Snapshot Summary…

Global FX: The DXY hovered near 1-month high, aided by safe-haven demand, especially from global economic growth worries and rising credit problems in China

Global Rates: UST Yield Remained Elevated on Outlook for “higher-for-longer” Rates

MYR Bonds: MGS/GII yields shifted 1-5 bps higher, tracking global yield movements, though volume remained tepid

USD/MYR: MYR Fell Alongside Regional Currencies Against the Firm US Dollar and Risk Aversion

Macro News

United States: US consumer inflation expectations for the year ahead declined for the fourth consecutive month to 3.5% based on latest data, reaching a new low since April 2021, down from 3.8% in June. The decrease was driven by lower price growth expectations for items like gas, food, medical care, college education, and rent. Median home price growth expectations also decreased to 2.8% from 2.9% in June.

Germany: In July 2023, Germany's wholesale prices continued to decline for the fourth consecutive month, dropping by 2.8% compared to the previous year. The decrease was largely driven by lower prices in categories such as petroleum products, scrap materials, cereals, metals, and chemicals. However, there were price increases for items like fruits, vegetables, living animals, and electronic equipment.

Fixed Income

Global bonds: The UST market started the week on a weaker footing as yields closed higher by 2-7 bps on the prospect of “higher-for-longer” US Fed policy stance following faster PPI growth last Friday. The benchmark 10Y UST rose 4 bps to 4.19% while the 2Y closed at a 1-month high of 4.97%. This week, players will be looking at retail sales data later tonight (consensus: 0.4% m/m) and FOMC’s July meeting minutes on Wednesday. Over in the European region, UK Gilts remained pressured by the stronger-than-expected second quarter 2023 GDP reading, which provided some leeway to the Bank of England (BoE) to hike interest rate further. We saw the yields on front end of the curve higher by around 4-5 bps and 2-3 bps on the longer tenors. The 10Y Gilt yield shifted higher to 4.57%. In tandem, Bund market was also in bearish mode, sending 10Y yield 1 bps higher to 2.64% on the potential re-escalation of energy costs.

MYR Government Bonds: In the local bond space, MGS/GII yields shifted 1-5 bps higher across most parts of the yield curve, tracking global yield movements though volume remained tepid. The reopening auction of 5Y MGS (04/28) closed with a modest BTC of 1.768x and weighted average yield of 3.647%. The stock traded slightly firmer at 3.64% before the end of the session.

MYR Corporate Bonds: There were mixed movements in the PDS market with volume traded declining to RM416 million from RM820 million last Friday as investors turned cautious. Notably, RP Hydro Kelantan 2035-2043 tranches made their debut with more than RM55 million traded. Other notable trades include PASB 06/28 (AAA) at 4.02% on RM30 million traded and KLK 09/29 at 4.08% (AA1) on RM60 million volume.

Forex

US: The dollar index hovered near its 1-month high due to safe-haven demand amid concerns over China's economic performance, and traders were in anticipation of possible Japanese government intervention after the yen hit its lowest level since November.

Europe: GBP was on a weaker footing by 0.1% to 1.268 ahead of inflation data released due mid-week. Consensus for UK CPI for July is 6.7% y/y against 7.9% y/y in June. GBP has slipped from 3-month highs seen in mid-July but expectations remain for another BoE hike, possibly by next month. Euro trading was cautious alongside the firm USD. EUR/USD fell 0.4% to 1.091.

Asia-Pacific: Chinese yuan fell to 6-week low on declining confidence in China’s growth prospects amid rising possibility of crisis in its debt market after its largest real estate developer Country Garden missed coupon payments last week. On Monday, onshore bonds issued by Country Garden were suspended from trading. Reuters indicated that Cogard may be seeking to pre-empt payment on private onshore bonds. Continued risks to growth followed further from Chinese bank loans growth in July declining 89% from June to the lowest since 2009. Meanwhile amid the China worries, the AUD fell to 9-month lows with markets awaiting the RBA meeting minutes. RBA policy rate was on hold at its August meeting. Aside, USD/JPY remained toppish, hovering above 145 level.

MYR: The ringgit fell alongside regional currencies against the firm US dollar and risk aversion brought by China’s real estate sector. Continued cautious mode over Fed’s possible action at next month’s FOMC meeting, after the print of US inflation numbers last week, aided USD demand. USD/MYR rose 0.6% to 4.616.

Other Markets

Gold: Dollar strength weighed on gold prices, which dipped to a more than 1-month low on Monday. Gold fell 0.3% to 1,907.

Crude Oil: Oil was on the downside in the past week’s trading. Fresh worries over global growth emanating from China’s credit concerns pressured oil. Brent fell 0.7% to 86.21 per barrel.

FBM KLCI: Stocks in Malaysia closed slightly lower after paring early weakness due to late interest in selected sectors including banking and telcos. KL’s main equity index was almost unchanged at 1.457. Foreign investors were net buyers in the equity market yesterday, at MYR22.1 million.

US Equities: US stocks rose but trading was cautious before US retail sales figures will be released. However, stocks were supported by tech sector gains. The S&P 500 rose 0.6%. Equities also received support after UST yields reversed lower after hitting 4.20% overnight.

Source: AmInvest Research - 15 Aug 2023