Snapshot Summary…

Global FX: The DXY remained firm above 103-level while EUR and AUD weakened

Global Rates: UST market was pressured by stronger-than-expected US retail sales and hawkish Fed official’s remarks. Weaker sentiment seen in Bunds and Gilts

MYR Bonds: MGS/GII yields climbed around 1 bps while PDS market closed broadly firmer

USD/MYR: MYR fell alongside regional currencies against the strong US dollar

Macro News

United States: US retail sales increased by 0.7% in July 2023 compared to the previous month, marking the fourth consecutive monthly rise. The strong consumer spending trend persists despite high prices and borrowing costs. Notably, sales at nonstore retailers, sporting goods, food services, and clothing saw significant increases. However, furniture, electronics, motor vehicles, and miscellaneous store retailers experienced declines. When excluding autos, gas, building materials, and food services, retail sales surged by 1.0%.

United Kingdom: The UK's unemployment rate rose to 4.2% in the three months ending June 2023, the highest since late 2021. Economic inactivity also decreased slightly to 20.9%, mainly due to fewer people looking after family or home, but longterm sickness-related inactivity hit a record high. The employment rate dropped to 75.7%, primarily affecting full-time employees and self-employed workers.

Japan: Japan's economy recorded robust growth in the 2Q2023, expanding by 1.5% q/q, surpassing market predictions of a 0.8% increase. This marks the second consecutive quarter of expansion and the fastest pace since 4Q2020. The growth was primarily driven by a positive impact from net trade, with exports rebounding (3.2%) and imports declining (-4.3%). However, government spending showed limited growth (0.1%), and capital expenditure remained unchanged after a 1.8% growth in the previous quarter. Private consumption, a significant part of the economy, contracted due to cost pressures (-0.5%).

China: China's industrial production growth slowed in July 2023, rising by 3.7% (June 2023: 4.4%) primarily due to weaker manufacturing and mining output. The first seven months of the year saw industrial output grow by 3.8%. On the labour market, the surveyed urban unemployment rate in China inched up to 5.3% in July (June 2023: 5.2%). The unemployment rate in major cities declined slightly to 5.4% from 5.5% in June. On monetary policy, the People’s Bank of China (PBOC) unexpectedly reduced the one-year medium-term lending facility (MLF) rates by 15 bps to 2.50%, aiming to support the economy amidst risk in the property market and weak consumer spending. This is the second rate cut this year after a 10 bps reduction in June.

Fixed Income

Global bonds: The stronger-than-expected US July retail sales (0.7% m/m vs. consensus 0.4% m/m) signalled US consumers’ resiliency in the wake of the Fed’s rate hike campaign and prompted UST yields to close mixed with 2Y was down 1 bps to 4.95% while 10Y climbed 2 bps to 4.21%, its highest level since November 2022. The UST market was also pressured by hawkish tone from Minneapolis Fed President Neel Kashkari’s (FOMC voter). In tandem, yields on Bund shifted higher by 3-4 bps. Ahead of UK’s July inflation data later today (consensus: 6.7% y/y, June: 7.9% y/y), Gilt market weakened with 10Y yield testing one-month high.

MYR Government Bonds: Tracking the upward trending yields from the global bond markets during previous day, local sovereign bond space saw yields climbing around 1 bps across the curve with some selling action led by foreign accounts as the Ringgit edged closer to 4.64 level.

MYR Corporate Bonds: Gainers in the PDS market outpaced losers alongside a higher trading volume of RM781 million, compared to the prior day’s volume of RM416 million. Among notable trades were RM50 million on 07/30 Sarawak Energy (AAA) paper done at 4.02% and RM80 million on 09/32 CIMB Group done at 4.19%.

Forex

US: Economic data released overnight were mixed in its effect on the US dollar, which pared early weakness to close marginally firmer. DXY is firm above the 103-level as markets mulled direction of the Fed after Minneapolis Fed President Kashkari said he's "not ready to say that we're done raising interest rates" and robust retail sales data.

Europe: Meanwhile, investors seeking the US dollar sent the euro weaker. There was support for euro after the German August ZEW expectations of economic growth unexpectedly rose to -12.3, or above expectations of -14.9. On the other hand, the GBP was supported ahead of UK CPI data to be released today.

Asia-Pacific: CNY fell yesterday as PBOC unexpectedly cut the 1-year medium term lending facility rate by 15 bps to 2.50%. China’s growth prospects took more hit as its industrial production and retail sales data released yesterday came below forecast. Industrial production was 3.7% y/y in July vs the 4.4% forecast and July retail sales were 2.5% vs 4.5% expectations. In Japan, the release of strong 2Q2023 GDP data at 6.0% y/y over forecast of about 3.0% meant support for JPY but overnight strong USD held USD/JPY above the 144-level and near YTD highs. AUD was supported after the Japan GDP reading and PBOC easing news.

MYR: The ringgit found lack of support as CNY fell on the PBOC easing and amid still strong dollar demand globally. MYR saw depreciation to above the 4.634 level. In addition, we think the MYR was also less supported ahead of this week’s 2Q2023 GDP and latest international trade data releases. There was some good news after EPF announced a rise of RM9.4 billion in its 1H2023 earnings to RM33.2 billion against the corresponding period a year before with RM4.8 billion generated from mark-to-market gains due to FX gains.

Other Markets

Gold: Gold weakened on the back of weak US retail sales data but found support above the USD1,900/oz level.

Crude Oil: Oil prices fell due to the fresh worries over global economic growth and demand for commodities. WTI price was testing lower towards the USD80 per barrel level.

FBM KLCI: Bursa Malaysia closed firm amid support for banking and utilities stocks. The KLCI index rose a marginal 3.3 points to end yesterday at 1,460 yesterday. Foreign investors were in support for KL stock as they were RM88 million net buyers yesterday.

US Equities: As UST yields test multi year highs, after US retail sales rose by better than expectations at 0.7%, US equities fell. The S&P 500 fell 1.2%, while the Dow Jones fell over 360 points, or 1.0%.

Source: AmInvest Research - 16 Aug 2023