CPI release. An almost immediate bond market reversal off its highs, alongside an early US equities rally, were countered by net buying interest. By the day’s close, as the US inflation numbers were in line with expectations, UST sustained weakness with the 10Y UST rising 10 bps to close at 4.11%. UK gilt yields were steady on the back of the US CPI data, hovering near 3-week highs. However, this was ahead of UK GDP release, due today at 0.0% q/q consensus expectation. Aside, German bund yields rose from their 1-week lows amid profit taking pressure whilst the market still expects ECB to remain hawkish on rates. Japan bond yields were little changed amid Japan’s PPI at slower 3.6% y/y in July though the June number was revised up to 4.3% from 4.1% prior estimate.

MYR Government Bonds: Ringgit government bonds strengthened slightly yesterday with benchmark papers edging down 1-2 bps on the front and bellies of the curve. Subdued yield movements in global bond markets the day before supported MGS activity ahead of US inflation data release. The 10Y MGS fell 1 bps to 3.84% on volume slightly above RM200 million. Meanwhile, BNM announced details for the 5Y MGS (MGS 04/28) at size RM5.0 billion and no private placement. The size comes in line with our anticipation. Yesterday saw the 5Y MGS ending 1 bps lower at 3.59% on <RM100 million volume. WI was quoted at 3.62/3.57%.

MYR Corporate Bonds: Ringgit corporate papers closed firmer with gainers outpacing loser 2-to-1. Traded volume was heavy at RM820 million on Thursday against RM1.1 billion the day before. Risk appetite remained healthy ahead of US CPI later afterhours and despite prior day’s negative CPI data out of China. Notable trades continued to include AAA Tenaga and Sarawak Energy (SEB). PLUS 01/37 was last dealt at 4.30%, on RM50 million volume. SEB 07/33 was traded at 4.15%, also on RM50 million. In the GG segment, Prasarana 03/30 was done at 3.84% on RM120 million flows.

Forex

US: Initial reactions from slightly lower inflation reading against consensus and higher initial jobless claims (248K vs. consensus 230K) sent the DXY to below 102-level. However, the index then retraced its losses and ended the day at 102.52 or 0.03% higher, seeing that the inflation data was generally in line with expectations.

Europe: The EUR gained 0.1% while GBP lost 0.3% by the end of the day, underpinning the concerns of resurfacing inflationary pressures in the Eurozone following concerns over natural gas supplies. In the UK, the focus today will be on 2Q2023 GDP.

Asia-Pacific: The People’s Bank of China (PBoC) again set the yuan reference rate stronger than expected, yesterday by 454 pips against expectations (7.158 vs. Bloomberg estimate 7.203) as a sign that the authorities are becoming uncomfortable with volatility in the yuan. Nonetheless, the yuan ended the day 0.1% weaker at 7.219. The JPY depreciated 0.7% to 144.75. Japan’s July producer inflation grew the slowest since March 2021 at 3.6% y/y compared to June’s 4.3% y/y. Tepid inflation pressure could disrupt Bank of Japan (BoJ)’s 2.0% sustainable inflation target and its plan to roll back the easy monetary policy. Meanwhile, the KRW was held steady around 1,316 but the AUD fell 0.2% to 0.652.

MYR: Ahead of the US CPI release overnight, the ringgit appreciated 0.1% on Thursday and traded in a tighter range of 4.570 and 4.578 as market players were cautious. Better reading on Malaysia’s unemployment rate (June 3.4% vs. May 3.5%) provided some supports for ringgit.

Other Markets

Gold: Gold Prices Eased 0.1% to USD1,912/oz Despite the Slower Inflation Growth in the US.

Crude Oil: WTI price was weaker at USD82.90, down from weekly highs above USD84.50. There was demand worries after this week's release of China's deflationary numbers. On the other hand, OPEC said it expects global demand to rise by 2.25 million bpd in 2024 vs rise of 2.44 million bpd in 2023.

FBM KLCI: Malaysia's equity index fell 0.2% to 1,459 yesterday amid profit taking pressure. Local institutions were net sellers of MYR55.0 million shares but there was support from foreign investors who were net buyers of MYR66.3 million.

US Equities: US equities edged higher on Thursday as investors perceived the US CPI data as showing inflation was cooling down. The S&P 500 rose about 0.1% while the DJIA rose 0.2%, or about 50 points.

Source: AmInvest Research - 11 Aug 2023