Snapshot Summary…

Global FX: GBP Gained While Other Major Currencies Fell Against the USD

Global Rates: UST Market Closed Weaker Following Stronger-than-expected PPI Data

MYR Bonds: Ringgit Government Bonds Traded Sideways But Remained Supported

USD/MYR: MYR Weakened in Parallel With Weak Regional Performances

Macro News

United States: The University of Michigan's consumer sentiment index for the US slightly decreased to 71.2 in August 2023 from July's 71.6. The expectations sub-index declined to 67.3, while the gauge for current economic conditions rose to 77.4, the highest since October 2021. Overall, consumers saw few significant changes in the economic environment compared to last month but perceived notable improvements from three months ago. Year-ahead inflation expectations decreased to 3.3% from 3.4%, and the five-year outlook also dipped to 2.9% from 3.0%.

United Kingdom: The UK economy grew by 0.2% in the 2Q2023. Services increased by 0.1%, particularly in areas like motion picture production and food services, boosted by good weather and live events. Production went up by 0.7%, driven by a 1.6% growth in manufacturing, mainly in motor vehicles. Construction rose by 0.3%, while mining dropped 4.3% due to lower petroleum and gas extraction. Household consumption saw strong growth (0.7%), driven by transport and leisure activities, and government spending surged by 3.1%. However, there was no growth in capital investment as higher business investment was offset by lower government spending.

China: China's banks issued CNY 345.9 billion in new yuan loans in July 2023, marking the lowest since November 2009. The data indicates a sluggish economic recovery, although July is typically a slow month for financing activities. Household loans, primarily mortgages, dropped by CNY 200.7 billion, and corporate loans declined to CNY 237.8 billion. Meanwhile, outstanding yuan loans increased by 11.1% in July 2023, the lowest growth rate this year, and broad M2 money supply growth fell to 10.7%.

Fixed Income

Global bonds: US Treasuries closed weaker last Friday, thus warranting a weak close for the week. The 10Y UST rose 5 bps d/d to 4.15%, which translates into 12 bps w/w. Larger-than-expected PPI numbers for July where headline at +0.3% m/m vs 0.2% consensus and core PPI at +0.3% m/m vs +0.2% consensus pressured UST market. This was coupled with Treasury Department signalled a raise in its borrowing estimates for the third quarter at USD1.0 trillion or USD274 billion higher compared to the previous estimates. In the meantime, German Bunds weakened with the 10Y yield hit 4-week highs. Also, UK government bonds fell sharply as the 10Y yield rose 16 bps following UK’s 2Q2023 GDP which beat expectations at +0.2% q/q vs consensus 0.0% and prior quarter’s +0.1%. On the flipside, global sovereign bonds could face safe haven demand this week over China’s credits after Country Garden said it faces CNY55 billion loss for its first half of the year and that the company has hired China International Capital Corp to help in debt restructuring.

MYR Government Bonds: Ringgit government bonds market closed marginally weaker on Friday alongside a rise in global yields. The 10Y MGS rose 0.4 bps to close at 3.84% while the 3Y MGS increased 0.3 bps to 3.46%. The 5Y MGS rose 0.3 bps to 3.59% but was barely traded at <RM1 million volume, ahead of auction this week totalling RM5.0 billion and no private placement (PP).

MYR Corporate Bonds: Ringgit corporate papers continued to trade on firm footing, even as govvies trading was cautious after US inflation data in the past week. Notable PDS trades include DRB-Hicom 12/29 (A+) at 5.34% on RM110 million traded and G Kent 03/26 at 5.24% (A+) on RM100 million volume.

Forex

US: The dollar index rose further and hit 102.84, its five weeks high, after the release of the July PPI numbers and as US Treasury yields rose further where the 10Y UST remains >10 bps above the 4.00% level. The DXY rose 0.3% on Friday, completing its fourth straight week of increase. On another note, Philadelphia Fed Harker (voting) and Atlanta Fed Bostic (non-voting), both echoed similar tone and preferred to be patient and hold the Fed Funds Rate steady moving forward.

Europe: EUR fell to 1.095 against the USD amid sustained dollar strength after the US PPI and CPI releases last week. Adding to EUR weakness is the recent signal that the European Central Bank (ECB) will be guided by incoming data with President Lagarde hinting either a pause or a rate hike in the next policy meeting in September 2023. Conversely, the GBP managed to post decent gains on Friday following the stronger-than-expected UK GDP.

Asia-Pacific: The CNY weakened to 1-month lows as sentiment is currently negatively affected by credit issues in its property market. Meanwhile, one of the country’s giant property developer Country Garden has issued warning of deep losses. Reuters reported that the company recently failed to fulfil USD coupon payments amounting to USD22 million on 6th August (30-days grace period). Last Friday, the PBOC set its midpoint CNY fixing at 7.1587 or vs previous day fixing of 7.1576. JPY continued to weaken Friday, amid the strong USD but interest was limited due to Japan public holiday. KRW depreciated 0.7% as investors continued to seek USD following stronger PPI data. The Aussie dollar was down 0.3% to 0.650 as the market reassess Australia’s monetary policy outlook following RBA’s Philip Lowe remarks that any move from moving forward will be merely “calibration” as the interest rate is deemed nearing or already at its peak.

MYR: The ringgit ended weaker on Friday amid the strong US dollar and ahead of state elections. By the end of Friday, USD/MYR was hovering near 4.59, compared with 4.571 the day before. On a weekly basis, alongside the strong dollar, USD/MYR is about 0.7% higher. The currency was also impacted by weak CNY amid fresh China credit concerns.

Other Markets

Gold: Gold Prices Eased Further Towards USD1,900/oz, Weighed by Rising Dollar and Yields.

Crude Oil: Oil prices rose on tight supply concerns and an improving global economic outlook. Brent climbed 0.5% to USD87 per barrel while WTI gained 0.4% to USD83 per barrel.

FBM KLCI: Malaysia's equity index fell 0.1% to 1,457 with net inflow from foreign investors were recorded at RM104.3 million.

US Equities: US equities closed mixed with Dow Jones rising 0.3% but S&P500 and Nasdaq fell 0.1% and 0.7%, respectively, as investors took the fresh cue of inflation data.

Source: AmInvest Research - 14 Aug 2023