Snapshot Summary…

Global FX: The DXY remained firm above 103.5-level as investors were cautious on “higher-for-longer” Fed narrative

Global Rates: UST closed mixed with 10Y yield reaching its 16-year high. Bearish sentiment as well along Gilts and Bunds

MYR Bonds: MGS/GII Market Saw Mixed Movements. Trading Volume in PDS Fell Amidst Cautious Mode

USD/MYR: Malaysian Ringgit Weakened to Reach a One-month Low Against USD

Macro News

United States: In the week ending 12th August, the number of Americans filing for unemployment benefits decreased by 11,000 to 239,000. Although still historically low, this figure showed a slight increase from recent lows in July, suggesting a potential softening in the US labour market. The four-week moving average, which smooths out weekly fluctuations, rose to 234,250 by August 12th. This data could influence the Federal Reserve's decision on monetary policy this year.

Japan: Japan's exports declined by 0.3% y/y to JPY 8,724.97 billion in July 2023, the first decrease since February 2021, reflecting weaker foreign demand from key markets. Notable declines were seen in electrical machinery, particularly semiconductors and ICs (-14.8% and -13.5% respectively). Manufacturing goods sales dropped by 2.7%, driven by iron and steel products (-4.9%) and chemical shipments (- 8.8%). However, transport equipment exports surged by 22.7%, led by motor vehicles and cars (28.2% and 32.6% respectively). Among trading partners, there were significant declines in exports to China, Hong Kong, Taiwan, South Korea, Malaysia, and Vietnam, while exports to the US, India, Russia, and Australia increased.

Australia: Australia's seasonally adjusted unemployment rate rose to 3.7% in July 2023, marking the highest level since April. The number of unemployed individuals increased by 35.6K to 54K, with those seeking full-time jobs rising by 21.9K and parttime job seekers increasing by 13.8K. The participation rate slightly decreased to 66.7%, while the underemployment rate remained unchanged at 6.4%.

Fixed Income

Global bonds: Still resilient labour market, reflected in the lower initial jobless claims reading suggested that the US Fed may push the Fed Funds Rate further to quell inflation. This is on top of the recent hawkish tone seen in the Fed’s July meeting minutes published on Wednesday night. The UST10Y yield closed higher at 4.27%, touching its highest level since 2007. However, the market is not convinced with Fed’s stance and currently pricing in no further rate hike for the rest of month in 2023. The UST2Y fell 4 bps to 4.93%. In Europe, the Bund and Gilt market closed weaker, with 10Y Bund yield rose 6 bps to 2.71% while 10Y Gilt climbed 10 bps to 4.75% as markets continue to expect both ECB and BoE to remain hawkish in their inflation fighting task.

MYR Government Bonds: Local MGS/GII yields closed mixed with long end of the curve i.e., 15Y-20Y was supported while other parts of the curve were pressured on lingering fear of “higher-for-longer” US Fed narrative. By the end of the session 10Y yield rose 1 bps to 3.89%.

MYR Corporate Bonds: We noticed volume traded in the PDS market dwindled to RM496 million as market players were cautious. The 10/27 F&N Capital (AAA) made its debut on RM10 million and closed the day at 4.11%. Other notable trades include RM120 million on 07/34 Danainfra Nasional (GG) done at 4.00% and RM45 million on 03/33 YTL Power (AA1) done at 4.47%.

Forex

US: The US dollar held firm overnight at above 103.50 late in the US trading session as UST yields briefly touched above 4.30%. After markets read reference of inflationary pressures in the FOMC minutes, the 30Y yield tested last year’s high of 4.43%. Decline in weekly jobless claims, reflecting a tight labour market, added to the dollar strength.

Europe: Meanwhile, the EUR continued to lose out against the USD. Bank of Latvia Governor and ECB council member Martins Kazaks said any additional interest rate increases from not "would be small". GBP fared better against the USD, seen above 1.274. This week's UK data includes firm employment and wages, as well as strong core inflation figures

Asia-Pacific: CNY pared losses to fall below 7.300 overnight aided by news of China's state banks selling of USD. However, risks against CNY persist, in our view, after this week's rate cuts, and real estate and banking sector troubles, including asset trust manager Zhongrong International Trust missing payments on its investment products. The USD/JPY pair retreated from weekly highs of about 146.5-level to hover near 145.82 overnight. However, JPY support at below 145.5 was still lacking, induced by current surge in US yields and weak Japanese data yesterday - imports fell 13.5% in July. In Australia, the unemployment rate rose to a 3-month high of 3.7%. AUD/USD closed at 0.640, down 0.3%.

MYR: The ringgit fell yesterday due to rising expectations of higher-for-longer US interest rates after the prior day's release of the FOMC meeting minutes. At the same time, we view that should the GDP number comes below market expectations coupled with narrowing current account surplus, short-term uncertainties on the ringgit may persists as we get closer to the next US Fed meeting. USD/MYR was near 4.654 at KL closing yesterday, reaching its one-month high.

Other Markets

Gold: Gold prices continued to fall and was down 0.1% during yesterday’s session amid the US dollar surge and elevated global yields.

Crude Oil: Oil price rose after falling for three straight sessions following PBoC’s vow on more stimulus deployment to aid recovery in the domestic economy. Brent rose 0.8% to USD84 per barrel while WTI climbed 1.3%.

FBM KLCI: Malaysia's FBM KLCI fell 1.1% yesterday amid risk-averse sentiment in global markets but also partly driven by anticipation of slower 2Q2023 GDP growth, to be released today. Foreign investors were net sellers of MYR88.7 million shares yesterday.

US Equities: US stock market fell on Thursday as UST yields surged, aided by the Labor Department report of lower-than-expected initial jobless claims of 239K or just below consensus. Dow Jones fell 0.8%, S&P500 dipped 0.8% and Nasdaq fell 1.2%.

Source: AmInvest Research - 18 Aug 2023