Snapshot Summary…

Global FX: The DXY Was on the Upside Following the Release of Fed’s Hawkish Meeting Minutes

Global Rates: UST Market Was Pressured Alongside Weaker Gilt Market. Bund, However, Rallied

MYR Bonds: Bargain Hunter Supported MGS/GII Market But Remained Weak by the End of the Session

USD/MYR: Malaysian Ringgit Strengthened But Cautious Remained Ahead of 2Q2023 GDP

Macro News

United States: Based on the latest minutes of the Federal Open Market Committee (FOMC), policymakers expressed concerns about the pace of inflation and indicated that more rate hikes might be necessary unless conditions change. Discussions revealed that most members are worried about ongoing inflation challenges and believe that additional tightening measures might be needed due to significant upside risks to inflation and a tight labour market.

Euro Area: The Eurozone economy grew by 0.3% in 2Q2023, following a flat growth in 1Q2023. Demand recovery was likely supported by reduced inflationary pressures, but higher interest rates and weakened confidence continued to affect the economy. France and Spain showed steady growth (0.5% and 0.4% respectively), while Germany's economy stalled, and Italy contracted by 0.3%.

United Kingdom: Consumer price inflation in the UK decreased to 6.8% in July 2023 from 7.9% in June, the lowest since February 2022. This drop was mainly attributed to the decline in fuel prices. The core rate, which excludes volatile items, remained at 6.9%, still above the Bank of England's target. The decline was driven by lower transport prices, particularly a significant drop in fuel costs. Other categories like food, household goods, and recreation also contributed to the lower reading. On a monthly basis, consumer prices fell by 0.4%.

China: In July 2023, average new home prices in China's major cities fell by 0.1% year-on-year, marking the fifth such decline this year due to a prolonged property crisis and economic challenges. Notable price decreases were observed in cities like Shenzhen and Guangzhou, while prices continued to rise in cities such as Beijing and Shanghai. On a monthly basis, new home prices dropped by 0.2%. Despite government efforts to support the property sector, including financial aid for developers and incentives for home buyers, consumer spending remains weak, impacting the housing market's recovery.

Fixed Income

Global bonds: The UST market bear-steepened overnight following the release of Fed’s July meeting minutes which showed that most policymakers continued to see “upside risks” to inflation possibly leading to more rate hikes in the future. In addition, the market was also pressured by better industrial production readings which grew 1.0% m/m in July 2023 after two months of contraction (consensus: +0.3% m/m). Nonetheless, markets are still pricing in no rate hike throughout the rest of the months in 2023, according to the CME FedWatch tools. Over in Europe, the easing headline inflation data in the UK provided some relief but still high core inflation sent Gilt yields higher by 5-6 bps across the curve. In contrast, Bund market rallied amidst reports saying there are progress between workers and LNG producers in Australia, abating the inflation concerns in Europe.

MYR Government Bonds: In the local bond space, MGS/GII bargain hunters were seen along short ends and belly part of the yield curve after local bond prices have cheapened week-to-date. A good mix of both local and foreign accounts were buyer for the 3Y – 5Y benchmark as the Ringgit recovered to below 4.63 level against the greenback. But by the end of the session, MGS 10Y yield inched higher 0.4 bps to 3.87%.

MYR Corporate Bonds: In the PDS market, we saw more bullish trade rather than bearish on higher trade volume of RM907 million compared to RM781 million in the prior day. Among notable trades were RM100 million on 04/25 Cagamas (AAA) done at 3.69% and RM10 million on 01/30 Edra Energy (AA3) done at 4.37%.

Forex

US: The US dollar continued to strengthen, and the appreciation was due to the hawkish FOMC minutes. The dollar index rose 0.2% to 103.43. Dollar also received safe haven demand due to sustained global economic risks, especially emanating from China.

Europe: Euro level fell amid the hawkish Fed vis-à-vis uncertainties over ECB direction. The currency dipped 0.2% to 1.088. However, GBP still showed strength as BOE outlook remained for a hike this year, after UK inflation rose 6.8% y/y in July, the same as market expectations.

Asia-Pacific: CNY continued to struggle. Fresh data showed China's July House Prices fell 0.1% y/y (June: 0.0%). Cautious mode before the FOMC minutes while PBOC cutting lending rates this week pressured the CNY. Australian dollar also fell yesterday amid the CNY weakness. Furthermore, JPY also fell as the dollar firmed. The uncertainties that Japanese authorities will intervene to support JPY as it hit 145- level could mean lack of supports for the JPY. Last year in September and October, at 145 USD/JPY, Japanese authorities stepped in to sell dollars. However, Reuters said Finance Minister Shun'ichi Suzuki indicated that authorities were not targeting specific JPY levels.

MYR: As some Asian FX firmed yesterday, such as Thai baht and Korean Won, ringgit followed the trend and managed to post decent gains. The currency weakened during the Tokyo session but pared its losses and strengthened during the UK session. There remains a hint of caution for MYR trading ahead of 2Q2023 GDP release this week, where consensus is for a 3.6% y/y growth vs 5.6% prior quarter.

Other Markets

Gold: Gold Fell 0.5% to USD1,892/oz Amid the Rise in UST Yields and the US Dollar Remained Firm.

Crude Oil: Crude oil price fell as markets raised concerns that the Fed may not be done hiking interest rates. Brent dropped 1.7% while WTI shed 2.0%.

FBM KLCI: Malaysian equities closed firm yesterday despite regional markets being pressured due to the risk-off sentiment. KLCI rose a small 3.23 points to 1,463, aided by interest in banking and utilities companies. Foreign investors were net buyers of RM106 million Malaysian stocks yesterday.

US Equities: US equities fell as UST yields reached multi-year highs due to fears over an incoming Fed hike amid risks of returning inflation. The S&P 500 fell 0.8% and the Dow was down 0.5% overnight.

Source: AmInvest Research - 17 Aug 2023